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How to Construct a Winning Investment Thesis


John Mihaljevic

May 23, 2013

You can turn to many places online and offline to find


someone articulating an investment thesis. Depending on
the presenter, an investment thesis can sound extremely
compelling at the time, only to turn out a dud or worse. It
seems a lot easier to construct a compelling-sounding
investment thesis than it is to formulate a thesis that is
actually compelling. Interestingly, some of the best
investment theses may not come across as such at the time
they are articulated. Often, great investment theses have a
component of uncertainty, i.e., some potential event or
liability investors simply cannot get their arms around. Think
of the BP oil spill or the loan book of Countrywide within
Bank of America.
While no recipe exists for constructing a winning investment thesis, it pays to learn from successful investors.
One of the most impressive rising stars of value investing is Glenn Surowiec, founder and portfolio manager of
GDS Investments. Glenn spent more than a decade at Alsin Capital Management prior to starting his own firm in
2012. Since Glenn assumed primary responsibility for managing client portfolios in late 2008, he has amassed a
track record featuring annualized returns of 24.3% during one of the most volatile periods in market history. We
normally do not ascribe significant weight to five-year track records. However, Glenns willingness to articulate
an investment thesis in real time and then have it re-examined at a later date reflects an intellectual honesty that
is sometimes lacking in the investment community.
When we spoke with Glenn in April 2012, he articulated a long investment thesis on Overstock (OSTK) when
the stock traded around $5 per share. Overstock shares recently changed hands for roughly $25 per share. In
my year-ago conversation with Glenn, he also argued that Bank of America (BAC) warrants were a compelling
investment. Bank of America shares have roughly doubled since then, while the A warrants have roughly tripled.
Thats it those were the only two ideas Glenn presented as his highest-conviction ideas last year.
What made Glenns theses on Overstock and Bank of America so compelling, and would you have invested
based on his argument? Fortunately, we have the full record available for review right here. To maximize the
learning opportunity, you may like to listen first to my interview with Glenn from a year ago, and then scroll down
to Glenns latest update on Overstock and Bank of America, including his play by play on how the investments
unfolded and why the outperformance materialized.

How to Construct an Investment Thesis Point in Time


The following is my full interview with Glenn Surowiec from April 2012. I have to admit I found Glenns
investment thesis on both Overstock and Bank of America compelling but somehow failed to act.
Maybe I suffered from the same shortsightedness that keeps many investors from seizing an investment
opportunity. If I recall correctly, I passed on Overstock because I thought they would have a tough time
competing against Amazon.com and because I was not sure the Overstock brand lent itself to gift-related
categories in which the potential buyer did not want to gift someone an overstock item. The companys rollercoaster history with short sellers may also have played a role in my decision, although I have always held Patrick
Byrne in the highest regard. Looking back, I committed one of the rookie mistakes of investing: I let prejudice
and some fundamental concerns detract from the actual facts, which included a rapidly improving financial
profile. I also failed to calibrate my fundamental assessment versus Overstocks extremely low valuation. What

29/12/2014 11:19 a.m.

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would you have done at the time?

How to Construct an Investment Thesis A


Year Later
In the following just-recorded conversation, Glenn explains
how the Overstock and Bank of America investments have
unfolded over the past year. He compares actual events to
his expectations, showing that the investments not only
worked out more importantly, they worked out for the right
reasons.
Glenn also mentions a new investment opportunity on which he appears to gaining increasing conviction. Well
be sure to circle back with Glenn as soon as he has another Overstock or BofA-like investment thesis to share
with us. Stay tuned for Glenns next high-conviction idea in The Manual of Ideas Members Area.
Glenn Surowiec started GDS Investments in 2012. From 2001 to 2012, he worked for Alsin Capital
Management, Inc. as an Equity Research Analyst (2001-2003), co-Portfolio Manager (2003-2008), and most
recently as Portfolio Manager from 2008 to 2012. In this role, he worked directly with clients in developing and
managing portfolios specific to their needs and objectives. Before joining ACM, Glenn worked as a Derivatives
Structuring Manager for Enron Corp. and as a Commercial Real Estate Credit Analyst for Commerce Bancorp
(now TD Bank). Glenn serves as a strategic advisor to ValueConferences, a fully online investment conferences
provider featuring some of the most prestigious value investors across the globe. Glenn has a BA in
Management (Accounting concentration) from Gettysburg College and an MBA (Finance concentration) from
Southern Methodist University Glenn graduated in the top 10% of his MBA class and participated in study
abroad programs both as an undergraduate (Seville, Spain) and graduate student (Melbourne, Australia).

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