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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
OlD: Sounds lovely.
Bakar: And because transfers of shares from one generation to another are taxed based on the share price, they have no incentive for the share price to go up. In fact, quite the contrary.
Still, in 1996, we saw what we thought were some wonderful values in Korea and simply couldn't resist buying shares of half-a-dozen or so different companies. But when we visited Korea in January, we left thinking that it was the biggest short we'd ever seen.
John Burbank: We returned from that trip more negative than we've ever come back from any trip.
OlD: It sounds like it. But negative about what?
Bakar: When we visited Chiel Foods, they told us that in order to shuffle some of their higher cost employees off the payroll of their flour milling operation, they were basically bankrolling them in the bakery business - helping them establish their own chaebol.
And at that instant, I began to fully appreciate exactly what a chaebol really is. Here's the correct definition:
"A diverse group of poorly managed, unrelated entities with little or no synergies whose primary purpose is the lifetime employment of woefully underutilized employees in the generation of consistently substandard returns."
OlD: I had no idea it was so similar to publishing.
Bakar: Therefore, as soon as we got back, we began to liquidate all our positions except for one small holding.
And over several months, we went from being long Korea, to having virtually no exposure, to being short net.
So although we've found enormous value in selected Korean companies, for most of this year, we've actually been short...
OlD: Congratulations.
Bakar: Don't congratulate us too much. In Korea, our shorts were virtually the only thing we did that worked.
As I said, we held onto one small holding. And, then, in August, despite being extremely negative about Korea (and even still being short net), we couldn't resist buying this next company. When we put our toe in the water to buy it at KW33,000 [KW = Korean won], we thought that it was truly the "mother of all bargains". But you can buy that stock today for KW11,700.
OlD: So is it now the "grandmother of all bargains", the "mother and father of all bargains" or what?
Bakar: It's a four-letter word beginning with "mother". However, absent the impediments that I alluded to earlier, it's such a no-brainer that someone would definitely buy 51% or more of it tomorrow - hopefully us. It's really that much of a no-brainer. But I'm getting ahead of myself.
YOU'RE MAKING TWO BETS, NOT ONE.
Bakar: So we started to buy this company in August at about KW32,400. And within three months, it had dropped all the way down to KW20,000. Needless to say, that caught our attention.
Page 4 of 14
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