'Europe Is Not Going Away,' Argues David Marcus: Weekend Interview

Q: Like the U.S. in March 2009?

A: Yes! In March 2009 it looked like the end of the world, end of Wall Street. [That worked out for] those that had the gumption to move forward, not buying everything in sight but [selectively].

When the crisis hit Greece, stocks were down and we got to add a host of individual companies in sectors—companies that were not affected by the crisis when there was selling to raise cash.

Q: Not to Hell in a hand basket, but opportunity?

A: Now—last week all the markets got hit, we said 'Let's nibble.' We make the distinction between nibbling and gobbling–nibbling meaning using some our cash; gobbling meaning using much of it. We don't know if the markets will be lower, so we nibble so we can come back another day. We have 16% cash in the European fund, and 18% cash in the Global fund.

We started a new position in Germany because a couple of stocks were down 12% in one day—a media company, Highlight Communications—they have the rights to the UEFA Champion's League soccer. Why was it down? People wanted to raise cash. We were waiting, waiting, bought. Within two trading days the stock had recovered all the loss. We always have dry powder—because you never know when a crisis is going to come—be prepared to buy. It's a lesson from Michael Price.

We are focused on value and opportunity—and keep a cash cushion—dry powder. It's critical to look at value with catalysts. We are not buying cheap for cheap's sake. We want to know [what is going on in the company] restructuring, turnaround, new management.

Q: Michael Price was a mentor?

A: I worked for Michael Price—starting in 1987 as a co-op student. I answered phones, hooked up a satellite dish. I learned everything from him. He gave me a chance as a research analyst. [After Price sold Mutual Shares to Franklin Resources in 1996 (now Franklin Templeton), Marcus stayed with the new firm until 2000.]

I started a hedge fund with Jan Stenbeck, a Swedish billionaire and founder of Vodafone and other businesses. [With Stenbeck] I sat in on boards, restructured companies; I bring that to the table now. (See photo of two of Stenbeck's "VictoryChallenge" America's Cup racers at left.)

Q: Getting back to Europe…

A: Germany is generally driving the train. Germany will defend Europe and the Euro, will pump in as much capital as necessary. Don't believe Europe is going to go away.

We are bottom-up investors, find situations that are interesting, so we focus on the micro—but we [look at] macro events—taxes, the political situation—for what could go wrong and factor that into the valuation. How wrong can we be and it still works? It's how we get a cushion—a margin of safety.

We keep the number of companies low, there are 35 in the Global fund today, and 21 in the European fund. We don't want hundreds of names, we want to know companies really well; we want 'A' names—[there's] a compelling, opportunistic set there. If we have to go to 'B' names, I'd rather have the cash. Cash is one of the greatest things we can own—it's not going down by sitting in the portfolio. [So if it's not an 'A' opportunity, I'm] not going to trade my precious cash.