bennycx
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Posts posted by bennycx
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That is very interesting because a lot of small or micro cap stocks from Nate at oddball or VIC do indeed get 50% returns, but the problem is many of these stocks are essentially "value traps" even though they may not seem to be so a priori. I think Buffett's main method in achieving the high returns would be to find these small stocks but at the same time concentrate on the good ones and avoid the value traps.
In other words, being a value stock is not enough. It has to be the Absolute value stock. :)
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Don't get me wrong I'm not saying that >50% is impossible. I'm saying the 50% compounded is possible maybe for 2-3 years but not over say 10++ years. In fact I'm sure alot of people including me on this board has 50% compounded over the past 2 years or so because of BAC and what not.
Again let's say WFC at 9s. Well yes let's say he put everything into WFC he would have gotten something like 300% or something, but then what now? That is 50% compounded for 3-4 years but can it continue? He would have to dump Wells now at $30 and then put it into another Wells like situation again like BAC at $5 or something, and repeatedly do that to get >50% continuously.
Not sure if I can buy the argument that Buffett is "miles" ahead now. If that were the case, we would see that all investors have exponential returns as they age. It seems that through the years Buffett's philosophy has changed to a Munger like style and looking for great companies which wouldn't really help increasing returns to 50%. What is more likely happening is reversion to mean and that his returns in his partnership days were good but also an "outlier" - the Malcolm Gladwell argument
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Doesn't anyone think that Buffett is exaggerating a little when he says he can do >50% returns? He might have made >50% returns for a couple of years for say the Korean stocks, but I highly doubt he can replicate it over say a 10+ year holding period. Even during his early partnership days he made 30% odd compounded, and that was during the time when there seemed to be a lot more bargains and the crisis seemed worse like during 1973.
Let's say Buffett were to do this all over again. He might be picking Graham-like stocks when handling lesser sums of money but again I think he would be making around 30% compounded or less. We also know that people like Ted Wechsler and Charlie Munger can make 20+% compounded by concentrating on great companies but not at dirt cheap price. Wouldn't it not make much of a difference in terms of returns whether you choose the Graham or the Munger style? Furthermore you would need to know when to sell when using the Graham method as you can see some of the investments Buffett made in his partnership days actually went into bankruptcy or below his costs but he sold it before that happened.
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Thought he once said that going forward equity markets would yield about 6%. That would mean that there would be no equity premium if he values UST at 6% too...
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Haha okay. Somehow I felt that Tesco's moat is not as strong as I once thought.
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Regarding the Q & A:
Asked about legal actions against rating agencies. Response was rating agencies showed very poor judgement,
maybe not illegal, as they were selling Opinions, not Gurantees. But who knows what happens in front of a jury
when damaging emails are presented. Could then have very serious legal issues. Pretty confident that when
millions get spent to comb through years worth of emails - they'll likely come up plenty of emotional
and embarrassing indictments of bad behavior. As a side remark - he couldn't understand young people
leaving a historical record on FB for the world to see - bound to be something they would regret.
He can't imagine if there were a public record of HIS comments over the years - and not having many
he would have regretted.
He sooke about investing mistakes. Example 1 - he invested 10% of his net worth ($600K) in Diversified
Retailing - and regretted it very shortly. We got it wrong. "The competition was huge" and
"The business consumed capital like crazy". So we immeadiately stopped investing in it and he
and Warren could not wait to exit it.
Example 2 - Not investing enough when you know you have a no brainer. He spoke about his investment
in Bell Ridge Oil, where "the stock price was 20% of the value of the oil in the ground" and he had
a chance to significantly increase his position - and he did not. Subsequently Bell Ridge was a 35X bagger.
Lesson was - he was too timid. He could see not possibility for a loss - and he left many, many millions
on the table. The really no brainers don't come around very often - and you make a mistake by not
hitting them hard.
He said - "of course you would show my portfolio to some finance professor - and he would say you
are absolutely crazy, but this is how you get rich".
He talked about retail - "it's too tough". Should view every retail investment in light of the
Costco, Walmart, and Amazon steam roller. His view is we are over retailed anyway - too many stores.
But the private label biz of Costco (Kirkland) is even threatening the dominance of Proctor and Gamble
as Costco continues to roll out Kirkland products. Be careful with retail investments.
"What's the ideal business?" - One where you can raise prices beyond inflation.
Of course he talked about See's and how surprised he and Warren were that they could
raise prices by 25 cents/pound - on an annual basis (like clockwork) - and it had no
impact on sales, but drove up there profits. Said that was a great lesson for he and
Warren. Now See's annual profits are 300% of what they PAID for the entire business.
Without the lesson of See's it's unlikely that they would have been so aggressive with
the Coca Cola investment.
At this point - I stopped taking notes, since I was trying to ask a question.
Very enjoyable meeting for me.
I have a feeling diversified retailing may refer to Tesco. Could that be possible?
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If interest rates are zero (or negative after inflation), 15x earnings for S&P500 is very cheap. I would expect it to climb much higher. Maybe 30x earnings is more reasonable actually.
Buffett is valuing stocks as if the long UST bond was yielding 6%. but that's just him. :)
Really? Where have you seen that?
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~20% in FFH (but shrinking a bit because of the recent drop in the $)
~40% in Bestinver International (which is 90% invested in European stocks)
~40% in a basket of 30 European stocks selected with mechanical screens (and which have gone up by 7% in January).
No cash, no leverage, no hedging (if you exclude FFH).
As I have mentioned, my timing indicator warns of a crash in the US soon. In addition, the Shiller P/E in the US is 23. To go back to their 2009 bottom, US stocks would have to drop by 55%. To get to a secular, Shiller P/E~8, floor, they would have to drop by 65%.
The Eurostoxx50 is still 40% below its 2007 peak. The European Shiller P/E is around 14. A ~30% drop would already get EU stocks to a 2009-like bottom, and even that wasn't reached in 2011, when the sky was falling on our heads. A 40% drop would put EU stocks at a bear-ending, secular bottom.
It seems obvious that, statistically speaking, the downside is much smaller for the eurozone than for the US markets. It seems to me that inflation will start earlier in the US than in the EU (at least while the tee-fest people are in charge).
I mostly invest in small caps, but my screens are also throwing out large caps, like Exor, Endesa, Aurubis, Freenet, Portucel, OMV, Ahold, Voestalpine, Total. Experienced stock pickers like the ones in the board should have no trouble finding interesting stocks in the Eurozone.
Hey! May I know what do your screens consist of?
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Oh well.. for every paper that claims the benefits of concentration, there will be many others that claim the benefits of diversification..
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In the general investing world I guess I'm fairly concentrated, I hold 50 positions, yet compared to most on the board I'm just hedging my ignorance. I do have 20% of my portfolio in one position, but that's the result of it running up 10x, not a concentrated bet, although in a lot of ways it is now.
Here's my thing with concentration, I would like to hear from an investor who's invested the last 10-15-20 years with a consistent 3-5 positions. If they have market beating returns they should know a lot about what separates their winners from non-winners, so the next logical conclusion is why aren't they only investing in the one or two best companies they find?
I know Ericopoly gets a lot of press in these performance threads, but he seems to embody the person I'm thinking of. He knows for sure when something's a winner, so he goes all in on it, and his returns reflect that. To me this is the logical conclusion of investing like that. If you can look at a list of investments, know which is the best, and know which will return the most why diversify out of the best?
The bigger question for the 3-5 position people is why do you have so many positions? If you have consistently outperformed like that why do you need so many positions? Why not pick the one or two that will do the best?
I would have no problem concentrating all of my money in one position, the only qualification would be that it would be a position I'd have control over. I'd sell all my stocks to invest in a business that I was the CEO or Chairman of. But that's just my personality.
The almost impossible, unimaginable situations. Because you do not know if everyone suddenly does not drink Coke tomorrow, a terrorist attack on all Coke facilities etc..
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Lucky year! 50% of my portfolio in BAC and BAC warrants, the other 50% in Dell.
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With all due respect to Mohnish, I think it is just ridiculous to talk about 40x returns, let alone 10x in the next 10 years... It might be possible to see little downside and huge margins going forward with a huge competitive advantage, but still it is quite ridiculous to say a certain investment will grow 10 to 40x ex-ante.. Really gettin ahead of himself on this one...
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Haha me too as well with few years of experience. But would love to be doing value-investing related work early on in my career.
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Hey guys!
For those of you who are operating a fund or a partnership especially in London, what would be the best way to start out a small partnership of maybe around 5-10 partners? I'm looking to start a few small partnerships in the region of 50k pounds but it seems starting it up is the hardest bit. Seeking investors who are willing to stick with you for the long term seems to be difficult especially when you do not have a track record of some sorts. I tend to invest in very few stocks and trade very infrequently which makes my track record even less impressive in the eyes of most people. Are there also any other regulatory and legal procedures one have to go through in order to operate a small partnership?
Cheers!
Micro Caps and Buffett's >50% returns
in General Discussion
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Don't think he would do that.. One of his principles is to not use excessive leverage and not even use it if you don't need it