Kraven

Packer, I am a member and have noticed the same thing. One thing that I have always found interesting is that Piostroski screen typically kills the others. I haven't looked in a while so don't know if that is still the case. Whenever though I've looked at the individual names in that screen, they don't seem so wonderful. If I was ever going to follow a mechanical investing approach blindly though, Piotroski screens always seem to do well.

I wanted to reply to a few of the comments about Graham. Graham DID state in 1976 or so (right before his death) that a formula was the way to go. There is a big difference between Graham in the early and middle part of his career and then at the end of his life. He did move away from individual stock picking to more formulaic approaches. Graham was a multi-faceted individual. Certainly he appreciated money and all the things it could do for him, but making gobs of money was not his primary objective (after of course a certain level of comfort). It was the intellectual exercise that appealed to him. He was involved in other disciplines as well. Keep in mind that Graham lived a long and full life. He didn't start really pushing the formulaic approaches (to the detriment of other approaches) until he near 80 and the end of his life. I have always taken this as the product of an old and tired man who had seen others take a bit of his limelight away and had become a bit curmudgeonly. Unless you're Irving Kahn or Walter Schloss, how many guys want to be fighting in the trenches when they're 80? So he wanted to stay in the game, but didn't feel like doing the nitty gritty work. So he looks for some short cuts. Nothing wrong with that in the least. At that time people were starting to use some rudimentary computers and such as well. Perhaps he felt like time had passed him by a bit. But what I always fine amusing is when guys like Jason Zweig and John Bogle use these types of statements as support for why Graham would be in favor of index funds. I don't believe that is the case. In my view, it's all part of his multi-faceted intelligence. He mastered individual stock picking and wanted to master formulaic investing as well. Obviously he had done formulaic investing earlier with net nets, etc, but this was different. However, it doesn't mean his earlier statements and writings become irrelevant.

The article is factually correct, but in my view misleading. Of course, The Big Short, while probably the single best book to describe the financial crisis, also is a little misleading on this point. Here is what I mean. Yes, it is correct that Greenblatt pressured Burry to return his money. The book sets this up as a David vs Goliath moment in a way. And that is true. The article however takes this a step further to say that while Greenblatt preaches patience, when it came time to his own money he didn't have any patience. Not only that, but he took what could be construed as "extreme" measures to get it back implying he panicked, etc. Here is the disconnect. Burry is one of my heroes. In hindsight Greenblatt should have rolled with it and let Burry do what he wanted. Remember though that Greenblatt "discovered" Burry through some early value investing chat boards. Greenblatt invested with him and backed him as a value guy - i.e. a guy who invests in equities. I have no idea what the documentation said, etc., but that was the gist. All of a sudden Burry is investing in credit default swaps. Again, Burry is a hero of mine, but why is it so unreasonable of Greenblatt to say "hey, you've lost a bit of money here and this isn't even why we invested with you"? Maybe his tactics weren't right, but then again from all descriptions Burry basically ignored him. So getting back to the original point, it wasn't a lack of patience, but simply a change in facts (from Greenblatt's point of view). If you invest in Fairfax and find out tomorrow they've sold off their businesses and want to become a consumer electronics retailer and have lost 15%, do you wait to see what happens? The facts have changed and so you say while I think they are tremendous capital allocators I don't want to be in the consumer electronics business. Has nothing to do with patience. The article is silly. So while in retrospect Burry was right and Greenblatt was wrong, it could have turned out the other way too. And in any case, he has the right to at least try to get his money back when the investing parameters have changed.

Life settlements are a very tricky business. Many of the people involved in the business would make used car salesmen seem like prim and proper royalty.

I believe that Graham is misunderstood in many ways. I think that he is like religion; people use what he says, and parts of what he says, to further their own causes. Graham was a complex individual and the different things he wrote about often don't completely mesh with each other. There was Graham the fund manager/investor and Graham the academic. The investor in Graham did certain things and the academic did certain other things. He also published over a long life - from the 1920s until the 1970s. So there are macro factors that weighed on his thinking as he got older. In terms of inflation, if you read the 1st edition of Intelligent Investor vs. the 4th (and last) edition, you can see some differences as the first was written during a low inflationary period and the last during a high period. That being said, I think his methods for calculating whether the market was over or undervalued is deceptively simple. He typically used the DJIA as a proxy and came up with his view of the value of each component, added them together and voila. If memory serves, he usually looked at inflation rates, interest rates, etc. more as qualitative factors. Things to be considered for sure, but as they were ever changing not something to be fully factored into valuations. I think as he got older he got tired and wanted to look more at macro factors and tests and broad market strategies, however.

Matjone - I don't recall Graham saying one should always be fully invested. He may have, but I just don't remember. He did always emphasize though that one should not reach for yield at the expense of a possible risk of capital. So in the current interest rate environment he likely would advise not investing in any fixed income that could risk principal unless there was a corresponding potential for a capital gain. In terms of what specific to invest in, that would be up to the individual investor.

I believe Graham's advice on this point fluctuated over the years, but in any event was intended to apply only to the "Defensive Investor". He basically said that a Defensive Investor could go with a 50/50 allocation or as little as 25% stocks or as much as 75% stocks depending on the investor's feeling about the general market environment. "Enterprising Investors" would not have any such recommended allocation as they should find their opportunities where they can and take advantage of them whether they be in equities or fixed income.

My first post here. Good discussion and a good overall board. This thread hit home. I am in my early 40s and just recently left the workforce as well to manage my investments and spend time with my kids who are 3 and 1. Like many on the board, I spend many years working crazy hours and rarely being home. I know too many people who never see their children. They make a lot of money, but their kids don't know them and/or hate them. Many of them leave before the kids are awake and get home long after they are asleep. Then weekends are for social activities, golf, and other things. Of course this is when they aren't traveling. I looked around and thought this wasn't what I wanted. It's been a month or so now and all is well! Kraven