tede02

This reminds of a Howard Marks quote: "Unconventional ideas often appear imprudent. The popular definition of "prudent" - especially in the investment world - is often twisted into "what everyone does." When courts interpret Prudent Man laws, they take them to mean, "what most intelligent, careful people would do under those circumstances." But many of the things that have worked out best over the years - betting on start-ups, buying the debt of bankrupt companies, shorting the stocks of world-altering tech companies (I'll add shorting mortgage bonds pre-2008) - looked downright imprudent to the masses at the time."

I think this is a very important point which makes this investment idea so difficult. I totally understand the legal position the hedge fund guys and FAIRX are taking (it seems logical and sound to a lay person). However, the huge wild card which, in my view, makes the odds impossible to know, is the politicians. Few would argue the trend toward populism currently underway in the US (especially as income gaps continue to widen and this issue remains in the headlines). I would absolutely agree that politicians will likely be sensitive to enriching Wall Street, especially as the next presidential election grows closer. But who knows. I own FAIRX so I'm hoping for it to work out!

Joel Greenblatt had some great remarks on his most recent Wealthtrack interview back in November. You can see it here: http://wealthtrack.com/recent-programs/greenblatt-strategy-change/#more-12077 At around the ten minute mark, he rattled off the results of a study that looked at managers who landed in the top quartile of investment performance over 10 years (between 2000-2009. Here's what he said: 97% of these managers spent at least 3 of the 10 years in the bottom half of performers; 79% spent at least 3 years in the bottom quartile; 47% spent at least 3 years in the bottom 10%. These are interesting statistics. As Greenblatt said, performance numbers are really the only metric investors have to look at. But what really matters is process. I think he's absolutely correct. But in the end, you're still betting on the manager to execute. Certainly no guarantees. If they fail, you have incurred significant opportunity cost. This has certainly been the case since the bottom of the market in 2009. Its been very hard to beat the S&P500 since. But I think investors will find out who actually has talent when the bear returns, as opposed to those just rising with the tide.

Followed Klarmen into BXE. But let me be clear, my position is peanuts (and I've learned some lessons about following gurus before)! But I've always wanted to understand the oil/gas industry better. Owning something will give me further incentive to do so.

Unknown unknowns are the toughest. But another trap you can find yourself in, as I did, is thinking you have to know everything. You can read every book ever written about investing, and scrutinize every page of a 10k, but at some point, nothing can replace good old fashion experience. When you're in the game, you quickly learn what the most important variables are and what is really just noise. Think about the returns Buffett, and others, put up when they were in their twenties. Even though he knew a fraction of what he know's today, he was still able to generate great returns.

From a high level this thing does look very cheap. Its also small enough to keep most of the big boys out. I wonder what % insiders own and if they've been buying. Price sure popped up on the Klarman news today.

It's always interesting to hear from even the big guys: http://www.ft.com/intl/cms/s/0/6ab48700-a898-11e4-ad01-00144feab7de.html?siteedition=intl#slide15

Bringing this topic back to life briefly. I spoke to a guy representing iShares today. According to him, ETFs have gained a lot of popularity in the US, but worldwide, there has been very little adoption. Perhaps indexing also has a looooong way to go. On another note, I've been thinking recently that indexing is much more likely to be popular when markets are moving up. And since 2009, all major asset classes have done just that (although precious metals and commodities have been weak in recent years). You can understand the mentality of "Why should I pay someone who can't beat the S&P?" However, I would be willing to bet that as soon as we get some significant market turbulence, particularly a year or more of significant negative market performance, people will be out searching for a "new mouse-trap," eager to hear a new story. After 2008, the "new mouse-trap" marketed by Wall Street was "tactical" investing. What a joke. "Tactical" was basically another word for market timing.

I can understand others' concerns about bias and saying no to the boss. However, a mutual fund manager that I know personally has an interesting way of using analysts. This isn't a huge firm. They manage around $5 billion and have 6-8 full time analysts. Nonetheless, when one of the analysts is bullish on a company, the firm assigns another analyst to be an ongoing devil's advocate. The devil's advocate is supposed to try and tear apart the investment thesis. Its all about trying to eliminate confirmation bias. Not sure how Bruce works with his analysts, but he has said many times in the past that he pays people to try and "kill" his investments.

I added to my FAIRX holdings today. Here is a quote from one of my favorite Howard Marks memos discussing how to create superior investment performance, Dare to Be Great I: "Underperforming managers - Retain, or fire...or add money? That's the real question. Good investors hold fast to their approach and discipline. But every approach goes out of favor from time to time, and the manager who adheres most firmly can do the worst. (Page 217 of the book "Hedgehogging" provides fascinating data on some great managers' terrible times.) A lagging year or two doesn't make a manager a bad one...maybe just one whose market niche has been in the process of getting cheap. But how often are managers given more money when they're in a slump (as opposed to being fired)?" Dare_to_Be_Great_I.pdf

The conference call was largely a repeat of everything Bruce discussed in his annual letter. I give him credit for sticking to his convictions. He's surely been under a lot of pressure. I would expect the fund to perform much better relative to the S&P500 now that valuations have moved up so much in the last couple of years (in large-cap US stocks). There certainly isn't as much room for them to go. The holdings in FAIRX appear to have much more upside.

Looking forward to reading both!

MAT

I just submitted a question about Sears basically asking what the long-game is on this holding. Even if the retail operation doesn't suck all the value up, and somehow there are profits to be realized at some point, what will the opportunity costs have been by the time it finally plays out? Looking forward to this conference call. I'm sure Bruce has been hearing it from clients. I've been hearing it from my clients!

Bought some IBM.

Graco (GGG). One of my favorite businesses. Very expensive today. I was able to buy in 2009. Sold most of my position at the end of 2012 (regrettably). Still own a little in my wife's Roth fortunately.

I think you should clarify whether you want folks to include debt payments (mortgage and student loans for example).

Attached is monthly and annual return data. Unfortunately the monthly data does not include the dividend component. You can dig around here for more data: http://us.spindices.com/indices/equity/sp-500 SP500_monthly_and_annual_returns.xlsx

Thank you both oddball and bookie. Oddball, that is really a great point. There are several companies locally that I could easily attend the shareholders meeting of.

I've attended the Berkshire annual meeting since 2007 which I've enjoyed. For those of you who had the pleasure to attend other great shareholders meetings and investment conferences (such as Fairfax, Markel, Pabrai, Wesco, Daily Journal, Value Investors Conference, etc.), which do you like the most and why?

http://www.wsj.com/articles/deep-debt-keeps-oil-firms-pumping-1420594436?mod=WSJ_hp_LEFTWhatsNewsCollection This phenomenon (discussed in the above article) is similar to what Gundlach discussed except he talked about it in the context of entire countries. The only way that a country who relies on oil revenues can increase them, when prices are falling, is to sell more oil. Of course pumping more oil when the market is already saturated can only lead to lower prices. Potentially a vicious cycle. The WSJ article seems to bode well for distressed debt investors like OAK.

Probably won't know until one is well underway. I was amazed to see that the Shanghai Composite Index rose over 50% in 2014.

Yes, I believe it is the Arkansas plan.

Check out Stephen Romick's FPA Crescent fund (FPACX). He's built a 20 year record of material out-performance. I think the strategy especially well for individuals who know little to nothing about investing. Reason being, Romick tends to hold a lot of cash which significantly reduces volatility. Another option to consider is a fundamentally weighted index. I've been looking at these more recently. The actual performance of these offerings (which haven't been around all that long) has been pretty good. They have out-performed a bit. Rob Arnott created the Wisdom Tree methodology.

The 529 is an excellent tool for college education funding. Starting a new one becomes less and less beneficial the older your kids get (there's simply less time for the tax-free compounding effect). One of the most flexible and low cost plans I've seen is the iShares product. The majority of other plans are all traditional A and C share offerings which will surely bite into your returns. I would personally be very cautious about dumping a big chunk of cash in the market at these valuations. Dollar cost averaging is a compromise from sitting in cash.