Morningstar - Q3 2021 - 78

Investors
A Clear Vision
Ryan Batchelor built a business on his
passion for value investing.
UNDISCOVERED MANAGER
Laura Lallos
Undiscovered Manager is a regular profile
of a noteworthy strategy that hasn't been rated
by Morningstar Research Services' analysts.
Clifford Capital Partners' strong performance
over the past year owes a lot to stocks like
GameStop GME-but it has nothing to do with
recent meme-stock momentum. Portfolio
manager Ryan Batchelor had sold the stock at
around $18 in December.
Batchelor says he took some ribbing from
his kids for selling before the stock's Reddit-driven
surge into triple-digit territory. However,
it was still a success story for Clifford Capital:
" We were buying when it was in the single
digits and everyone hated it. "
GameStop typifies the deep-value approach
that is a component of Clifford Capital's process.
The company was unloved by the market
but " it had a great balance sheet and
management was shutting down underperforming
stores-which increased profits because
sales would often go to another store nearby, "
Batchelor recalls. There were also what
the firm terms " key thesis points " -a few
long-term catalysts. In this case, a new console
cycle played out well.
This kind of contrarian play has a lot of upside
if all goes well. But it is the riskier end of
value investing, which is why Clifford Capital
offsets deep-value plays with a core value
portfolio of quality companies with moats against
competition. " These are the types of companies
78
Morningstar Q3 2021
that grow intrinsically over time, " Batchelor
says. " If you can buy them at a discount, you can
generate alpha. "
American Express AXP, another top performer
over the past year, exemplifies a core value pick.
The stock dropped several years ago after its
relationship with Costco COST ended, threatening
earnings, but the Clifford Capital team saw past
that. " The Costco loss was actually a sign of
strength. The deal was uneconomical and Amex
walked away, " says Batchelor. " American
Express has a tremendous brand, and they earn
returns on capital far above their cost of capital. "
The Making of a Value Investor
Batchelor credits his eye for a bargain and
contrarian streak to his parents: " My mother grew
up humbly, the daughter of a dairy farmer in
a one-bedroom house with three siblings. My dad
was a successful businessman, but she
was very frugal and would drag me around
shopping for bargains. They both taught me to
think independently. "
While earning his MBA in finance, Batchelor
honed his interest in value investing working on
the student-run portion of Brigham Young
University's endowment with Brian Yacktman (son
of Don Yacktman). He also read the classics,
including Warren Buffett, Phil Fisher, Marty
Whitman, David Dreman, and Seth Klarman. He
planned then to start his own investmentmanagement
firm after gaining some experience.
That started in Chicago at Morningstar in 2004,
where Batchelor covered financials. The next stop,
in 2007, was an analyst role on a value strategy
run by Bob Costomiris at Wells Capital
Management. " It was a great time to cut your
teeth on the buy side during one of the greatest
financial crises of modern history, " he laughs.
" My job was to pick through the rubble for good
financial stocks. "
Batchelor cites noted investor Dick Weiss,
a Wells Capital colleague, as another key influence.
In turn, Weiss admires Batchelor's value style:
" When the market drives a stock down, Ryan
can pick out the truly valuable assets in a company
and determine what they should be selling for. "
After Batchelor left Wells in 2010 to start
Clifford Capital, Weiss invested some of his own
money with the young firm. " They've run
this company the right way from the beginning,
and they heavily invested in the business, "
he says. " It never felt like a small firm to me. "
Building a Business
Batchelor co-founded the firm with his fatherin-law
Wayne Pierson, an experienced institutional
investor. His nephew David Passey was in at
the start, too. Passey, who had started his own
investment career at a large bureaucratic
Brazilian bank, was eager to get in on the ground
floor of a growing business.
" We joked that with David we got tremendous
talent for a bargain price, but it was part
of the culture of teamwork and selflessness, " says
Batchelor. " Wayne and I bootstrapped the firm
with our own internal resources for several years. "
In its first year, the team launched an all-cap
value strategy, which became available as
mutual fund Clifford Capital Partners CLIFX in 2014.
Batchelor and Passey rented an office on the
84th
floor of the former Sears Tower for a while-
in an interior space without views, to save
rent -but relocated to Alpine, Utah, in 2018.
" Utah is an independent-minded state,
more entrepreneurial. There are a lot of benefits
to being off the beaten path, although I still
miss the Chicago food, " says Batchelor. The move
also made sense for his family-he and his
wife, Dawn, have six kids now ranging from 10
years old to 22. They enjoy the outdoors
lifestyle, and the move proved fortuitous during
the pandemic.
https://www.morningstar.com/authors/44/laura-lallos
Morningstar - Q3 2021

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