This investor looks for ‘wonderful businesses’ at a fair price

Glenn Chan, 29

Occupation

Computer programmer

The portfolio

Includes shares in Liberty Media Corp., Altisource Portfolio Solutions SA and warrants on Kinder Morgan Inc.

The investor

About two years ago, Glenn Chan decided to "really understand" the mining industry. He dove deep – even to the point of studying textbooks on mineral exploration and mine development.

With the S&P/TSX Venture Index then trading at half its 2008 peak, he wanted to uncover bargains among the junior miners. Instead, he found inflated assets, promotional hype, unreliable disclosure and weak investor protection.

How he invests

Mr. Chan is not so keen on the mining sector any more. He now focuses on finding "wonderful businesses at a fair price." Wonderful businesses can be identified by their "high, unleveraged returns on capital." If the founder is "a self-made billionaire who still runs the company," that's even better.

Liberty Media Corp. is a U.S. media conglomerate controlled by John Malone. The company trades at a discount to net assets even though these assets largely comprise stakes in two "wonderful" companies: satellite-radio company Sirius XM Holdings Inc. and cable firm Charter Communications Inc.

Altisource Portfolio Solutions is part of the U.S. mortgage-servicing empire of William Erbey. Its advanced software enhances the operations of companies that collect payments from delinquent homeowners, mainly by arranging mortgage modifications that make it easier to pay.

Kinder Morgan, run by U.S. multibillionaire Richard Kinder, owns pipelines and storage terminals. It collects tolls on shipments of natural gas and crude oil from virtually every producing basin in North America. The warrants, which give Mr. Chan the right to buy Kinder Morgan shares at a specified price for three years, will go up in value if the shares go up.

Mr. Chan also takes short positions on stocks in mining and other industries.

Best move

He bought put options in 2009 on tech firm STEC Inc. shortly after the CEO sold a large block of his shares in a secondary offering. The shares later took a hit after the company announced some bad news. The put options, which give him the right to sell the stock at a specific price (even though he doesn't own it), jumped in value when the stock plunged after some bad news emerged.

Worst move

Investing in Qiao Xing Mobile Communication, a Chinese cellphone company. Its shares were delisted from the NYSE in 2012 after it failed to meet reporting requirements.

Advice

Stick with great businesses and managers with solid track records.

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