mhdousa

GMO just released their most recent set of 7-year forecasts. Interestingly, U.S. High Quality is down to a 4.7% forecasted annual return. Looking back at a set of forecasts from 6/30/09 (attached, which I hope is okay with Sanj as this doesn't seem to be available anywhere else anymore), U.S. High Quality was forecasted to return 12.3% a year. However, GQETX, which is GMO's implementation of their "high quality" strategy, has only returned about 15% during this time frame, which would be right in line with a 12% annualized return. As far as I understand, their forecasts are based on mean reversion without regards to macro considerations, so I'm trying to figure out what would make the forecast change so much over the last year or so. Any insights would be much appreciated. -M

Vinod - do you mean "were being valued"? As far as I can tell, the three companies you mentioned all have low-mid teens PEs. Unless I'm missing something... -M

I had emailed them (to a couple different addresses) to ask about the fees but never heard back.

Thanks, Sanjeev, for making this the best place on the web for for both novice and experienced investors to ask questions and get ideas. This board got a nice mention as such in a recent Farnam Street post.

Hi all- I apologize if this is an elementary question, but my grasp of macro stuff isn't great. Recently, I've been seeing a few intelligent folks (recently Romick from FPA Funds) railing against Bernanke for monetary policy in response to concerns about a double dip recession. James Grant has had some negative things to say as well. From Romick's recent letter: We still see inflation as inevitable, especially since it appears the knee-jerk is the only skill required to operate the Mint’s printing press. In fact, we think the Fed is using today’s moderate inflation to continue to justify easy money. One of my colleagues, Mark Landecker, recently played Monopoly with his two young daughters (probably introducing them to the real world by zealously collecting their rent). The rules of this 1935 board game, he discovered, seemed eerily prescient given the actions of Mr. Bernanke and the other governors at the U.S. Federal Reserve. The Monopoly instructions state, “The Bank can never ‘go broke’. If the Bank runs out of money, the Banker may issue as much as needed by writing on ordinary paper.” As Mark points out, we suspect “Helicopter” Ben Bernanke played a lot of Monopoly as a child. However, what young Ben failed to grasp was that the Monopoly approach to banking — while risk-free within the confines of the board game — has potentially damaging repercussions in the real world. In this case, the unprecedented monetary expansion and profligate federal spending reflected in the graphs below is bound to trigger higher inflation and then lead to higher interest rates. However, as we’ve discussed in the past, perennially large deficits and an already elephantine national debt should drive interest rates higher on their own. My question is the one posed in the Subject: what's the alternative? If banks aren't lending and businesses aren't spending their cash, is there a better way out of this than the Fed's easy money policy? Thanks for the thoughts. -M

But it's not as though FAIRX was the only well-performing fund in 2008-9. Plenty of funds that don't have 15b in assets did/are doing just fine in this environment. The problem, as you know, is that Berkowitz's set of potential investments going forward decreases with every billion that flows in.

He clearly states in this interview (and others) that the size of the fund has been an advantage in this market. Of course he says that. It probably wouldn't be very good for business if he said that his asset size is hindering his ability to outperform going forward. When have you ever heard Warren Buffett say that his asset size is an advantage? In fact, he says the complete opposite - that it's much harder for him to move the needle at his size: "If I had $1 million to invest, or $10 million for that matter, I know I would achieve 50 percent per year." "As we get bigger there is more media interest and being larger makes it harder to grow at previous rates." “The big minus is that our performance advantage has shrunk dramatically as our size has grown, an unpleasant trend that is certain to continue.” If you don't believe Buffett, there are plenty of academic studies showing an inverse correlation between asset size and performance. You only have to look at your moniker for an example of a fund AUM casualty.

The thing I can never get past is that he, repeatedly in interviews, very clearly lays out the problems with the fund being so large. It's not just the current level of assets, but the level of assets in 5 and 10 years if he continues to do well. And yet he still refuses to close the fund. I laughed a little when Consuelo referred to this as a "very rare interview" with Berkowitz. Other than Heebner, there aren't many managers who are on tv more.

i'm wary of funds that charge 12b1 fees. i'm really disappointed in that. I tried emailing them at the address listed on the Chou America funds website to ask about this fee and got a bouceback email saying there was no such user.

This is great. Thanks for the interview. I've actually been looking at the Tilson Dividend Fund recently. Its performance is nice, but more importantly, the manager seems very intelligent (as evidenced by this interview). My couple concerns are the very high expense ratio (1.95%) and the low assets under management (19m), which are probably correlated (as AUM go up, I expect the ER to go down). I know that mutual funds are not typically discussed on this board, but does anyone else have any thoughts regarding TILDX? Thanks. -M

Is anyone looking at the home healthcare providers, specifically AMED, with their recent slide due to the SEC investigation? Opinions for or against investing in them would be greatly appreciated.

Does anyone know how to determine whether specific muni bonds are insured by Berkshire?

Baupost Group, which had held 36% of the shares in RHI Entertainment, sold out of their entire position last week at around 20-40 cents a share. They had bought most of their position in 2008 when shares were around $13-14. Anyone know what happened here? http://www.sec.gov/Archives/edgar/data/899869/000106176809000170/xslF345X03/rhieform4amend4_ex.xml

Is this an IRA account or just an individual brokerage account? I have it in a Fidelity IRA - anyone know how that will work?

I generally really like the way James Grant speaks and writes, so I was wondering if anyone had any opinions one way or the other on his newsletter. Is it worth the $800/year? Has it made you a better investor? Does it pay for itself with good investment ideas? Thanks. -M

Would anyone have a problem with me putting a PDF copy on here?

Thanks, Benhacker. So, in trying to take advantage of Grantham's thesis, what do people think are the most attractively-valued "high-quality" companies out there? JNJ seems like one. While it's not the screaming deal that it was in March (obviously), it still is selling at much less of a premium than it usually does.

Attached. As always, plenty of creative vitriol directed at usual suspects. I'm having trouble dissecting what he is suggesting in this paragraph. Can anyone interpret it for me? Notwithstanding this concern, I believe we are well on the way to my “emerging emerging bubble” described 18 months ago (1Q 2008 Quarterly Letter). I would recommend to institutional investors, including my colleagues, to give emerging equities the benefi t of value doubts when you can. For once in my miserable life, I would like to participate in a bubble if only for a little piece of it instead of getting out two years too soon. Riding a bubble up is a guilty pleasure totally denied to value managers who typically pay a high price to the God of Investment Discipline (Thor?) for being so painfully early. I think the fi rst 15 percentage points over fair value would satisfy me. If I’m right, the fi rst 15% will be a small fraction of the eventual bubble premium. So in a sense, we would be early once again.

I was hoping someone would say that! It seems like a ridiculous amount of money, but I had seen a few on this board were planning to go, and the notes looked interesting enough, so just thought I would check. Thanks! -M

I got an offer for about half-off the registration fee for the VIC in Pasadena next May. Anyone think this is worth ~$2100?

Txlaw, Thanks for the thoughts. My criticism is based on the study (can't remember where I saw it) that shows alpha halves as assets double. But if he's using the extra asset base to take advantage of distress, then it may not be a bad thing. You mentioned to US-centric side of things. Mind sharing any foreign funds you find especially appealing? Thanks again. -M

Anyone else unsatisfied by Berkowitz's response to the question about closing the fund? JM: All right. One that continuously comes up, now that we're over $10 billion in assets again: When are we going to close the fund? BB: We've spent a lot of time thinking about this question. We've answered it many, many times. Basically, by having most of my family's money in the fund, I try to create the balance necessary for such decisions. Personally, I don't wish to sacrifice that which I have worked hard for and may need for that which I will not need. For now, size has helped. Having cash, when few do, has helped. Having heft makes a positive difference, and one of the few advantages against the unknown. Size also allows us to keep focused on the fund, while keeping fees relatively low for what we do. With scale, we can meet the ever-increasing costs of doing business. The bottom line, we have smart shareholders and directors, who are not afraid to voice their opinion on how our size is affecting our performance. It's inexcusable for them to let this fund get so big, and it's odd that Bruce wouldn't recognize that with every extra billion in AUM, he's further limiting his investment universe. The statement "Size also allows us to keep focused on the fund, while keeping fees relatively low for what we do" holds no water as their ER has remained 1% since they started. They held the same percentage of cash when they were $9b smaller, so I'm not sure how that's a justification. And no matter how much of your family's money you have in the fund, you're still pulling in $100m in fees each year. I realize that doesn't all go to Bruce, but that's going to be a much bigger factor in his net worth than whether FAIRX gains 20% or loses 20%. Unfortunately, I can't think of any alternative mutual funds to switch to. If anyone has any ideas, I'd love to hear them.

Can anyone tell me what this guy has ever done that we should listen to anything he says?

Morningstar has, as their lead article, tomorrow's Verisk IPO and bills it as a chance to invest alongside Buffett. http://news.morningstar.com/articlenet/article.aspx?id=310978 Anyone have thoughts on this?

His books are outstanding. I like "Complications" more than "Better" but you can't go wrong with either. They are sort of like the medical versions of "Freakonomics" - using science and anecdotes to try to make sense of a field that often makes no sense at all. He had an absolutely brilliant article in the New Yorker a couple months back on why our cost of healthcare is so high, and focused it on a medium-sized town in Texas. I believe Obama and/or Orzag saw it and invited him to help with their health care plans. http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande edit: realized my terrible spelling of "Freakonomics"