11 January 2024

On today’s episode, Clay is joined by Jonathan Boyar. They discuss his firm’s most recent release of The Forgotten Forty, which outlines their 40 best stock ideas for 2024.

Jonathan Boyar is president of Boyar’s Intrinsic Value Research, an independent equity research boutique established in 1975 that counts some of the world’s largest sovereign wealth funds, hedge funds, mutual funds, and family offices as subscribers. He is also a principal of Boyar Asset Management, which has been managing money utilizing a value-oriented strategy since 1983. 

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  • How a company makes the list of the Forgotten Forty.
  • Potential catalysts Jonathan looks for in his investments.
  • Why Uber remained on the Forgotten Forty list after being the list’s top performer in 2023.
  • Jonathan’s thoughts on the underperformance of small-cap stocks since 2015.
  • An overview of Interactive Brokers stock.
  • Why Bill Ackman has taken a massive stake in Howard Hughes.
  • Why Jonathan likes Madison Square Garden Sports Corporation.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Clay Finck: On today’s show. I’m joined by Jonathan Boyar to discuss his newest release of the forgotten 40, which include his firm’s top 40 stocks. They like going into 2024. Jonathan is the president of Boyar’s intrinsic value research and is also a principal of Boyar asset management, which has been managing money, utilizing a value oriented strategy since 1983.

[00:00:21] Clay Finck: Jonathan’s team has a history of finding stocks that outperform. For example, over the past seven years, the average annual return of stocks profiled in their all cap publication returned 18. 9 percent versus 15. 1 percent for the S& P 500. During this episode, Jonathan and I chat about how a company makes a list of the forgotten 40, potential catalysts Jonathan looks for in his investments, why Uber remained on the forgotten 40 list after being the list’s top performer in 2023, Jonathan’s thoughts on the underperformance of small cap stocks since 2015, an overview of interactive broker stock, why Bill Ackman has taken a massive stake in Howard Hughes, why Jonathan likes Madison Square Garden Sports and much more.

[00:01:05] Clay Finck: When reading the names in The Forgotten 40, I was particularly interested in Interactive Brokers. It’s a founder led company with an impressive track record of historical growth and profitability, and still appears to have a long growth runway ahead. In the past year alone, they’ve increased their customer base by over 20%, and over the past 10 years, the total number of accounts has increased by an average of 26 percent per year.

[00:01:29] Clay Finck: They also seem to have a strong competitive moat given their focus on investing in new technologies and providing the lowest fees possible for their customers. Us investors here in the U. S. are pretty used to paying little to no fees in our investment accounts, but much of Interactive Broker’s customer base is abroad where oftentimes it’s actually illegal for brokers to charge zero fees.

[00:01:49] Clay Finck: With the strong balance sheet they have, there’s also a lot of potential for new acquisitions on the horizon. Without further delay, I bring you today’s chat with Jonathan Boyar.

[00:02:02] Intro: You are listening to The Investor’s Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

[00:02:26] Clay Finck: Welcome to The Investors Podcast. I’m your host, Clay Finck. And today I’m thrilled to be joined by Jonathan Boyar. Jonathan, it’s great to have you on the show. 

[00:02:35] Jonathan Boyar: Thanks for having me. I’m really excited. 

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[00:02:38] Clay Finck: So this past weekend, I received your annual research that your team puts out. It’s known as the forgotten 40 is what you call it.

[00:02:45] Clay Finck: And this list, it highlights 40 of your firm’s best stock ideas. And you’ve actually been kind enough to come on the show to discuss a few of these. And I’m super excited to dive in. Before we talk about the stocks, how about you just give a brief overview of what the forgotten 40 is, what it isn’t, and what it takes for a company to make the list.

[00:03:05] Jonathan Boyar: Thanks. I absolutely, yeah, the Forgotten 40 is one of our most popular products and it’s a little bit of an anomaly for us. So just by way of background the firm was started by my father in 1975 as a research boutique to look for companies the way and acquire what what would Warren Buffett pay for an entire business?

[00:03:29] Jonathan Boyar: And that’s the thrust of the service. And we’re long term patient investors. In fact Barron’s once called my dad the world’s most patient investor. I’m not as patient as he is, but I’m pretty patient. And my dad’s still very much involved with the firm. We do these monthly or almost monthly research reports that take a three to five year kind of time horizon, which is an anomaly with Wall Street research.

[00:03:56] Jonathan Boyar: But we realized not everyone is as patient as we are. So since the, really the 1990s, we’ve been publishing something called the Forgotten 40, which contains our 40 best ideas for the year ahead, and they’re not our cheapest names. Their names, in order to get into the publication, we had to have profiled it in one of our like full length reports, and we think there has to be a catalyst for meaningful capital appreciation.

[00:04:26] Jonathan Boyar: in the coming year. So we do this via one page snapshots, get sent to everyone between Christmas And New Year’s gets printed and we’re old fashioned. We still send everything via hard copy. While these reports are one page in length, there’s a lot of meat behind it. It’s not just us sitting around the table and saying, Hey, Intel looks cheap, which it’s not in the Forgotten 40, by the way, but just as an example, we had to have profiled Intel before.

[00:04:55] Jonathan Boyar: So people love utilizing it as a reference guide. And it’s really helpful for me as a. portfolio manager. When I starting out the year, I have a list of 40 stocks to choose from. And it’s a good kind of update internally. Our team does a lot of work to do it. We have four great analysts, plus myself and my father.

[00:05:16] Jonathan Boyar: And it’s it’s something we enjoy doing. And it’s something we think our subscribers like to receive. 

[00:05:23] Clay Finck: And part of analyzing and constructing a portfolio is turning over rocks and having 40 names to look through and take a look at is fun, especially when you have a team that does all the, a lot of the heavy lifting and in the forgotten 40, you have the essentially a one page overview of each company.

[00:05:42] Clay Finck: And it’s super useful just because you can get a broad overview of what. the thesis is and what you guys are thinking. And since you guys do this every year, I thought it’d be interesting to talk about how 2023 fared for last year’s issue of the forgotten 40. 

[00:05:57] Jonathan Boyar: Yeah, it was for a value manager. We actually did.

[00:06:03] Jonathan Boyar: I don’t know the exact, in front of me, I think it was roughly, we were up 15 or so percent, give or take, which significantly beat the Russell 2000 value, which was 8%, and it also beat the S& P 500 equal weight. It didn’t beat the S& P 500 is we’re an equal weighted 40 stock portfolio and to beat the magnificent 7 would have been a hard feat to do, but we were proud of the results.

[00:06:29] Jonathan Boyar: We’ve been doing this for a long time. And it’s also There are times where the performance is great. There are times where it’s not as good. What I would say is no one buys every stock in it. I think it’s just a great kind of idea generator and it lets people, it gives, we want people to think what’s the year going to look like?

[00:06:49] Jonathan Boyar: What type of stocks do I want to invest in? Maybe I have cash coming in the door in January. 

[00:06:56] Clay Finck: How do I deploy it? I think it’s really important. You mentioned that you have that page where you show the performance of the forgotten 40 and that’s equal weighted, which is honestly unfair much of success in investing is how you weigh your positions and just look at the S and P 500 is a prime example.

[00:07:14] Clay Finck: The S and P 500 heavily weights towards the bigger companies. When you’re weighed towards the magnificent seven, you tend to have pretty good performance with the way they’ve done. 

[00:07:25] Jonathan Boyar: But remember, it also works both ways. Right before the financial crisis, I think I read it yesterday or the day before, I had forgotten the statistics, but the financial sector was almost a quarter of the S& P 500.

[00:07:37] Jonathan Boyar: You live by the sword, you die by the sword, so it’s, I’m not saying what happened to financial stocks is going to happen to technology stocks, but when you have 10 stocks that are 32 percent of an index, most of which are in the technology space broadly defined, things can get a little dicey.

[00:07:58] Clay Finck: You emphasize the long term approach and how your team thinks. So I’d think that a good number of the companies really don’t change from year to year, just because it takes time for the market to recognize the value that your team’s seeing. So how many of the 40 names in this year’s report are repeat from last year’s?

[00:08:18] Clay Finck: And how much does that tend to change more broadly? 

[00:08:21] Jonathan Boyar: I’d say on average, it’s about 50 percent turnover. Because throughout the year, we’re coming up with new ideas and almost by definition, if we like the ideas. with they’ll be decently represented in the forgotten 40. Plus you want to take blast from the past.

[00:08:39] Jonathan Boyar: So things that we might’ve profiled 5, 10 years ago that we’ve been tangentially following and see that there’s a catalyst on the horizon for value realization. So we just want to pick our 40 best stocks. While we’re cognizant of, Not having 40 financial names or 40 industrial names. We just want to have the best, put the best roster out there in a variety of industries, variety of market caps.

[00:09:05] Jonathan Boyar: But I think it’s interesting that this year’s class 19 of the 40 names are sub 10 billion in market cap, which is. The high end of the Russell 2000 value that’s and the vast majority of those 19 are. In the like 5 billion or less range roughly, so we’re heavily weighted everyone’s definition of small cap is a bit different, but we’re of the belief that small cap is set for a renaissance and 2024, could it be the year of the small cap?

[00:09:47] Jonathan Boyar: Possibly, if not this year, maybe next year, but that’s a big theme of ours. 

[00:09:52] Clay Finck: Another word that stuck out to me when you talked about the list was the word catalyst. And you’re looking for potential catalysts in a lot of these names over the coming 12 months to see value unlocked. And for example, this might be a company, it might be a small cap.

[00:10:08] Clay Finck: It’s the size where a private equity firm could come in, take it over. purchase it at a premium to what the market’s trading at, and that’s how that value ends up getting unlocked. So what have you learned in your career about investing in this manner of looking for catalysts and looking for these near term events that unlock value?

[00:10:28] Jonathan Boyar: Because of the way we look at companies through the lens of an acquirer and that they’re cheap by an acquisition candidate’s standards, a fair amount of the names that we profile end up being acquired actually two from last year’s list were a company called Univar and Hostess Brands were both acquired and being a takeout is never the sole reason for owning a business because or writing about a business.

[00:10:56] Jonathan Boyar: Because that could take a long time, but you want to have a reason for owning it. And my father is instilled in me, you can find the greatest company in the world, selling at a cheap price, but if it doesn’t ascend in value, it doesn’t do you any good. There has to be a reason, a change, something that will make the market recognize what you are seeing.

[00:11:19] Jonathan Boyar: And realistically, does a catalyst happen within that one year? Who knows? That’s just an arbitrary calendar date, but we found it helpful. And there’s different schools of thought. There are investors. who I respect a lot, who think value is its own catalyst. I just happen to I guess it’s the way I was taught.

[00:11:38] Jonathan Boyar: I think you want to look for these realizations and reasons for it. So we try and tell a story. Why is the stock going to go up? Over a reasonable period of time. And generally with the exception of forgotten 40, a reasonable period of time is two to three 

[00:11:52] Clay Finck: 

[00:11:52] Clay Finck: I 

[00:11:52] Clay Finck: can’t help but think of Elon’s Twitter takeover and thinking about a private equity Taking over a company.

[00:12:00] Clay Finck: Is there some sort of bias where they’re looking at the share price and they’re just like, hey We’re just gonna tack on a 20 percent premium. So they’re not necessarily looking at

[00:12:17] Clay Finck: Just a wide range of premiums that industry like private equity is looking to pay. 

[00:12:23] Jonathan Boyar: I think it’s a case by case basis. Private equity, I’ve said some of the savviest investors there, while there’s a lot of capital chasing deals they want to make money and they want to own, they have to own the underlying business.

[00:12:38] Jonathan Boyar: So they have to like the underlying business. So I they have to usually have some sort of premium unless it’s a take under, but I think it’s a case by case basis. And you probably, the smaller in the cap spectrum, you go, the higher, the probably the premium it is because it just might not be reflected in the price.

[00:12:58] Jonathan Boyar: And it also depends, is this an owner operated business? They’re not going to sell just for a 20 percent premium. They’re only going to sell when they think they’re really getting more than fair value for the company. 

[00:13:10] Clay Finck: You mentioned value potentially being a catalyst and I mentioned the private equity taking over a business and paying a premium for the company.

[00:13:19] Clay Finck: Are there any other sort of catalysts that you seem to come up as a recurring theme? 

[00:13:24] Jonathan Boyar: There’s lots of different catalysts. There’s, could they do a massive share buyback? Could they spin out a division, an asset sale? Could they make an attractive acquisition? One of the names I think we’ll probably talk about interactive brokers.

[00:13:40] Jonathan Boyar: Is there a, an octogenarian, an 80 year old man with no heir, a parent who owns a lot of stock, sooner or later himself or his or her heirs sell the business? Let’s swallow all that. Guy at Interactive Brokers, I think it’s 79. He’s getting close to octogenarian status. It’s, there’s lots of different reasons for a company to go up in price.

[00:14:02] Jonathan Boyar: You just have to try and pinpoint it. Could it be included in an index? One of the things we included, we had Uber last year and I believe one of the catalysts we cited was inclusion in the S& P 500. Because they were finally, at least we thought, going to become GAAP profitable for a full year, which would lead to index inclusion.

[00:14:23] Jonathan Boyar: And that’s, that was a catalyst. And Uber is far from a traditional value stock. 

[00:14:30] Clay Finck: I actually had a note here. I wanted to mention Uber. It was actually the biggest winner of last year’s report for you. The stock rose by over 130%. And like you mentioned, it’s not your kind of traditional value type play.

[00:14:44] Clay Finck: It’s growing quite fast and it’s really in an industry that I think a lot of people view as a winner take all industry where the dominant player ends up taking most, if not all the profits and Uber’s market cap at the time of recording is 119 billion at the share price of 58 a share. So talk more about Uber.

[00:15:05] Clay Finck: I’m really curious to hear despite it being the biggest winner of last year, it still remained on this year’s list. 

[00:15:11] Jonathan Boyar: Yeah, no, we’re still riding with Uber. It’s can’t promise another 100 percent gain, but they’re firing on all cylinders. They have great CEO and Dara. The, they’re becoming more and more profitable.

[00:15:24] Jonathan Boyar: They have a huge moat. Lyft is competitively disadvantaged because it’s a network effect. And it’s certainly not as cheap as last year, but just because the stock goes up, not a reason to sell it. And just because a stock goes up is also not a reason not to include it in this year’s list again, because we still like the business.

[00:15:49] Jonathan Boyar: We still think it’s intrinsically undervalued. There’s a long runway. For growth, there’s a lots of things that they could be doing in terms of advertising, et cetera, that we like. And it’s one of these names that I think it gets thrown out a lot, but it’s a long term kind of compounding business that you want to own these for the long term stocks like these could go down 30, 40%, but over the long period of time, I think.

[00:16:17] Clay Finck: And at the start of your report, you really talk about these broader themes going on in the economy. You aren’t trying to invest based on the macro, but you’re aware of what’s happening within the bigger picture. So what are some of the bigger themes you’re looking at in today’s market that help you decide the types of companies you want to own or the companies you want to cover in the Forgotten 40?

[00:16:42] Jonathan Boyar: It’s, yeah, the macro is a dangerous thing because you can always scare yourself out of investing as as Buffett famously talks about all the bad things that happened in the 20th century, yet the Dow went from 41 to whatever it went to. And, people who invested the day before Black Monday, or the people who invested the day before the crash of 87 as long as it held on for a long period of time, it did fine.

[00:17:12] Jonathan Boyar: So you try and filter out the noise as best as you can, and don’t let headlines scare you. Obviously, you have to be cognizant of things, and I’m someone who, when I’m buying stocks for myself or clients, I generally don’t take a full Position right away, as I think as I’ve learned stocks can get a heck of a lot cheaper than you ever thought they could.

[00:17:38] Jonathan Boyar: And you want to have some dry powder there. Yeah, so I don’t know if that kind of answers the questions that you were looking for, but happy to elaborate. 

[00:17:48] Clay Finck: Yeah, let’s dive into one of the sections was on small cap stocks. Those have underperformed the S& P 500 since 2015 by around 6 percent per year.

[00:17:58] Clay Finck: But interestingly, over the long run, Small caps have actually tended to outperform the broader market. I pulled a stat here on small caps. From 1926 through July of 2023, small cap value has produced a four percentage points of alpha above the S& P 500. So I’m curious to get your take on the underperformance since 2015.

[00:18:21] Clay Finck: Obviously we’ve seen big tech take over. The index and lead a lot of those gains. What do you think are some of the other reasons for a four percentage point gap since 2015? 

[00:18:33] Jonathan Boyar: Yeah, no, it’s been a painful time to be in small caps. And yet the some people recently have been blaming interest rates or the rise in interest rates for that.

[00:18:44] Jonathan Boyar: But obviously there are a long period of that time where interest rates were basically zero, which so that’s not really the culprit. In my opinion, I think you just have to go back historically. If you look at the period before the dot com bust, there was a long period where the Russell significantly The S& P 500.

[00:19:10] Jonathan Boyar: And then, and I’m not saying that these periods are exactly analogous, but history tends to rhyme. The period after the dot com bust, the S& P basically did nothing, and the Russells shined, and I think we’re going to enter a period. Such as that. And that’s a period where I think stock pickers like us should do quite well, especially those who gear towards smaller cap names.

[00:19:36] Clay Finck: And one more part on the broader theme section I thought was quite interesting. It was the presidential election year. That’s 2024. There were some interesting stats on that. I’d be curious if you have those up and you’d be able to share what a presidential election year means to you as a value investor.

[00:19:55] Jonathan Boyar: Basically, the presidential election years are the second best performing years, I believe, in the presidential election cycle. And we get a lot of the data from, I buy each year, the Stock Traders Almanac, which is, it’s a great read, and you got a lot I’m one of these. People who like statistics and while I don’t invest by it, I think it’s good to learn what kind of historical patterns there are.

[00:20:21] Jonathan Boyar: But 1 of the ones that I thought was interesting was regardless of which party is the ultimate victor in 16 of the past 18 presidential election years. The last seven months in total have seen gains in the S& P 500, but there are big exceptions. The two exceptions were in 2000, where the results were delayed of the presidential election.

[00:20:41] Jonathan Boyar: And I really hope. That’s not the case this year, and the other one, it was during the 2008 financial crisis, and I hope that as well that doesn’t occur as well the S& P does better when there’s a sitting president in office running for re election, so there’s lots of things that you can glean from history, and it’s worth noting that the, over the last couple of years, if you had invested the way kind of the stock traders almanac had for presidential election years, you would have done that.

[00:21:08] Jonathan Boyar: Quite well. But at the end of the day though I’m a stock by stock basis guy. I look at each individual company. What is it worth? What’s the catalyst? How are we going to get paid it’s important to be aware of all these other things. 

[00:21:22] Clay Finck: I can’t help but think of Munger who recently passed and just show me the incentive and I’ll show you the outcome.

[00:21:29] Clay Finck: Generally during election years, it seems that governments tend to be more accommodative to markets. 

[00:21:34] Jonathan Boyar: Yes, and then the year after the election, I think is the worst part of the cycle because people realize all those great promises aren’t going to occur. So it’s amazing that this happens pretty consistently, but it does.

[00:21:48] Jonathan Boyar: But the one thing I would say is 2024 does not look like a typical election year, although maybe I don’t know what a typical election year looks like. I think all bets are out the window on it and people who are strategists, they got 2024 for the most part 2023 for the most part, dead wrong, nothing that they said occurred would.

[00:22:11] Jonathan Boyar: So I would be. wary of making strategic calls for the year. I think you’re better off being more strategic in the stocks that you pick and not macro outlook. 

[00:22:25] Clay Finck: I recently saw a tweet that looked at all the big banks, all these big firms and their outlook for how the S& P 500 would end in 2023.

[00:22:34] Clay Finck: Like hardly any of them predicted a gain of over 10%, yet the S& P was up over 20 percent on the year. Yeah. 

[00:22:41] Jonathan Boyar: Yeah, no, if you were going, yeah, everyone thought, say, be defensive and in 2023 and By dividend paying stocks and all these other things that were the laggards. And I just think there’s lots of different ways to invest.

[00:22:55] Jonathan Boyar: I just, to me, it makes more sense to know about the companies you’re investing in. Yeah. One thing that just going back about the outlook for the year and things such as that, that I think is important to know. One of the things you might have noticed in the forgotten 40 is an absence of energy names, but those are names that we’ve.

[00:23:15] Jonathan Boyar: Historically have avoided over the last couple of years as energy has been the favorite, I think it’s the best performing sector since the market bottom that are during COVID take a 10 year view, it’s been a horrible place to invest their capital, destroying businesses, cyclical. So we while a lot of value investors.

[00:23:35] Jonathan Boyar: I think there is value in energy maybe I’ll be completely wrong, but it’s one that I would avoid. And another reason is you have to be right twice. Ideally, you want to buy a stock and hold it for long periods of time. And let the magic of tax deferred compounding happen and with energy names have to trade in and out of them and that’s tax inefficient, so it’s something we avoid.

[00:24:04] Clay Finck: Right, and there’s just much more of a human element where you not only have to decide when you’re going to buy, you have to decide when you’re going to sell. And the more decisions you have to make, the tougher things can be. I wanted to transition here to talk about one of the names on the Forgotten 40, it’s Interactive Brokers.

[00:24:19] Clay Finck: It really appealed to me. I’m actually an avid user of Interactive Brokers and I actually use it for all of my stock accounts. So I firsthand can say I’m a big fan of the platform. I don’t own any shares, but long term it’s actually really been a phenomenal stock. I just looked in your research, you pointed that as of October, 2023, they grew their number of accounts by over 20 percent year over year, and they’ve just seen impressive growth.

[00:24:44] Clay Finck: And stopped a bottom in their business. And if you’re not familiar with interactive brokers, essentially it’s just a digital platform to buy and sell stocks and they have great fees and I think they do a really great job. But stock investing, there’s plenty of firms that do what interactive brokers does so many people are familiar with Vanguard, Fidelity, Charles Schwab, all these You know, these names that people are a part of, but most people are probably less familiar with interactive brokers.

[00:25:11] Clay Finck: So I’m curious to get your take on how they’re able to differentiate themselves with the service and what feels like a commodity like business. 

[00:25:20] Jonathan Boyar: Yeah, I think he’s done a fantastic job of growing this business and it looks like they have and going back to those word compounders years of many years of 20 percent plus account growth.

[00:25:35] Jonathan Boyar: And in the U S it’s essentially a commoditized business with Fidelity and Schwab, but that’s if you just want to invest in the U S the. The interactive brokers platform is easy with currency conversions. It’s easy to invest throughout the world. Also, most of their accounts are, or vast majority are held outside the U S where people actually still do.

[00:25:59] Jonathan Boyar: pay commissions because payment for order flow, which is how Fidelity and Schwab are able to offer zero commission trading. It’s illegal. And should remain so. And what they’ve noticed was they do have a model where there’s free commissions, but you have within there, but you get worse execution and they’ve had very little uptake on it.

[00:26:22] Jonathan Boyar: So there’s value in what they do. They have low cost margin lending lots of, different things that make people want to use them and their technology is fantastic. We try to automate everything possible. So it’s, and they’re really growing in the hedge fund space, especially the ones that are 50 million and below of funds.

[00:26:44] Jonathan Boyar: So there’s lots to like about it. And we like these businesses that can continue to grow for you like an Uber. Continue to grow for years and years and have a huge runway for success and it’s I think, and if you can buy them at a reasonable multiple, I don’t have the multiple right in front of you, but It’s significantly below its historic one.

[00:27:06] Jonathan Boyar: Over time, if you are a patient, generally good things happen. 

[00:27:10] Clay Finck: Yeah, your report shows a PE of just under 15, and this was released in December 13th, 2023. In just the 2023 growth fiscal year, revenues grew from 3 billion to 4. 3 billion. Operating income grew from 2 billion to 3. 1 billion. So it’s a very highly profitable business.

[00:27:28] Clay Finck: Unlike Uber, it’s just crossing that threshold. But Interactive Brokers has been profitable for quite a long time. 

[00:27:36] Jonathan Boyar: Yeah. No, it’s a history of profitability. They have a, they also have a pristine balance sheet. It’s a lazy balance sheet. They need some of it as part of their, for their business, but those are also the catalyst.

[00:27:47] Jonathan Boyar: Maybe they increase their dividends significantly or do a. A big share buyback. There are things that they could do. As I said, the CEO or the founder is almost 80 years old. Does he sell this company to another one? There’s a lot to like there. And it’s one of these that I think are obviously I wish we had this show 10 years ago and people had invested in interactive brokers.

[00:28:12] Jonathan Boyar: This has been a fantastic performer. 

[00:28:15] Clay Finck: Yeah. The founder. who’s 79 years old, he owns 68 percent of the shares and then insiders overall own 76. 2 percent of shares. And when I was looking back at interactive brokers history, it seems like they’ve gone through a transformation type period where it was roughly a decade ago.

[00:28:32] Clay Finck: They launched this online trading portion of their business and then they transitioned away from whatever they were doing prior to that. 

[00:28:40] Jonathan Boyar: They were an options market maker type of business and they’ve switched and and it was the right move and people gravitate towards them and their marketing hasn’t been particularly effective.

[00:28:50] Jonathan Boyar: They’ve just been growing via word of mouth, which. is the way you want to grow your business. Obviously you would love to have great marketing too, but the fact that if one person tells another means you have a good product out there and yeah, it’s a name that we like. 

[00:29:04] Clay Finck: Do you know what markets they’re primarily growing in?

[00:29:07] Jonathan Boyar: Oh outside of the US they were only in Australia. They’re growing in Europe, they’re Asia. It’s across the 

[00:29:15] Clay Finck: board. 

[00:29:16] Clay Finck: Yeah. And another thing that sort of sticks out to me about this industry is the switching costs seem to be. Somewhat high. I’m speaking from experience where I call my broker.

[00:29:26] Clay Finck: I’m like, how the heck do I get this transferred over to interactive brokers? And they just make you jump through all these hoops. They called five different people just to try and make it happen. So that was quite annoying, to be honest. But the stickiness, once you have a happy customer, they aren’t, they really have no incentive to leave when they’re getting low fees.

[00:29:43] Clay Finck: They get offered everything they need within the platform they’re on at that time. 

[00:29:48] Jonathan Boyar: Especially in one of the areas that they’re trying to grow in these like RIA space. Where those are extremely sticky because once you’re, you have all your clients signed up where you are now the custodian and broker of record for them that no one wants to have an excuse for a client to leave and that gives you an excuse.

[00:30:10] Jonathan Boyar: So it’s a really. Good. Yeah, it’s a good business. High switching costs. It’s a very different business than Fidelity and Schwab. 

[00:30:19] Clay Finck: You noted the enormous runway they have. Here, I’m looking at the report. 2. 5 million accounts are under interactive brokers. Charles Schwab, not a direct comparison.

[00:30:29] Clay Finck: You’re right. They have 34 million accounts and then Fidelity has 43 million. I’m curious to get your take on. Obviously, the U. S. competitive landscape is pretty tricky, given we can have zero trading fees at a lot of these firms. What does the competitive landscape look like outside the U. S. and how that looks, given that zero commission trading is illegal in many of these markets?

[00:30:53] Jonathan Boyar: Yeah, it significantly advantages interactive brokers because they’re the low cost providers. They built the infrastructure, they built the technology, and they have a great platform. So it’s favorable. They’re growing much faster. High single, high single digit growth in the U. S. which is far below what it is outside the U.

[00:31:16] Jonathan Boyar: S. So it’s. It’s something that’s that will continue to grow up. 

[00:31:22] Clay Finck: I wanted to also mention Howard Hughes, another company outlined in your report, sticker HHH. Bill Ackman has actually been quite active in this stock. At the end of Q3, 2023, Ackman’s firm Pershing Square had a 1. 2 billion stake in the company, and he’s been purchasing shares throughout the year.

[00:31:42] Clay Finck: And it looks like over half of his shares were accumulated in the drop in March of 2020 when the stock got hammered from 120 all the way to as low as 40. And according to your report, Ackman’s firm Pershing Square owns 37 percent of Howard Hughes. So talk to us about what you’re seeing in this name.

[00:32:01] Jonathan Boyar: This is a name that Ackman made a lot of money in. It was from General Growth Properties and after the financial crisis and Howard Hughes is a master plan community developer in really favorable areas of the country, Texas, Nevada, Phoenix, Los Hawaii, and you’d mentioned that he bought a lot of his shares during COVID and that was out of an abundance of caution, the company didn’t want to have any liquidity issues.

[00:32:32] Jonathan Boyar: So they, he’s chairman of the company, they issued shares and he was by far the largest buyer of it. And he got it. He bought it in the 50s. It’s now in the 80s. In retrospect, it wasn’t a great deal, but you didn’t know what was happening with COVID at the time. He wanted to make sure the company was alive to fight another day and shareholders were given the same opportunity to buy shares as well.

[00:32:57] Jonathan Boyar: He’s allowed to buy up to, I believe, 40 percent of the company. He, every time the stock gets below 75, it seems that he buys more. So there’s. Enactment put in the 75 range, it wouldn’t shock us if he takes the company private, or if he merges it with his open ended publicly traded funds, because he wants that to be listed in the US and you need an operating business.

[00:33:29] Jonathan Boyar: I don’t know exactly how the mechanics of that would work, but that’s been a long rumored thing that would happen. But either way, they have tons of they have 30, acres of raw land to develop 36, 000 acres. They have a long runway to increase net operating income for years to come. There’s also the catalyst where they also own the South Street Seaport in Manhattan and some other assets in Las Vegas.

[00:33:59] Jonathan Boyar: that they’re spinning those out into a separately publicly traded company in 2024. And that should make it a pure play master plan community, which hopefully we’ll give it a higher valuation and maybe instead of spinning it out, someone ends up buying it. Who knows that I’m talking about this fun off part and it’s also, it’s not particularly well covered on wall street.

[00:34:22] Jonathan Boyar: That’s five analysts cover it. And if you look at other. Home builders or other REITs that they’re significantly more and they’re not a home builder. They really are a seller of land, but they have much less coverage, which leads to valuation discrepancies. 

[00:34:42] Clay Finck: You mentioned 37, 000 acres of raw land and It’s quite interesting to think about that aspect because it requires some digging to figure out, okay, how much is all this land worth?

[00:34:52] Clay Finck: You got Phoenix, Nevada, Hawaii. How much research do you guys do in terms of figuring out how much all this is really worth and figuring out a fair value for the overall company? Because I think some investors can get into trouble and assume, okay, in Nevada land, it’s probably worth this much.

[00:35:08] Clay Finck: And just oversimplifying things and land values just across. Different areas of a city can just change so, so much. So yeah, talk more about the land. Yeah. 

[00:35:19] Jonathan Boyar: And land is at historical costs. So the balance sheet is not much help. But we, in our initial initiation report, we went through all the different properties and what they’re worth.

[00:35:29] Jonathan Boyar: And yeah, no, it’s. It’s a ton of digging. It’s a ton of work. Our team does a fantastic job with that. And generally we use very conservative assumptions. We’d rather be surprised than the upside. 

[00:35:43] Clay Finck: And do they generally just reinvest everything back into redeveloping these or how does the capital 

[00:35:49] Clay Finck: allocation look? 

[00:35:51] Jonathan Boyar: That’s what also makes them unique. They’re not a REIT. So they don’t have to dividend back everything. So they invest it into the company. Which is also a competitive advantage and they do it and they grow it and it’s a virtuous cycle where they’re they’re able to control the supply of land within an individual community.

[00:36:11] Jonathan Boyar: So they, they build 1 of these master plan communities. They make it nice and sell X amount of land to developers, which then and commercial operations. Which then makes the raw land they have, they’re even more valuable and they keep doing that. So they keep a tight lid on supply and demand of supply of the role.

[00:36:32] Jonathan Boyar: And so they’re very strategic of what they do. And 1 of the things is, it probably shouldn’t be a public company because. You have to take a 10, 15, 20 year time horizon for these type of investments, but it’s selling at a decent discount to what we perceive NAV to be, and I think NAV will grow significantly over time as they develop more land.

[00:36:56] Clay Finck: And then is there any more near term catalysts that stand out to you? I could see some investors just looking at the current net operating income and plugging a multiple on that. Is there anything with maybe in the near term that might be more so of a catalyst outside of a takeover? Yeah I 

[00:37:14] Jonathan Boyar: think they’re spinning out the South Street Seaport this year, as well as some assets they own in Vegas, including a part of a minor league baseball team, I believe, so that’s a catalyst and that could make it more of a pure play type of company and analysts can do a better job of figuring out what it’s worth.

[00:37:34] Clay Finck: There were a couple of other names I wanted to mention that I was just looking at the valuation of some of these names. One of them was Markel. It seemed to be one of the more undervalued names on your list. And at the time of your research, you estimated the intrinsic value of Markel to be around 2488.

[00:37:51] Clay Finck: And that valuation was based on some of the parts. And the share price at the time of publication was 1388. So that implies a potential upside of 79%. And immediately my mind thinks about how companies like Hathaway have always had this conglomerate discount. So I’m curious to get your thoughts more generally on investing in this manner of some of the parts or a discount to intrinsic value, how that tends to work out over time, given you guys have done this type of research since the nineties.

[00:38:24] Jonathan Boyar: The two examples you gave of conglomerate discounts, people have owned Markel or, and certainly Berkshire for 30 years, even if it traded at a discount to what it should be as a piece that’s a conglomerate. I’ve still been handsomely rewarded. If you buy great companies, generally good things will happen.

[00:38:44] Jonathan Boyar: You just want to make sure you have good stewards of capital. Tom Gainer, who runs Markel, good investor, very conservative, runs a good operation. They started something called Markel Ventures. I don’t know roughly 10 years ago or so, where they’re investing in private companies and they’re dubbed the baby Berkshire.

[00:39:03] Jonathan Boyar: And it’s one of these, they’re growing book value over time and in a conservative prudent manner, they have a nice stock portfolio that’s done quite well. And I think the private equity part of the business, the ventures part will become more and more meaningful. They just need to do a better job of underwriting as it hasn’t been ideal for 

[00:39:26] Clay Finck: them.

[00:39:28] Clay Finck: And we had talked outside of this that we’re both friends with Chris Mayer and. Chris mentioned on our show that he solely focuses on compounders and he quit investing in names based on some of the parts, discount to peers, et cetera. He said it took him quite a bit of time to make that transition.

[00:39:46] Clay Finck: And it’s quite interesting just learning about all these different approaches of how people think about risk and valuation and time horizon, all that. 

[00:39:55] Jonathan Boyar: Chris is a great guy and a great investor. And he wrote a fantastic book called 100 Baggers, which I recommend everyone read. And he’s right.

[00:40:06] Jonathan Boyar: You want to invest in these compounders and I don’t want to invest in something that’s a sum of the parts story. That’s a mediocre business. That’s just one part of it. In some ways Markel sorry, Howard Hughes is a some of the part play business, but I also like it’s selling a discount, but I also like the underlying business in this growth prospect.

[00:40:28] Jonathan Boyar: So you can, you want, you can have your cake and eat it too in this. You just have to be very selective. Chris has the advantage of running an extremely concentrated portfolio where I think he probably has 10 or 15 stocks in it. So we’d have to pick 40. It’s a little harder to do that. But yeah, I fully agree.

[00:40:44] Jonathan Boyar: You want, it’s not just, Oh, this is selling. A stock is selling at 15 times earning. It is historically sold at 20. Its peers sell at 20. Let’s buy it in hopes that there’s mean reversion. It could also go the other way where their peers just don’t do as well. So it’s, you want to have a reason for owning the underlying business.

[00:41:06] Jonathan Boyar: Not just these special situations. 

[00:41:10] Clay Finck: I fully agree. It’s why I wanted to mention interactive brokers and Markel, like Markel especially, they have these diversified revenue streams. You have Tom Gainor just a very long track record of treating shareholders fairly and. being a good capital allocator.

[00:41:26] Clay Finck: And then they have the stock portfolio. And then one point you made in your report in regarding to the venture side is they haven’t been able to make as many deals with lower interest rates and just so much competition, but now with higher interest rates and the really strong balance sheet they have, it’s their time to be more opportunistic and finding those deals and putting that cash to work.

[00:41:47] Jonathan Boyar: Yeah. And what I like about them is they didn’t chase things. They didn’t try and buy it’s not like a private equity firm where they have to invest the money. They were fine just being prudent and waiting for their time and their time will come where there’ll be less competition for private equity.

[00:42:06] Jonathan Boyar: People would want to sell to them and they’ll be the buyer of choice. So yeah, they’re it’s a great operation and they’re doing a good job and, They’re becoming more and more widely known in investing circles as well. 

[00:42:22] Clay Finck: So it was interesting to read about some of these very public assets in your report.

[00:42:26] Clay Finck: Companies that people see in the limelight, but they just don’t really think to invest in or even know it’s an option to invest in these. One of which is Madison Square Garden Sports Corporation, which you state 99 percent upside from. the 171 level. Talk to us about what you’re seeing in this one.

[00:42:47] Jonathan Boyar: Madison Square Garden is a name we’ve known for a long period of time. It’s controlled by the Dolan family and it suffers from the quote unquote Dolan discount. It was initially part of Cablevision and they’ve done a variety of spinouts and Madison Square Garden sports owns the Knicks and the Rangers.

[00:43:06] Jonathan Boyar: are the primary assets of it, and you may or may not have noticed there’s been a lot of activity in publicly traded sports teams, or in sports teams, private equities that got involved in a big way, sovereign wealth funds have gotten involved in a big way, and right now the enterprise value of Madison Square Garden Sports is Roughly four and a half billion dollars or so the Knicks alone Forbes values at six and a half billion dollars.

[00:43:39] Jonathan Boyar: The Rangers are close to 3 utilizing what historical premiums to Forbes value. You get a much, much higher stock price and people will say, oh Dolan will never sell the team. One, I would say never. He did sell Cablevision at a great price, by the way, at a great time. And two, if Mark Cuban can sell the Dallas Mavericks, who everyone thought he would be a, or sell a majority stake in the Dallas Mavericks, it’s not far fetched to think that James Dolan can do the same thing.

[00:44:10] Jonathan Boyar: But there are other ways that they can unlock shareholder value apps in a sale. They could sell one of the teams. They could sell a stake in one of the teams, which is what’s happening with the Toronto Maple Leafs organization. And there’s lots of ways to win. They can buy back a lot of shares. They can be, they’ve already paid one special dividend.

[00:44:30] Jonathan Boyar: They can pay another one. So there’s a lot to I think you have downside protection and these are valuable assets and it’s. At least in my opinion, as long as there are billionaires with big egos, the price of these sports teams are just going to increase in value. There are scarce assets. There’s only roughly 30 NBA teams, and that’s also a catalyst where there’s rumored that they’re going to do, expand by 1 or 2 teams and that there’s going to be an expansion fee and that will be divvied up by all the teams and the NICs will share in that revenue stream. In addition, they have I believe in a year or so. Their media rights for the NBA come up, that’s, they’re going to have a, it hasn’t been renegotiated in about 10 years.

[00:45:22] Jonathan Boyar: It’s going to be a significant bump up there. So there’s lots of reasons why the stock could go up significantly, even absent a sale of the teams. 

[00:45:32] Clay Finck: Talk more about the Dolan discount. Is it just a factor of him not wanting to sell or is there something else there? 

[00:45:39] Jonathan Boyar: Oh, I mean for those of your listeners who are in the New York area they know all too well the trials and tribulations of James Dolan is actually a There’s a great podcast series out there called Reign of Error, which details the Dolan Empire and what they have done.

[00:45:59] Jonathan Boyar: And they’ve been terrible operators of at least the Knicks. They’ve been until recently they’ve had terrible record. They’ve owned the team since the 1990s and he’s probably one of the least liked people in New York. He’s done things like, yeah. You might have seen these stories with facial recognition going into Madison Square Garden where anyone who is suing them or worked at a law firm that is suing them can’t go in.

[00:46:27] Jonathan Boyar: He does not get good press and that gets reflected in the stock price. But I look at as we follow Cablevision and own Cablevision for long periods of time, we made a lot of money and our clients made a lot of money in Cablevision and eventually sold it. But I think if you take a longer term perspective.

[00:46:46] Jonathan Boyar: These discounts can turn into opportunities. 

[00:46:50] Clay Finck: Great. Jonathan, I really appreciate you joining me on the show today. Before I let you go, I want to give you a handoff to how the audience can learn more about the Forgotten 40 and learn more about your firm and any other resources you’d 

[00:47:03] Jonathan Boyar: like to share.

[00:47:05] Jonathan Boyar: First, it was a pleasure being on your show. It was a lot of fun. And I can’t believe an hour or whatever it is, it just flew by. Yeah. For those who want to know more about the Forgotten 40. If you just go to Boyar research. com forward slash 2024, you get all the information you need about the forgotten 40 and including some samples from this year’s.

[00:47:29] Jonathan Boyar: And one of the things that we did, it’s new to Boyar in 2023 was we started a sub stack that has paid and premium content. And it’s, we put it up basically a stock idea a month for paid subscribers. And that’s at Boyar research. substack. com. Yeah, I’d encourage people to go there or just go to Boyar Value Group.

[00:47:50] Jonathan Boyar: com to learn more about what we do. And we’re very different than traditional Wall Street and we’d love to hear from you. 

[00:47:59] Clay Finck: If anyone who’s listening enjoyed the chat and they’re interested in Forgotten 40, I’ll be sure to get that linked in the show notes. Jonathan, thanks again for joining me.

[00:48:07] Clay Finck: I really enjoyed reading through your research and it was great having you on the show. Always fun as a stock picker to be able to look through a list of that has a ton of research behind it. And you can pick and choose the types of companies you’re looking for, which is amazing because you have quite a variety to pick from.

[00:48:24] Clay Finck: And just thank you for coming on and thank you for all that you did. 

[00:48:27] Jonathan Boyar: Thank you. It was a pleasure and I look forward to staying in touch and thanks for your time. And this was a lot of fun.

[00:48:34] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.


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