Mario Gabelli: Investing Strat –

Mario Gabelli (Operations, Portfolio) is a legendary value investor who leads GAMCO investors, which has ~$9.36 billion in holdings of US-listed common stock as per its 13F filing for Q2 2022.

Investors should note that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in US-listed stocks and US certificates of deposit at the end of the quarter. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited presentation can provide valuable information.

Gabelli was born in 1942 and says he invested in his first stock at just 13 years old. He earned his MBA from Columbia Business School before working for 10 years as a sales analyst at Loeb & Rhoades, covering a variety of industries.

During the economic downturn from 1969 to 1970, Gabelli managed to pick a few undervalued stocks that did well. His next challenge was to raise money to set up his new company. He tried to raise $1 million and only managed to raise $200,000. This was not what he was looking for, but he realized that “cash follows returns” and therefore started his company with this.

Warren Buffet (Trades, Portfolio) speaks of a similar philosophy and has stated in the past that if a portfolio manager can consistently generate strong risk-adjusted returns, investors will “swim into shark-infested waters to invest.” This strategy worked well for Gabelli as his strong returns managed to boost his assets under management into the billions.

In this article, we’ll take a look at Gabelli’s history and investment strategy through a couple of notable interviews he’s given: a 2021 interview with Boya Value and a 2022 interview with CNBC.

investment strategy

According to a 2021 interview with Boya Value, Gabelli aims to discover “the value of a business over time,” then buy the stock when it’s undervalued thanks to Mr. Market’s mood swings.

Gabelli believes it is vital to identify the reason a stock has declined. For example, if the company just had a bad quarter or has temporary bad sentiment, but long-term fundamentals remain intact, then it could be a value opportunity.

It refers to “daily focused customer-specific passion” that aims to generate returns over time. Gabelli has a team of 40 investment analysts who help leverage your strategy to cover a wide universe of stocks.

Gabelli’s strategy also focuses on financial engineering in areas such as mergers and arbitration. He does it to highlight unique opportunities that can be triggered by a catalyst. Gabelli has a strong specialty in media companies and mergers and acquisitions activity in this industry. Legalized sports betting is also an industry Gabelli is optimistic about, according to the interview.

portfolio construction

Gabelli has a strict process before accepting large sums of money into his fund and creating a portfolio. He asks questions like:

  • Have you been through a stock market crash before?
  • How would you react during a stock market crash?
  • How long was your time frame?

Based on those answers, Gabelli builds a portfolio that can have 10 stocks that would represent a quarter of the portfolio and between 70 and 80 stocks that would represent the balance. Typically, it takes 60-90 days for most clients to fully invest. Gabelli believes that staying invested generates the best returns over time.

What has Gabelli been investing in?

In a more recent interview with CNBC in August 2022, Gabelli highlighted some of his favorite investments and sectors. Gabelli said that he was looking for strong sectors and interesting companies within those sectors. One of his favorites, he said, were agricultural companies like John Deere (Delaware, Finance) and Case New Holland. He also said that he likes Aerojet Rocketdyne (AJRD, Financial) for its capabilities in hypersonics for the defense industry. He also said that he finds Crane Holdings (CR, Financial) interesting and has been buying.

According to GAMCO’s second quarter 13F report, other stocks that Gabelli has been buying recently include Occidental Petroleum (OXY, Financial), which traded at an average price of $61 per share in the second quarter. This is an extremely popular action among gurus lately, especially

Warren Buffet (Trades, Portfolio), which has been buying heavily and now owns more than 20% of the company’s outstanding common shares.

How to Navigate Market Volatility in 2022

In his CNBC interview, Gabelli also provided his thoughts on how to navigate the current market volatility. He has been closely monitoring high inflation rates and thinks it’s a good idea to focus on nominal corporate earnings. In addition, she has identified that inventories have risen across the board, often reflecting lower economic demand.

Gabelli suggests asking yourself, “How bad is bad? How long will it be bad? And how good is good? With higher interest rates expected in the future, Gabelli believes valuation multiples will remain compressed and this needs to be taken into account. Capex must also be taken into account. For example, many oil companies have developed Capex before and will therefore see a reduction in the future, causing earnings to rise.

final thoughts

Mario Gabelli (Trades, Portfolio) is a legend among investors. His investment strategy has been derived from strong value investing roots, and he also focuses on daily company news for his M&A driven investments. From buying his first share of his at age 13 to continuing to invest at age 80, Gabelli is extremely inspiring and I think other investors can learn a lot from him.

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