After graduating from Harvard Law School, Morris Mark spent a few years as a lawyer before entering the securities business in 1968 as a securities analyst with First Manhattan Company. He joined Goldman Sachs' Research Department in 1974, where for almost ten years he was a senior executive specializing in real estate and financial services. Beginning in 1980, he was also with the firm's Risk Arbitrage Department. Morris Mark was voted on more than ten occasions onto the Annual Institutional Investors All Star Team in the Real Estate Investment Trust and Building categories. He is a co-founder and past President of the Real Estate Analysts Group and the Real Estate Investment Trust Analyst Association. In 1985, he started Mark Partners and Mark Asset Management which focus on seeking long term gains through a fundamental research based approach to stock investments in a wide range of businesses. The firm runs a domestic partnership, an offshore fund started in 1989 and separate accounts with total capital under management in excess of $2 billion. Since 1985, the partnership has achieved a net annual compound rate of return of 24%. Morris Mark spoke with HFN Publisher, Antoine Bernheim, in mid-July 1999.
Profile of Morris Mark
Born: January 24, 1941
Education: BA in economics with Honors, Brooklyn College; JD, Harvard Law School
Family: Married to Susan; two children
Last vacation: Aspen, CO
Last book read: "The Lexus and the Olive Tree" by
Hobbies: reading, watching movies, jogging, tennis
Favorite quote: "Eternal vigilance is the price of liberty"
How he best describes himself: "Family-oriented, very
much interested in the world around me and trying to take a
balanced approach to working, living and relating to my
Q. Could you describe your investment philosophy?
A. We use fundamental research to build value for our clients and ourselves. We ask ourselves how the world looks, what its structure and direction is on a longer term basis and, in that context, what attractive equity investments can we make.
Q. Could you describe your research process and the resources you use?
A. We spend a lot of time reading reports, magazines and industry trade publications where we can build a strong and on-going knowledge base against which to look for ideas and make decisions. We use all of the resources of the financial world including the investment community and Wall Street to build our knowledge and to gain insight and aid our judgement. We also spend more than half of our time doing our own work, visiting companies, going to conferences, talking to management and trying to reach independent decisions.
Q. How do you manage to monitor and rotate around the many industry sectors you invest in?
A. It takes a lot of work. I don't think it is possible to cover everything intensively. What we try to do is use our experience, contacts, sources of information, the media themselves to monitor what is going on in the world and to constantly use that to determine where to focus our time and attention. Once we have reached that decision, which needs to be reviewed practically every day, we spend a lot of time improving our understanding of what we own or may own at a particular point. Our focus tends to gradually change. When we started Mark Partners over fourteen years ago, we were looking at consumer products companies, newspaper companies and also communications services and entertainment distribution, which we are again interested in today. Then, following the fall of the Berlin Wall, we got very interested in the major world class distributors and manufacturers of a range of products: for instance, we owned Coca-Cola for eight years. Today, we are particularly interested in trying to understand the fundamental implications of the emergence of the internet economy and the growing impact of using information technology to reorganize the domestic and world economy.
Q. Could you describe the criteria that may cause you to buy a stock or sell it short?
A. We owned Coca-Cola because we thought it was a great business, run by terrific management and at the time we purchased it we thought the valuation was reasonable. We felt it was particularly well structured to benefit from the emergence of a more privatized and a more global economy. We sold it three years ago because the valuation it was trading at in relation to our anticipated rate of earnings growth on a near to long term basis seemed to be well discounted versus our rate of return objectives. Generally, we would sell a position when something bothers us, otherwise the sale is likely related to valuation. We do not do a lot of shorting. First, we prefer to invest our time and attention to find things that are fundamentally attractive because the appreciation potential tends to be significantly greater than finding things that are going to fall apart. Secondly, we like to keep our investment structure pretty simple. Whether we are long or short a particular investment, we regard it as an investment. So if we have enough investments that make sense from an appreciation point of view, that may take as much of the assets as I want to allocate to investments.
Q. Could you describe how you manage your exposure?
A. First we have our long-term view of the world. Secondly, we are sensitive to our view of the financial markets which is itself heavily influenced by our view of the conditions of the world. We do not play market forecasters but we try to use the markets so that if values are available to us because there are concerns that we believe are more than adequately discounted in relation to the world, we would add to positions. In the past, there have only been two points in time when we had moderately large amounts of cash: in 1987 at the time of the crash and in the third quarter of 1990. We are investors and as long as we find enough things we like, we tend to be invested, holding 50 to 60 positions with 25 to 30 representing 75% to 80% of assets.
Q. Could you give an example of a couple of stocks you find attractive and why?
A. We like Liberty Media which is an excellent way to invest in an area of the domestic and world economy likely to benefit from the development of an increasingly information intensive economic environment. Liberty is a major investor in a number of entertainment creators or distributors. They own 10% of Time Warner, 20% of USA Networks, and on a private basis, 50% of Discovery Communications 100% of Encore Media. It is run by a management team that owns a lot of stock and has a demonstrated record of making astute investments and adding value to them. In addition, it seems to us that these businesses own and distribute products whose pricing in general will not be adversely affected by an increasingly efficient world economy and distribution system, but on the other hand, will benefit from reductions in distribution costs whether people use the internet or fragmented media to acquire information or entertainment. We like AT&T. The stock is not expensive and it is structuring its asset base to be an important provider of communications services. In the current environment, utilization of communications services will be increasing disproportionately to the growth of the economy as people transfer more and more information as a substitute for either unnecessarily storing or transferring goods in an inefficient manner. What information technology is in the process of doing is restructuring the domestic and world distribution system to dis-intermediate a lot of people but at the same time make goods less expensive and more available to more people.
Q. How do you control risk?
A. We have attempted in the past to try and hedge. It is increasingly difficult to do that in an economic manner. The only proxy that has controllable risk is listed puts. As they have become more expensive, we try to retain our flexibility by not utilizing a significant amount of leverage, if any.
Q. Could you describe how your organization functions?
A. The portfolio decisions are made either by myself or Rafael Zaklad. The firm employs 25 people of whom approximately half are analysts and traders. Their responsibilities are to help us make portfolio decisions, keep us abreast of market developments as they are announced and provide independent analysis and judgement on the industries and companies they may be following at any given time.
Q. How do you recruit and retain your staff in an environment where everyone wants to start their own fund?
A. We are very fortunate and have had a relatively low turnover. We look for people carefully, through contacts and relationships. We want to see if we are compatible with them, most importantly, we focus on their honesty and integrity and their willingness to work hard. We are in an environment where people should, if they feel able to, go off on their own. I am pleased to say that we have good relationships with people who have been here. It helps us and may even help them.
Q. You have been extremely successful over a long period of time in this business. What are your goals for the future?
A. I am very interested and enjoy spending a good part of my time trying to understand the world and also be a participant in the process of economic growth and positive developments to the extent possible. I don't know if there is an optimal size of assets for us. If the world is improving, there are a lot of investment opportunities. If it isn't, then the constraint is placed upon you by the environment and the question is to be disciplined enough to realize that. Currently, it does appear that there are a number of areas of development and economic activity that offer the opportunity to build a lot of value. That is what we want to continue do in a way that is both time efficient and, for our domestic clients, tax efficient.u