GO
Loading...

Not a Flashy Investor, Just Successful

Julie Creswell |The New York Times
Tuesday, 31 May 2011 | 2:03 AM ET

The money manager Martin D. Sass loves a good bargain. He snapped up his 1995 Donzi motorboat after it had been repossessed from its previous owner. He made a deeply discounted, 24-hour, take-it-or-leave-it offer for a home on Long Island that had been on the market for years, only to later discover he had bought Vincent Astor’s summer home.

Tony Weller | Getty Images

And while the Midtown offices of his investment firm, M. D. Sass, are appointed in rich mahogany paneling with marble tables, Mr. Sass explains that not all is as it seems. He leased the office at a fire-sale price in the early 1990s after the previous tenant, Ensign Bank, went into receivership.

“I wouldn’t have put this stuff in,” Mr. Sass, 69, growled, sweeping his arm dismissively around the room. “But I got it for nothing.”

Mr. Sass’s bargain-hunting ways extend to his investment firm, which oversees a collection of investment funds, hedge funds and private equity partnerships with $8 billion in assets.

Earlier this year, as shares for oil-services stocks like Halliburton and Baker Hughes languished, Mr. Sass added to his stakes in his flagship M. D. Sass Relative Value Equity Strategy, a group of accounts that require a $10 million minimum investment.

And this spring when the earthquake, tsunami and nuclear crisis in Japan rocked global stock markets, and insurance companies tumbled on early estimates of billions in losses, Mr. Sass again went shopping, this time picking up shares of the insurance company MetLife .

“I went in as everyone else went out,” said Mr. Sass, perched on a chair in an office filled with figures of bulls and bears.

“More bulls than bears,” he notes, laughing.

In the mighty world of investment managers, Mr. Sass isn’t a big dog. He does not make bold bets like John Paulson’s gold play, which personally netted Mr. Paulson $5 billion last year.

Mr. Sass doesn’t buy stock in a company and agitate management to change its ways as the activist investor William A. Ackman of Pershing Square does.

Nor are Mr. Sass’s offices staffed with mathematicians or physicists designing algorithmic trading models for high-speed computers like those of James H. Simons of Renaissance Technologies.

What Mr. Sass does is real meat-and-potatoes investing. He scans the markets for companies trading at prices that he thinks do not reflect their earnings potential. He applies his accounting background to company financials to root out cash flow.

Mr. Sass entered this year bullish, betting that the economy was going to improve and that stocks were undervalued. He thinks the S&P 500-stock index could end the year closer to 1,500 from its current level of 1,331.

Aided by a small team of analysts, including his son, Ari, Mr. Sass develops broad investment themes and then digs for companies within those sectors that are positioned to benefit. For instance, he built up his big stake in oil-services companies in the belief that they would gain once drilling resumed in the Gulf of Mexico.

He has grabbed onto generic drug makers on the notion that large pharmaceutical companies are on the verge of losing critical patents on blockbuster drugs. And his firm took a sizable position in a company that makes slot machines, an area he argues will show tremendous growth as more states hope to address fiscal shortfalls through gambling.

Mr. Sass’s style has produced an annualized gain of 7.2 percent, after fees, over the past decade versus a 5.3 percent annualized return for an index of value stocks tracked by Chicago research firm Morningstar.

His recent bets in oil-services stocks have paid off, with Halliburton and Baker Hughes both trading about 22 percent above where he bought them. Shares of MetLife are hovering at just about the same price he paid in March.

While Mr. Sass’s funds do not produce eye-popping double-digit returns, neither are investors likely to face those sort of losses either, say people who know Mr. Sass and his investment style.

“He’s very sound, very cautious. He doesn’t play the new-fangled games,” said Roy L. Furman, the vice chairman of Jefferies & Company, who has known Mr. Sass since the early ’70s.

Still, over a decade ago, Mr. Sass threw caution to the wind when he supported a plan to merge two furniture companies — Seaman Furniture and Levitz Furniture, which was in bankruptcy.

The deal was orchestrated by one of Mr. Sass’s top lieutenants, who oversaw a fund that held substantial stakes in both companies. That led to shareholder lawsuits claiming that Mr. Sass’s firm was trying to force a merger to salvage its money-losing stake in Levitz.

The investors eventually settled, on confidential terms, and the Seaman-Levitz merger occurred in 2001. In 2005, the combined company filed for bankruptcy.

“I regret that after realizing substantial profits in Seaman’s, we also tackled the much larger troubled business of Levitz,” Mr. Sass wrote in an e-mail response to a question about the deal.

Mr. Sass owned up to another impulsive personal buy just two months before Lehman Brothers collapsed in 2008 and sent Wall Street into a tailspin. He was stuck in traffic one evening in front of the Plaza Hotel, which was throwing a gala for its 100th anniversary, complete with movie stars, fireworks and the singer Paul Anka.

From his car, Mr. Sass watched Mr. Anka perform “My Way” as screens around the plaza projected images of celebrities who had celebrated milestones at the hotel.

“I’m stuck in a car trying to get home and I’m watching this and I’m thinking, it just doesn’t get any better than this. This is beautiful. This is iconic,” recalled Mr. Sass.

“So when I got home, I told my wife to go and buy an apartment there tomorrow.” She did.

Months later, Mr. Sass paid $24 million for a 6,306-square-foot duplex apartment at the Plaza with a terrace and bird’s-eye view of Central Park.

“I thought it was a stupid, emotional decision,” recalled Mr. Sass, his broad tanned face grimacing.

Mr. Sass’s story is that of a Brooklyn boy who made good. He grew up in the borough where his father ran the family hardware store. Mr. Sass earned $1 a day hauling heavy bags of cement and nails up from the basement. He graduated from Brooklyn College, which was free at the time, and started out as a securities analyst at a Wall Street brokerage firm.

Later, he formed and directed the special situations department for Argus Research. He married his college sweetheart and the two lived in a small Brooklyn basement apartment with a view of the alley, he recalls.

In March 1972, he started M. D. Sass with $50,000 of his own money, a new house in Long Island and two young children.

The Dow stood at 1,000.

During the next 18 months, he went into the office every day only to watch the Dow fall to 575 — a depressing start for a stock-picking firm hoping to attract new money.

Today, Mr. Sass oversees about $4.4 billion that resides in his investment funds and about $3.6 billion in a private equity fund and other funds backed by a joint venture created in 2006 with Australia’s Macquarie Bank.

That venture seeded, or made early investments in, 11 different hedge fund and private equity partnerships.

Four of the managers eventually closed shop because they could not attract enough outside investors, and seven remain operational, including a fund that invests in high-yield asset-backed securities and one that provides loans to agricultural commodity producers and companies.

During the height of the hedge fund and private equity boom a few years back, as many as 400 managers a year reached out to the firms looking for money.

Stephen Darke, the co-head of the global alternative strategist group at Macquarie, said, “Marty would sometimes interrogate a manager until he was sweating, trying to understand how his models worked or whether he or she truly understood the stocks all the way down to the cash flows and the factories and the workers and the litigation around it.”

That tough tack saved him not once, but twice from investing with Bernard L. Madoff, the convicted Ponzi schemer.

Mr. Sass first turned down a chance to get into the Madoff funds in the 1980s when Mr. Madoff, through a representative, refused to tell him how he made his returns.

Again, in 2008, the Brooklyn College investment committee considered an investment with Mr. Madoff. Mr. Sass, who was chairman of the investment committee, fought fiercely against the investment and won.

Mr. Sass is just not a believer in get-rich-quick deals.

“Growing up humbly, coming from nothing, really gave me a healthy degree of paranoia,” Mr. Sass said.

“I don’t want to go back to that basement apartment in Brooklyn.”

  Price   Change %Change
S&P 500
---
BHI
---
HAL
---
MET
---

Featured

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video

  • CNBC's David Faber and Carl Icahn, chairman, Icahn Enterprises, discuss corporate boards, a dysfunctional system, his impact as an activist investor and why what he does is important, as well as the use of poison pills to fend off activists. He also finds himself in the unusual position of defending Bill Ackman's recent efforts to partner with Valeant and acquire Allergan.

  • Discussing new technology in the Permian, growing market in North America, and higher earnings, with Dave Lesar, Halliburton chairman, president and CEO.

  • Paul Raines, GameStop CEO, discusses how its leadership in digital sales, market share, and ability to drive loyalty with rewards propels consumers to stay with the gaming store.