The stock market closes today for 10 years what stocks would you consider?

[watsa_is_a_randian_hero]

This thread has had me thinking, found a list from 2003 of the 100 best brands: http://www.brandchannel.com/images/home/bgb_2003.pdf

 

I'd love to see the market results for those 100, and then them as a group.  Just looking through it seems like a lot of the brands were peaking when they finally get to exalted status.  Anyone looking to buy a Sun Microsystem workstation today, an AOL subscription, a Nokia phone, anything from Sony, digital camera etc.

 

Interesting to note as well the strong showing by luxury brands. I don't know much about luxury, but it seems like these guys are the ones with true staying power. 

 

Maybe I'd want to buy a bunch of luxury stocks, diamonds, yachts, private planes, and jewelry shops and hold those for ten years.

 

You brought this up on the FFH board on a different thread...I thought it was interesting and took the time to pull as many of the company's returns as possible.

 

I dividend adjusted, split-adjusted, and parent-co M&A adjusted the returns history to follow the company's returns that owned the brand at any given time throughout the time period.

 

I had returns for 85 of the 100 companies; some were private; some had too many M&A transactions to get historical stock data.

 

The findings: the S&P 500 had a total return of 136%; the top brands had a total return on average of 272%.

 

Interesting notes:

 

 

-If you remove apple, the returns of the brands drops to 197%

-Apple's returns (6580%) dominated and skewed the group so much so that Apple's stock combined with any other portfolio mix of the 85 (for instance the worst 10, the worst 20, etc) would have still outperformed the S&P 500.

-The next highest return aside from apple was Philip Morris (for Marlboro brand)

-If you remove the top 10, the rest of the pack performed average in-line with the S&P 500

-The top 10 consisted of Apple, Philip Morris, Volkswagon, Nike, Amazon, Hermes, Budweiser, Starbucks, Mcdonalds, & Brown-forman (Jack Daniels).

[LC]

Davita, Collectors Universe, American Express, Philip Morris, maybe FICO?

 

edit: Starbucks but I'm on the fence. Are they the McDonalds of coffee? If so, yes. This is one stock where I can't get over my own personal issues. I'm a coffee snob, I think their atmosphere ("third place") is too disingenuous, and I can't figure why anyone would go there time after time. So, probably Starbucks will outperform all the names above.

[Picasso]

I think a good stock no one has mentioned is RSG.  I would have no problem closing trading down on that for 10 years.  I was actually going to start a thread on that as Cascade has gone crazy buying up stock in the past month.

 

SoftBank is another one for me.  The founder/CEO has a 300-year plan for the company.  He can borrow cheaply and invest at attractive rates of return while having a core wireless/wireline business providing enough cash flow while you compound NAV.  I saw an article today talking about the costs to SoftBank if rates rise and I started laughing.  If a business can fix borrowing costs over 10-years around 1.5% and invest primarily outside of your local currency at much higher rates of return you would be a fool not to. 

[giofranchi]

My 4 investments, of course ;):

 

Fairfax Financial

Biglari Holdings

Liberty Media

Greenlight Re

 

Good entrepreneurs (I would say great entrepreneurs) at the helm of good businesses, purchased at good prices.

The caliber of those people (hopefully, they all have at least a 10 years working horizon in front of them, even Malone) and the nature of their businesses make me believe they will be flexible enough and adjust successfully to any kind of storm that might come our way.

 

Gio

 

[phil_Buffett]

1. BYD Co  electric cars, batteries and so on. will be huge. Charlie loves it and i too.

2. Posco. the world Needs a lot of steel

3. altisource    more and more mortgages in the us

4. Horsehead  zinc will ever be there. also more growth

[petec]

Ten years ago investors would have said names like: Blackberry, Nokia, Cemex,

 

I certainly would not have been among them!  I do totally agree about small private niches though, have been slowly ramping up research into this.

 

My list:

FFH/BRK/MKL

KO/PEP/DGE/PG/ULVR/NESN

MSFT/MMM/TSCO/ITUB

[Aurelius]

My 4 investments, of course ;):

 

Fairfax Financial

Biglari Holdings

Liberty Media

Greenlight Re

 

Hi Gio,

care to expand on why you are choosing GLRE over MKL (I was browsing the MKL thread yesterday and you were opining positively on MKL), considering MKL should have a lot of runway considering its size plus it has a long history of good underwriting, investments and stock performance results.

In contrast - yes Einhorn has excellent investment performance - but what do we know about its insurance operation?

 

Would love to hear your version.

 

 

[Aurelius]

Personally, this is a subject I've been thinking a lot of lately...

 

But initially I would go for proven business models that have outperfomed the marked over long time. Candidates would be: BRK, MKL, FFH, --> I would pick businesses that have people and culture I respect, trust and have track records.

Wells Fargo has outperformed over long periods. Endorsed by Buffett. I would feel very comfortable allocation a portion into WFC.

A basket of companies with high ROIC, moat, growth runway and great management (yadayada's point) Companies like google, byd, amazon, visa.....

 

 

 

 

[giofranchi]

Would love to hear your version.

 

You are perfectly right, and I think MKL might be a wonderful choice! ;)

 

The only thing I can tell you is I have a great deal of respect for Einhorn. On the contrary, I cannot muster the same confidence in anyone running MKL today. Of course, they might be a great team, instead of a great entrepreneur… but let's just say I think I understand great entrepreneurs better than I understand great teams!

 

Regarding GLRE insurance underwriting I think they are very conservative. They write almost only high frequency – low severity contracts, and rarely get involved in writing catastrophe policies. They are building some float, but not in a hurry. And today are still very much unlevered. They have already proven to be able to reduce their business, when rates are not satisfactory enough. I also think that if Bart Hedges is good enough for Einhorn, he might be someone who deserves trust. :)

 

Gio

 

[petec]

Would love to hear your version.

 

You are perfectly right, and I think MKL might be a wonderful choice! ;)

 

The only thing I can tell you is I have a great deal of respect for Einhorn. On the contrary, I cannot muster the same confidence in anyone running MKL today. Of course, they might be a great team, instead of a great entrepreneur… but let's just say I think I understand great entrepreneurs better than I understand great teams!

 

Regarding GLRE insurance underwriting I think they are very conservative. They write almost only high frequency – low severity contracts, and rarely get involved in writing catastrophe policies. They are building some float, but not in a hurry. And today are still very much unlevered. They have already proven to be able to reduce their business, when rates are not satisfactory enough. I also think that if Bart Hedges is good enough for Einhorn, he might be someone who deserves trust. :)

 

Gio

 

Gio, a question for you: investing in a key man entails key man risk; investing in a great team arguably does not.  You must have some very good reasons for preferring key men despite the risk, especially on this thread which is explicitly a 10-year view (during which time your key man could get bored, or fall under a bus).

 

So could you explain a bit more?

 

Thanks :)

[Kraven]

None because if the market was closed for 10 years it would mean we are living in a fundamentally different world than we are in now.  We'd all be looking for guns, ammo and canned goods.

 

I firmly believe that if somehow there was a situation where an announcement was made that the market had to close for 10 years, but nothing else would be different, that there isn't a soul who would continue holding stocks.  The uncertainty would be too great.  I mean how do you know they would reopen?

 

Edit:  ironically, many of the people jumping at the opportunity to hold stocks for 10 years with the market closed are some of the same people who don't like certain stocks because they're dark or too illiquid. And that's with a market.

[augustabound]

Does Angels centrefielder Mike Trout trade on a stock exchange somewhere?  8)

[Kraven]

Does Angels centrefielder Mike Trout trade on a stock exchange somewhere?  8)

 

That one would be nice.  I'd put money on him and Bryce Harper.  Not because I think Harper has really done all that much (and certainly is no where near Trout), but at 22 I fully expect him to at least be around and doing well in 10 years.

[augustabound]

Does Angels centrefielder Mike Trout trade on a stock exchange somewhere?  8)

 

That one would be nice.  I'd put money on him and Bryce Harper.  Not because I think Harper has really done all that much (and certainly is no where near Trout), but at 22 I fully expect him to at least be around and doing well in 10 years.

 

So far at the ripe old age of 22, Trout seems to have a good head about him. I've read articles saying Harper is arrogant to a fault. I hope it doesn't get to Trout and I hope it doesn't adversly affect Harper.

 

The true test for Trout will be when Pujols retires or goes elsewhere. As a Blue Jay fan, I see the benefit of 2 great hitters back to back. When Encarnacion was injured, Bautista saw fewer good pitches to hit but being the hitter he is, he adjusted. I hope Trout can too.

 

But I'm with you on Harper too.  :D

 

Edit to apologize for taking the OP's thread off track.  :)

Edit 2 for mixing up 2 fish that played for the same team. :P

 

[giofranchi]

Gio, a question for you: investing in a key man entails key man risk; investing in a great team arguably does not.  You must have some very good reasons for preferring key men despite the risk, especially on this thread which is explicitly a 10-year view (during which time your key man could get bored, or fall under a bus).

 

So could you explain a bit more?

 

Thanks :)

 

Hi Pete,

we are all here talking about Buffett, Malone, Munger, Gates, Walton, Watsa, the Google Guys, Dalio, Marks, Jobs, the greats of the past, etc., and we discuss, we try hard to understand their methods, what has set them apart from the crowd, and how we could somehow emulate them… But in my experience the simple truth is you cannot know for sure… Why are they so successful? Short answer: no one really knows.

Of course, you might study what they are doing and decide if their processes are something you understand and approve… but to replicate them and expect the same results…? Better not to fool ourselves...

This is basically the reason why I look for those entrepreneurs who imo are the most successful out there, who are doing something I can understand and think can be replicated for a long time in the future, and then I just try to keep in their company (always making sure I pay a fair price!).

 

The problem I have with teams is that I think “democracy” is usually not good for business. Even in my small organization I can see this: if I had to convince other people that what I want to do is the right way to go, I would be stuck going nowhere most of the times.

Of course, there might be exceptions, and a team like the one of Markel surely is extremely good.

 

But it gets very difficult for me to judge. For instance: if Einhorn is gone, I am gone. When, instead, could I decide I don’t like the Markel team anymore? Though Gayner is young, there are many people in the Markel team today who are much closer to retirement. Should one of them decide to leave the management of the company, and be replaced by someone new, how am I supposed to judge:

1) The quality of the new member in the Markel team,

2) His/Her effect on the rest of the group?

The Markel team might evolve in a way which loses the alchemy that has rendered the team so good and effective until now, without me ever noticing…

 

So, to sum up, I guess two are my problems with teams:

a) Successful teams are much rarer than successful entrepreneurs,

b) Successful teams are much more unpredictable than successful entrepreneurs (if Einhorn gets bored and retires, I am pretty sure I won’t miss the news, and I will act accordingly!).

 

Gio

 

[watsa_is_a_randian_hero]

My 4 investments, of course ;):

 

Fairfax Financial

Biglari Holdings

Liberty Media

Greenlight Re

 

Good entrepreneurs (I would say great entrepreneurs) at the helm of good businesses, purchased at good prices.

The caliber of those people (hopefully, they all have at least a 10 years working horizon in front of them, even Malone) and the nature of their businesses make me believe they will be flexible enough and adjust successfully to any kind of storm that might come our way.

 

Gio

 

Mere months ago this list would have also included LRE.  :)

 

I half say this in jest...I agree with oddballstocks...I think I would be very careful about picking a stock(s) to hold if I were to be restricted from selling for 10 years.

 

 

[giofranchi]

I half say this in jest...I agree with oddballstocks...I think I would be very careful about picking a stock(s) to hold if I were to be restricted from selling for 10 years.

 

I absolutely agree! In my last post I have written: if Einhorn is gone, I am gone… ;)

 

Gio

 

[giofranchi]

Mere months ago this list would have also included LRE.  :)

 

If Brindle is gone, I am gone! ;)

 

Gio

[DCG]

Mere months ago this list would have also included LRE.  :)

 

If Brindle is gone, I am gone! ;)

 

Gio

 

 

But my understanding of the thread is you can't sell the company for 10 years. What happens if Malone, Biglari, Watsa, and Einhorn are all in a plane crash together next year? These are all businesses that rely heavily on their leader.

[giofranchi]

What happens if Malone, Biglari, Watsa, and Einhorn are all in a plane crash together next year?

 

Mmm... I guess then I have chosen the wrong thread! ;D

 

Gio

[rkbabang]

Mere months ago this list would have also included LRE.  :)

 

If Brindle is gone, I am gone! ;)

 

Gio

 

But my understanding of the thread is you can't sell the company for 10 years. What happens if Malone, Biglari, Watsa, and Einhorn are all in a plane crash together next year? These are all businesses that rely heavily on their leader.

 

It wouldn't matter much, because they won't be able to buy or sell anything even if they are alive.  If you own any fund or company that invests in other companies you better be completely comfortable with their current holdings exactly as they are because these vehicles would no longer be managed.  But like Kraven said, owning any paper asset in a world without a functioning market would be insane.  Stock up on useful things like what I mentioned in my last post (gold, guns, ammo, food).  Some other good investments would be toilet paper, razor blades, hand tools which require no power/batteries (hand powered drills, saws, etc), hand cranking flashlights, matches, good mountain bicycles (don't forget extra rims, tires, tubes, tube patches, chains, and a hand pump), make sure you have woodstoves so you can heat your house, store as much water as you can, have a well drilled on your property with a way to hand pump the water from it ....

[oddballstocks]

This thread has had me thinking, found a list from 2003 of the 100 best brands: http://www.brandchannel.com/images/home/bgb_2003.pdf

 

I'd love to see the market results for those 100, and then them as a group.  Just looking through it seems like a lot of the brands were peaking when they finally get to exalted status.  Anyone looking to buy a Sun Microsystem workstation today, an AOL subscription, a Nokia phone, anything from Sony, digital camera etc.

 

Interesting to note as well the strong showing by luxury brands. I don't know much about luxury, but it seems like these guys are the ones with true staying power. 

 

Maybe I'd want to buy a bunch of luxury stocks, diamonds, yachts, private planes, and jewelry shops and hold those for ten years.

 

You brought this up on the FFH board on a different thread...I thought it was interesting and took the time to pull as many of the company's returns as possible.

 

I dividend adjusted, split-adjusted, and parent-co M&A adjusted the returns history to follow the company's returns that owned the brand at any given time throughout the time period.

 

I had returns for 85 of the 100 companies; some were private; some had too many M&A transactions to get historical stock data.

 

The findings: the S&P 500 had a total return of 136%; the top brands had a total return on average of 272%.

 

Interesting notes:

 

 

-If you remove apple, the returns of the brands drops to 197%

-Apple's returns (6580%) dominated and skewed the group so much so that Apple's stock combined with any other portfolio mix of the 85 (for instance the worst 10, the worst 20, etc) would have still outperformed the S&P 500.

-The next highest return aside from apple was Philip Morris (for Marlboro brand)

-If you remove the top 10, the rest of the pack performed average in-line with the S&P 500

-The top 10 consisted of Apple, Philip Morris, Volkswagon, Nike, Amazon, Hermes, Budweiser, Starbucks, Mcdonalds, & Brown-forman (Jack Daniels).

 

Watsa,

 

Thanks for doing this, fascinating results.  This is really awesome, thanks for putting that together.  In many ways I'm not surprised that it was a single stock that blew the doors off in terms of performance.

 

What's really interesting though is the brands with the top returns weren't the top brands necessarily.  So an investor in 2004 who is picking a concentrated portfolio of 5-8 names from that list has a better chance of missing one of the big winners and performing in line with the S&P compared to picking them.

 

As a strategy of buying all of the top brands this would clearly work.  But I don't get the sense that anyone investing like this is doing that.  Buying all 100 of these companies is a great way to go, but buying the five 'best' is really a lucky draw.

 

 

 

[yadayada]

I think i see several mistakes here. I think to do well (decent shot at 10-20% IRR) over 10 years time you need to see:

-growth

-high return on capital

-some operating leverage

-monopoly/duopoly , nothing worse then that, and moat needs to be obvious and rock solid. So crap like blackberry was obviously a bad pick 10  years ago.

-great capital allocator not restricted by size (this can replace the monopoly/duopoly). So things like BRK are not an option.

 

Needs to be a shot at 15-20% IRR. So things like financials BAC and KO are not an option.

 

Also no dividends. Since your not reinvesting them.

 

If you have a obvious growth runway, high return on capital and a monopoly/duopoly structure, it is hard to overpay. This means there is no institutional imperative. It means management is not pressed to spend enourmous amounts on R&D because growth is lacking etc. Just look at how much money microsoft pissed away on R&D.

 

So I think Liberty media, mastercard, Schibsted and google would be a perfect combo. I like google because it is basicly a free option on technology and larry page will make sure to keep away bureacracy in the next decade.

 

If i had 4 million, id put 3 million 25% each in those 4 I think. I think the risk with guys like Einhorn is that they have been around for quite a while. And generally a lot of fund managers tend to quit between 10-20 years in the business. So if you pick someone that has been around for 10-15 years odds are too high 1-2 will quit after 3-4 years. Or that you invested in someone who was lucky and wasn't that good.

[giofranchi]

I think the risk with guys like Einhorn is that they have been around for quite a while. And generally a lot of fund managers tend to quit between 10-20 years in the business.

 

I think Einhorn is more entrepreneurial than you seem to believe. And now at the helm of Greenlight Re he is trying to build a sound reinsurance company. Not many of the fund managers who have quitted the game after 10-20 years have done that! ;)

 

Gio

 

[yadayada]

so he is basicly building a berkshire hathaway like buffett? Investing the float? Market cap is only a bit more then a billion$. That looks interesting.