Southeastern Asset Management is a Memphis-based deep-value firm founded in 1975 by O. Mason Hawkins to exploit the bargains left by the 1973-74 bear market. Its flagship Longleaf Partners Funds (launched 1987) invest employees' own money alongside clients'. Following Graham's discipline and its "Business, People, Price" framework, it runs concentrated books of 15-25 undervalued stocks held for the long term — famously closing funds to new investors when opportunities were scarce. CEO and Head of Research Ross Glotzbach now leads the firm, which publishes quarterly Longleaf fund commentaries and Research Perspectives notes.
This report says that big stock price swings after earnings reports create chances to buy good companies at a discount. The author is optimistic. They added to Magnum Ice Cream (spun off from Unilever, stock fell from €16 to €11, but they think it's worth over €30) and Liberty Capital (Alaska telecom, stock dropped 19% after a bad investment decision, but insiders like John Malone bought shares at $25). The author warns that short-term trading causes these swings, so long-term investors should stay patient.
One-sentence summary: The author argues that sharp stock price swings on earnings days create opportunities for long-term investors to buy quality companies at a discount, with a [Bullish] stance.
The article notes that sharp stock price swings on earnings days (single-day moves of over 10%) have increased significantly in recent years, creating opportunities for long-term investors to buy quality companies at a discount. The author observes that such large earnings-day moves have nearly doubled over the past few years among both S&P 500 constituents and non-constituents. The author argues that since over two-thirds of intrinsic value comes from cash flows delivered five years out, a single-day move of more than 10% is often unjustified. The author states: "when over 2/3rds of a company’s intrinsic value comes from cash flow delivered after five years from today, it is unlikely that this true value can change by 10%+ in a day too often." The author believes this dynamic presents an opportunity for long-term investors, though acknowledges that over the past 12 months, days with declines exceeding 10% in their portfolio have outnumbered days with gains exceeding 10%.
The author applies "inversion thinking" to analyze four possible causes of increased volatility, cautioning readers that this is a position-holder's perspective.
1. More Interim Data Points: Credit card transaction data, expert networks, etc., make company revenues easier to track, raising expectations for short-term performance. When actual results deviate slightly (even within normal error ranges), the impact is magnified.
2. Surge in Short-Term Trading: The rise of zero-day options retail traders and short-term traders ("pod shops") has exacerbated "hair-trigger" trading in the market.
3. Long-Term Investors Shift to Expensive "Compound Growth Stocks": Over the past decade, many long-term investors have shifted to buying "compound growth stocks" at high prices. However, when such companies stop growing or their moats are damaged, it triggers sudden sell-offs.
4. Private Equity (PE) Changes Strategy: PE initially acquired companies at 6-8x EBITDA and optimized them. Now, due to increased competition, they acquire at higher multiples and instead create an illusion of "stability" by avoiding frequent price revaluations, reducing their tolerance for individual stock volatility.
The author is bullish on Magnum Ice Cream (spun off from Unilever) based on its business, management, and price, seeing significant room for free cash flow improvement.
The author believes that Alaska telecom company Liberty Capital (formerly GCI Liberty) dropped 19% in May due to an investment decision error, but its core business remains unchanged, leading to an addition to the position.
The core investment implication is that short-term irrational price swings offer long-term investors opportunities to buy quality companies at a discount, but require enduring short-term volatility and maintaining patience. Through the cases of Magnum Ice Cream and Liberty Capital, the author demonstrates a logic of "adding to positions after sharp declines due to short-term negatives." Readers should note this is a self-advocating perspective from a position holder, and the author's judgment that "core value remains unchanged" may carry an optimistic bias.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Magnum Ice Cream | Add | Bullish on the low-price opportunity post-spin-off, with high business moats, excellent management, and significant room for free cash flow improvement | Added after the stock fell from €16 to €11; estimated intrinsic value per share exceeds €30 (based on 20%+ EBITDA margin, 20%+ return on capital, and 20x+ FCF multiple) |
| Liberty Capital | Add | Core business unaffected by investment missteps, valuation is cheap, and insider buying boosts confidence | Added after the stock fell from $40 to $20; EBITDA and FCF multiples are both single-digit; Malone bought $13.5 million at $25/share, Duncan bought $1 million at $21/share |