investmd

Interesting (& worrisome !) that this thread has so much traction on a board with a value investing bend

Adam Robinson - thinker, master chess player, founder of Princeton Review (cracked the SAT) & hedge fund advisor would agree with you that value investing does not work. I am heavily invested in the philosophy of value investing and not in a position to pivot yet. As much as I can hope that there are caveats where it does work, the following are some quotes from Adam Robinson's conversation with Shane Parrish on The Knowledge Project podcast ( link to full podcast : https://fs.blog/adam-robinson-pt1/) that support argument against value investing: And I believe, as the fundamental analyst: A, that I can determine that true value; B, that I will have good reason to know that I’ve determined that true value and it’s not a guess; C, that everyone else is one day going to wake up and realize what the true value is in a reasonable time frame... ...Buffett and Charlie Munger—are pretty unique in their investment results. I mean, there may be a handful of other investors in the world who have beaten the market to that degree by that length of time. So if fundamental analysis works the question is, why is Buffett the only person who can do it? Clearly he’s doing something else. I don’t know what the something else is. So here’s the other problem with fundamental analysis, it’s one of hubris. Every fundamental analyst believes he or she, using exactly the same tools that every other—and information that every other MBA, former MBA student has acquired reading security analysis, is going to discover something no one else has discovered ...Right the fundamental view of investing is that you can figure out something about the world that no one else has figured out. It’s a bit like prospecting, right, gold prospecting. You can go out with your pan and find something that no one else has found. Well, the difference between investing and gold prospecting is that gold prospecting, you actually find gold that you can actually go sell, right? If you find a value that no one else has found, what makes you think.... If people are irrational enough to believe that the price of gold is different from what you think it is or should be, what makes you think they’re going to become rational tomorrow? There’s that great quote by John Maynard Keynes, “Markets can stay irrational longer than you can stay solvent.” Good luck with that.

Movies: Get Out - Pscyhological Thriller that is so Intelligent - the twist at the end is a neat surprise worth waiting for Imitation Game - biography of Alan Turing - using math and computers to solve encryption in war time; role of homophobia in recent history TV Series: Breaking Bad - Plot of a generally good, very bright individual trying to help his family that crosses a fine line and evolves into another character; great exposure to societal price of illicit drugs and effects on young, old, men and women; good musical score; Worth watching entire series second time True Detective - Season 1 - Takes about 10 episodes to solve the crime - so not all neatly tied up in 1 hour like a usual TV series. Season 2 is completely different story and not in the same Class. The redeeming feature of Season 2 is the music of Leonard Cohen. Silicon Valley - Comedy/Drama of life as a start up company in Silicon Valley

Thanks Peter, No free lunch, Obtuse investor and Rb. I'm re-assured that all of you are pointing out a similar theme. Very much appreciate the insight and calmness of the gardening analogy :) What I'm hearing is that mistakes were made (in terms of choosing a hedging strategy during a bull market) and it takes a while to grow out of the mistakes. Weeds are cleared and waiting for flowers to blossom. There is potential for a bountiful harvest.

FFH is a core pillar in my portfolio strategy. Have taking a buy and hold approach over past dozen years with ongoing purchases on dips. Full confidence in the ability to run an insurance business well and effectively deploy float and ability to take advantage of opportunities. Today, I noticed that price on Jan 1, 2015 is essentially identical to price on Jan 1, 2019. Completely flat over 4 years of a "bull market". Yes, I'm picking the dates, as if we go over 5 years, it's up a total of some 30%. So over 5 years, annual return of 7%'ish is not terrible. However, 4 years is a significant time period. To be flat (with 2% dividend yield) for past 4 years is raising some questions for me about management going forwards and questioning my long term core nature of this investment. Watsa is always so positive, energetic and bullish. Recent thoughts on this Board included that FFH was undervalued, was well positioned for regime of increased interest rates and would/should be buying back shares. Is there full confidence that this company can AVERAGE 7%/yr over any 10 year investment period? Means some flat 4 year periods and some 30%+ years. I'm fine with lumpy returns, but over time they need to at least meet market return with potential for alpha.

Thanks for the good article. The merging of a healthcare system for Amazon, BRK & JPM is a neat experiment in US healthcare models. Purpose clearly seems to be to see if healthcare quality can be improved, whilst simultaneously cutting cost and waste. Premise is that healthcare in US is inexplicably tied to employment and that universal healthcare (like Canada, UK and much of Europe) is not an option. Thus, it's up to employers to change it. This "experiment" has a great Principle Investigator in Gawande, a good population base of 1.5 million individuals and support/resources of 3 of the strongest companies in the US. I'm excited to see where this goes.

I think it's a good bet but many unknowns so I would need to size it fairly small. Same with FCAU, which I do own. My concern with AAPL is there really hasn't been any dominating new tech since the IPAD. What role did Jobs play in it all and can they innovate without him? Didn't the IPOD/IPHONE/IPAD all happen within about 7 years? Now it has been 8 years without anything comparable. You can also throw in itunes I think. The company really went to hell the last time he left, I am concerned it can happen again. I am not really into tech so I might be missing something but this is how I understand the company. That is the bear case and you have laid out the bull case succinctly. I have a hard time deciding which side is correct but agree the market is not pricing much of the bull case in. I think closer to 10x earnings and it's a 5% position for me. That's about all I can do with this one. What I would like to see is some new innovation that review sites are pumped about. If that happens and the stock doesn't move I would make it a larger position. Shalab, thanks for laying out the bear case for AAPL. I agree. The idea of not coming up with a ground breaking product in the post Jobs era is a concern. However, in that case it seems that the bear case for this stock is that it does not move up and stays a blue chip paying a 2%'ish dividend. So if bull case plays out, then win big, if bear case plays out, there is little to lose. Still a company with good revenue. Isn't that the risk ratio we want?

AAPL is trading at a forward P/E multiple of 12. Cash reserves in excess of debt is over $150Billion. If you subtract the cash excess from market cap, you arrive at a P/E of approx 8 for a blue chip large cap with a dividend yield of 1.8%. Valuation metrics look a little like a bank. However, this is a company with a history of bringing ground breaking innovation to market: iPod, iPhone, iPad are 3 in the past 15 years. Reasonable chance are there will be more innovations in the next 15 years. In addition, compared to other tech or banks, the apple ecosystem is a "moat" of sorts. Apple stores across the world are consistently full. Assuming an effective business plan, they are making a profit. A P/E of 10 seems dirt cheap for a company like this. I saw similar metrics when AAPL was trading at around $55/share ($350-400 before the 7:1 split). Whilst not a 3x return over 2 years, there is a lot to like with a nice safety profile. Thoughts?

Following up on this trend. Six weeks ago it appeared that BRK was getting hit as hard as FAANG stocks. Today, I see that whilst most big tech stocks are 25% off their 52 week highs, BRK is down only 6% off 52 week high. So as Cigarbutt pointed out, things are as we thought - BRK would do better in a down market. I'm reassured the world is as it should be. The anti-fragile large cash holding should allow for appropriate deployment and future gains.

As much as it makes complete sense to me to choose stocks based on metrics advocated by Value teachings, how does it work when markets are so correlated? Yesterday, there was a correction and DOW was down 800 points. Pundits have been calling for a correction. Primary reason for market correction being tech and FANG stocks in particular had increased dramatically and trade at high P/E multiples. Makes sense. What I'm confused by is BRK fell approx 4.5% yesterday and Facebook also fell by 4.5%!! The general idea behind holding BRK instead of FB is that BRK has underlying value (assets) and is likely to steadily grow revenues over time. Fair enough. However, if BRK suffers the same fate as FB in a "correction" how does holding BRK pay off? To me the "science" and theory of value investing makes complete sense but if markets are so well correlated, does the theory play out?? Disclosure: 100% of my assets are in the "value" bucket.

This board includes many who are very knowledgable on FFH. What is the long term assumption on FFH stock price? Is it reasonable to say FFH will double every 5-10 years? - ie: compound at 7-15%/yr over any 10 year period in the future.

This thread was started a year ago in view of poor 10 year results and surprising lack of vision as to improve process going forward. A year later, it's the same letter basically says that picking on last 10 years doesn't have merit and that investment decision process could improve but no insight to what changes could be made. Disappointing that he hasn't given investors anymore insight.

Sanjeev, I'm trying to understand your thought process here. It seems you are saying that it would be ok for you as someone who runs an investment fund to have 25% or 40% of your net worth held in an investment vehicle outside of the fund you run for investors? ...am I missing something important here?

1)What do people think is the motivation behind Francis Chou purchasing Stonetrust Insurance company from personal $s ? a)Is purpose to deploy personal wealth and make more $s for self, family, or charity? b)Is there a view towards incorporating Stonetrust into Chou Funds or vice versa? perhaps as a way to improve results for the Chou Funds? 2) Is it reasonable for an investment manager to deploy such a significant amount of $s (?$70M +) in a purchase other than his own fund? Does the alignment of interests hold? Am asking these questions as a longtime Chou investor (>10 yrs), with significant portion of portfolio in Chou Funds who is considering the pros and cons of staying in the Fund. Thank you for sharing your opinions,

Agree. The Indian stocks RAIN and KRBL are down 50+% this year. Fiat is also down some 20%. Question is does he have some others that are up 2-5x to balance out the result? History of the fund is very large upside AND downside. Over long period of times that averages out to a return of approx 15%/year after fees - which is excellent but requires the ability to stomach the volatility. Let's see what happens over the next couple of years after he had an outstanding 2017.

So Rohit, have you analyzed this? My preliminary analysis indicates a 12-15% ann return for the next 5 years. Better than most opportunities in US but not a slam dunk that Pabrai looks for. Your thoughts? yes, i had a looked at it and on the face of it the brand looks good, distribution and sourcing is nearly impossible to replicate by a new competitor. company for sure enjoys a premium over other brands, but that may not say much considering that the pricing power for this product is limited. the average operating margin is around 15-17% with the recent spike to 24% mainly from the gains the company is making due to low inventory cost. i am not sure how sustainable that is ..if we normalize the earnings, company is selling @ 40 times earnings. looks pricey. my guess is mohnish is playing the long game ..stock goes sideways for sometime and then tracks earnings. your estimate looks about right to me Rohitcc, since this post in Feb 2018 suggesting KRBL looks pricey and wondering why Pabrai bought in, the stock is down some 40% with 20% decline yesterday. Ouch!! Any idea why the recent sharp fall?

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The following is a list of topics that I think physicians would appreciate learning about: 1) Power of compounding 2) Rule of 72 3) Broad spectrum ETFs - VOO, VCN, VWO, VGK 4) Cost of managing a portfolio - paying a 1-2% annual fee on a $1M portfolio adds up to real money over 10 years 5) Tax implications of where to place investments (In Canada, TFSA, RRSP...) 6) Concept of Diworsification - how diversification works or mostly doesn't 7) How to handle the cocktail party stock tip Good luck! Maybe you will post the presentation on this thread along with feedback you received from audience as to what appealed

Parsad, I've been to this event twice. Unfortunately, won't be there this year. Wanted to congratulate you on doing a fantastic job setting up the dinner evening, advertising it and making it a wonderful event. Wether it continues in the future or not, well done!

Cigarbutt, thank you for the measured thoughtful response. Thank you for the link - I see that FPA has also had borderline results over a 15 year period. Appreciate the point about past performance being a sunken point and to look forward from today. On the positive side his investment style is well defined and pendulum will likely swing back. On the downside 1) he is still charging a substantial MER (1.8%) even when value is not added 2) if he is investing in other businesses outside of Chou Funds, he should publicly disclose that and explain why he is not putting 99% of his net worth in Chou Funds. Does that seem fair?

From what I can gather, Mr. Chou is a very well respected member of the value investing community. He is generous of his time in value investing forums. His annual letters are clear, usually avoid jargon, and often have humour. He has not been afraid to go against the grain, buy when others are selling and has conviction to move to cash when he doesn't see opportunities. Several years ago when he waived fees for Chou Europe Fund, he earned great kudos on my part - don't charge when you can't outperform over a sufficient period of time. He definitely knows a lot more about valuation than I do and he has clearly shown the ability to find 5 & 10 baggers. However, in the face of 10 & 15 year results being <6%/yr I have some questions/concerns: [*]He recently bought StoneTrust Insurance company from Pabrai Funds. As there is no mention of the purchase in his annual letter, one presumes it is outside of his publicly traded funds. However, if Mr. Chou is going to buy a company for $50-100M, should his investors not know that he has other financial interests - that his time and money are not solely devoted to Chou Funds? I was under the impression that his interests were completely aligned. Does he not have a fiduciary responsibility to disclose this purchase publicly? Why are fees for Chou America waived but no mention of waiving fees for his Canadian Funds: Chou Associates, Europe and Asia? They have all underperformed markets and likely his own estimation over a prolonged period of time. I would much appreciate it if he would waive fees for his flagship funds and give some criteria as to when fees are deserved or not. While times were good, Chou was able to stay low key, not have annual meetings and communicate only by 2 letters a year. Given current results, please consider having a gathering where investors can have an open discussion with manager. Without further disclosure on these topics, I think he risks losing his reputation in the community as an insightful, bright, very honest money manager. My hope is that these comments are not derogatory but rather can stimulate some positive outcomes. The current status is suboptimal for a man of his intellect and character.

AzCactus, I agree with you. However, given that results were not good, instead of pocketing the fees as is in his mandate to do, I do think it is honourable that Francis Chou does return the fees. I don't know of any other mutual fund managers who would do that. I'm hopeful that he returns fees this year for Chou Associates, Chou Europe and Chou Asia as none of them have a good 10 year record ( 5.57%, 2.26%, 6.58%). That kind of 10 year performance is below expectations for the membership on this Board.

While the Chou America letter is out, he Chou Associates letter is not out yet. Presume it will be similar. it's usually not out till the end of March. Glad to see that Chou has waived fees for 2015, 2016 & 2017 in Chou America Funds. However, he has not done the same in Chou Associates. Back in 2012 he had waived fees for Chou Europe and found that impressive. Given the lakluster results of a decade, hopefully fees are waived for his Canadian Funds as well.

Am I correct in understanding that Arlington Value Management is closed to new investors?