David Corbin, president and chief investment officer of Fort Worth, Texas-based Corbin & Company, talks with the Opportunist’s Managing Editor Leslie Stone about his career, his favorite stocks and what he would tell the President if he were his economic adviser.
Many would have considered David Corbin a financial prodigy. He bought his first stock at the age of eight. By the time he reached high school, he was buying all sorts of bonds, commodities and stocks and was creating and managing investment accounts for his relatives. He knew he had found his passion.
Today, his registered investment advisory firm, Corbin & Company, which recently celebrated 20 years of operation, has offices in Fort Worth, Texas, and Pasadena, Calif., and specializes in the management of assets for individuals, trusts, pension plans, endowments and foundations.
Opportunist: How did you realize your dream career?
David: I looked for a college with the potential to help me get into the investment management business and discovered that Texas Christian University (TCU) here in Fort Worth had the largest and oldest student run investment fund. The students managed about $2 million for the university, so I went to TCU with the idea that I would do whatever it took to get onto that fund. By my junior and senior years I made it and eventually became head portfolio manager.
Opportunist: Tell us about the fund.
David: That fund has been around almost 40 years and was established by a donation from William C. Conner, co-founder of Alcon Laboratories. The fund has produced lots of well-known investment professionals on and off Wall Street. In terms of alumni, it’s a good group of people.
The Texas economy was bad when I graduated from TCU, so my job search spanned the country. As it turned out, a large trust company right here in Fort Worth offered me a chance to come work for them. Ameritrust bought that company, which was eventually bought by Chase Bank, and I was there for three years before I left and started Corbin & Company. They always say the first 20 years in business is the hardest, so let’s hope that’s true—because it has been the easiest. [Laughs]
Opportunist: What are some highlights from your firm’s first 20 years?
David: The best times for us have, unfortunately, been some of the worst for America. For example, we had assembled several portfolios that on the surface didn’t have anything that indicated they had something in common. The advantage was that if there were some huge disaster those portfolios were made to soar. The market was closed for a week after Sept. 11, 2001, and when it reopened our portfolios went up 60% through the end of the year. In 2001 we had the No. 1 performing mutual fund in the country, which was actually written about in Businessweek magazine.
Opportunist: Were you interviewed for the magazine?
David: Yes. They talked to me about potentially being on the cover when the article came out, but there was another incident here in Texas at that time: the collapse of Enron. It was a fantastic article, but then Enron popped up. They had a nice photo of me on the inside of the magazine, standing in front of the pillars at TCU and kind of looking off in the distance. The other thing, too, was the title of the article was “Small Wonders.” It was about smaller investment management firms substantially beating the index. While it was great for us and caused a lot of money to flow into our firm, as a young guy you never want to be the topic of an article called small wonders. [Laughs] It kills your dating life. With that said, that was probably the best time in my career.
Opportunist: How has the investment industry changed during the last two decades?
David: Well, you know, change is the biggest thing people have to get used to. Change is happening more rapidly today than at any time in the past. There are two reasons for that. First, the flow of information has changed so dramatically since I first got into business. Second, the time horizons have gotten much smaller and much more myopic. As a result, people tend to be less focused on the big picture than they are on the day-to-day, week-to-week, and quarter-to-quarter market fluctuations. Because of that, you have drastic reactions and overreactions to different news items and things like that. Those are the two biggest changes I’ve seen.
Opportunist: What is your primary role at Corbin & Company?
David: As president, my job is to run the business of the firm and be chief advocate for our clients in terms of service. In terms of being CIO, my role is to provide good investment results and to meet clients’ expectations and needs. Everyone has a different set of investment objectives and unique way of judging investment performance. How you judge performance might be different than how someone else judges investments. We strive to meet your expectations and meet our other clients’ expectations. Part of my job is to put together an investment strategy using our investment discipline that will meet your investment needs and objectives—no matter how large or how small.
Opportunist: What is your minimum investment requirement?
David: We have a minimum client size of $1 million, and our average client has about $6 million invested with us.
Opportunist: What is it about your fund that makes it successful?
David: While most people focus on the day-to-day and week-to-week aspects, we focus on the long-term fundamentals. We are good at taking what the market gives us. We also have an extraordinary investment process and philosophy that we stick to that has provided us with sustainable results over three- to five-year periods. That’s the secret sauce in our firm.
We are really a value-bottom-up stock picker. We look for absolute economic value regardless of capitalization of the stock. We own large stocks, mid-size, small stocks, micro stocks. We seek out the best economic values found in the marketplace today. People really like that because we have set a very good identification process. Out of thousands of stocks that we consider in North America, we select about 25-40 stocks. We also visit a large number of the companies that we invest in. We have gone out to the companies and met with the management teams of about 60% to 70% of the stocks we own, which is extraordinary for a firm such as ours that only employs six people among two offices. We know what we’re doing, and I think we’ve got great people who work for us and I think that’s another huge plus for our firm.
Opportunist: Can you tell us about some of the companies that you are particularly excited about?
David: We are really excited and highly convicted about the names we own in a portfolio. When we have something, we like to talk about it. I’m from Chicago, so when I start talking about something that I am excited about my hands start moving. [Laughs] The more I move my hands the more excited people can tell I am. People aren’t familiar with some of our companies but we think they are companies people can get excited about. We ferret out these companies and find them, in many cases, before other hedge funds and investment managers. That’s exciting in and of itself—when you know things that other people in the industry don’t.
Opportunist: Which industry sectors are hot?
David: We don’t look at sectors. We focus on companies. We are very excited about one of the most incredible values we’ve ever seen: Asia Entertainment & Resources Ltd. (NasdaqGM: AERL). The company operates VIP rooms in casinos in Macau. The stock is about $5, and weexpect it to pay about 45 cents in dividends next year—yielding about 9 percent and earning about $3 per share. It should trade about two times this year’s estimated earnings. The company has lots of other exciting opportunities to expand their presence throughout Southeast Asia.
Opportunist: Have you been to Macau to check it out?
David: Actually, they visited us here in Fort Worth a couple of times because they had heard about our reputation of being a firm that scours the globe to find potential candidates to invest in.
Another stock we’re excited about is Marathon OilCorporation (NYSE:MRO). Everyone is familiar with them, in terms of the fact that they own gas stations based in Findlay, Ohio. We are excited that they have an emerging presence in natural gas, which right now is at a very low point, but we think in the next few years gas is going to turn around. MRO is expected to earn about $4.80 this year. It is about $25 per share and trades at aboutfive times earnings and pays a pretty good dividend yield—about 4% in terms of dividend—and trades at a low P/E. We believe it will benefit greatly from the turnaround in natural gas. Also, it has a lot of reserves here in this country. If we do have a Middle East disruption, Marathon could be one of the prime beneficiaries.
Science Applications International Corporation(NYSE: SAI) is another company we’ve been buying recently. The company is in the defense business. The stock is about $11, with a 4% dividend yield. We expect it to earn about $1.40 this year, which means it trades at about 7.8 times earnings. Everyone is worried that the defense budget is going to be cut back dramatically, but even if it is the area SAIC is involved in—cyber security and counterintelligence and spying—we don’t believe will experience budget cuts. We see that growing in years to come because the threat and need to grow our intelligence is increasing day by day.
Opportunist: Who is the most impressive person you’ve met during your career?
David: I was tremendously impressed with Paul Fireman, the founder of Reebok International. Many years ago I went to an investment conference in Minneapolis, and Reebok was scheduled to give a presentation. Mr. Fireman flew in from Boston, but the brokerage firm who put on the conference set him up in the smallest room there was. Only eight people came to see it, and one guy actually fell asleep during the presentation. [Laughs] You’d figure the founder of Reebok could’ve said “This is a waste of time. I’m going to let the CFO do it.” But Mr. Fireman stood up in front of the seven people who were awake and gave one of the most awesome presentations I’ve seen in my career. That said a lot to me. We bought Reebok stock and within a year the stock tripled. It was a great investment for us. It would’ve been really easy for Mr. Fireman to just turn around and fly back to Boston and write it off as a bust. He could have phoned in his presentation or gone through the motions, but he was enthusiastic and he did a great job representing Reebok. I learned something from that: never, ever just phone it in! Even if there are only seven people in the room, act like there are 700 and do the best you can.
Opportunist: What qualities do you look for in choosing people to join your firm?
David: Honesty is the No. 1 thing I look for in people. I choose people who are willing to work hard and who want to win. I also consider how well they fit into this firm because this firm is a little family. You want other people to like your family and so you want to make sure you have people who appreciate working here and who are going to fit in. My dad works here at the firm as well.
Opportunist: What do you consider your greatest business accomplishment?
David: I think it’s the fact that a lot of our clients would say that dealing with our firm has made a positive difference in their life. We’ve helped them achieve a lot of the goals that they have. To me, that’s what this business is all about. We’ve won numerous awards and have been on TV and been featured in magazine articles and things like that, but the ultimate reward is hearing a client say, “I really appreciate you and all your hard work and what you’ve done.”
Opportunist: How do you feel about the economic situation in America?
David: One of the things I’m fearful of is the debt crisis in America. I’m from Illinois, where last year—in the middle of the night—they jacked up the personal income tax rate 66%. You can always move to a lower tax state, but if you own property, you’ve got to be really worried because you can’t move your property. It’s like ducks on the pond. You’re sitting there, helpless, and they can just tag you left and right.
Opportunist: If you were economic adviser to the President of the United States, what would you propose?
David: If I were sitting down and having a beer with President Obama, I’d tell him, “Hey, forget the Ryan budget and all these budgets.” We’ve got to get to a point where we can balance this budget in the next three years. We aren’t that far away from a situation like Europe or Greece. We cannot keep taking the meds. If the infliction of pain gets worse, we’re going to have some severe societal problems. People say the Ryan budget is much too Draconian or you can’t cut the budget deficit now because if you do it’s going to slow economic growth or leave people unemployed, but the problem is that if you keep on doing what you’re doing you’re heading for complete disaster. What’s going to happen is your money won’t be worth anything. When you lose the opportunity to have a medium of exchange, your society completely breaks down. You lose the ability to ship things or to provide services. When people stop taking your money, you’re doomed. You cannot climb out of that without a tremendous amount of pain.
Opportunist: How did your firm survive the recession?
David: The 2008-2009 period was one that was very challenging, but coming out the other side of that chaos was extremely profitable for us and our clients. We continued to focus on what was of value and what was going to be permanent value. I think back on that period of time and realize it didn’t really matter what economic values were. It didn’t matter what was good and what was bad. The USA was spiraling into an abyss at that moment. I told people, “Look, we’re a firm that will do whatever it takes to improve our client’s position” but, literally, you had everything going down and you had a lot of questions—even about funds that were going to go up if things went down. You didn’t know if they were going to be around to be able to make good on those negative bets. It was a very strange time and a very tough time—a time when our clients had to have faith that we knew how to find good values in that business and that the sun was going to come out at some point in time and bring rewards for the stock picking and the research that we had done.
Opportunist: Where do you see yourself in five years?
David: It’s always tough to say. You know, I’m going to kind of let God take care of that. Someone asked me the other day where I thought I’d be when I came out of college. I always figured I’d be married, have a family and not live in Texas. Turns out, I'm not married, I don’t have a family and I live in Texas right across the street from where I came out of college. [Laughs] What gets me going is I love my job. This is the greatest job in the world because it lets me work with great people. We’ve got great clients and I get to learn new things every day and find out things that other people don’t get to find out. The amount of knowledge I learn every day at this job is just incredible. We have some goals that include certain institutions that we want to manage money for someday. I hope in five years we hit some of those goals.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area.