twacowfca

Are you saying that the principal didn't budge over 12 years? What is your LP's reasoning for staying in the fund versus a simple hedging strategy? Here's their pitch: it's worth it because you'll outperform when the market tanks. At other times you can load up on high beta stocks without worrying that you'll underperform when the market turns down.

Efficient market enthusiasts say the stock market is more or less random in its movements and that little or no skill is involved in the management of funds. If this is true, it should be equally as hard to lose money in the market as it is to make money. Intuitively, that just ain't so! Let's come up with a list of the surest ways to lose money in the market. Then, like Jean Marie Eveillard, perhaps we may discover that the best way to make money is merely to avoid going where we are apt to lose money. Here are a few ways to lose money to get us started: 1) Buy high and sell low 2). A corollary of number one is to manage funds that depend on hot money that is withdrawn when the market goes down (most funds) forcing the manager to go against his better nature and buy high (when funds are flowing in) and sell low (when funds are flowing out). In my opinion this is why most fund managers do poorly relative to the market, long term. It is not even required to be a skilled manager to lose money this way. Even dummies can use this technique simply by following the herd! 3) Trade frequently. This may be the surest way of all to lose money because the transaction costs will grind your wealth down slowly with each trade. This is far from an exhaustive list. What are some other ways to lose money regularly in the market? No more than three ideas per post please for broad participation. :)

comparing lampert to biglari is way too harsh. essentially, he's following the same script with shld that he has with an & azo. year in & year out he's shrinking the share base with a portion of free cash flow, a form of financial engineering that's his peculiar trademark. he's had stellar results those other 2 co's. and the ceo's there dont seem to be in a hurry to get out of dodge due to some problem dealing with lampert's personality. he's obviously still trying to figure out how to stabilize shld & position it for the future operationally. the real estate values are only a safety net, tho a diminishing one that he probably didnt imagine the severity of 5 years ago. same thing with the weak market position at the combined shld. he missed that too. i still think that he'll eventually get it right. but in this debt laden deflationary economy i'm not a nibbler yet. You're right, I'm being too harsh on Lampert. It just drives me nuts that he's keeping things so close to the vest. It allows Mr. Market to be stupid and for him to cash out unsophisticated selling shareholders who don't know any better. I also think it hurts SHLD because it keeps them from drawing in great people who are not financial engineers, so to speak. I'm talking about people like Ron Johnson -- people with visions for the new retail world. Of course, perhaps people who have done more due diligence on SHLD's hires could disagree. I'd love to hear from those folks. As for Biglari, even he's not as bad as people make him out to be. I mean, he's going to do well for his shareholders -- there's no question in mind about that. I just vehemently disagree with his whole notion of comp and what he's worth to the shareholders. I also don't like the low hurdle rates he's picked. I guarantee you a lot of people on the board are afraid to speak up and say that they agree with Biglari's views of comp, though I'm not one of those people. I'm not gonna fault Biglari for liking Aston Martin's -- those are pretty sweet cars. Buying Aston Martins is negatively corellated with good long term results. Look what happened to Rich Santulli.

How do you short farmland? ;D Short agricultural commodities.

Matt, First, thanks for the link. Second, there's got to be a lot of phony baloney stuff on that list because the first five companies have net working capital that's ten times more than their market caps. Unlike the Chinese companies that took over NA shell companies that are virtually all frauds, some of these Indian companies have to be legitimate because of local scrutiny and regulation. How do you ferret these out?

That's the most economical way to go if your strategy is to match the market. You might want to consider the WisdomTree funds that rebalance by value weighting instead of market cap weighting and the Dimensional Funds that are a little more intelligent in their selection than most index funds.

Are you asking about the Coefficient of Correlation of a particular portfolio with the index? If so, ours is not highly correlated because we buy a number of odd securities whose workout values are uncorrelated to the market; plus our largest holding, LRE, has generally tended to rise when the market has fallen. You may be chasing your own tail in this project because diversified funds will have a certain amount of variance, and the tendency is for that variance to regress to the mean. You will be better off to hold your outlier underperformers because they will generally tend to perform relatively well after their period of underperformance. :)

Many of the Bermuda P&C companies are net nets by a strict definition or a modified definition. I think it's very profitable to look at an expanded concept of net net the way Marty Whitman does by looking at the net market value of the assets of the business. This might be the liquidation value of the business or what a willing buyer would pay for the whole company. This means that it's possible frequently to uncover a great business that's a net net by an expanded definition and rarely by the tight definition. Bermuda is a good hunting ground, especially because there are no corporate taxes there, and no taxes on UK companies that have Bermuda affiliates and write policies off shore in the international markets. For example, in the spring of 07 LRE had been in businesses a little over a year and had had hardly any losses since their IPO at the end of 05. It was a great business run by the best Lloyd's underwriter in the 80's and 90's. It had assets that were very liquid and hardly any of the assets were set aside as reserves as losses had been negligible. Q1 and Q2 of 07 were low cat loss quarters, and I realized that this great business was going to be a net net at the end of Q2 by the strict Ben Graham definition. I said WOW! I'm going to write this up and send this in as an application to become a new member of VIC. I sent the writeup in to VIC and heard nothing from them. Then, that summer I noticed that someone else had written up LRE on VIC a few weeks after I had sent in my write up. In truth, that analyst had done a much better and longer write up than mine which had been limited to their requirement of no more than 500 words for new submissions. Nevertheless, I got ticked off and wrote a letter of complaint about it to Joel Greenblatt but never heard back from him. Now, most of the Bermuda P&C companies are selling way below BV/SH, and with solid reserves and high quality, liquid assets are true Ben Graham definition net nets. Theoretically, any of these could be put in runoff, and those that have mostly or entirely short tail property books could return about the market value of their stock prices to their shareholders within a year and the remainder of value after that, enhanced by significant reserve redundancies that most have. But runoff would be shortsighted because most of these are good businesses whose stock prices have suffered through a soft market that is now starting to turn. This is a perfect situation for superior returns in the future. In summary, this is not a recent success, but much better because it's forward looking.

I had one of the last editions that I think was published. I read all the entries and then tracked the most interesting ones. They seemed to lag the market as it rebounded, probably because they didn't have analyst coverage, and they were in "boring" industries. The only ones that seemed to have good returns were the few that got taken out in M&A. These were a very small percentage of the whole group that was generally composed of stable businesses that had been around for the better part of a century. The trading volume for these companies was very low, sometimes zero. :)

The flip side is currently a company that can't make their cost of equity because of labor costs would leave the country and look for a location with cheaper labor. Under this proposal it might remain possible for those companies to remain which would help keep up employment. I think capital will always flow to high return companies regardless of the tax situation. Yes, short of confiscatory rates, but the flow to the most productive uses will be retarded nonetheless. When there are high returns in seemingly nonproductive uses, distortions are almost always caused by government supported policy, monopolies, oligopolies, occupational licensure, and regulations that have unintended consequences.

It's an anti productive change that is proposed. Under the proposal, the most productive companies will be taxed at a relatively higher rate. Thus, investment will be curtailed in those fields that contribute the most to the progress of society.

You've nailed it. This is what I call the growth trap, where capex is greater than cash flow, even though returns on capital may be relatively high. Then, after the growth phase of that company and usually its industry ends, the mature business experiences a contraction of its return on capital -- not merely to the mean, but often to the lower realms of industry.

Good perspective. Thank you. :)

The Bible. Enjoy alternating between the rich King James version and very easy to understand Readers version. Also Shakespear. Somehow I missed reading The Tempest before. It's one of his very best works. Like to reread all the great children's books, especially George McDonald, and his adult books. Recently, reread The Back of the North Wind. My wife's a bibliophile, and we often read aloud to each other for our enjoyment. :) And, of course, all the great investing books, many times, especially those on Buffett. Recently reread Fortunes Formula, slowly, to appreciate all the implied nuances. :) I dog ear and annotate all the significant books I read in their margins; so when I review the less important works, it only takes a few moments to check a fact or reflect on what's important. :)

LOL exactly so you are saying that buying the safest security in the world with 5 Billion dollars where there is literally no risk of capital loss and then have that security go up 30% when you expected maybe 2-3% because of the federal reserve creating money to purchase that security not another example of asymmetric risk reward? The asymmetry has to do with permanent loss of capital as well. Santyana, yes indeed Prem was lucky, both the CDS and the Treasury position delivered returns that prem could have never imagined, had he imagined those returns he would have deployed even more in the CDS position for example. The same thing happened to friedberg this year, hes up nearly 40% because he was long Bunds, US Treasuries and owned CDS's on European Sovereigns, and he will be the first to tell you hes lucky they have done what they have done. Original Mungerville, all I am saying is this: Inferring from the examples you provided, that Prem is a macro investor is in my humble opinion a misunderstanding of what in fact happened which is that Prem was just being safe with his capital and taking some punts which turned out to be 20 baggers because the federal reserve bailed out AIG with newly printed money and paid out counterparties whole. Burry on the other hand did in fact let his MacUro view supersede his value investing principles and bet the farm on this idea. Whether or not that will continue to work for him time will tell, but if you boil down the principles of value investing, Macro should not play a role, only valuations and multiples, in a way when multiples expand too much, too quick, that is most probably a result of a macro risk in the making, but as value investors we should not take any views on the macro at all. I will end with a Buffett quote: The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It is optimism that is the enemy of the rational buyer. Moore Cap, you are partly right or partly wrong about Prem and the CDS he bought. Yes, this was mainly a hedge, but their main doubt was not whether, but when it would play out in their favor quite asymmetrically. After this hedge lost 2/3 its value, Prem and his team reassessed the situation and decided to put more money into the position. Mason H. Loved what they were doing, but couldn't figure out a way to emulate it within their mutual fund structure, other than with their exposure to FFH. That this is true is born out by what they did after the CDS they held began to move up. I had a piece of FFH and I'm thinking, "Take the money and run." But they continued to hold them long after they more than hedged their portfolio until they rose in some cases twenty times their market value before the crisis took hold. :)

+1 And also, you haven't lived until you read the LVLT thread. That is a FACT!! I keep hearing about that thread, but 117 pages (or whatever it is), is a bit intimidating... Sorry, that thread is off limits except for those who gravitate toward OCD. :)

Welcome to the board. It's a good group, thanks to Sanjeev, our referee. The predecessor board had a few Bozos who were sometimes tangential or even contrary to value investing. Lurkers, I suspect, include a number of large, well known value investors. Most of these, including some who may be members, rarely or never post if I'm not mistaken. Only Sanjeev knows for sure, and he maintains confidentiality. From past surveys, most members post as private individuals, although a number are employeed in or associated with the funds industry. Managers of modestly sized funds are a smaller group, and managers of large funds who actively post are rare. Sanjeev, correct me if I'm wrong about my conjectures. :)

The lapis philosophorum method is on the verge of a breakthrough in answer to question number two.

I'd guess that iTunes was actually pointing to files hosted somewhere else (Geoff's site, or another hosting site) and that they have been taken off from there. If there is interest, I can upload any of the podcasts I have listed above to a hosting site and make the available for general download. Let me know which episodes you want. Cheers! Yes. Interested very much. Thank you.

Heard Eveillard speak today. He used to work for a big bank, and he doesn't trust their earnings and doesn't know how to value them.

. Alaska Juneau Gold was a highly efficient operation set up to mine a low grade deposit. It was exquisitely sensitive to the price of gold which had been fixed at $20/OZ for many decades. Roosevelt Raised the price of gold to $35/OZ when he took office. The mine which had become uneconomical had new life. Profits went through the roof as the real price of gold more than doubled in that deflationary time. :)

Here's an interesting hedge. Buy BRK when it hits $70/SH or perhaps 1% or2% below $70/SH. Hold it if you think the market is set to become bullish. Otherwise, sell it when it bounces X%. In a bearish market X might be 8 to 10%. Alternatively, stay in cash until BRK hits the trigger point; then buy it and write a covered call or stay in cash to cover writing a put on BRK. :). Then adjust the trigger point regularly for changes in BRK's BV/SH. This worked for us a few years ago when WEB was supporting USG's stock price at @ $45/SH. We had three round trips on this trade until we stopped when USG's management did something stupid and we thought WEB would stop supporting their stock price. That's what happened. There is far less risk on this trade. I think BRK will continue to buy BRK at <110% of BV even after WEB steps down. :)

It can be shown mathematically that the optimal balance between cash and equity for regular portfolio rebalancing in a trendless market is 50:50. This assumes that a portfolio manager doesn't have an edge on the market. In a bear market the optimal rebalancing ratio is more toward a higher percentage of cash, depending on how bearish the market is. :)

Actually, using PE 10, 2011 is very much like 1929. 2000 was the peak of the mother of all US bubbles with a PE 10 multiple of about double the 1929 PE 10 multiple.