Salad oil investing targets nonoperational turnarounds
The guest argued for a 'salad oil' investment thesis where investors buy high-quality companies whose valuations are temporarily depressed by nonoperational issues outside their core business.
The argument
The guest referenced Warren Buffett's 1963 investment in American Express during the Allied Crude vegetable oil scandal as the archetype. He argued that when a core franchise (like AmEx's credit card and traveler's checks) remains intact and trusted by customers despite a massive headline liability, it presents a rare, highly asymmetric buying opportunity.
The thesis, stress-tested
✓ What validates it
- ✓Core customer retention metrics remain stable during the crisis
- ✓Legal or chemical analysis confirms the liability/patent claim is weak or ring-fenced
▸ Risks discussed
- ▸Existential risk if the nonoperational liability is not truly ring-fenced from the core business
- ▸Illiquidity in smaller names making position sizing critical
Hear it yourself
"So back in '63 1963, American Express had an asset lending operation, right, that, made a large loan to Allied crude vegetable oil refining backed by tanks of vegetable oil. Unfortunately, Allied deceived American Express and others by filling those tanks primarily with saltwater and a thin layer of veggie oil on top."
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