The 1970s was a demoralising era if you were an investor in US equities.
Media outlets were printing headlines proclaiming the “Death of Equities.” Interest rates were so high investors could earn 10% on US Treasuries.
It was in this unlikely atmosphere that the now billionaire investor and founder of GAMCO Investing, Mario Gabelli, had an idea.
It would become the basis of his legendary investing philosophy.
“We came up with this idea that individuals would like to buy businesses — companies would want to buy businesses,” Gabelli said during an interview with OneWire’s Skiddy von Stade.
“We did that in part out a necessity to convince individuals, companies, and pensions to invest in the stock market again,” Gabelli said.
Gabelli came up with the idea of looking at a company’s private market value. The aim was to figure out what price an individual or business would be willing to buy a company, and what sort of catalyst might help close the gap between the price at which a company was trading and the projected private worth.
“Really it deals with, what is a company worth? If I was a private equity firm, whether I am Henry Kravis or Schwarzman or Carlyle or Cerberus, or whoever, what would they pay and why, who are they and what are their assets, and what are their returns?”
It worked. An investor who put in $US10 million into Gabelli’s fund in 1978 would now have $US2.2 billion, while the same investment in the S&P 500 would have generated $US645 million, ValueWalk reported.
Gabelli is now the best paid chief executive on Wall Street.
Watch part one of Gabelli’s interview with OneWire here.
Watch the video on OneWire’s website here.