Mysterious Value Investor Club

Daniel Sande Sundheim built a reputation as a shrewd stock picker at Viking Global Investors. He helped oversee the company’s $32 billion assets, which also helped him raise more than $4 billion when he launched his own fund in July.
However, although Sondheim, 41, is now well-known in the hedge fund industry, he might not have been able to enter the industry without a little-known website. This website is called “Value Investors Club”. In 2002, Sondheim anonymously published a 3,700-word article on this website, attacking the business model and financial situation of a dental company called American Orthodontic Center. This article attracted the attention of some hedge funds, who shorted the stock and profited from its decline (the company filed for bankruptcy protection in 2006 and appeared under the name OrthoSynetics in 2007).
Sondheim was then a little-known analyst at Bear Stearns. He brought this article to his job interview to show his performance record and analysis work. This article aroused Viking Global’s interest in investing. They gave him a job as an analyst. “This is the springboard of my career,” Sondheim said.
Stock pickers have a variety of social media sites, from Yahoo’s financial message board to the free online trading social platform StockTwits. But the Value Investors Club is a really rare medium. Here, hedge fund partners can discuss stocks anonymously with investors they know nothing about. Here, anyone with good ideas can build up the reputation of an ace investor and become famous in the world of big money traders.
Whitney Tilson, a former hedge fund manager who has been a member of the website since its launch in 1999, said: “The beauty of the Value Investor Club is that it provides anonymous services in a closely monitored environment. You can talk to people who never speak in public. Here are the smartest investors I have ever seen. ”
The website has about 500 carefully selected members, from well-known fund partners to independent investors. The website is free, but there is a limit to its opening to the public. Visitors can delay seeing ideas and information clues on the website for 90 days. If they provide email addresses, they can advance to 45 days.
Anyone can join the club. About 60% of the members of the value investor club work as “buyers” in hedge funds, donation programs, home offices (managing private accounts) and other investment companies. The rest are financial professionals in other fields, such as bankers, consultants, business owners, and investors in other industries. One of the earliest members of the Value Investor Club was a meteorologist, while the other member worked in a delicatessen many years before his retirement.
But the Value Investor Club only accepts one-fifteenth of the applicants. Whether you went to Harvard or managed a $10 billion fund, it makes no difference. The only important thing is whether you have a good idea of value investment, for which the two founders of the website: hedge fund manager John Petry and Joel Greenblatt will judge.
Greenblatt is a part-time finance professor at Columbia Business School. He is also Gotham Capital and is now called the founder of Gotham Asset Management. Petrie said: “No matter how talented you are, if you cannot explain your thoughts in a way that the community can understand, you cannot join, even if you are Warren Buffett.”
For many members, the attraction of this website is that it provides a combination of uniqueness and anonymity. There may be some useful information on the message board open to the public, but it will also be mixed with a large number of water injection posts and personal attacks. The exclusive membership system of the Value Investor Club keeps the website focused on high-quality ideas and analysis.
Anonymity puts everyone on the same starting line. Criticizing a company will not affect one’s career: there is no loan relationship, and there is no channel to contact the management team that may be damaged. Radical investors may try to express their ideas in the community before public promotion, while partners of hedge funds or other regulated entities need not worry about violating compliance regulations that would prevent them from mentioning a stock publicly. Investors will also use this website to gain valuable criticism. Tilson said: “If you are a fund manager with hundreds of millions of assets and you are worried that your analysts are afraid to speak out to you, you can try to put forward your ideas to the Value Investor Club. People with different ideas will make this idea riddled with holes. ”
A hedge fund manager who manages a $3 billion fund said he could argue with investors who have never been involved in Wall Street. The manager, who declined to be named, said: “I believe in meritocracy very much.” One of his favorite members of the Value Investor Club is the former employee of the deli mentioned earlier. He will post his own ideas and widely debate them. “I sent him over 100 messages and he had great ideas.” The hedge fund manager said.
The core of this website is to study those value stocks that are not widely covered, usually their market value is far below 10 billion US dollars. Much of the discussion focused on special circumstances or catalytic events, such as companies involving spin-offs, management changes or other one-off events. Investors will also promote stocks that are largely ignored by securities dealers and banks. An author named Hbomb5 recommended the national energy service reunion company (NESR) and described it as “an unknown energy service company with the fastest growth and lowest valuation”.
Gary Claar, one of the founding partners of the radical fund Jana Partners, used the website to help evaluate JPJ Group (JPJ.uk), a European online gambling company. It has no broker guarantee in the United States and has undergone a major refinancing.
Posts on the Value Investor Club provided insights he could not find elsewhere. Kral is now a partner of Arex Capital Management, a hedge fund that has bought JPJ shares. He said: “It is priceless to see those knowledgeable investors commenting on the problems you are trying to solve.”
Theoretically, the Value Investor Club may be a way out for manipulating stocks or “ship pulled” schemes (making quick money when other investors rush into trading). But as a website accessible only to members, Petrie said that this would be the worst place to engage in such behavior. He said, “If you want to sell something, you have to sell it to a large, unsophisticated audience,” and members of the Value Investor Club will soon catch those who are trying to play with the system.

Everyone’s stock selection will be ranked in the community, creating a performance record that can be seen by everyone, which is valuable for building a reputation in the fund industry or the wider buyer community. Members can also get to know each other and establish contacts through word-of-mouth at industry meetings and dinners, so as to find jobs in the fund or invest in the fund.
The Value Investor Club has launched an invitation-only project to connect its members with “capital allocators” such as endowment funds, family finance offices and other institutions that wish to invest in small, medium and start-up managers. The way to enter the project is to win one of the stock selection competitions of the Value Investor Club. Everyone who publishes original stock ideas will automatically enter, and will have the opportunity to receive a bonus of 5,000 US dollars paid by Petrie and greenblatt every two weeks.
According to an e-mail sent by Petrie to members of the website, the greater return is access to endowment fund managers and others, including “some of the most respected configurators in the investment community.” Members will receive regular e-mails to the entire value investor club community to find out if they have won the prize and check the list of winners on the website.
Winning investors are also likely to get the attention of capital allocators (their identities will not be disclosed), thus obtaining an asset management job or injecting capital into their funds. Petrie said that in fact, many members will add the experience of the Value Investor Club to their resumes to help them get a job in hedge funds or other asset management companies.
Professional stock pickers competing with other social networks have become a booming industry. Sumzero was launched in 2008 by social media pioneer Divya Narendra and is a larger commercial version. The website has more than 15,000 members who express their ideas, participate in stock selection competitions and establish networks for work and capital. Zero sum provides recruitment services to asset management companies and ranks analysts’ performance. Anyone from the buyer can use the company’s services by joining or purchasing licenses.
The Value Investor Club is smaller in scale, more family friendly and definitely not commercial. The website has no advertising or other sources of income. Petrie and greenblatt run the company like non-profit organizations without any salary. The website looks very old-fashioned, with few images and no extensive filtering tools and social networking functions. “For the benefit of the community, we hope all discussions will be held openly.” Petrie said. The logo of the Value Investor Club is an old man wearing reading glasses and reading newspapers carefully.
Different from other social media websites, the Value Investor Club requires its members to fulfill some obligations to maintain a good reputation. Members must submit at least two original investment proposals and rate at least 20 reports each year. Petrie said that these requirements make the website full of fresh ideas and discussions. Investors cannot rely on other people’s ideas for a long time. If they do not remain active, they will be kicked out.
The Value Investor Club has been active since the early days of Internet development. At that time, only Yahoo’s message board and several other websites could talk about stocks. Greenblatt was correcting papers at Columbia University at that time, and he set the admission criteria for the website to be equivalent to an A+ grade paper of an MBA student.
He also hopes to set up an online club where fund managers can talk freely under the cover of anonymity and obscure stock pickers can build reputations that may attract the attention of hedge funds. “You need real investment talent to get in,” greenblatt said, “but it depends on what you can create, not who you are.”
The value of stock selection may be subjective, but it is the core of the application process for the Value Investor Club. There is no difference in academic qualifications, industry relations or work on Wall Street. Greenblatt said: “We have received offers to pay for joining, but this is not our model.”
Petrie said he received 20 to 30 applications a week. The printed application forms were built into a three-foot tower in his new york office. He would browse the application forms with several colleagues and sometimes discuss them in teleconferences with greenblatt. On average, they pass one or two applications a week.
Joining the Value Investor Club requires a top-level value concept. A stock does not have to trade at a low price-to-earnings ratio or a low price-to-book ratio, but analysis should explain why the stock trades at a price lower than its intrinsic value, “as Buffett said” (short selling is exactly the opposite).
Applicants should find a catalyst, such as stripping or restructuring, to make the market “recognize the difference in value.” It will be a big obstacle to apply through analyzing well-known companies such as Apple, and it is also very difficult to be shortlisted for promotion methods similar to agency papers. “We are not looking for book reports, industry analyses or original reports.” Petrie said, “We need people who can communicate good investment ideas in a clear and concise way.”
More than half of the applications he received in the last week came from Wall Street professionals and others in the investment industry. No one has passed the test: some ideas are not original enough or are not different from the views that everyone agrees with. Other ideas did not meet the requirements because the articles were not written in a concise and effective way.
Greenblatt said he has kept the website open on a limited basis as an educational tool for anyone who wants to invest in learning value (this is the same theme as his book and Columbia University courses). He said: “These people are all excellent thinkers. It is very valuable to see how they think.”
Sondheim said the website helped him learn about the business. “Reading these articles taught me how to invest like any textbook, classroom or mentor at Wharton,” he said.
Berna Barshay, a hedge fund manager, failed to successfully promote Tommy Hilfiger, a clothing company. She was told in the rejection letter that the stock was not cheap enough to be worth investing in. However, she lodged a complaint against this decision and submitted a follow-up analysis report and detailed refutation.
“In the end, they gave in and said,’ We still don’t think this is a good value investment, but your argument is very good and we will let you in’.” A few months later, in 2005, Tommy Hilfiger was acquired at a high premium.
Bacher recently set up a new fund: Viola Capital Management Company. She believes that the Value Investor Club is one of the few places on Wall Street where there is no gender discrimination.
She said that the industry is still a boys’ club, where women are not always invited to trade conferences or events. However, in the Value Investor Club, no one knows whether they are talking with men or women. The discussion here only focuses on the investment concept itself.
“When people do not know whether you are a man or a woman, or whether you are a young man or an old man, the only thing you can rely on is the quality of your ideas.” “Once I can sit with other investors, I will never encounter the trouble of not being taken seriously. The problem is that I can find a seat first.”