Interview #97 : Jake Barfield (Asheville Capital)
Interview #97 : Jake Barfield (Asheville Capital)
Investing in world-class businesses
For this issue we have the pleasure of interviewing Jake Barfield from Asheville Capital Management.
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Hi Jake, 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?
Jon, thank you for having me on! It is a real pleasure to do this interview.
My journey into investing has been a rather circuitous route, and not one that anybody likely could have predicted.
I grew up in North Carolina with a father who was a math teacher and a mother who was a medical device salesperson. Neither had completed a four-year degree, yet they achieved a modest degree of success. We were squarely in the middle-class.
Unlike so many professional investors today, I never learned about budgeting or investing at a young age. Likely because these were foreign ideas even to my parents. I didn’t know it at the time but lifestyle creep was the pattern of the day within our family. Every increase in our household income led to proportionate increases in our family’s expenses and overall indebtedness.
This all came to an abrupt halt halfway through my sophomore year of college. I was 20 years old, attending Western Carolina University, majoring in nutrition of all things, when I got a call from my dad telling me that he and my mom were divorcing. Not only that, but their finances were in ruin and I would have to find a way to pay for my own education going forward.
I decided therefore to enlist in the Army National Guard as a Military Police Soldier. I had always wanted to serve my country, but the promise of the Army paying for my college education was what really sealed the deal. Within a few months of that phone call from my dad, my bags were packed and I was shipped off to basic training at Fort Leonard Wood, Missouri.
While in training, I discovered that I had about four hours of free time available to me each evening after I had completed training and before lights out. There were only four options available to me for how to use this time: cleaning my weapon, exercising, mopping the floors, or reading. I chose to read the vast majority of those hours.
And read I did; starting with a half dozen personal finance books. I was highly motivated not to repeat the same mistakes that my parents had made with their own finances, and so this was a natural topic for me to gravitate towards at first. But my interests quickly evolved as I learned about, and became enamored with the power of compounding.
This led me, of course, towards investing books. One of the first investing books that I ever read was Guy Spier’s The Education of a Value Investor. At the end of that book, there is a bibliography and a list of more than 100 books from Guy’s personal library.
I began to read through this list as quickly as I could reading dozens of investing books until one day I came across this Warren Buffett quote, where he said that the most important thing that he learned while in university was accounting. So I began reading accounting textbooks as the final avenue of my exploration while at Fort Leonard Wood.
By the end of my training, which took roughly ten months, I graduated towards the top of my class, finishing second out of more than 130 soldiers that had begun the cycle, but I had also read nearly 70 books (at a rate of about 1.5 books per week) almost all of which had been finance related.
Following graduation from my Army training, I returned to Western Carolina as a reservist. I switched my major to Finance and skated through my accounting classes, completing my first ever 4.0 GPA semester.
I also befriended several of the professors there, one of whom (Ken Flynt, a man that I am forever grateful to have known) pulled every string that he had to get me an internship for a tiny little investment bank in Manhattan.
I loved the work during my internship, but I also decided that buy-side investing was where I wanted to be long-term.
So I began the CFA program and also entered graduate school in order to apply my energy towards that goal. While in graduate school at Boston College, I befriended another professor, Arvind Navaratnam, who invited me to join a select group of students that studied some of the most successful stocks of all time.
We each spent months studying our own assigned companies and met up weekly to discuss what we had learned. This was an incredibly rich learning environment that not only accelerated my learning curve, but also gained me a couple of lifelong friendships that I cherish to this day.
After graduating from Boston College, I went to work for Nine Ten Capital, a concentrated public equity hedge fund that focuses on small-cap domestic stocks.
I worked there for three years, and then for Bares Capital Management for another year before leaving to launch my own investment advisory business, Asheville Capital Management.
In recounting this, I can’t help but feel like I have entered this industry by the skin of my teeth.
I would be nowhere today if not for the supreme kindness of my professors and mentors who have taught me, encouraged me, and opened doors for me at each step of the journey. Somehow, someway, I have learned to stand on my own two feet over the years.
What type of businesses do you like to invest in?
At Asheville Capital I invest in what I refer to as world-class businesses before they are broadly appreciated as such. That is my motto and it also is my bar.
Businesses must first be world-class, meaning that they must present strong, durable competitive advantages with long runways for the redeployment of capital at high incremental returns.
Most companies don’t have clearly identifiable competitive advantages and are a quick pass for me, but for those that remain, they must then be not broadly appreciated as such, meaning that the expectations implied by their current stock price must be well south of what I believe to be achievable.
Asymmetry is the name of the game with the first goal being the protection of capital from a long-term downside scenario, while retaining an uncapped upside that should produce sustainable compounding above the benchmark over a full capital market cycle and beyond.
You like to identify these businesses early. How do you find these companies before the institutional investors spot them?
I am not opposed to owning large-cap or even mega-cap companies. Many of these businesses have clearly defined competitive advantages that have allowed them to achieve incredible scale. But these moats are highly recognizable today and the runway for reinvestment behind those moats are, in most cases, depleted.