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Walter Schloss vs Seth Klarman


phil_Buffett
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it would be interesting to hear your thoughts on this Topic.

 

Walter schloss was always every year fully invested. seth klarman in contrast has right now a lot of cash. and is hoarding cash.

 

so what is your take on this.

 

are you fully invested?, or have you Little cash and when you find new ideas you invest and dont take much interest on macro stuff or market valuations? . or are you hoarding cash and do not invest in company´s even if they are cheap today and wait for a correction.

 

would be interesting to hear the thoughts of the superinvestors of the Forum.

 

iam right now fully invested.

 

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First, of all, a Value Investor generally doesn't try and predict the macro.  Many academic studies show that even top economists are terrible at forecasting, so we shouldn't try.  That said, a few (like Klarman) do take an interest in macro and political goings on, though I'm pretty sure this is more to "take the temperature" rather than predict precise events.  Buffett has stated he didn't see 2008 coming, although clearly he looks at long term trends.

 

So personally, I never forecast, I just look for cheap companies, and I buy when I think they are undervalued, targeting 12% per year.

 

That said, I find very few interesting opportunities at the moment and, if I can't find 8-10, I will own cash or high grade short duration corporates, or very low beta stocks (no permanent loss of capital).  In this case, I am implicitly signalling to myself that valuations are stretched.

 

Unless you are a genius like Klarman, holding cash and waiting for a fall is dangerous, because of opportunity cost.  Do you really want to miss out on 5 years of dividends and MTM gains, if the market continues to rise?  And if you are holding the right stocks, you should not suffer much loss of intrinsic value if the market falls.

 

In small cap land, some would argue that you should ALWAYS be able to find opportunities, though I'm finding it tough.

 

Value Investing works because focussing on conservatism and intrinsic values means you will live to fight another day when the market crashes.  So above all, I don't think you should worry about anything except finding and buying cheap stocks.

 

 

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This isn't a very fair comparison. Klarman has $30B in assets, while Schloss had about $250M AUM. The universe was far bigger for Schloss and opportunities plentiful.

 

I think both are doing / did the right thing for their size.

 

 

 

 

 

thats absolutely true obtuse. i didnt want to compare them do directly. i only mean that one of the two best Investors have different approaches to this Topic. and my interest is what are the superinvestors of Corner of berkshire and fairfax think and do on this Topic. my investing Approach is more like Walter schloss

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phil_buffett: It is certainly a conversation worth having-- I just wanted to point out their different situations.

 

That being said they both are/were more Graham like in their style. It is quite impressive that Klarman has stayed a cigar butt loving investor as his AUM has gotten quite big. As far as I understand, he has ventured outside of classic equity market and does a lot more work in the relatively inefficient fixed income market.

 

Anyway, to answer your original question, I tend to see cash accumulate as ideas mature and new ideas aren't that easy to find. I know that I am not looking hard enough-- and I am ok with that. I am not all that bright and looking hard would make me reach for ideas that are of lower quality; thus leading to permanent loss of capital. I know some of my psychological failings and I like to make rules that help me mitigate those to some degree.

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

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I would prefer Schloss to Klarman.  But, they are hard to compare because of the difference in the amount they managed.  Though, one could argue that Schloss limited what he managed because he knew it would be more difficult to scale his approach to very large sums.  Perhaps Klarman has just gotten too big.

 

Scaling to large AUM is very difficult and it appears to me that it can lead to situations where the manager needs to choose one of (or a combination of) the following:  leverage, market timing, complaining.

 

If I wanted to invest with a Schloss like investor (Kraven, from what he writes), I'd want to do it with an IRA or the like so that the manager felt no thought to buying and selling all the time. 

 

If I wanted a manager for a taxable account, I think I would prefer a very good private equity type of manager or a Markel or Berkshire (or the old Leucadia).

 

 

 

 

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

 

I agree with this. IMO, Klarman is a superior investor to Schloss, I don't think they're even in the same discussion, few are really. That being said, if you're investing Schloss-style, you would not really be worrying about market levels, just selling when you reach or exceed IV which would take a lot of the guesswork out of it.

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

 

How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

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...

 

How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

 

Anecdotally, this forum and the high frequency boys trying to exploit millisecond differences in execution!  Statistically, the average number of netnets.

 

 

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How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

 

It is much less work necessary now compared to the old times. The internet has driven the margins for netnet investing down. But that doesn`t mean that it doesn`t work anymore, i put together a little basket of 6 netnets last year in june and the basket has returned 137% till now. But stupid as i am, i put no money in it.  ::)

Since then i look for opportunities in netnets but haven`t found a lot.

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

 

How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

 

The massive influx of hedgefunds, CNBC, the fact that legendary funds, like SEQUX, while the performance is still solid, it's not the outperformance it used to be. The same can be said for other older funds.

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

 

How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

 

The massive influx of hedgefunds, CNBC, the fact that legendary funds, like SEQUX, while the performance is still solid, it's not the outperformance it used to be. The same can be said for other older funds.

 

 

Yes, it is clear that netnets like the ones Buffett described in the 50's no longer exist. The market is more transparent today, and information is much more available. HOWEVER, that is not saying that the market is overall more efficient at pricing. Back in the 50's I am sure there wasn't mortgage securitization and they were much better at vetting mortgage applicants. So as markets are more stable, we invent more ways to screw it up.

 

It is an equilibrium of booms and busts.

 

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

 

How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

 

The massive influx of hedgefunds, CNBC, the fact that legendary funds, like SEQUX, while the performance is still solid, it's not the outperformance it used to be. The same can be said for other older funds.

 

 

Yes, it is clear that netnets like the ones Buffett described in the 50's no longer exist. The market is more transparent today, and information is much more available. HOWEVER, that is not saying that the market is overall more efficient at pricing. Back in the 50's I am sure there wasn't mortgage securitization and they were much better at vetting mortgage applicants. So as markets are more stable, we invent more ways to screw it up.

 

It is an equilibrium of booms and busts.

 

I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

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also keep in mind that Schloss managed when the market was much less inefficient. In my opinion (though I could be wrong) is that Klarman is a superior investor. He manages many, many billions more, does so in a more competitive environment and has beaten the S&P 500 by a higher level, I believe.

 

How do you determine that the market is more efficient now?  Is there a study somewhere that proves this? 

 

I have thought sometimes that maybe it is.  The net nets have mostly dried up in the u.s. at least, except during major market crashes.  But aren't stock prices as volatile as they ever were?

 

The massive influx of hedgefunds, CNBC, the fact that legendary funds, like SEQUX, while the performance is still solid, it's not the outperformance it used to be. The same can be said for other older funds.

 

 

Yes, it is clear that netnets like the ones Buffett described in the 50's no longer exist. The market is more transparent today, and information is much more available. HOWEVER, that is not saying that the market is overall more efficient at pricing. Back in the 50's I am sure there wasn't mortgage securitization and they were much better at vetting mortgage applicants. So as markets are more stable, we invent more ways to screw it up.

 

It is an equilibrium of booms and busts.

 

I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

 

It's not Securitization  its nor the assets. It was a system that was create tp incentives those give people what that want. (make them if they don't exist) people wanting them because they wanted something low risks and  give above normal returns.  people who believe in them since they are incentivsed to give them. 

 

Just human nature nothing more just lake last time and just like next time.

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I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

 

Ok I go definitely acknowledge that, netnets are everywhere in the world. Just hard to find, like it was kind of hard to find in the 50's in the US.

 

But no one can say that collectively the mortgage system's checks and balances did not fail massively. I heard if you go back a little earlier than 50's one couldn't even get a mortgage, one had to buy a house outright. Then came mortgages which probably required a large chunk down. Then came Fannie and Freddy. Then came Bush saying everyone is entitled to a house. Then we had the situation in 2007: NINJA loans (no-income -no-job no-assets), and M Burry found that on some mortgages, people were defaults on the FIRST payment. I sure hope that we corrected that and don't let those people get mortgages again. (the only excuse for missing 1st payment is getting maimed and losing your savings to hospital bills).

 

But yes securitization is the symptom of society looking to screw things up during propsperous times. So yes guns don't kill people, people do. And we will keep finding ways to shoot ourselves. hence I believe the markets are not getting more efficient...

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I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

 

Ok I go definitely acknowledge that, netnets are everywhere in the world. Just hard to find, like it was kind of hard to find in the 50's in the US.

 

But no one can say that collectively the mortgage system's checks and balances did not fail massively. I heard if you go back a little earlier than 50's one couldn't even get a mortgage, one had to buy a house outright. Then came mortgages which probably required a large chunk down. Then came Fannie and Freddy. Then came Bush saying everyone is entitled to a house. Then we had the situation in 2007: NINJA loans (no-income -no-job no-assets), and M Burry found that on some mortgages, people were defaults on the FIRST payment. I sure hope that we corrected that and don't let those people get mortgages again. (the only excuse for missing 1st payment is getting maimed and losing your savings to hospital bills).

 

But yes securitization is the symptom of society looking to screw things up during propsperous times. So yes guns don't kill people, people do. And we will keep finding ways to shoot ourselves. hence I believe the markets are not getting more efficient...

 

I believe mortgages were quite common in the US before the 1950s.  They were a different form, much like Canadian mortgages currently are.  They would be fixed rate for 5-10 years then would either float or balloon with the balance due.  The current 30-yr US mortgage is a direct result of the Depression.  Too many homeowners lost their houses when they couldn't refinance or pay off their loans quick enough.  The 30-yr mortgage was created to lower payments and give homeowners time and security to pay down their debt.

 

My understanding has been that debt in all forms has been relatively common for hundreds if not thousands of years.

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I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

 

Ok I go definitely acknowledge that, netnets are everywhere in the world. Just hard to find, like it was kind of hard to find in the 50's in the US.

 

But no one can say that collectively the mortgage system's checks and balances did not fail massively. I heard if you go back a little earlier than 50's one couldn't even get a mortgage, one had to buy a house outright. Then came mortgages which probably required a large chunk down. Then came Fannie and Freddy. Then came Bush saying everyone is entitled to a house. Then we had the situation in 2007: NINJA loans (no-income -no-job no-assets), and M Burry found that on some mortgages, people were defaults on the FIRST payment. I sure hope that we corrected that and don't let those people get mortgages again. (the only excuse for missing 1st payment is getting maimed and losing your savings to hospital bills).

 

But yes securitization is the symptom of society looking to screw things up during propsperous times. So yes guns don't kill people, people do. And we will keep finding ways to shoot ourselves. hence I believe the markets are not getting more efficient...

 

I believe mortgages were quite common in the US before the 1950s.  They were a different form, much like Canadian mortgages currently are.  They would be fixed rate for 5-10 years then would either float or balloon with the balance due.  The current 30-yr US mortgage is a direct result of the Depression.  Too many homeowners lost their houses when they couldn't refinance or pay off their loans quick enough.  The 30-yr mortgage was created to lower payments and give homeowners time and security to pay down their debt.

 

My understanding has been that debt in all forms has been relatively common for hundreds if not thousands of years.

 

Yes just googled it, you are right. Although I always thought a mortgage is you basically pay it till it is all paid off (hence MORT-gage)

 

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I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

 

But yes securitization is the symptom of society looking to screw things up during propsperous times. So yes guns don't kill people, people do. And we will keep finding ways to shoot ourselves. hence I believe the markets are not getting more efficient...

 

I believe mortgages were quite common in the US before the 1950s.  They were a different form, much like Canadian mortgages currently are.  They would be fixed rate for 5-10 years then would either float or balloon with the balance due.  The current 30-yr US mortgage is a direct result of the Depression.  Too many homeowners lost their houses when they couldn't refinance or pay off their loans quick enough.  The 30-yr mortgage was created to lower payments and give homeowners time and security to pay down their debt.

 

My understanding has been that debt in all forms has been relatively common for hundreds if not thousands of years.

 

Yes just googled it, you are right. Although I always thought a mortgage is you basically pay it till it is all paid off (hence MORT-gage)

 

There were even mortgage securitizations of a form in the 1920's.  There was a striking paragraph in Security Analysis that reminded me of 2008, with regard to certain mortgage bonds that individual investors would hold.  I can't find it off hand though.

 

There was also this:

http://www.nber.org/digest/may10/w15650.html

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There were even mortgage securitizations of a form in the 1920's.  There was a striking paragraph in Security Analysis that reminded me of 2008, with regard to certain mortgage bonds that individual investors would hold.  I can't find it off hand though.

 

There was also this:

http://www.nber.org/digest/may10/w15650.html

 

Securitization of mortgages owned by millionaires who bought commercial buildings though.......

 

Anyway, I just want to focus on the issue of market efficiency, which is pertinent to the reason why we are on this forum. If the market is getting more efficient then we should take up some other job or hobby.  I just don't think we are getting efficient. As evidence look at wealth disparity, it is much greater than 100 years ago. To me that shows that there are more opportunities to use the mind for financial gain, and more people who choose not to try financial gain will be left behind.

 

what do you think?

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I would take issue with a few things in your post.  There are net nets like Buffett described, but you have to dig deeper to find them.  They may not be in the U.S. 

 

There was not mortgage securitization in the 50's as we know it today.  Securitization was not the cause of the financial crisis.  It is a vehicle, nothing more and nothing less.  A car can be driven into a crowd of people and kill them, but a car by itself does not kill anyone.  Securitization ended up being used in ways that contributed to the crisis, but it didn't cause the crisis itself.  It's only as good as the assets that are securitized.

 

I am not sure that they were better at vetting mortgage applicants back in the day.  It's just a different market.  There are tons of community banks that operate in the same way they have for dozens of years.  There are many small banks that have the same high standards that existed in the past.

 

But yes securitization is the symptom of society looking to screw things up during propsperous times. So yes guns don't kill people, people do. And we will keep finding ways to shoot ourselves. hence I believe the markets are not getting more efficient...

 

I believe mortgages were quite common in the US before the 1950s.  They were a different form, much like Canadian mortgages currently are.  They would be fixed rate for 5-10 years then would either float or balloon with the balance due.  The current 30-yr US mortgage is a direct result of the Depression.  Too many homeowners lost their houses when they couldn't refinance or pay off their loans quick enough.  The 30-yr mortgage was created to lower payments and give homeowners time and security to pay down their debt.

 

My understanding has been that debt in all forms has been relatively common for hundreds if not thousands of years.

 

Yes just googled it, you are right. Although I always thought a mortgage is you basically pay it till it is all paid off (hence MORT-gage)

 

There were even mortgage securitizations of a form in the 1920's.  There was a striking paragraph in Security Analysis that reminded me of 2008, with regard to certain mortgage bonds that individual investors would hold.  I can't find it off hand though.

 

There was also this:

http://www.nber.org/digest/may10/w15650.html

 

Yes, I remember that part.  I think it's in Chapter 10 of the 2nd edition.

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