During the month of May, participants of EADA’s International Master in Finance had the option to attend the Value Investing course taught by visiting lecturer Alirio Sendrea, CFA. The course was one of 12 electives in three areas (corporate finance, investment banking and FinTech) offered during the strategic specialisations in the third trimester of the Finance programme.
Mr Sendrea, CFA, is the Head of Research at Invexcel Patrimonio, a multi‐family office based in Madrid, Spain. The aim of his team is to use a thorough fundamental research method to find attractive long‐term investment opportunities in European equities, where many investors feel discomfort. He also engages in valuation and financial analysis projects in private markets. Mr Sendrea has more than 17 years of experience in Financial Analysis, Valuations, Investment Advisory, Auditing, Restructuring and Treasury, working with entrepreneurial families and leading global companies such as Barclays, KPMG, The Procter & Gamble Company and Deloitte.
While he defines himself as a generalist buy‐side equity investor, he has hands‐on experience in Financial Services, Shipping, Information Services, Alcoholic Beverages and Business Services. Mr Sendrea has been a CFA Charterholder since 2014 and a Certified Advisor since 2018. He completed the Enterprise Valuation Program at Instituto de Estudios Bursátiles (Madrid, Spain) and holds a bachelor’s degree in Accounting from the Universidad Central de Venezuela (Caracas, Venezuela). Passionate for learning, he is a member of MOI Global, an international invitation‐only community of value‐oriented investors.
In this interview, Mr Sendrea talks about Value Investing’s current affairs and his expectations.
What is most rewarding about value investing? And the most challenging?
Value Investing is a discipline that recognises that value and price are two different concepts. Value investors then try to exploit that difference. The most rewarding side is that you sleep far better when you take investment decisions based on a thorough analysis of fundamentals, that helps to fulfil the fiduciary duty we have with our clients as investment professionals. The challenge is that it often takes time for an equity story to develop, and in periods of market exuberance you need a strong stomach to swim against the tide.
What attracted you to the field of value investing?
In a single word: rationality. The first investing book I read was The Intelligent Investor by Ben Graham, the father of Value Investing. It captured me with the allegory to “Mr. Market”, a manic-depressive guy who repeatedly places sell or buy orders depending on its very pessimistic or highly optimistic mood of the day. Look at the charts lately, Mr. Market is fully alive!
What skills and/or qualities are important for a value investor to have?
The most obvious is a set of strong analytical skills. But a value investor needs to go far beyond that, needing an enhanced thinking process, seeing business topics from different angles, being constantly hungry for learning, and thinking prospectively. As Walter Gretzky, the famous hockey player said: “skate to where the puck is going, not where it has been”. On top of that, a value investor needs a strong mindset to deliver, conviction to go against the trend, patience to see fundamentals develop, and humility to accept and learn form mistakes.
How do you keep up in a market that is reacting to good and bad news?
I don’t understand those who see volatility as a risk; if they need stable prices, why on earth would they invest in equities? But this serves us up great investment opportunities, by which I mean the chance to buy low and sell high. I think the market is highly efficient in the long term, but it’s a poor short term value appraiser. It is emotions and not fundamentals that drive daily quote reactions.
As investors become more savvy, do you think we will see an increase or a decrease in valuation gaps in the upcoming years?
This is a really good question. I’ve been contemplating and discussing with my colleagues in Invexcel about what’s been happening in the financial markets lately, and also what happened in previous centuries! There’s no doubt that information is much more accessible than in the past; data is now a commodity. Furthermore, technology has made data analysis easier and cheaper. However, the human component is still there; our emotions continue leading us to overreaction and other inefficiencies that we still see in the market. Additionally, there are technical factors that provide opportunities in certain pockets, like the raise of passive investing to name one, which up to certain point, is some sort of dummy money that invests in what goes up and sells what goes down. We no longer live in the days of Ben Graham, that’s true, but there are still opportunities for those eager to look beyond the fashion; and I believe there will continue to be so in the future, unless humans, including the algorithms they design, stop behaving like humans!
Who do you admire most professionally? Why?
I come from a family and neighbouring environment of immigrants, people like my grandparents, my father-in-law, and many others that left Europe with little more than what they carried in their suitcase several decades ago. Without a formal education, but tons of hard work, wit and resilience, they built their projects and made a living. Those many unsung heroes are the ones I most admire. Maybe because of those characteristics, if you ask me to name a single entrepreneur I would answer Amancio Ortega, the Spaniard who conquer the world’s fashion retail out of a sewing workshop in his home town.
How has your professional experience informed what you teach at EADA?
I’ve been working the last six years for a family that oversees its own wealth and that of other close families and friends. Coming from an entrepreneurial background, with a wealth made on years of work and not short-term luck or speculation, common sense investing is the way in our firm. We avoid what is fancy, hence expensive, and invest in what is overlooked and cheap. Of course, we do our homework, and devote many hours to understanding the fundamentals of the markets, industries and companies. Previously, I worked in banking and as an auditor, which was a great opportunity to gain first-hand knowledge of the fundamentals of different industries.
What is most rewarding part of teaching young professionals about to launch their careers in finance?
I had a privileged access to education and many other opportunities that are not so easily available to the great majority of people in this world. So, this is a chance to give back to society. We, the CFA Charterholders, have a strong commitment with education and EADA Business School is part of our worldwide University Affiliation program. No better match! To me this is also an opportunity to learn from EADA’s eager students.
What do you know now that you wish somebody had told you when you started your career in finance?
The magic of compounding! I would had begun to invest far earlier. But it also applies to learning. I’ve become a more avid reader year after year. I enjoy learning about a wide variety of topics, some which could even seem far from investing. I’ve figured out that a broader background helps to be a better investor; it allows you to see things from different angles, beyond the obvious.
Any book recommendations?
The classic of Benjamin Graham, The Intelligent Investor, is certainly a must. I recommend the last edition commented by Jason Zweig as it includes more recent illustrations. Capital Returns, which is a compilation of letters of Marathon Asset Management edited by Edward Chancellor is very illustrative too. The Most Important Thing from Howard Marks is a fresh reading of a compilation of his own famous Oaktree Memos.
I’d also recommend John Mihaljevic’s The Manual of Ideas, a compilation of John’s conversations along many years with top value investors around the world that he has gathered in the MOI Global community. Last but not least, I strongly recommend the last edition of Value Investing from professors Bruce C. Greenwald, Judd Kahn, Erin Bellissimo, Mark A. Cooper and Tano Santos, which provides a very useful update to current affairs in Value Investing.