Michael Price of MFP Investors Inc.

Michael F. Price was born in 1953 in New York. He graduated in 1973 from the University of Oklahoma with a Bachelors degree in Business Administration. Price has become one of America’s most successful value investors. He sees an opportunity in a company going through financial difficulties and provides it with much needed cash by buying it’s stock at substantial discount to its true value, allowing it time to overcome it’s problems. His commonsensical approach to investing has enabled him to generate lofty returns over the years.

Price does not buy a stock unless he has strong reason to believe that the stock is offering value greater than what is indicated by its market price. He conducts thorough research in order to identify companies which have great potential and undervalued stocks.

Investment Management Career

Price was interested in stocks since his childhood. He is currently the President and Managing Partner at MFP Investors, a New York-based hedge fund. The fund employs a value oriented approach in picking investments. It has more than $1 billion in assets under management out of which assets worth about $640 million represent  U.S equities.  Price began his investment career as a research assistant at Mutual Series; a fund ran by renowned value investor Max Heine. He learned alot from Max and considers him as his mentor. After Max Heine’s death Price took over Mutual Series and later sold the firm to Franklin Templeton Investments. Even though he sold the fund, Price continued working for Franklin Templeton Investments until 1998, after which he became the Chairman of the Mutual Series fund. After leaving Templeton in 2001, Price started his own hedge fund, MFP Investors LLC.

Investment Philosophy

Price uses an activist approach to investing. One of the strategies that Price has successfully employed is to buy stocks of companies going either through a bankruptcy process or undergoing a major restructuring effort. Such stocks are often beaten down in the market and trading at multiples not justified by their fundamentals. More often such companies are in desperate need of cash. Price usually injects cash into these companies, giving them enough time to breathe and then profits from their eventual turnaround. According to his methodology not every cheap stock qualifies as a ‘buy”. Instead, he goes through a very rigorous research process while searching for the right candidate to get into. He tries to gain in depth knowledge of the company’s prospects of overcoming its difficulties. He buys a stake in the company if his analysis leads him to believe that, barring its financial difficulties, the company possesses fundamental attributes which make it a good investment. Usually, buying a 5% stake in the common stock is large enough to enable him to influence the decisions of company’s management by recommending strategies which, if pursued, can potentially improve company’s performance metrics and eventually lead the stock to appreciate in price. More often his relatively large positions act as a catalyst and stock catches attention of street. 

Market Efficiency

Being a stock picker, Price does not believe in the Theory of Efficient Markets. The theory asserts that all publically available information is impounded almost instantaneously in the prices of assets and it is almost impossible to consistently pick the outperformers merely by reading the publically available information about companies such as annual reports etc. According to him market is full of opportunities for those who look out for them. What is required of an investor is some homework and ability to ask the right question at the right time. The mere fact that a few companies are fairly valued does not make the whole market efficient. There are thousands of stocks out there and all of them cannot be fairly valued at a time. According to Price, the market is least efficient in the minutes just after a tender offer is announced because most people don’t know about it and the stocks can fluctuate around their true worth during the deal. For this very reason Price and his fund’s analysts seek merger arbitrage opportunities in merger deals.

Price has always shown great respect for his shareholders. He does his level best to ensure that his shareholders get full value for the money they invest with him. Like his mentor, Max Heine, he seems to have very little arrogance. He is always responsive to his shareholders’ queries and responds to them promptly.

Price, like other value investors, pays much attention to the stocks of individual companies instead of figuring out where the broader market is heading. He is not a great believer in so called ‘Momentum Investing’. The strategy of following the crowd, though profitable at times, carries great risk and can be detrimental to long run investing success. He prefers and sticks to the ‘buy low sell high’ style of investing. He considers searching for and investing in stocks of companies possessing good fundamentals but trading at relatively low prices a much less risky way of achieving superior investment performance.

While searching for value, he focuses primarily on stocks of small companies because he believes that the market gets closer to being efficient when it involves widely followed large cap stocks.  But he is not hesitant to shift his focus to larger companies if market conditions require so. Occasionally he drifts from his preferred style and sector to seize opportunities in large capitalization stocks. Unlike most other value investors like Warren buffet and Mario Gabelli, his portfolio is not concentrated in just a few stocks. Instead, he holds a somewhat diversified portfolio consisting of between 100-120 stocks at a time.

According to Price, an actual transaction where a knowledgeable and willing buyer purchases a company in an arm’s length transaction better indicates the intrinsic value of a company. He does not subscribe to the more traditional approaches of valuation whereby a company is valued either by discounting its future stream of earnings or by making comparisons of price multiples with those of other companies.

He emphasizes the importance of reading various ancillary documents such as the merger proxies and bankruptcy disclosure documents which contain very useful industry data. Typically analysts do not spend much time reading these documents. His advice to analysts and investors is to spend some time in reading these documents as they contain invaluable information about companies.

In 1997, Michael F. Price made a historic gift of 18$ million to University of Oklahoma’s college of business administration. At that time it was the largest gift given to a public university by an individual. In recognition of his gift the University of Oklahoma officially named their college as the Michael F. Price College of Business. Price’s net worth is estimated at $1.4 billion and according to Forbes, he is ranked as the 271st richest person in the world. He has been featured on the cover of Fortune magazine and has been listed by Time magazine as one of the 25 most influential people in America.

By Muhammad Raheel