Interview #82 : Peter Smith (Palm Harbour Capital)
Interview #82 : Peter Smith (Palm Harbour Capital)
Research-driven, fundamental, long-term value investors.
For this issue we have the pleasure of interviewing Peter Smith, Founder and Chief Investment Officer of Palm Harbour Capital.
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Read the last two editions with Roger Fan (RF Capital Management) and Tom Bachrach (PFH Capital) ➡️
Hi Peter, thanks so much for taking the time out to do this interview.
Can you please tell readers about your background, and how you got involved in investing?
Yes sure, first thanks for the invitation for this discussion. We really enjoy your website.
Unlike Warren Buffet, I did not start buying stocks as a kid. However, in high school in Dallas, Texas, I took an economics class in which we learned about the stock market and compound interest, which I was completely fascinated by plus it was the late 90s internet bubble so you couldn’t get away from people talking about the stock market. Of course, I saw how that ended, which probably was an early influence on my value philosophy.
As I finished high school, I took money from selling virtual property in an online computer game and used it to backpack through Europe. This was an eye-opening experience and the genesis of my interest in Europe. Because of that trip, I spent a year of university in Germany and found a job with a German bank in Frankfurt.
After university I found a place on the equity desk, and worked in sales and research. This fit perfectly with my interest in the stock market, but after a short time, I felt the banks had too many conflicts of interest with their clients and too little interest in taking responsibility for their investment advice. I wanted to move to the buyside.
Since this was around the financial crisis it was very difficult to move jobs – let alone make a big move from a bank to a fund. I got my CFA and followed great investors. I read all that I could on Warren Buffet, Seth Klarman, Joel Greenblatt and others.
As I was primarily in the European markets, I tried to find great investors in Europe. This is when I first learned of Mr. García Paramés. I found that all these investors shared a similar philosophy.
As the job market was quite tough and breaking into the buyside difficult, I decided to use business school to make the switch.
As I wanted to focus on investing in Europe, I chose London Business School, as there was a value investing program there taught by Eddie Ramsden who had earlier taken the MBA program at Columbia, where Ben Graham taught and Warren Buffett studied, and there was a well-run value investing course there.
Eddie was seeded into business by Joel Greenblatt and had taught at Columbia’s value investing course. He then returned to his native England and set up the course at LBS. The course really changed how I thought about investing and particularly the importance of a well-thought out process and deep research.
As I went to LBS, I read every book on investing in the library. I studied the portfolios of all the great value investors, trying to figure out their thesis on companies.
I researched company after company and wrote many investment recommendations. I interviewed at many fund houses, but none of them really shared my philosophy and many had big institutional constraints and bureaucracy which makes serious investing difficult.
I became disillusioned with much of the fund industry as they just wanted to grow assets and stick to strict mandates and I felt they cared less about returns for their clients. They were almost as bad as the banks in prioritizing fees and not investment performance.
I realized the value investing professor Eddie had done well to find a super star investor to back him and let him build his own portfolio and track record. I thought that I could do the same thing.
I started looking for potential seeders at family offices and wrote letters to many top investors. As I did this, a colleague at London Business School arranged for us to meet Mr. García Paramés.
Long story short, I pitched him several stocks and then the idea of funding me, which must have seemed a bit funny, as he had just met me. Fast forward a couple of years, I had stayed in contact and kept sending him investment ideas and met a couple times to discuss stock ideas.
Eventually he asked if I wanted to be an analyst at a new firm that he was setting up. I said, no, I would like to start a fund. He laughed and offered me a seat at Cobas to get to know each other better. So that is what I did.
I finally got to work for someone that I admired and who shared my investment philosophy and investment process. I had a real mentor and he helped me start Palm Harbour Capital.
What type of businesses do you like to invest in?
Well, I would like to invest in monopolies with high margins, high free cash conversion, low capex with endless high return growth projects but I haven’t found many of them and I guess if I did, they wouldn’t be cheap.
Let’s start with what we don’t invest in. Those are usually things that are overly complex, opaque, impossible to predict, highly levered or in areas where I find difficult to value, such as companies whose equity story is reliant on M&A. We therefore stay away from things like biotech and most financials.