Saturday, October 2, 2010

Mario Gabelli

Mario Gabelli
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Mario Joseph Gabelli (born June 19, 1942) is an American stock investor, investment advisor and financial analyst. He is the founder, chairman, and CEO of Gabelli Asset Management Company Investors (GAMCO Investors) a $30 billion dollar global investment firm headquartered in Rye, New York. Forbes magazine's 2006 Forbes 400 rankings listed him as #346 on the list of wealthiest Americans and estimated his net worth at $1.0 billion.

Gabelli founded his firm in 1977 as a broker-dealer, and the company has since grown into the diversified financial services corporation. Gabelli does not receive salary, bonuses, or stock options, but is paid a management-fee-based compensation. He was paid $55 million in 2004.[1] His pay of $58.2 million in 2006 was "more than the pay of any senior executive of a major Wall Street firm" that year, despite the fact that he manages only a fraction of the assets of larger Wall Street companies.[2] Gabelli was paid $45.9 million in 2008 at Gamco Investors; that's a 35% decrease compared to his 2007 compensation of $70.9 million.[3]

In recent years, Gabelli has seen his reputation tarnished by a pair of scandals, as two high-profile lawsuits filed against his companies ended in combined settlements reportedly worth $230 million. He has also faced protests from his own investors over his large annual salaries.[4]

Gabelli is a leading proponent of the Graham-Dodd school of security analysis and pioneered the application of Graham and Dodd's principles to the analysis of domestic, cash generating, franchise companies in a very wide range of industries. His proprietary Private Market Value methodology is now an analytical standard in the value investing community.[citation needed]

Gabelli is a Chartered Financial Analyst, a member and former officer of the New York Society of Security Analysts, the New York Society of Auto Analysts and the Entertainment Analysts Group of New York.

Gabelli has been a frequent commentator on CNBC and CNN, and appeared six times on Louis Rukeyser's Wall Street. Gabelli is often written about in the financial print media including Institutional Investor, Business Week, Fortune, Forbes, Money and Changing Times. He has also written articles for investment publications such as the Financial Analysts Handbook and for the GAMCO blog.

Early life and education
Gabelli, the son of Italian immigrants, was born in The Bronx and went to Fordham Preparatory School there. He has said he read market reports for fun when he was very young and that he bought his first stock when he was 13 years old.

Gabelli won a scholarship and graduated from Fordham University summa cum laude. Fordham University has renamed their College Of Business Administration to the Gabelli School Of Business after a $25 million donation in September of 2010. He received his Master of Business Administration degree from Columbia Business School. At Columbia he was taught by Roger Murray, noted value investing professor and co-author of the Fifth Edition of Security Analysis, The Graham & Dodd Value Investing Bible. Gabelli and his Firm later launched the Graham & Dodd, Murray, Greenwald Award for Distinguished Value Investors. This award is presented yearly at his Annual Client Symposium.

[edit] Value Investing - The Early Years
After graduation, Gabelli accepted a position at Loeb, Rhoades & Co. as a farm equipment and auto parts analyst and later media and broadcasting. Gabelli was putting into practice the theory of value investing that he learned at Columbia. He rated companies not by earnings but cash flow, analyzing a firm in great detail to calculate what he called private-market value: not the share price at which a stock was selling on an exchange but the price per share someone would be willing to pay in order to buy the whole company. This method would be widely used in the 1980s in leveraged buyouts, in which a public company's managers would buy their company, or at least a considerable part of it, and take it private. The calculations employed were often not the same as the standard valuation measures for public companies. This methodology was later trademarked as The Gabelli Private Market Value with a Catalyst Methodology.

[edit] Founding of Gabelli & Co.
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In 1976 Gabelli formed Gabelli & Co., a brokerage house, with borrowed funds and money he had accumulated trading his own account. Soon after Gabelli formed Gabelli Investors ( later GAMCO Investors) to manage money for clients. After sending a memo to a Barron's editor touting a company he fancied, Chris-Craft Industries, Inc., Gabelli landed on the cover of this financial weekly. By 1981 GAMCO had 81 accounts and was managing about $33 million. Despite the rocky economy and stagnant stock market or the late 70's and early 80's, Gabelli made money for his clients each year. While investors were seeking to get in on the ground floor of a companies growth, Gabelli preferred to cash in on a company's death. During the next few years he invested in or recommended companies that were taken over by other firms or privatized.

By the mid 1980's Gabelli was managing over $350 million in client assets and compounding returns at more than 35 percent per year. While Business Week was touting the "Death of Equities" on its cover, Gabelli was quoted as saying "I don't need a rising market to bail me out." Gabelli's firm was doing all its own research, usually with the idea of identifying firms that might be candidates for leveraged buyouts: those with characteristics such as a large amount of cash on hand, underlying assets such as real estate, or a large block of stock in the hands of a company founder with no children. He also looked for companies in industries where new competition was difficult and cash flow was high. Once Gabelli selected such a stock, he was willing to wait for years until it appreciated. He began buying Cowles Communications, Inc., for example, in 1977 at $14 a share and eventually became its biggest stockholder. In 1984 the company (now Cowles Media Co.) was privatized at $46 a share, for a total payoff to Gabelli's clients of $33 million. Another media winner was Chris-Craft, whose BHC Communications, Inc. achieved almost a sixfold pretax gain in income over six years in the 1980s and in the 1990s assembled its own network, United Television. The relentless Gabelli was visiting about 50 companies a year to gain information and meeting the managers of more than 100 other corporations annually, as well as getting together with other portfolio managers to discuss ideas and reading about 20 trade journals, two or three newspapers, and a number of industry and company reports. He also was writing research reports for his brokerage customers and portfolio-manager and other professional-investor clients. "I read annual reports instead of novels," Gabelli told Jerry Edgerton of Money in 1986. As a narrowly focused investor with large holdings in a few companies, he was able to bring influence to bear on company management.

Between 1978 and 1985 Gabelli's portfolios outperformed the Standard & Poor's index of 500 stocks each year and more than doubled the results of this S&P index in five of those years. Between 1977 and 1988 Gamco Investors' assets appreciated at an annual compounded rate of 28 percent, a rate exceeded by very few money managers. This money management entity had never lost money over a year and had met Gabelli's objective of ten percent annual return after taxes and inflation in all but two years. GAMCO Investors' equity assets, flush with cash invested by company pension funds, reached $1.6 billion in 1986.

[edit] The Gabelli Mutual Funds
Gabelli's first investment vehicle for the general public, The Gabelli Asset Fund, launched in March 1986 as a no-load fund requiring a minimum of $25,000 to invest. Later, and today, this Fund is available for a minimum investment of $1,000 and accepts IRA investments without a minimum. The Asset Fund was later followed on by The Gabelli Equity Trust, a Closed-end fund which, at the time, was the largest equity offering on the NYSE. By the end of 1988, Gabelli's firm had three mutual funds—two run by himself—with combined assets of $650 million.

[edit] Fund Manager of the Year
In 1997, when ten Gabelli equity funds averaged a return of 31.7 percent, the best of any U.S. mutual fund group, Gabelli was honored by Morningstar, Inc. as the domestic equity fund manager of the year.[5]

[edit] The Third Decade
By 1998 Gabelli Asset Management Inc. was managing $16.3 Billion. In February 1999 the company went public selling 6 million shares, or about twenty percent of the common stock at $17.50 per share.

[edit] Barron's All-Century Team
On January 10, 2000, Gabelli was inducted into the Barron's All-Century Team, their list of the most influential mutual fund industry portfolio managers.

[edit] Controversy and Related
In March 2006, a judge awarded a "partial summary judgment" in favor of claims that Gabelli had unfairly prevented investors Frederick Mancheski and David Perlmutter from selling their shares in Gabelli Group Capital Partners at fair market prices.[6] In the ensuing settlement, Gabelli paid the two investors an estimated $100 million, including $80 million in GAMCO shares and approximately $20 million in cash.[6]

In 2001, "whistleblower" Rufus Taylor III filed a civil lawsuit against several companies owned by Gabelli, alleging fraudulent practices in FCC auctions between 1995 and 2000.[7] In those auctions, the government set aside cell phone licenses to be sold to small businesses. Taylor's lawsuit said that Gabelli used more than twelve "sham" startup companies to meet the requirements of a small business applicant in the auctions and acquire the licenses at a small business discount, sometimes up to 25% off the high winning bid in the auction.[8] The lawsuit allegations claim Gabelli and the "sham" companies were fraudulent because Gabelli had de facto control over the companies and had wealth that far exceeded the ceiling of the small business criteria which would disqualify an applicant from the small business discount auctions. Thus, by filing an application with the Federal government, much like filing a tax return with the Internal Revenue Service, one is certifying the truth and authenticity contained in the document(s), which if false, is a potential Federal crime, never mind a cause for a civil lawsuit like the Taylor "whistleblower" lawsuit against Gabelli. The suit was put under seal for years and kept silent while the plaintiff and attorneys pursued their case, the government and Justice Department stood on the sideline and did not take up the suit for the American public. Little information about the quiet suit reached the media, in a time of Enron scandal in the headlines, even though the suit sought almost half one billion U.S. dollars in damages from Gabelli and the defendants. The "whistleblower" actually was an attorney who once worked in the telecommmnications business for Gabelli companys' competitor Adelphia. Supposedly, many other groups of wealthy investors and players in the wireless auctions, totally unrelated to Gabelli, also set up "dummy" business arrangements to take advantage of the small business discount and succeeded, even though in reality they too could not pass the small business criteria. In other words, Gabelli and associates might be guilty, but they were not the only ones committing potential fraud. These parties were not sued by the government or private plaintiffs. Indeed, Gabelli's own attorney stated that Gabelli complied with FCC requirements and intimated that the FCC, if not the legal enforcement arms of the government like Justice Department, FBI or Treasury white collar crime investigation, could have interceded and prevented fraudulent applications but did not do so, essentially acting with blinders while the FCC auction sales amounts grew higher and higher, bringing money to the government. Apparently, money is the prime mover and common denominator and the government may have turned a blind eye for a time. Nonetheless, given some new, heretofore unheard, evidence, come to light, in March 2006, the U.S. Government joined the Taylor lawsuit, which Taylor had filed under the Federal False Claims Act. The suit had alleged that the Gabelli-backed false "entrepreneurs" included his relatives, a former aerobics instructor, and even the caretaker of a Gabelli vacation home, as well as other wireless auction players who worked for both Gabelli and non-Gabelli companies.[8] On July 12, 2006, the suit was settled when Gabelli and his affiliated companies reportedly agreed to pay $130 million to settle the allegations. Taylor, the "whistleblower", was reported to have personally received $32.2 million for his part in the suit.[9] Under the terms of the settlement, Gabelli was not required to admit any wrongdoing. Gabelli's money management business, GAMCO Investors, Inc., was not a party to the lawsuit.[10] Neither Gabelli nor his companies nor any of the other parties were charged with any Federal criminal offense for fraud or false pretense, nor did they appear to face imprisonment. The Justice Department joined the suit, settled it very swiftly, then closed it. The American public saw little headlines of the multi-million dollar settlement nor did the Justice Department pursue any other wireless auction participants for fraud in the small business discount area. At the time of the settlement, the Justice Department portrayed its win as a triumph for the public good, but Gabelli and other FCC auction participants continue to participate in the ongoing auctions of wireless spectrum and other FCC license auctions, without punishment, and , indeed, the government has not given an accounting of where the money collected by the FCC for the auction sales resides, let alone the collection of money from Gabelli from the lawsuit.

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