The Wonderful World of Charles Fabrikant
A little nugget every investor learns eventually: Talented people create wealth. And talent is an asset that never really goes into a bear market. It’s always valuable…as the long-term investment performance of SEACOR Holdings (NYSE:CKH, $104.30) demonstrates very clearly.
A couple of months ago, when CKH was trading in the mid-$80s, I recommended the stock to the subscribers of Capital & Crisis. My reasoning was very simple: SEACOR Holdings is a great company that’s run by a very talented investor…and its stock was quite cheap. The stock isn’t as cheap anymore (it is up about 45% since my recommendation, after taking into account the special $15 dividend), but SEACOR is still a great company that’s still run by a very talented investor.
His name is Charles Fabrikant and he has compounded capital at a 15% clip since 1992. The S&P 500, by contrast, has delivered 5.6%. He also pens as good as an annual letter as one will find on either side of the Mississippi.
But let’s start at the beginning, about 20 years ago. Fabrikant was one of a group of investors looking to buy a shipping business. They took over NICOR Marine and adopted the name SEACOR “primarily because it was less costly to paint over two letters than the entire name,” Fabrikant writes. SEACOR soon spread into a variety of businesses out of “a conviction that if opportunity knocks, we should open the door.”
Today SEACOR owns and operates barges, tankers, work boats and helicopters. About half of the business is the legacy offshore marine services business. This division mainly serves the offshore oil and gas industry. The other businesses do all kinds of things. SEACOR’s helicopters work in oil and gas, medical emergencies, firefighting and much more. Its cargo ships support US inland waterways. Its boats also work in environmental cleanups, such as the mess in the Gulf of Mexico. These are a few of SEACOR’s profitable hobbies.
What SEACOR really is, though, is an opportunistic asset manager. Fabrikant says SEACOR “is not just a boat company or an energy service company. Our asset base is diverse and our horizon is broader than simply owning and operating equipment. We are a custodian of capital, and our mission is to use our expertise and knowledge to make money.”
In short, SEACOR is a “go anywhere” investor. Just in the last handful of years, SEACOR has established ventures in Argentina to operate barges and ships, in Brazil to operate helicopters and in China to sell business jets and helicopters.
Fabrikant is also adamant about having a diverse collection of businesses. “I realize that some investors may not like mixed drinks,” he writes, “but this philosophy of diversity is core to our business strategy.” It’s served SEACOR well. It has never – not even once – reported a loss for any year in its history.
Fabrikant also lays out many wise nuggets in his letters. I wish more corporate executives thought like he does – and were also owners of the enterprises they manage.
“Capital, like assets, needs to be deployed and priced to replacement cost.” Fabrikant deals in tangible assets and thinks in terms of “replacement cost.” This kind of analysis asks, “What does it cost to build an asset from scratch?” By this way of thinking, an asset is cheap only if you can buy it for less than you can build it. A man who thinks this way will not lose money over his career.
And so Fabrikant does not automatically employ SEACOR’s cash flow toward new boats, helicopters and the like. In recent years, he’s bought back a lot of stock. This year alone, SEACOR bought back 1.6 million shares at about $74 per share. Since 2007, he’s retired 18% of the shares. When SEACOR’s stock price is below book, Fabrikant is a buyer.
“We manage for long-term appreciation in book value, not year-to-year earnings.” I love it. Fabrikant doesn’t play to Wall Street. It’s probably why only one analyst – from Barclays – covers the stock.
As long as you can buy the stock below book value, I think you’re getting a good deal. Current book value is $90 per share. That book value is firm. SEACOR depreciates its assets more quickly than industry peers. SEACOR has also demonstrated an ability to sell assets for more than book value. And anyway, as long as Fabrikant can continue to do what he has done since 1992 – which is compound book value at a 15% clip – then this should prove a nice long-term investment.
You can play around with numbers and see how this might look in three years. If book value continues to compound at 15% a year for the next three years, then book value per share will be $137. Even a modest 20% premium to book would take the stock to $165 per share.
Importantly, the executives and directors own 9% of the company. Fabrikant is the largest shareholder among these, with 5%. So his interests are aligned directly with the common shareholder.
Everyone’s portfolio should have some room for a steady grinder like SEACOR. You can’t own only the rabbits. Well, you could, but you’d need a lot of antacid. SEACOR is a sleep-well-at-night investment.