A simple focus on what is now a well-known phenomenon helped Mario Gabelli execute what he calls some of the best trades in his decades-long career. Back in the mid-1970s, high interest rates and soaring inflation steered many investors away from stocks, the Gamco Investors CEO and chairman told CNBC in an interview at the Morningstar Investor Conference in Chicago. Having covered broadcasting and media companies in his previous role as an analyst at Loeb, Rhoades & Co. , the veteran investor decided to make a bet on two now defunct broadcasting stocks he viewed as having “very de minimus capex.” One of those companies, Chris-Craft, was eventually bought by News Corp. for $5.5 billion in the early 2000s. It was an investment on which Gabelli said he made at least 10 times his original stake. The other money-making trade, on the now defunct Lin Broadcasting, was one Gabelli said he made a “significant amount of money” on. “The capex they put in was three times as productive as the capex that we’re replacing, their earnings were related to the advertising on U.S. consumer companies, and the consumer companies were able to raise prices just like they are today,” he said of both companies. The concept led him to the idea of private market value, referring to evaluating a company based on what an individual would be willing to pay versus the public price on an exchange. “It basically became EBITDA minus capex, and that notion has gotten pretty far along in the last 40 years,” he said. “That notion is going global, of finding companies that have pricing power in the world that we see, run by good management, with good businesses at reasonable prices.”
