While this is true, I think it should be mentioned that a lumpy 15% can be a difficult hold, despite the more lucrative return potential. I can imagine that the current market conditions are exacerbating the challenges of holding their lumpy but high-MoS investments; I don't think any active investor can be fully immune to seeing their "correctly made" investments do nothing, when people are making boatloads of returns by being invested in one sector of the market, basically regardless of how "correct" their decision-making has been.
Now obviously, you cannot really be invested in these "lumpy 15%s" companies without the understanding that you're not going to move hand in hand with the general market, or else the periods of relative underperformance are going to be tough and likely lead to mistakes. But I'd say that generally speaking, a person allocating capital to the Fairfax-type companies of the market needs to have some system in place to protect themselves from when their portfolio isn't producing returns. This goes especially if they're running a concentrated portfolio, or have most of their portfolio invested in these types of firms.
I actually think that @bearprowler6 asks a valid question. It's one thing to estimate how likely a five-year 0% would be - you ideally answer that question before initiating a position - but if you think you're right about the lumpy 15% return over the long-term to the point where you invest in the company, you kind of have to consider what bearprowler said too. What part of your investment process keeps you invested, if the market disagrees with you for five years straight and your investment returns nothing?
I guess there are multiple right answers to that question, but I do think that it can never be as simple as "my holding period is forever, I don't care" or something along those lines. At some point, everyone starts to wonder why they're not earning a return, and that's the point where the system gets tested. Fairfax has tested us relatively little for the last five years, but at some point, it likely will.
Right now, it's easy for me to look at the 20% drawdown, see that the company is diversifying its earnings streams, buying back lots of stock, and being managed by a team that I trust, and deduce that I'm probably OK with my oversized position. Two more years of this? Might be a different answer then. We'll see.
