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johnhuber

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  1. The other thing to consider about Renaissance is the massive tax bill that LP's paid each year. I know much of their investor base became institutions that in some cases don't pay tax, but if you are a tax paying investor, your results were still incredible, but much, much closer to owning BRK. In fact, if you were a high net worth individual living in NYC, I would bet that your after tax returns would have been higher just owning BRK during its prime three decades than owning Renaissance during their run.
  2. +1. I don`t know if it was Buffet who said that, but the best investment is one that grows without reinvestment of capital like See`s Candy and throws of a lot of free cash on its way. This whole compounder stuff is way overrated since ROIC is mean reverting. Number one determinant of future rate of return is price paid, every backtest that i have seen confirms that. ROIC doesn`t even have an impact on returns, this was highlighted in "Deep Value". Good points. I think there is so much interest around the compounders because we've gone through a multi-decade bull market and everyone sees a TDG, POOL, BRK, etc, and they think how much better it must be to buy something to compounds tax deferred forever. Well yeah, of course that's better. But actually investing the bulk of your portfolio in a compounder at the end of a 25 year bull market in both stocks and bonds is not an easy task. I know it's in bad form to take someone from this forum as an example, but take a look at gio. He's posted like 6000 times so it's a decent sample size. He's picked out all these "compounders" in the past, and almost every one mean reverted. He bought into Apple, and now it looks like he bought right as iPhone sales peaked. He bought into Oaktree, then realized it wasn't that great. He bought into Nomad, then realized it wasn't great. Bought into Valeant, and then realized it wasn't great. Now he's buying into Google, Nike, Amazon, etc. In the search of finding compounders I don't think he's stuck with a single one? That just defeats the purpose of investing in compounders. You might as well have found a crapload of cigar butts over that time frame. Now it just looks like he's long the S&P 500 at peak everything. Buffett probably identified less than 20 "compounders" over his entire lifetime that he was able to buy at the right price. But he did it during one of the biggest economic bull markets in history. That's a hell of a tailwind to be long a compounder. And he's probably 50x better than most of us at finding something that can keep compounding. How long will you wait to invest your portfolio in these compounders and be willing to sit through nasty bear markets, changes in the economy, changes in competitive advantages, you name it. It's incredibly hard. Look at something like Walmart today. It looked like a great compounder back in 1995 and now no one wants to own it. Anything that looks like a good compounder today is incredibly expensive. 30x, 50x, or 1000x for AMZN. It would be nice to find the next WBA, BDX, CHD, XOM or MO but it's nearly impossible to do in practice. But if you guys come across any cool compounding machines that isn't Amazon, let me know. Out of the thousands of threads on this board, I'm not aware of any others that look like real high ROIIC compounders. These are some great points Picasso. Finding the truly great compounders is extremely tough. You only need a few of them to make a career, but there is no guarantee even of that. I've spent a lot of time thinking about two "buckets" of investment opportunities. I prefer limiting my investments to good business (with the occasional exception when it comes to some sort of oddball situation or bargain security). But almost always, I feel more comfortable with the businesses whose intrinsic values will be higher 5 years from now. But within this category of "good businesses", I think there are many opportunities to buy them during times of general pessimism and sell them when the market values them more fairly. The so-called "time arbitrage" where you buy these companies when they represent a decent discount to steadily rising fair values, and then sell them when the market eventually corrects itself. It seems that once or twice a year, Mr. Market offers this up due to some macro event or just general market pessimism, and occasionally there is an opportunity to buy into a company-specific short-term problem. I think there are many more opportunities to engage in these types of investments than there are trying to locate the next 10 bagger. If you are willing to wait 2 or 3 years for your result (often, the result happens sooner than that, but having that kind of time horizon is usually necessary to capture the opportunity), I think you could simply build a list of these so-called compounders, and just wait. If you have a list of 50 of them, there are probably opportunities on 2 or 3 of them at any given time. I think a guy like Allan Mecham has built his successful track record on this type of general concept. He has fairly low turnover, but he seems to find these (often large) good companies at a decent discount, and then patiently holds them for a year or two, and then sells them later once the market values it more fairly. A friend and I call this "cigar butt investing 2.0". Basically, instead of cigar butts, they are good businesses. Both approaches require maintenance and a fairly steady flow of new ideas, but it seems a practical solution to the ever present problem of locating the next CMG, HD, or AMZN. In the meantime, you can always keep hunting for the next 10-bagger. Just some random thoughts. John
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