The Irony of Being Adam Wyden: When you’re one of the best hedge fund managers but your dad is a champion of the richest taxes
Adam Wyden’s hunt for hidden gems like Ferrari has given him a leg up on the S&P 500. In his Miami garage, however, he prefers Porsches. (It has no interest in the stock of Porsche’s parent company, VW. It is backed by the government and manufactured by a unionized workforce.)
Image: Mary Beth Koeth for Forbes
From the sunny house he rents in Miami’s posh Bay Harbor Island enclave, Adam Wyden is furious at the news streaming through his Bloomberg terminal. It’s April 22, and markets are crashing over a report that President Biden is aiming to raise capital gains tax rates to 39.6% for high earners, doubling the rate for wealthy investors.
“It’s anti-American! Wyden blows. “I am very disappointed with American governance at the moment. Do you think any of these guys actually know what they’re doing? ”
For an answer, Wyden might ask his father, Senator Ron Wyden, an Oregon Democrat and chairman of the powerful Senate Finance Committee. Elder Wyden is a wealthy tax champion who called former President Trump’s corporate tax cuts a “partisan tax scam.” Her son, on the other hand, is not registered with any political party, but is instead a titular member of the Benjamin Graham party, with a stubborn dedication to finding undervalued stocks. And his record to date has been nothing short of astounding.
Over the past decade, young Wyden, 37, has turned his bar mitzvah money and personal savings into a $ 350 million hedge fund in which his stake is now worth $ 100 million. Through its Miami-based partners ADW Capital, Wyden has proven its mettle as a high-value investor buying companies full of understated assets. It hunts away from the chosen S&P 500, preferring micro and small cap stocks largely ignored by analysts and large hedge funds. Since its inception in January 2011, Wyden’s ADW has earned nearly 28% on an annual basis after fees, roughly double the S&P 500, making investors about 11 times their money in a decade.
Wyden isn’t a shrinking purple when it comes to making big bets. His fund is the largest shareholder of RCI Hospitality of Houston, operator of more than 40 gentlemen’s clubs and parent company of Rick’s Cabaret. Wyden built its 10% position from the end of April 2020, when the coronavirus led investors to believe that in a world of masks and social distancing, a business founded on drunken stag parties and lap dances was toasted. But Wyden felt that as the pandemic subsided, there would be pent-up demand for RCI’s clubs, many of which are located in Florida and Texas, and that they would quickly reopen. Another plus: Getting a strip club license is extremely difficult, which means the company has a deep divide around its business.
RCI shares have quintupled since Wyden invested. Other recent winners include PAR Technology, which sells cashier software to restaurants, waste management company GFL Environmental, and construction conglomerate API Group, all of which helped its fund achieve a 119% net gain in 2020 and an additional 36% gain so far. in 2021.
Wyden buys companies full of underrated assets. He prefers micro and small cap stocks ignored by analysts and large hedge funds
Wyden bought a significant position in Fiat Chrysler in 2014 after learning that investors were taking ownership of its Ferrari subsidiary at virtually no cost. The supercar maker was established in 2016 and is now trading at a market value of $ 50 billion, several times the total market cap of Fiat when Wyden first invested. He calls these investments “Russian doll” stocks because inside they contain valuable hidden assets.
“This is the golden age of active investing,” says Wyden. “Companies worth $ 1 billion to $ 10 billion are under-researched and underestimated.”
Raised in Washington, DC, Wyden caught the investment bug early on from his grandmother Nancy, who ran an investment club with members of a local synagogue in Portland, Oregon, where he spent his summers. . As a teenager, to earn extra money for investment, Wyden started a car detailing business. He also bought the parts for Tamiya remote control cars and sold them as finished goods on eBay at a quadruple mark-up. In 2002, Wyden was admitted to Penn’s Wharton School and, as a junior, he interned at the DE Shaw hedge fund. But rather than return for a full-time job at the quantification firm after graduation, he became an analyst at a small merchant bank, where he was introduced to value investing. He was particularly impressed with the methods of Joel Greenblatt, a legendary value investor and best-selling author who studied fallout and hidden assets.
In 2008, as the stock market crashed, Wyden enrolled in Warren Buffett’s alma mater, Columbia Business School, and began investing his savings aggressively, looking for cheap stocks. blood in the street ”. It focused on undervalued, cash-rich microcap companies like lower-tier brokerage firm Rodman and Renshaw, which was trading between 10 and 30 cents but profited from organizing questionable Chinese reverse mergers for a fee. high. The stock went from 10 cents to over $ 6 in 90 days, and Wyden sold. He then found an even better opportunity with IDT Corporation, a prepaid phone card and comic book seller, which was trading at $ 2 per share but had $ 10 per share in cash on its books and an additional $ 10 in tax losses carried forward. . Wyden invested more than half of his growing savings in the business, which soared to $ 30.
When he graduated in May 2010, Wyden’s “stack” was a few million dollars, and in January 2011 he decided to start ADW, raising over a million dollars in the first month, mainly with friends and family. (Senator Wyden is not an investor.)
ADW generated a 91% net return in its first year and recorded uninterrupted gains for seven years. Even after the fees, the fund’s value increased six-fold. But big bets on illiquid small businesses come with big risks and in 2018 Wyden faltered.
EVI Industries, a commercial laundry equipment distributor, which had climbed to $ 47 from $ 6 in 2016 when Wyden invested, has lost almost half of its value. Wyden blasted, accusing the company of misalignment. When other stocks in his portfolio started to underperform, he became an activist.
He pilloried the management of PAR Technology, a family business. “Obviously the market needs to award a ‘Sammon family discount’ given the family’s total disregard for minority shareholders,” he grumbled in a letter to the founders. “[O]We have to ask ourselves if Mr. Sammon has spent the last 30 years writing his doctoral thesis on “How to Destroy Shareholder Value”. ”Wyden won: PAR management was replaced in 2018, and it became one of Wyden’s top performing stocks.
Wyden was even tougher on Atlanta’s selected interior designs, which make flooring and tile. “In Yiddish, we call these people gonifs,” he says. “It’s easier to steal value than to create value.
In 2018, ADW lost 33% and a further 6% in 2019 as the market grew by 30%. Then came the pandemic, which initially slammed his wallet but ended up with the reboot he needed.
Holding 50% cash before the disaster, Wyden believed the decade-long bull market would pick up, especially for value stocks and real economy-linked companies that had missed the rally fueled by tech stocks.
“The market needed a reset,” he says. “Now we’ve had it, and everyone is miserable in their house, and everyone wants to go to strip clubs, go to Vegas, travel and eat in restaurants. . . . I am really optimistic.
“If I never raise another dollar again, I’m going to be multibillionaire,” he predicts.
As for tax increases on the rich, Wyden is realistic. “I don’t think I have any influence on my father,” he says. As cover, it moved all of its New York-based operations to Florida tax-free last July, spending $ 4.1 million on a teardown on the exclusive island of La Gorce, in the Biscayne Bay. He flipped the property for a profit of $ 1.4 million and is now under contract to buy a bigger, brand new waterfront mansion.
“We are happy Floridians,” he says with a smile.
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(This story appears in the July 16, 2021 issue of Forbes India. You can purchase our tablet version at Magzter.com. To visit our archives, click here.)