Mr. Muoio: We are research-intensive value investors. I worked for Gabelli & Company, Inc. for 12 years from 1984 to 1995, and I founded my firm in 1997. At Gabelli, I learned various approaches to value investing, and thus we run a core multi-strategy value approach. Primarily, we are stock pickers. We want to know what the business is worth intrinsically to a buyer, that is the Private Market Value, and we want to pay fifty cents on the dollar or less for a share of that business. In addition, we want to see a transaction or future event that's likely to occur within two to three years that will close the gap between public and private market value, in other words the gap between stock price and what we think the business is intrinsically worth on a per share basis. We invest about half of our clients' capital in this way. We also practice merger arbitrage, in particular in industries that we know well where we have an understanding of not only valuation but also the regulatory process and other important factors, and in addition, we invest in special situations where companies voluntarily declare that they are going to liquidate or restructure with stubs or spin-off opportunities. In our main partnerships, we operate in all of these disciplines of value investing. We have other partnerships that only invest in merger arbitrage and liquidations and stubs. That's what we do.
TWST: You'd mentioned that you look ahead a couple of years to see how the gap
between public and private market value is going to play out. How is your
investment model withstanding the recession? How are things that you looked at a
couple of years ago playing out in terms of investments now?
Mr. Muoio: The gap between public and private market value has widened
considerably since the downturn. We look to invest our client capital in
industries that we think are recession-resistant. So, we generally are not
attracted to cyclical or commodity-driven businesses. The businesses that we
have invested in have held up relatively well and we expect this to continue. We
have a large allocation to the cable programming networks. These businesses have
dual revenue streams with a significant monthly recurring revenue component.
Cable advertising revenues since the downturn have generally held up much better
than the advertising space generally and in most cases is still growing and
expected to grow modestly for the full year. The second revenue component,
subscription revenue, grows predictably based on the number of subscribers and
contractual annual price escalation adjustments. We are invested in Discovery
Communications; Scripps Networks, which owns the Food Network and HGTV; Viacom,
which owns MTV and Nickelodeon, among other networks; Crown Media, which owns
the Hallmark Channel and Hallmark Movie Channel; and Time Warner, which owns the
Turner Networks including CNN and TBS.
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