Q&A: Management Consultant and Value Investor

MJ Woods's picture
Rank: Orangutan | 303

Dear WSO,

I'm more than happy to help any WSO'ers with perspectives on management consulting, renewable energy, agriculture, value investing, and life in the Midwest. And in return, I expect to learn from you.

My background:

  • I'm a 20-year management and economic/financial consulting veteran that got started in 1993 as an associate with Putnam, Hayes & Bartlett in their Palo Alto Office.
  • Spent time in various industry functions over the next 15 years from GIS software product marketing, to acquisition work of development rights on 1,500 acres of ground ($100 MM) in a wine growing region of California, to managing a portfolio of agriculture, energy, entertainment, transportation and other clients, including a proposed $300 million biome that received $50 million in federal funds after a move to Iowa in 2003 for a former spouse entering academia.
  • Tired of selling great and mundane ideas and concepts to business owners for pennies on the dollar (my hourly/monthly retainer billing model), I decided to bone up on the leading thinkers of value and behavioral investing (2015-2017) and change my focus to investing and capital allocation. Some hedge fund market research work for a West Coast activist investor in the EV space during this time blew my mind about how Elon Musk is changing the world.
  • Along the way, I have expanded my international business focus to include China, India, Israel and Africa. In 2016, I spent 10 days in Israel with a delegation from my home city of West Des Moines, looking to bring Israeli technology to the United States and more specifically the low cost, high quality of life offered by the Midwest. I continue to pursue this international business development work on the side.
  • This year I'm looking to expand my focus on professional investing by finding a team of investors where I can find inspiration and new challenges. This may include an endowment, a foundation, a family office, an activist hedge fund, or a VC/PE shop. Mission, impact, ESG and sustainability are themes of interest in an increasingly globalized world facing climate change.

That's a quick thumbnail through 53 years on this planet with some scars to show, some unexpected turns included, and two beautiful children.

Hometown is Wayland MA, went to school at Williams College (go Ephs, class of '87) and later Yale for an MBA and an MEM (master's of environmental management).

Thanks in advance!

-JMN

Comments (23)

Apr 24, 2018

Welcome and go Ephs ('02)!

Can you explain what this means?

I decided to bone up on the leading thinkers of value and behavioral investing (2015-2017) and change my focus to investing and capital allocation

...and how that is related to the part about Musk?

Thanks!
Patrick

Apr 25, 2018

Consulting to me is about selling ideas to companies, and the value is only captured once. Investing is about allocating capital and resources to companies that can compound capital at high rates of return. Value investing is a form of investing founded by Ben Graham at the time of the Depression and then refined by Warren Buffett with the help of his #2, Charlie Munger. I practice value investing and look for opportunities to apply the principals of behavioral finance to spot companies that are "on sale."

Elon Musk is revolutionizing through his company Tesla how we will move people and goods and services around the world. His vision for autonomously driven electric vehicles, battery walls in homes, solar roofs, etc. will change how we produce and distribute our energy, to how and what we will grow for food, fiber and fuel. Who will be the beneficiaries of this change in the corporate world both domestically and internationally? That's what's exciting about investing and capital allocation. Where do you put your money? It amazes me how little attention Wall Streeters pay to how they invest their hard won savings vs. how much they bring in each year in the form of salary and bonus.

    • 3
    • 1
Apr 25, 2018

Excellent post man.I want to ask two questions:

1-You mentioned Elon Musk as someone who will revolutionize the future. Is there anyone else you know who can do the same?

2-You also said that you expanded your business to international field.Do you intends to go to other countries than those listed?

(Sorry by any mistakes on my english).

    • 1
Apr 25, 2018

Hey Friend-
Thank you for the complement.
1) Sure. Besides Musk, there are others. They won't necessarily impact in the same way as Musk, but people like Bezos (Amazon), Ma Hauteng (Tencent, Hong Kong), Reed Hastings (Netflix), are changing the way economies and industries do business. It's exciting and potentially profitable to spot these game changers before they are identified by the mainstream media.
2) The countries I mentioned are examples, but not exhaustive of what and where I would like to develop new business. India and China are large population countries that will have global economies we will need to interface with in the years ahead. Israel with a population of 8 million is among the smallest but most technically sophisticated in the world. That technology as it's adapted around the world can lead to productivity gains and wealth creation. Africa is one of the fastest growing regions of the world and african nations are beginning to learn to work with one another as the states do here in the U.S. or the nations of the European Union (although there are cracks there).

    • 4
    • 1
Apr 25, 2018

Thanks for answer.

Apr 25, 2018

I love this post. You have a very interesting and varied background, both professionally and educationally. I was wondering if you could speak more to your graduate education. Did you do the MBA and MEM jointly or did one follow another? What has the role and value been of the MEM to your career progression?

Also, are there any particular themes that have peaked your interest in the environment and sustainability? e.g. global food crisis, renewable energy, the oceans etc.

Apr 25, 2018

Thank you, Grandpa.
The MBA and MEM programs were offered by done concurrently over a three year period. I had to apply and get into each program.

The experience taught me not only about content, but culture and "otherness." Each school had its own distinct culture, what one fellow student once referred to me as the "penny loafers" and the "birkenstocks".

There were a half dozen of us joint degree students at the time, and one thing I noticed was that each culture viewed me as "other". So, when I was with my B-school classmates I was a "Forestry" student and vice versa.

We see this in our institutions today. If you want to cross the aisle or the boundary line, you a) have to have thick skin; and b) be prepared to walk a sometimes lonely path. You need to be resolute in your convictions, which by the way helps in business and investing.

As far as themes, you hit on a couple of them. Ocean health which is closely tied to climate, and food which is interconnected with renewable bio-based fuels, bio-based chemicals, and climate change, such as when we encourage deforestation of tropical rainforests via our energy policies.

Interestingly, the Yale Forestry School has its origins in natural resource management. It was founded by Gifford Pinchot who graduated from Yale and was disappointed that there wasn't a school of forestry in this country at the time. So, he went to Europe, learned and came back to the States and asked his parent and the Yale Trustees to start such a school to counter the radical deforestation that was happening at the time in the U.S.

Along the way, he became good friends with Harvard's Teddy Roosevelt, and after a wrestling and boxing match they became fast friends, and later Pinchot was one of Roosevelt's closest advisors. Pinchot invented the US Forest service and used the Yale FES to populate its early ranks. And Aldo Leopold, a scion of the US environmental movement, father of the land ethic, was one of the school's first graduates.

Pinchot and Muir would battle over the fate of the Hetch-Hetchy Reservoir. Emerson, Muir, Pinchot and Henry David Thoreau were the early torch bearers of the environmental movement. Much of that history has been forgotten but it merits revisiting. I use my MEM training to this today. It informs my views of the world and how our systems are all interconnected. Here in Iowa we are needing to learn some of the lessons I learned back in school about soil science, aquatic chemistry, natural resource management, and applying some of the business school concepts of probability, decision analysis, and finance to understand how we better manage one of the most productive agricultural regions in the World!

    • 3
Apr 26, 2018

Thanks for doing this. Just wanted clarity on your last point there about professional investing. Are you looking to serve professional investors that are aligned with your viewpoint and provide value, or are you looking to set up your own fund?

How do you find your progress to the international trips you've made? Are the folks you meet in Israel, Asia etc. interested in working with you on similar ideas in their countries or in the US? Just curious about how these meetings lead into actionable outcomes.

Thanks!

    • 1
Apr 26, 2018

Grind,
Thanks for your questions.
1) More the former with a long-term, Buffett style orientation to investing-find great companies with superior managers, margins, moats, and a margin of safety
2) I manage money own 7-figure retirement portfolio, but longer term I see managing a fund (ideally 20 or less limited partners) that includes an impact orientation. My lifetime goal is to get to $100 million and then distribute at least half to charitable causes that I care about.
3) The international work is slow. In Israel, what they seem to want is access to the US market, partners and capital. However, they also love to have Americans come and visit as tourists! For China, it seems we have both Chinese capital coming to the US and looking for a home. They are pretty risk adverse, I'd say. Also, interested in EB-5 and like programs for green cards. On the Chinese side, they are looking for American business technology and good and services. For India, I am seeing Indians wanting to be service vendors to US customers, things like software development, market research, etc. In each of these cases, I'm thinking about how my networks and knowledge and ability to connect with people of all walks of life can be part of my value proposition. I'd welcome your thoughts...

    • 3
Apr 29, 2018

Tips on breaking in from a terrible school? Thanks :D

Apr 30, 2018

D:

What are you looking to breakin to? WS Job, B-school?

One thing I've learned over time is while the brand name of a school can help in certain professionals and industries, it's more what you personally can bring and how you can differentiate or distinguish yourself.

The "terrible" school be part of a great story of overcoming something, including internal personal life challenges. I've also learned when in Rome do like the Romans. People can be pretty tribal and if you're living in Iowa an Iowa school may be a better resume and networking builder than a decree from a fancy school.

Thoughts?

Good luck!

MJW

    • 2
Apr 30, 2018

A WS job such as IB but I was looking at different careers such at Big 4 Consulting. Any thoughts? The pay I heard isn't MBB level but that's not something I should really be worrying about in my position. What would you say are the "exit opps" from big 4?

    • 1
Apr 30, 2018

How and why did you get into value investing?

Apr 30, 2018

Delta,

I got into value investing largely by accident. After B-school which taught efficient market theory, which is essentially "there's no use trying to beat the market you might as well invest passively," I read a biography of Warren Buffett by Roger Lowenstein.

It was like a conversion experience. I was hooked. Two seminal books for value investors are Ben Graham's Intelligent Investor and Phil Fisher's Common Stocks, Uncommon Profits.

So, over the next decade I began to learn all that I could about value investing by reading books, following managers that I respected, and attending Columbia CSMIA conferences, and then began to apply those principles in investing my own retirement funds.

I started slowly and focused first on portfolio allocation, then manager selection, a mix of some passive funds, some sector funds, and then individual security selection. Over time, I've gravitated toward security selection. I like investing with a value orientation because it's fun to do and a way to learn about different CEOs, industries and companies.

It's also something you can do throughout your career and the performance numbers speak for themselves.

Down the road, I would like to be part of an activist group, maybe a Starboard or a Value Act or a Third Point, etc. Or maybe I will launch my own fund with the right partners.

Thoughts?

Thanks,

MJW

    • 2
Apr 30, 2018

Ten years is a very long time.

So why are you still in consulting? And how do you learn about CEOs and value how good they are?

Another thing is how did you follow the managers you respected?

Best Response
Apr 30, 2018
  1. The older you get, the more you understand -- even decades, can move very quickly.
    Second, Investing is about accumulating knowledge and experience, so each year of experience adds to your value.
  2. I'm still in consulting b/c I've been raising my children as a divorced father and I'd still like to be based in Iowa while kids finish high school. That has made making a transition a little harder, but in time, I am hopeful I will find what I'm looking for in the hedge, family office, or activist shop that might allow me to work remotely and travel where needed.
  3. You learn about CEOs by reading and learning from managers and others in your value investor tribe. I read the WSJ every day. It also helps to follow the Economist. As you develop a portfolio, if you read annual reports and 10-Ks you get a feel for superior managers. One great book about CEOs who excelled at capital allocation is a book called, "The Outsiders," by William N. Thorndike. That'll give you some flavor of what to look for.
  4. Google Talks has a great investor series where they bring a speaker in for an hour and post the talks on youtube. Go to youtube and search "value investor" and "google talks" and some of these will pop up.
    • 4
May 2, 2018

what are the emerging themes in Asia & Africa and how would you invest in those geographies?

how do you like the tradeoff of living in the midwest vs higher COL coastal cities?

May 2, 2018

Great questions, but expansive questions, dawg:

Africa. About half the population growth in the world between now and 2050 is expected to occur in Africa and many of the 54 countries on the continent are modernizing. The entire continent of Africa has about 1.2 billion people. Second only to India at 1.3 billion and China 1.35 billion. That's a big market.

They want to live at higher standards of living like they see on their smart phones. Last October, I saw a killer presentation by McKinsey & Co. reps at last year's World Food Prize in DSM, that spoke about themes and capital flows and such - to you question. It may be on the web.

One conclusion was Chinese investors are out front on the continent! In DSM we have refugee populations from a number of the poorer and war torn african countries. Some of the refugees I know and african related investment discussions I've been involved in -- b/c farm producers come from around the world to Iowa to learn how to grow food, we learn that african consumers want many of the comforts of home we have. But they also may have distinctly different needs. Food, technology, energy systems, farming practices need to be customized for their markets. For example, the McKinsey folks noted that in the consumer research they did on the continent, consumers there like smart phones that take better pictures of dark skinned people! US, Chinese and Korean smart phone manufacturers take note. John Deere, Monsanto, and other big ag companies have learned some lessons the hard way about trying to take US technology and practices and just air drop them into foreign markets. That usually doesn't work.

Meanwhile, while China is the most populous country and soon to be passed by India, they are rapidly aging and will have more folks over 60 than the U.S. population by that time (about 1/3 of the population). They will need to take care of all those seniors. That's a theme. They also have the biggest migration in history of folks moving from rural areas to urban areas, which has created massive infrastructure and workforce development needs.

There are many areas of investment opportunity for China, but one in particular that I find interesting is the move toward electric vehicles. They are already the largest purchaser of cars in the world, and in short order they will be likely leading in EV production. Essentially, they are setting up their system to leap frog US and European auto manufacturers by putting policies in place that will favor EV transportation and with EV technology you can eliminate 100 years of combustion engine competitive advantage. You can roll the dice on individual company investments and take on the individual company risk, but I'm a fan on finding the Chinese equivalents of iconic US tech companies that are innovating and growing like weeds in our country. Companies like Alibaba and Tencent. Also, it's likely China will be home to the largest companies in the world by market value in a decade or so, in part because they have access to one of the largest markets in the world and they have a gov't which has tilted the field in their favor -- at least for the time being.

As far at the Midwest, the quality of living is high relative to the coasts and the cost of living is far lower than many of our top 50 metros. You can buy an equivalent house for 1/4 to 1/3 of the cost of places like NY, CA, MA, DC, and our schools are largely good to excellent. No much in the way of rush hour here. More like a rush 15 minutes. Iowans complain about traffic when they have to wait two light cycles at an intersection. If only they knew.

Thoughts?

MJW

    • 3
May 2, 2018
Comment