Four short months ago, Artio was discussed on this site as a potential value investment. As the stock continued to fall, three short months ago I tweeted the following:
"Cash-flow positive money-manager Artio now trades for LESS than its net cash and investments"
One short day ago, Artio accepted an offer to be bought out for almost 15% more than its book value, which is about 50% higher than where it was trading at the time of the tweet. This was a kind of situation from which only a value investor could make money, thus offering a few lessons.
1) Assets Matter
Artio's business was going nowhere. Profits were barely postive, as clients continued to withdraw money and lose money due to poor financial performance. But what Artio did have was assets, which Mr. Market in his quest for earnings consistently ignores. Following the article in which I stressed Artio's liquid assets which were in excess of the company's market value, here is a sample of some of the comments I received:
"Is this not cash that investors can withdraw at short notice, if so it is pointless considering it as an asset."
"Declining AUM and according to their strategy in the international equity fund I don't believe it will produce great return"
"Any idea on what a catalyst might be for...a return to profitability?"
2) Falling Knives are okay!
Artio's business was performing poorly, but it's share price was falling even faster. Considering its assets were staying relatively stable, this resulted in a continually improving valuation. Mainstream investors avoid situations where price is falling, but to me it is because they are mistaking price for value. Artio's value was not falling at nearly the rate as was its price, and therefore investors willing to catch this falling knife made out like bandits in a very short time period.
3) You Don't Need A Catalyst
Once a catalyst is present, the value is mostly gone. At the same time, sometimes price is its own catalyst. If you focus on buying a business for less than its worth, you remove a lot of the subjectivity and risks inherent in buying securities with potential catalysts.
Artio becomes the latest company to join the Value In Action page. Enjoy the market's rise; it won't last forever!
Disclosure: No position