John Zemanovich dines out the Warren Buffett way
raveninvestment.com
Wednesday, December 20, 2000 (TORONTO) It's Wednesday and the stock market is in a tailspin, the Nasdaq composite hitting new 52-week lows as technophobia runs amok. But when we meet John Zemanovich at Curiosity on Bloor Street West in Toronto's trendy Annex neighbourhood, he's all smiles: Berkshire Hathaway Inc., the holding company headed by his hero, Warren Buffett, has just bought building products company Johns Manville Corp. for US$2.1-billion.
Zemanovich, the antithesis of the Nasdaq day trader, owns lots of Berkshire stock (BRK/NYSE) -- both the A shares, which are trading around US$67,000, and the lower-priced B shares -- and Buffett can do no wrong. While Zemanovich orders a Coke -- Buffett just about lives on Cherry Coke -- and Lunch Money a mineral water, he rattles off the salient points and numbers of the "brilliant" Johns Manville deal.
At 33, the president of Oakville, Ont.-based Raven Investment Management Ltd., which also operates in the British Virgin Islands, has a very old and disciplined head on his young shoulders. He has studied Omaha billionaire Buffett's value-investing style and applies the lessons meticulously to the way he manages his and his clients' portfolios.
Zemanovich is little known on Bay Street, but he's certain that in "five or 10 years" he'll be "a known commodity in Canada."
Curiosity is an unknown commodity to Lunch Money, off our beaten track. But it turns out to be well worth going the extra distance. It has been open just over a month and is the labour of love of a friend of Zemanovich's, Christian Sommerhalder, who spent 18 months building the inviting café-restaurant with his own two hands.
We both order the salad of field greens and a pasta special, the penne with marinated grilled tenderloin in a sundried tomato sauce. Both are excellent and the price, at $4 for the salad and $10 for the pasta, is right.
To which Zemanovich and other Buffetteers would echo Warren Buffett by saying: "Price is what you pay. Value is what you get."
Well, we're getting value on this day at Curiosity, with value-added commentary from Zemanovich. Indeed, Buffett was considered something of a curiosity himself less than a year ago when the Old Economy Berkshire stock was sinking fast as the technobubble inflated. Some commentators went so far as to say that Buffett was yesterday's man, a has-been who just didn't get it -- "it" being the ascendancy of the new paradigm Net-related stocks that would forever change the world and the stock market.
So, that's why, nine months after Berkshire stock was cut in half, only to recover spectacularly, Zemanovich is smiling. He accelerated his buying of Berkshire as the stock fell from a high of US$84,000 to near US$40,000.
"In the past two years, Berkshire presented a final exam for investors," he says. "Those who sold Berkshire failed the exam."
"People don't want to buy something that's going down," even if it's a "perpetual cash machine" like Berkshire.
In fact, Zemanovich is so focused that besides Berkshire, he personally owns only two other stocks: Fairfax Financial Holdings Ltd. and Liquidation World Inc.
Toronto-based financial services holding company Fairfax (FFH/ TSE), headed by Buffetteer Prem Watsa, has been described as a "Berkshire wannabe" or even "Berkshire Lite." Zemanovich began buying a couple of months ago when the stock was trading at less than book value around $160 after hitting $605 almost two years ago. It closed yesterday at $233.70.
Zemanovich says Fairfax presented such good value that he had to buy. He may not hold on to it for a lifetime, as with Berkshire, but for now it's a keeper.
Calgary-based Liquidation World (LQW/TSE), which markets merchandise from distress situations such as bankruptcies, is the kind of business that would catch Warren Buffett's eye, Zemanovich says. It is trading at $4.85 for a stingy forward price-earnings multiple of 6.5 and only about six times cash flow.
For the past 13 years, Liquidation World has increased net income at an annual rate of more than 50%. And with the North American economy slowing sharply, there should be no shortage of distress merchandise to sell.
"If I had the money, I'd buy the whole company," Zemanovich says, adding he believes that somebody with the $40-million the purchase would cost at the current market price might just be tempted to buy such a sound business.
"The key to making money in the stock market is understanding the business you're buying and knowing where it's going. Then you can figure out what the company is worth.
"Joe Blow will spend 10 hours reading about the latest SUV to see if it's the best buy. But he'll buy a stock on his buddy's say-so."
Zemanovich acknowledges he had two good role models -- Warren Buffett, of course, and his father, a Montreal-based educator. Zemanovich earned a degree in psychology and got into the investment business at a young age because he became "responsible" for looking after some money. He did some reading and concluded that the Warren Buffett way was the right path for an investor to follow, and subsequently has variously worked as a stock trader and an investment advisor on his way to the stewardship of his own small company.
At Curiosity, Zemanovich stands out as a bit of curiosity himself, a young man who has steeped himself in some old-fashioned ways of investment thinking. An old head on young shoulders, indeed. |
