rranjan

Yes, they did very good job during last 1-2 years. I do need to pay more attention to FFH and swing hard during next fat pitch. It seems lot of you owned FFH/ORH which worked out quite well. I never owned FFH/ORH so far and one of them is gone :). Although I have been reading the forum for long time and as result I did identify FFH/ORH as fat pitches. But I couldn't resist some other ones and ran out of money. I personally find it very difficult to sell existing security for a newer one unless newer one is selling at bigger discount by big margin. Unless difference is too much, its just an rough estimate and I don't feel that I will be right 9 out of 10 times with exact valuation so it was difficult to sell something else to buy FFH for me. All of you guys are fantastic bunch and there is always something to learn from you. We can all take different path but one thing will be common , all of us want to receive more value than the price we are willing to pay. I can't imagine why doing anything else should be called investment ??? On the side note - Does anyone know, which IIT Prem went for his undergraduate?

I am not quoting in direct response but my point is related. I have little bit different way to look at it, especially for my personal portfolio. I calculate total intrinsic value of portfolio and if it has increased over 1-3-5 year’s period then I feel happy. Market quotation value of portfolio being down 30% or up 10% doesn’t make me feel sad or happy (It does some time and I am trying to get rid of that habit so work in progress …). I am realizing that focusing on market quotation value might force me to take some risk which I should avoid at all cost. I have read many times and understood it but still keep reminding myself that my portfolio returns over years might look very different than market( up as well as in down). What matters is the total return over long term keeping the risk in check. Now I am almost, not completely though, in a frame of mind where it doesn’t matter to me if my portfolio quotation value drops by 30% as long as portfolio intrinsic value has not dropped in same proportion. I do see the logic behind average monkey performing good in 2009 and do agree that we shouldn’t draw any conclusion based on this performance but I fail to understand why we should expect portfolio quotation value always higher than market returns year over year consistently. If portfolio volatility is much higher, which I suspect is true for most of us here, then expectation of volatility only on one direction is not realistic. That’s the reason I feel it’s not fair to criticize Mohnish over 2007-2008 return in isolation. It’s also not fair to just pick 2007-2008 point or middle of 2009 as the final point to judge his performance. We can definitely criticize the selection process of individual picks in his portfolio but being down more than market for 1-2 years in a row shouldn’t be a problem as long as intrinsic value of the portfolio has not gone down in big way. We should definitely criticize if portfolio intrinsic value is going down due to his selections but market quotation value at any given point is irrelevant. I don’t have the problem with criticism due to right reasons. He did pick some businesses which were too dependent on credit market liquidity. Coming back to the main topic of this thread, personally I didn’t try to manage volatility but I was not finding too many fat pitches in early 2008 so I had some cash. Later part of 2008, I found some fat pitches and deployed some cash and then again found fat pitches during Feb/March 2009 and I ran out of cash before absolute bottom. I wasn’t trying to catch the bottom. I was only focused on biggest discount to intrinsic value and swinging at it with best of my ability. In 2008 I was down by roughly 40%. In 2009 I am up by roughly 150%. Portfolio market quotation during this period didn’t change in lockstep with intrinsic value of my portfolio but I have no complains. I am still trying my best to not get impacted due to market quotation rather just take advantage of it if I can. Even after understanding and agreeing, doing so has not been easy for me but I am still trying my best. I also learned the importance of keeping the dry powder to take advantage of fat pitches. There is no point in being able to wait and identify fat pitches if we can’t swing at it due to lack of cash. I feel there is couple of ways to do this. One would be to keep cash always and other to buy cheap hedge, which is generally available when everything is priced for perfection. We can use the combination as well. Wabuffo - You did very well in 2008 and I do agree that you should feel proud. My two cents…… ( bit long though)

For YTD performance, I completely agree with the assessment but if some dart-throwing monkey performs substantially better than average monkey over long duration then we have to see if dart is thrown little bit differently by specific monkey. In case of Mohnish, I would say that over long term he will do better than average. I am not saying this due to his past performance rather I am deducing this based on his investment process. I firmly believe that if process is right result will follow sooner or later. It might not be 100% certain but odds are pretty good for getting good results with right process. There was another thread about Sardar’s performance going forward and someone wanted to see his performance in non-restaurant business to decide if he is good jockey in different condition. I do think that its not bad way to look but if Jockey has done well by following a good process then chances of good future performance will be bright even in absence of long track record in different conditions. I also trust that good jockey will not keep picking fat horses for race :). I am not disputing that you can make good change after verifying the Jockey’s performance in different circumstances but change will be much smaller. I wasn’t trying to compare or defend anyone here. I was only trying to convey that I will make up my mind looking at the process used by any manager and not pay much attention to their recent performance.

Here is what I think. - We might not be able to predict exact future performance but we can definitely agree that next 20 years is unlikely to be same as past 20 years due to its size even if Buffet is still here. Having said that we have also seen Buffet deploying huge cash at attractive rate of return recently so they can get good overall return without making additional investment in near future but new cash will keep piling up and it will become increasingly difficult to deploy the cash due to its size. - BRK is likely to do better than index for long time due to quality of business it is holding as well as recent opportunity to deploy huge cash but I doubt that they will be able to attract the business in similar way when Buffet is gone. Having said that it might be still 20 years before buffet is gone. - BRK will keep getting opportunities due to human greed/fear factor in future as well but total number of opportunities to move its needle will become less and less in future due to increasing size of BRK. - Having additional BRK-B shares in market due to Gates foundation is not going to change its prospect or business value so point is irrelevant except the fact that BRK will become more volatile and all shareholders won't get similar returns. I suspect most members of this forum will get better returns than average shareholders when it becomes more volatile. - I think BRK will do more than decent in near future due to its current share price as well as huge deployment of cash by Buffet. I feel we are blessed to be able learn from Buffet when he is still alive. His inclination to selflessly share has helped so many of us. I also appreciate the forum members sharing their thoughts here. Always there is something to learn. May be less new things as you keep learning more but it’s very helpful. Big cheers for Sanjeev to provide us this platform which made it possible to share thoughts. Disclosure: Holding BRK-B with average cost basis around 2500

Agree with you Eric. I used 10 year rolling window just to use some longer time frame. We can extend/reduce it but I was only trying to convey that it will be more difficult to deploy the cash with same expected result as BRK keeps getting bigger. You are right about their intrinsic value growing faster than book value in previous 10 year.

Over long run, 3% outperformance is more than likely due to very high outperformance of early years .Closing the fund before 1B will also help with this.

I am kinda confused . Why do you think a index, which is proportionate collection of all 2000 businesses should be compared to BRK-B as far as law of large number is concerned? If there are two investment companies having similar skills for capital allocation then we can say that smaller one has better chance due to law of large numbers working against the bigger one. But we can't say that total world index has xyz Trillion capitalization and BRK-B has outperformed the index so law of large number doesn't seems to work against BRK. We need to compare performance of BRK when it had very small capital to work with and performance of later years when it has lot more capital. If performance is similar then we can say law of large number is not affecting it so far. If you meant it is still doing better than index in rolling 10 year period then that is true but we can't use it to argue that law of large number is not catching up with BRK. Personally I think ,its difficult( nearly impossible) to produce earlier performance as BRK keeps growing but it will still do decent on risk adjusted basis. Buffet got the oppurtunity to deploy huge cash recently but as it gets bigger it will become increasingly difficult to deploy the cash with high returns.

I think what you are basically saying is that some people are good at capital allocation and others at marketing, but the same person is not usually good at both. This could be said about any business. The ones that market themselves the best are not usually the ones with the superior product. --Eric That is probably because good capital allocators are too geeky to deal with people, as they are perfectly content to sit alone in a room reading SEC filings all day. ;P Agree with both of you. To add, I think some sucessful marketers , who are not good at capital allocation, use methonds which a honest person will never use. If a person is not honest then no one should give even single cent to that person to manage irrespective of supposedly high potential he might have . Having a intelligent and dishonest person is most deadly combination you can have for your investment manager :)

LOL, its funny but hey being good at capital allocation doesn't necessarily mean that same person can be equally good at the business of capital allocation. I feel that skill of capital allocation and business of capital allocation, are two very different skill set. In my opinion reverse is true most of the times. I meant, majority of people who are good at business of capital allocation generally have very poor skills of capital allocation. Like Sanjeev, I find it amusing that often people who have very poor skill of capital allocation are able to raise money quickly and most of the time they exploit the human nature of taking short cuts(not doing any due diligence like Sanjeev did) and greed factor( believing in all rosy forecast of profit and ignore the risk). I don't know about others but I do see it all the time. But there is silver lining in this, due to them market creates opportunities and we get chance to make some decent gain :)

I am not defending Pabrai but other way to look would be - he went more diversified after realising that he overestimated the volatility tolerance level of his clients. This realisation could have come only after portfolio was down by big margin. Other words , he got burned but I don't agree with this wording even though some of his picks were questioanable due to being too dependent on money being available freely in the market. Now we can argue that he should have realised it without going through this experience but we all make mistakes and I do admire his willingness to share his thoughts and mistakes both so openly.

Well chosen 100 bets over 20 years will be more volatile but not risky if you don't need to take your money out before 20 years. It becomes risky the moment you need the money at random times because your need for money (real or due to fear) might happen when market is quoting very low price for your businesses. Volatility, uncertainty and risk are three different things. I am comfortable with concentrated personal portfolio which is by nature volatile but when you manage money for others you can't feel comfortable with same volatility level due to many reasons. I feel that’s the reason Mohnish is going for less volatility by diversifying more. But over long term I feel you can do better with concentrated portfolio because I find it difficult to make too many good decisions each month. One thing I agree, people should stick to what they feel comfortable with else you tend to make wrong decisions at exactly wrong time which will reduce performance over long term. Like Kawikaho, I admire Pabrai willingness to share new information even if it’s not consistent with his earlier approach. We have inborn bias to appear consistent to others and that’s the reason many fund manager don't want to talk about their current holding because it makes it difficult to change the thinking even if they find that they made the mistake.

On Side note, It really bugs me that we have to use the term "Value investor" as opposed to simply "Investor". We can clasify everyone in two category, Investor or speculator. Problem is, industry has been widely using the term "investors" for "speculators". As result, to differenciate people need to use the term "Value Investor". Well, even with that we have lots of pretenders in industry who use value investor term but they are simply speculator. I was just ranting..... I am based in DC area and being VALUE investor won't fly for this:)

Numbers are great but stock is mainly held by CEO and talking to him it seemed he is satisfied running the company and might not have any incentive to unlock the value. I suspect it might be taken over by some one but being controlled by CEO I don't see it happening unless he wants to do it. It is not a liquid stock as well, so good luck with accumulating any meaningfull number of shares if you decide to buy. If more shares were held by outsiders , I do see potential for unlocking shareholders value in reasonable time frame. But its cheap so you can buy and lock it for long time if you think CEO will not do anything stupid to destroy the value. My two cents...

I have never met Mohnish but he does have quality to explain seemingly complex issues in simple way. Mohnish investment framework was shaped up by whatever he encountered when he started investing (e.g. - easy money available in market which helped many of his earlier picks to come back) and assumed that it will continue. Some of his picks were too dependent on that assumption but I feel he would have done even better by sticking to concentrated portfolio during recovery. Having said that I don't think his framework was flawed or current framework is not good. Both approaches have pros and cons. As Sanjeev mentioned , its a continuous improvement which I believe every investor goes through based on evolving circumtances. He is not buffet and even only recently we hear thoughts from buffet so freely.Having benefitted from listening Mohnish, I will be dissapointed if he can't express his thoughts just because he has to stick to it in future even if his approach changes little bit. I am not defending him but I do think he definately had mental checklist like most investors who might not have written checklist. I don't think anyone should form an opinion without getting the whole story and I do agree with Sanjeev that you can ask him same questions you have and get the whole story then make up your mind. I did find Gawande story very funny and interesting. Thanks for sharing it.

Great allocator will do much better with smaller capital base. If we have any current one with smaller capital base then yes , I do agree with you.

Most of the gold in the world has basically no practical use. In my opinion, Gold is not an investment its pure speculation. By speculating people can still make money if they get lucky ( find another speculator willing to pay higher price) but its not an investment. Over very long term like 100-200 years gold might hold its inflation adjusted value but its impractical for individual investor to take 100 year of time span. It might ok for some trust or foundation to hold gold for 100-200 years if their aim is to protect the value but for individual investor with much less time span it might not work consistently.

I don't know the answer but here is the my take on this. I see 3 possibilities( meant I can pick either of three spots), 1) If my 1st choice happens to be car then if I switch then I am stuck with getting the goat 2) If my 1st choice happens to be first goat then by switching after seeing the 2nd goat in another spot, I will get the car 3) If my 1st choice happens to be second goat then by switching after seeing the 1st goat in another spot, I will get the car. 2 out 3 times I will get the car by switching so 66.66% chance of me getting the car by switching. So, If I want the car then I will switch but if i want the goat then I will not switch my choice:) kawikaho - My last name is Ranjan and first name is Rohit so you might be referring to some one else.

"Quant potion of GRE " ---- Correction , it was Analytical section not the quatitative section.

All three questions are very easy. I guess most people will answer it correctly if they have taken some analytical exam. What I meant was that if you have taken exams such as Quant potion of GRE then you can answer these kind of questions easily and quickly because basic questions there are similar in nature and you become tuned to think certain way. Though I took it many years ago so format might be different nowdays but 3 questions mentioned here were not difficult to start with.

"50% discount to its most recent NAV" --- I took a quick look at MVC and didn't feel very comfortable with the fact that NAV is not calculated based on liquid market value. It is based on valuation provided by their internal team. I tried to evaluate their holdings to see if I can draw conclusion about NAV but finally threw it into too hard bin. If NAV is suspect then 50% or even 90% disocunt is no comfort to me. If you are investing in it then best of luck but for me it went into "too hard bin".

Thanks for posting it. It was woderfull read. Do you know if there is any similar chapters/book/list for USA super investors who might be not so well known but have similar thinking?

Just curious as to why? If a good value investor can identify an undervalued position, isn't the corollary also true? I am intersted to hear what others have to say on this but to me being long always looks better on risk/reward basis as compared to being short specially when market has long term upward bias. You've effectively made my point. Successful shorting, as you've described, is often harder than making money going long. So, shouldn't that be a positive aspect of Lindmark, that he is able to effectively identify under- and overvalued securities and succesfully capitalize on this? Identifying overvalued situations are not a problem but its very difficult to capitalize on it consistently over a long period. No doubt that he has done it sucessfully this time but question is can he do it consistently over very long period like 30 years. I wouldn't be so confident about it. If you can get good returns over long term by doing simple things then I don't see the need to do more difficult things which also exposes you for unlimited risk. Its easy to do simple things consistently over long duration as comapred to difficult things. If I have to choose between two fund managers , both producing similar results over long term , I will pick some one who produces good results by going only long. I will even forgo extra few percentage of return which short/long manager can produce due to risk/reward situation. I agree with Mr Klarman that shorting brings the sanity in the market. Being good for market sanity is ok but in my opinion its not a good strategy for producing good and consistent returns over long term without taking undue risk. Some people might be able to do it but odds of doing so is very less.

Just curious as to why? If a good value investor can identify an undervalued position, isn't the corollary also true? - A short's downside is theoretically unlimited but maximum reward you get is the price of stock your are shorting if it goes to zero. If you are long you can't loose more than your invested capital unless you are using leverage but you have potential for unlimited gain. - A overpriced short could conceptually move sideways for a long time until its earnings eventually "catch up" with its valuation. So when you short, time value actually plays against you. When you are long, the time value is helping you and not working against you. - Good short can become not so good and we can't control it. To some extent it applies to long as well but being short puts the sitution beyond our control. To make the point I will give simple example, Lets assume there is one company called "Ideal short" which has 1000 shares and cash value is 10,000(10K). Company does no operation and nothing comes in or goes out. Now we know the company has value of 10 bucks a share. Due to Mr Market being in good mood our "Ideal Short" stock is fetching 50 bucks a share in market. So it looks like no brainer short. One of your intelligent friend owned this company at 10/sh and he saw the prices goes to 50/sh so he is very confident about the stock and he thinks you are stupid to short a stock which increased 5 fold. Here you can clearly see that we out to make a 40 bucks profit per share if we short it and you have identified the perfect short even if your intelligent friend doesn't get the picture. So you just need to wait till market realize that stock is not worth more than 10/sh. Management — seeing a $50 stock price — calls their underwriters and investment bankers (the people who run IPOs and sell stock to the public) and explain that they want to have a "secondary" offering of "Ideal Short" stock. The underwriters help "Ideal Short" company sell another 2,000 shares at the new price of $50 a share. They sell it to the public by continuing the hype (and bull) that "Ideal Short" is revolutionizing the world. So total cash raised here is 100,000 ( 100K) Now our ideal short has 1000+2000 shares with 110K cash ( Initial 10K and newly raised 100K). Even after paying 7% to underwriter "Ideal short" still has cash of 103K with 3K share, making each share worth 34.33 per share. Now suddenly our potential reward for shorting decreased from 40 bucks to 15.67. Above given example could have been used by all fly by night .com's in 90's to simply increase their intrinsic value and it would have turned some "ideal shorts" to "not so lucrative shorts".I am using very simple example to convey my point . Value investor can easily identify undervalued and overvalued business but its much easier to capitalize on undervalued situation without taking undue risk. Selling short can be lucrative but more variables have to work for you as comapred to when you are long. Why add more variables? I am intersted to hear what others have to say on this but to me being long always looks better on risk/reward basis as compared to being short specially when market has long term upward bias.

calonego - I must have missed due to performing quick scan. Thanks for pointing it out. I will take a closer look. -Rohit

SSF provides the option to build position cheaply but its available for only couple of quarters but again you can roll over to continue having same exposure level. Interesting way to build position but I havn't used it.