Chapter 13

Kevin Daly

Who Is Warren Buffett?

“Who is Warren Buffett?” is what Kevin Daly thought when queried about the famous investor in an initial job interview in 1983. Finding the answer to this question directly led to the investment methodology Daly employed throughout his career. True to Buffett’s investment philosophy, Daly seeks out companies that are selling well below the intrinsic value of their business. He has been extremely successful in applying this methodology.

After 15 years of writing equity research and “eating his own cooking” in his personal stock account, which grew steadily in value with the exception of a losing year in 1994, Daly launched his own fund in 1999. In the 12 years he has been running the fund, Daly has realized an average annual compounded gross return of 20.8 percent (16.4 percent net). Although Daly does some shorting, it plays a relatively minor role, usually accounting for less than 10 percent of assets under management. In this context, Daly’s investment approach is closer to a long-only fund—although he will periodically hold significant percentages of cash—than to a long/short hedge fund. Since inception, Daly has earned a cumulative gross return of 872 percent (514 percent after management and incentive fees) compared with only a 68 percent contemporaneous return for the Russell 2000 (the most comparable index given Daly’s smaller cap focus) and a negative 9 percent return for the S&P 500.

The ability to generate substantial returns ...

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