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I recently listened to an episode of the ‘Value Investing With Legends’ podcast that did a good job of putting a lot of my own thoughts on the markets and investing into a nice structure.
The guest was Ricky Sandler.
His message? Markets have changed because investors have changed.
Let’s dive into what he said!
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Ricky Sandler is the Founder and CEO of Eminence Capital, an $8 billion global equity firm launched in 1999.
He invests based on company fundamentals, using a long-short strategy.
They do deep research and he tends to have a contrarian mindset.
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His Investment Philosophy
Sandler says he focuses on the gap between the market’s perception and the business’ reality.
He’s looking for good businesses that are out of favor with the market for some reason.
Here’s a bit more about his philosophy:
Quality & Moats: He looks for companies with strong Return on Invested Capital (ROIC) and sustainable competitive advantages.
Owner’s Mindset: Sandler will engage with boards to improve Capital Allocation, making sure profits are used to create shareholder value.
Diversification: He holds around 40 positions, and his largest are <5% of the portfolio.
Here are the top 10:
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So far, that sounds like a pretty standard approach, but the interesting part is how his strategy has evolved.
When he started 30 years ago, buying a good business cheap was enough.
Here’s what he said in the interview:
“early in my career, it was enough to have the right business at the right price and things took care of themselves because most market participants were doing bottoms up research and in time, the gap between what we thought fundamental value was and the market's price would close and we would be able to earn that higher compounding rate of both a business that compounds and a business that rerates.”
Sandler doesn’t think that’s still true.
The Market Has Changed
Sandler realized that in a post-GFC world, buying cheap is no longer enough.
He says that the market has changed because the investor base has changed.
The market is no longer dominated by bottom-up fundamental investors.
Today, it is driven by:
Passive Flows: Automatic buying that ignores intrinsic value
Thematic Investors: Short-term traders focused on stories rather than businesses
Algorithmic Trading: Machines reacting to data and price patterns, not business quality
Pod Shops: Hyper-focus on short-term inflections, leading to extreme volatility
None of these investors are looking at business fundamentals.