

Contributor: Ori Eyal

Firm: Emerging Value Capital Management

Firm Type: Hedge Fund

Location: New York City Call: Long Israel Discount Bank (DSCT:IT)

Timeframe: 1-2 years

Catalysts: Management Change

Related Companies: POLI, LUMI, MZTF Disclosure: The analyst’s fund had a position in this security at the time of posting and may trade in and out of this position without informing the SumZero community. Disclaimer: The opinions expressed reflect those of the contributor and not SumZero, Inc.

Israeli fund manager Ori Eyal has been a SumZero member since the Financial Crisis when he was just starting his Emerging Value Management fund. Since joining, he’s posted 28 ideas with an average return of 87% and is currently ranked #10 in our all-time member rankings. SumZero sat down with Mr. Eyal to discuss market dynamics and his favorite trade in his tumultuous home region of the Middle East.

SumZero: Part of your investment focus in on the Middle East, a region that seems to always be in the news. What is going on over there?"

Ori Eyal, Emerging Value Management: Great question. The Middle East is a mess. I was born in Israel, and spent part of my childhood in Israel, and I live in Israel right now, so I know the region quite well.

The Middle East, and the various countries in the Middle East, with the exception of Israel, have just fallen apart. Basically, what you had was a situation where all these countries were composed of different ethnic populations and different religious populations that really hate each other. Sunni Muslims, Shia Muslims, Turkmen, Persians, Arabs, Kurds, Druze, Christians, Jews, etc. all forced together into these artificial countries. For a while there were these powerful, brutal dictators, keeping everybody in check and preventing all-out fighting between the groups. The dictators have fallen, and now many of these countries have erupted into civil war. Starting with Iraq, Syria, and Libya, those three are barely even countries anymore.

Most of these groups have external support from other states. Some are supported by the United States, some by Iran, some by Russia, some by Turkey. It's a big mess, and huge humanitarian disaster. These wars are wars to the death. If any side surrenders, they'd be massacred by the other side, so no side can give up, no side can surrender, and no side can retreat.

Take Syria, for example. This is year 6 of their civil war, and there's no end in sight. Same with Libya, same Iraq. If anything, it looks like the fighting is going to spread out and engulf additional countries. For example there's already significant fighting inside Turkey between the Kurdish minority and the Turks. There's also, of course, fighting across the Turkish/Syrian border.

Saudi Arabia is also in trouble. Iran has destabilized Yemen which threatens Saudi Arabia. There's effectively a cold war now, between Saudi Arabia and Iran as the Saudis burn through their reserves. Iran tries to hide it, but there's also fighting going on over there between Iran and the Kurdish minority. Also, Iran has been sending soldiers into Syria to help Assad's forces and has suffered many casualties. Hezbollah, which is a Lebanese terrorist organization, is also fighting with Assad and Iran. They've had a terrible time in Syria, by some estimates they have as many as 2,000 Hezbollah terrorists dead, another 2,000 wounded. They are stuck defending the Lebanese border from invasion from within Syria.

So you have entire countries collapsing into endless civil war. My prediction is, it's only going to get worse and will spread to additional counties. There's no end in sight, it's just spreading. We keep hearing the U.S. or Russia saying, "You know, we're winning this, it's under control, we're doing this, we're doing that, we have a cease-fire now." That's nonsense. I don't think these countries can ever be pieced back together. The long term, ultimate solution is to redraw the borders based on ethnic and religious groups. There's no way to put Syria back together, and I doubt there's any way to put Iraq back together. There is no way to put Libya back together. Portions of Iran, Turkey, Syria and Iraq will have to become part of a Kurdish state. People are fleeing these regions and creating a massive refugee crisis in Europe. I don't blame them; any of us would try to flee these war zones if we could.

In the midst of this mess, in the midst of this sea of darkness, and fighting, and disaster, there's an island of light, and it’s called Israel. Israel has been able to remain neutral, more or less. It's not supporting any of the sides in this fight. It's just protecting its own borders, and Israel is prospering tremendously. In many ways, it's the only beneficiary of all this fighting, because Israel's enemies have imploded. They can no longer focus on attacking Israel; they now have to focus on their own internal wars and just leave Israel alone.

SumZero: How does the current unrest compare with the past conflicts in The Middle East, from the perspective of market stability?

Ori Eyal, Emerging Value Management: There's no comparison, the current situation is unprecedented. We're seeing the permanent collapse of entire countries, which, in my opinion, will never be pieced back together.

From an investing standpoint, it’s very simple: “Avoid, avoid, avoid”. If you have any money in any these countries (except Israel), get your money out and run. The situation is only going to get worse. Any resolution is many years in the future.

This is the list: Libya, Egypt, Turkey, Saudi Arabia, Yemen, Iraq, Iran, Syria, Lebanon, Jordan, Afghanistan and Pakistan. None of these countries are investable. When you invest globally, you have to look at the geopolitics and macroeconomics, and this case, those elements completely trump other investment considerations.



Petrochemical Plant in Saudi Arabia (Wikimedia, Secl)

SumZero: How has recent downward volatility in oil prices affected the region?

Ori Eyal, Emerging Value Management: In The Middle East, and also Russia and Venezuela, you have entire countries, entire economies that are completely dependent on selling oil and gas. Russia and Saudi Arabia are the classic examples of that. In recent years we have seen two fundamental shifts in the oil and gas markets.

The first shift, is that the U.S., thanks to technological innovation in shale oil, has become a major producer of oil and gas. It’s now one of the world's largest producers, and it has greatly decreased its dependency on foreign imports.

The second major shift is OPEC which has collapsed because of the fighting between its member states. Saudi Arabia and Iran, for example, are at war with each other, so how can they be part of the same cartel?

With the collapse of the OPEC cartel, and the technological improvements in oil production that have allowed massive production in the U.S., and also massive offshore discoveries in places like Israel and across the world, supply has increased dramatically. Demand has not kept up, and the price of oil worldwide has collapsed. From around $100 plus per barrel, right now it's around $40 per barrel, depending specifically which oil price you look at.

Let's put these numbers in perspective, because they're very important. The entire world consumes about 100,000,000 barrels of oil per day. If we go back two years, the price used to be almost $100 per barrel. 100,000,000 barrels a day times $100 a barrel, means the entire world was paying, essentially $10 billion a day for its oil. This money was flowing to mostly countries like Russia, Saudi Arabia, Iran, and Venezuela.

Fast forward and now the price of oil is $40 per barrel. 100,000,000 barrels times $40 dollars, that's only $4 billion a day. That's a difference of $6,000,000,000 a day, billion with a "B", that we all used to pay. This is, on the one hand, an incredible global economic stimulus. It's more money in our pockets. The flip side is that, it's a terrible economic blow to countries like Russia, and Saudi Arabia, and Iran, and Venezuela, which were all heavily dependent on these oil revenues. What we're seeing is that these countries have weakened dramatically.

They have started burning through their reserves, and they've got massive deficits because they can't balance their budgets on $40 oil. They're hoping, obviously, for a rebound in oil prices, but it's unlikely because, as I said, the two main factors are the emergence of shale oil, massive offshore oil and gas discoveries, and the collapse of OPEC. Those are permanent changes, not temporary.

It's unlikely oil goes back anywhere close to $100 per barrel. I'm not saying it stays at $40, maybe it will go to $60, but it's just not going back to $100. So the long term future looks bleak for countries like Russia, Saudi Arabia, Venezuela and Iran. This is, of course, indirectly impacting geopolitics tremendously.

SumZero: What is your favorite trade in the Middle East right now?

Ori Eyal, Emerging Value Management: As I mentioned, the only place I think we should be investing in the Middle East right now is Israel.

I'm going to give one example which is Israel Discount Bank, DSCT:IT. It trades in the Tel-Aviv Stock Exchange. The current price is 6.27 Israeli shekels, ILS. The market cap is approximately 6 billion Israeli shekels which comes out to about 1.5 billion U.S. dollars. So it's not too small, over a billion dollar market cap. Israel Discount Bank is the number three bank in Israel after Bank Hapoalim, which is number one, and Bank Leumi, which is number two. It has 226 branches across Israel, a perfectly good solid conservative bank.

The one problem is they have is a bloated cost structure: specifically they have too many employees which are unionized and cannot just be laid off. Because this problem, return on equity has been depressed. They've only been able to earn approximately 6 percent return on equity historically which is not very good. It's not horrible but generally you want better. They have to slowly reduce head count through natural attrition. Employees retire and they hire fewer new employees, and over time this can reduce costs.

The good news is that three years ago they hired a new CEO, Lilach Topilsky. She use to be in charge of operations at Bank Hapoalim, the number one bank. She’s put a new strategic plan in place two years ago...basically a cost cutting plan. It's already working. Return on equity has crawled up to 7 percent. Fast forward, maybe two years from now, three years from now, give or take, the bank will be at 9 percent return on equity through cost cutting. Should trade at book value which is about 100% return, double our money from where it is right now, which I think is a very attractive return. At 50% of book value right now, there's not much downside. Could it go lower? It could temporarily, but generally banks in Israel are very conservative. They don't usually trade significantly below half of book value. There's little downside and material upside – the risk-reward trade-off is very favorable.

As a second valuation approach, we can also look at sum of the parts. They own a New York subsidiary Israeli Discount Bank New York which is worth about 2.8 billion Israeli shekels according to recent sales attempts. They own 72% of Visa Cal, which is the issuer of Visa credit cards in Israel. That's worth about 1 billion Israeli shekels. The core bank, long-term is worth about book value. If you just add those up, you get over 12 billion Israeli shekel value. Like I said, current market cap is about 6 billion. So either way you look at it, it's about 100 percent return with, I think, fairly low risk.

The reason this investment exists, I believe, is because it's overlooked. Investors are too focused on the next startup, the next Google, the next Apple, and ignoring this perfectly good, profitable bank that should not be trading at half of book value and is not distressed.

SumZero: Why has Israel been such a fruitful ground for value investing? Are there still great opportunities in the Israeli capital markets? What are you seeing?

Ori Eyal, Emerging Value Management: Several points to make here. First, let me start by saying that I happen to be from Israel, but that's not the reason that I think Israel is a good place to invest. I think Israel is a great place to invest because objective analysis shows that it is. If I was from Russia, I wouldn't say Russia was a good place to invest. I'd still say run away. Objectively, Israel is a great place to deploy capital.

With the collapse of oil prices, I believe that the world has ended the age of energy and has entered the age of technological innovation. Technological innovation is the number one economic global driving force today. We are seeing this as more and more industries are getting disrupted. Technological innovation leads the business world and is the most powerful force today. Then you ask yourself. Okay, who's best positioned for technological innovation? I think obviously number one is Silicon Valley in the U.S. That's probably the most innovative place in the world. Then, who's number two? I would say number two is Israel.

Israel is quite simply the most technologically innovative country in the world. It's in the culture. You can see this on many different metrics. Most patents per capita, most startups per capita, most Nobel Prize winners per capita, highest spending on R&D as percent of GDP. You can see global companies that are setting up major, extensive R&D in Israel. Everyone from Google, to Apple, to Facebook, to Intel, to Qualcomm. You name it. The list goes on and on. They're all doing extensive top-notch, high-value, high-priority, high-impact R&D in Israel. It's well-known in the business world if you've got really complex technological problems, something where the solution is not obvious and you really need innovation, then Israel is the place to do it.

Geopolitically, as I mentioned, Israel's enemies have collapsed. Everyone from the Syrian Army, to Hezbollah, to countries like Iraq and Iran are all busy fighting each other and are finally leaving Israel alone. It's a little bit of a paradox because around Israel entire countries are collapsing, but Israel itself is just prospering tremendously. High GDP growth, low inflation, low unemployment, very young, innovative, energetic work force, excellent exports, low government deficits. All the economic metrics are great. Good population growth. Lots of intelligent, wealthy, successful, entrepreneurial Jews are immigrating into Israel which is also a boost to the Israeli economy. I should also mention massive offshore gas discoveries in Israel which will help boost the economy. Last year the Israeli Shekel was the single best performing currency in the world – that says a lot.

Israel is well-known for startups and technological innovation and many investors, particularly foreign investors come to Israel looking to invest in startup companies. However the actual returns for venture capital have not been that great. Because investors are so heavily focused on early stage startup companies, they've somewhat neglected the more mature, more profitable, less exciting regular companies. The Israeli banks, the Israeli retailers, the Israeli insurance companies, the Israeli industrials, the Israeli REIT’s: all are good, solid, profitable, cash flow, positive businesses. They're not the next Google, but they're still perfectly good businesses. Because they've been neglected, often, we can buy them quite cheaply, which makes Israel a kind of a heaven for value investors. We look for the boring old economy companies that are really cheap and are going to make a lot of money for us.

By nature, Israeli is a very global society and very welcoming of international investors. There's rule of law, property rights, and cases of extreme fraud are very rare.

I think objectively, looking at the metrics, the Israeli stock market is just one of the best places to invest capital.

SumZero: Is execution difficult in Israel for western investors?

Ori Eyal, Emerging Value Management: The answer is, it can be, it depends. For large institutions, funds, and investors that are managing multi-million or billion dollar portfolios it's not really complex. They just need to set up with a global broker like JP Morgan, Pershing, Credit Suisse, UBS, or Deutsche Bank. These global brokers are connected to the Israeli stock exchange have connections to local execution desks.

However, for a small individual investor it’s fairly difficult, particularly for U.S. investors. Most small brokers such as E*Trade, Ameritrade, Interactive Brokers, even Schwab or Fidelity are not able to buy Israeli securities. Individual investors would have to open a separate brokerage account with an Israeli broker which often you can't do it at all, but even if you can do it, it's pretty difficult.

That's actually one of the reasons why at my firm, Emerging Value Capital, we offer an Israel Value managed account solution for individual investors. If you open a managed account with us, it's a U.S. firm so it's pretty simple. Then we have a relationship with local execution desks in Israel. Anyone who is interested should send me an email, ori@emergingvaluefund.com.



Busan, South Korea (Wikimedia, 동남 경제권)

SumZero: Are there any other emerging markets or other markets that exhibit similar characteristics to Israel that excite you?

Ori Eyal, Emerging Value Management: Absolutely yes. South Korea, in many ways, is similar to Israel. It has an extremely innovative, young, energetic, well educated, ambitious population. Rule of law and property rights are respected, the Korean economy is growing, GDP growth is good, inflation is low, unemployment is low, interest rates are low. Along with the U.S. and Israel, South Korea is one of the better places to deploy capital in the world. People ask me, "Where should we be investing?" I always say: U.S., Israel, South Korea, and then to a lesser extent I'd say Canada, Australia, Western Europe, India.

SumZero: Right, you previously had a well-known pitch on SumZero for buying Korean preferred shares. Was the trade successful in the end?

Ori Eyal, Emerging Value Management: Yes, let me give a little bit of background. Since 2013, so this is 3 years ago, I've been talking extensively about this unique and compelling investment opportunity in South Korea, which is called Korean preference shares. Sometimes people say "Korean preferred shares", but that's actually a mistake. It's not "preferred shares", it's "preference shares". These are a unique class of securities that exist only in South Korea. They're essentially equivalent to common stocks, except they don't have voting rights.

The voting rights in South Korea don't really matter that much because all of the companies are controlled anyway. The opportunity is that there are about 140 of these preference shares, and about 100 companies in South Korea have both common stock and these preference shares that are roughly equivalent. Yet, the preference shares in South Korea often trade at a huge price discount to their respective common shares. How huge? In some cases, even 50% or 60% price discount. By investing in these South Korean companies through their preference shares, we're effectively buying them at a 50% to 60% price discount. That's a huge discount. I built a basket of these, which I talked about and I manage it, and actually I even offer this basket as a separate managed account strategy for investors.

When I started doing this about 3 years ago, I said to investors I see about 4x upside. Some math and some assumptions went into how I got that, which I won't repeat here. Fast forward 3 years, the basket has doubled already, and I think there's another double to go, so it'll be 4x by the time it's done. Your question "how has it been working out?" The answer is extremely well.

SumZero: Where else do you see value in the market today?

Ori Eyal, Emerging Value Management: We talked about Israel, we talked about South Korea, I think they're both extremely attractive investment destinations. I have capital deployed in both of these countries and I think they're very, very interesting. Obviously, the United States is a great place to invest. In many ways, it's the number one place to invest. It has the best rule of law, capitalism, innovation, democracy. It's still number one on many metrics. The U.S. is in the 6th year of a bull market, so it's not very cheap anymore. Pick and choose your investments carefully. Here and there, you can find interesting opportunities, but it's not everything.

SumZero: You take a very global perspective and manage a global value fund. Why the global focus?

Ori Eyal, Emerging Value Management: Obviously, value investing can be applied to any market, it can be applied just to the US, can be applied to foreign markets, can be applied globally. I have a pretty global background. I was born and raised in Israel, but I traveled a lot throughout my life.

What I've come to realize is that today, the whole world economy is just one big global interconnected system. You can't really look at this country or that country independently in a vacuum. Everything is connected. If something happens in the US, it impacts China. If something happens in China, it impacts the US. Same for Europe, same for the Middle East, same for South America, same for Japan. All these markets are now globally interconnected and interdependent in multiple way and business has become completely global.

I think most people get that today. But it wasn't always completely understood. There was a period in the past where you had to explain why you were investing globally. Now, I think most people get it that you have to invest globally if you want to really understand the way business and the economy works.

There are several advantages to investing globally. First of all, you get a big opportunity set, there are more stocks globally than in any one country so there are more places to look. If one particular stock market is expensive, you can just move on and look at other stock markets where there are better opportunities, cheaper opportunities. Sometimes you can find very interesting anomalies in certain markets. With a bigger opportunity set you have a better chance of finding value.

The second advantage is that some counties lag other countries in terms of their development paths. For example, emerging markets tend to follow a development path that the US and Western Europe have already followed. Sometimes you can look at an early-stage company in an emerging market and say what's the equivalent company in the US? Okay, now I know what the emerging market company will look like 10 or 20 years from now.

A good example of this is Hilan Tech, which is the leading payroll processor in Israel. The equivalent company in the US is ADP. Everybody knows ADP in the US. By looking at Hilan Tech in its early stage in Israel and then saying, well, this is a very similar business to ADP, just 20 years earlier, I was able to predict the growth path and the business success for Hilan Tech. It became a wildly successful investment, I think I made 10 times my money, just because I was able to see that this Israeli company would follow the same path that ADP had already followed in the US. You can just see what's happened in the developed markets and extrapolate that into what's likely to happen in the developing markets or emerging markets, so that's a huge advantage.

There is also greater diversification when you invest in a global market. You've got different markets, different currencies. It's not as great an advantage as it used to be in the past because these days correlations are pretty high so markets tend to move together, but are still not perfected correlated so you get better diversification by investing globally.

Finally, you just get a better understanding of the way business works by being able to look at the global marketplace, and not just any one particular country or one particular market. I think that's very important. You also get to see the risk factors because if something bad happens in China or Europe or the Middle East that will definitely impact the US, and vice-versa. By following all these different markets you have a better understanding of what’s going on and can have a better warning system when trouble is brewing and how it might impact different markets or different companies.

SumZero: Tell me about your investing background and investing mentors and heroes.

Ori Eyal, Emerging Value Management: My original background is actually in computer science. Around the year 2000, I became interested in investing. I started reading and studying everything I could and I came across this great investor called Warren Buffett. I read about him, I studied the way he invests and, essentially, I became a value-investing addict. I tried to find every book, every article, every website about value investing. I tried to learn everything I possibly could about value investing.

This fundamental idea that you can look at financial assets like stocks and that you can do an independent analysis of what they're worth and, then, you can compare that intrinsic value to the price in the stock market, and you only buy if there's a big margin of safety, just makes perfect sense to me. I said to myself “this is the way that I want to invest”. I have an international background so I decided to apply the principles of value investing to a global marketplace.

I started out managing very small amounts of money for friends and family, just practicing, learning how it's done, figuring things out. At some point, I said, “okay, I think I have the basics figured out, now I want to become a professional value investor”. I applied to the University of Chicago, one of the top finance schools and, in 2004, I moved to Chicago to get my MBA with a focus on economics and accounting.

I've been extremely fortunate to have found some really great mentors and be able to associate with some really fantastic investors along the way. Obviously, Warren Buffett is my top role model and the person that I learned the most from regarding value investing.

I was also fortunate to work with Guy Spier of Aquamarine Fund. He's a phenomenal global value investor. I interned for him and, at that time, worked with him. He taught me so much about global value investing, how to evaluate the quality of a business, how to talk to a management team and figure out what's really going on, and how to build a portfolio. He's a great role-model and mentor.

I was also fortunate to work with Zeke Ashton of Centaur Capital, also a phenomenal value investor. He was kind enough to invite me several times to his office in Texas and we went over investing ideas, we went over frameworks. He taught me how to analyze companies, how to manage risk, how to build a portfolio.

I also want to mention Rick Reiss, a great value investor. He has been mentoring me since I launched Emerging Value. He has deep insight into many different types of business and industries and I learn something new and valuable every time I talk with him.

There are too many names to mention all of them, but I just want to say that I've been extremely fortunate to associate with so many great investors.

I finished my MBA in 2006. After that I moved to New York and worked for Deutsche Bank Asset Management for two years, one of the largest money managers in the world. It was the perfect place to learn and gain some real world investing experience. The advantage of such a large firm like Deutsche Bank Asset Management is that you have access to practically every company, every management team, every analyst. Any resource in the world is there at your fingertips. It was a fantastic place to learn global investing.

Then, in 2008, I saw the financial crisis was starting. Every stock I was looking at seemed very cheap. I did not know how long the crisis would last, but I felt certain that anyone with the capital and the courage to buy stocks while everyone else was selling would eventually be rewarded. I'd always wanted to manage my own funds, so I said to myself, this is the opportunity. I resigned from Deutsche Bank and launched Emerging Value Capital Management, which is the hedge fund firm that I’ve managed from 2008 up until today.

SumZero: How has your investing approach evolved over the years?

Ori Eyal, Emerging Value Management: I started out looking for really cheap companies, deep value, the cheaper the better. I wouldn’t even look at anything that had a PE ratio above eight. Initially I was only looking at the companies, completely ignoring the macro, completely ignoring the geopolitical news, just looking at the individual businesses. This is kind of classic early-stage value investing. Peter Lynch once said if you spend any time looking at macroeconomics then you're just wasting your time.

There are several ways that my investing approach has evolved over the years. First, today, I'm much more focused on high-quality companies with a competitive advantage. On reasons why this particular business is going to be worth much more in the future than it is today. I'm willing to somewhat pay up for better businesses. I won't pay super high valuations, but for really good business, I'm willing to pay even 15 times price to earnings, which would have been unthinkable for me in the past. Over time I understood that better businesses, where you can hold on for the long term, often outperform even if you're paying more as an entry price.

Second is that I now pay close attention to geo-politics and macro-economics. I tend to agree that macroeconomic forecasting and geopolitics don't matter so much if you invest in the US. The US has proven to be a country always gets better, always grows, always comes out stronger from every recession, from every crises, so if you're just buying US stocks, you may not need to pay that much attention to macro, with some exceptions like the 2008 financial crisis.

However, as soon as you invest outside the US, macroeconomics and geopolitics matter tremendously. You absolutely cannot ignore them because you may find a great company in some country, but if the whole country is collapsing, that's not going to help you, and you are still going to lose money. If you bought a great company in Syria, for example, and Syria just completely collapsed into civil war, you're still going to lose money. So you have to understand the geopolitics, you have to understand the macroeconomics whenever you invest outside the US.

I have this mantra: “research the country, not just the company”. Figure out the country, figure out what's going on, figure out if this is a country where you want to deploy your capital. Then, if your answer is yes, research the individual companies and figure out which companies you want to invest in, based on quality and price.

Third is that I've become much more risk conscious and much more risk averse. Somebody once said, "Ultimately, all investors become risk adverse, so you may as well do it early". What I've learned is that the key to making a lot of money, the key to having a great record is not generating super high returns in any given year. It's not about making a 30%, 40% or 50% return in any given year. It's about making good, moderate, consistent returns every year over a lifetime. If I can make 10%, 12%, 14% most years and never have a really bad year, that's great for my investors. On the other hand, an investment approach where you make 40%, 40%, and then negative 60%, that's terrible. That approach is just going to blow up and ultimately end up losing your investor base, losing your assets and just not working.

Slow and steady, nice, solid, moderate, consistent returns over time are the path to long-term investment success and the way you do that is by investing conservatively and by being risk averse. It doesn't mean never taking risks. Every investing approach has risks. It just means that you have to make sure you're more than adequately compensated for every risk you take. You have to understand the risks and make sure that you're more than compensated for them. As long as you do that and you build a reasonably diversified portfolio, you'll do well over time.

Fourth, I don't believe in extreme concentration or extreme diversification. I know some people have four-stock, five-stock, six-stock portfolios. I think that's way too concentrated. It's one thing if you're Warren Buffett and you're buying Coca Cola and you make it a big position. But as soon as you're buying a smaller, less globally-dominant company that have more risks, you can't make these positions hugely concentrated. I believe that any portfolio needs to have at least 15 or 20 positions at a minimum. Otherwise there's this chance you missed some risks and the portfolio could blow up.

SumZero: What advice would you give to someone interested in pursuing investing?

Ori Eyal, Emerging Value Management: When investing, you have to always be learning, always be studying. My number one advice is to read as much as you can. Let me just mention a few sources, things that I like to read. There's a monthly publication by Whitney Tilson called 'Value Investor Insight'. Really worth reading and following. I read the Economist to understand the world; I think it's a very important geo-political resource. I follow a bunch of different blogs and different news websites, just to hear and see what's going on and understand the world. Any books by Milton Friedman, any books by or about Richard Feynman, and obviously I mentioned Warren Buffett. Everything by Ray Kurzweil, everything by Richard Dawkins I think is very much worth reading. My number one advice is to read as widely and as much as you can.

Second, you should follow and study the master value investors. Obviously, anything about Warren Buffett, Joel Greenblatt, Seth Klarman, Guy Spier, Monish Pabrai, David Einhorn, Bill Miller, Bill Ackman, I am probably forgetting a few names. All fantastic investors. I look at what they are doing, I read about them, I read anything they write, it's very important.

Number three is you have to network with other value investors, preferably on the buy side. You want to learn about their investing ideas and investing framework, you want to learn about the way they approach asset selection, risk management, portfolio construction. If you can intern or get a mentor from an established investor, that's very useful, very important.

Fourth piece of advice is to manage your own portfolio. Even if you have just a thousand dollars, open an E*Trade account, start investing because there's no alternative to actual experience. The only way you get experience is by actually investing real money. It doesn't matter how much or how little, but you have to go through the process of actually researching companies, picking stocks, making money, losing money. If you haven't experienced it then it's theoretical and you don't really know what it's like. It takes ten years to become a really good investor. Ten years of intense practice, learning, and studying. You just have to go through those ten years before you're really good at it.

Number five is you have to understand all these different mental biases that you might have. All of these heuristics and biases and shortcuts that the mind uses, which in many aspects of life might be beneficial, but when it comes to investing, they're very damaging. You have to study them, understand them, and learn how to avoid them. That's very important.

Number six, you have to enjoy equity research. If you don't enjoy it you're not going to be able to get good at it. You have to be almost a private detective. You have to investigate a company to figure out what's really going on. You have to seek the truth. It's like peeling an onion; you get to the truth in the center. You have to peel away all the different layers of misinformation, misunderstanding, or misdirection, and that's very important. I often think that investors can benefit from taking a class in journalism or a class in how to be a private investigator; there is a lot of overlap between those things and investing.

Finally, just never stop practicing, always get better at it. It's a lifetime passion, investing and over a lifetime you become good at it. If anybody would like to contact me, my email is ori@emergingvaluefund.com. Send me an email, I'll add you to my mailing list. I'm happy to connect.