Best Money Managers Looking Forward 15+ years

[Uccmal]

Yeah, surprised to not hear about MPIC funds.  How is Sanj's fund been doing lately?  Last I checked over 4 years ago, I think he was doing a little under 16% CAGR net of fees.  Anyone know what's it up (or down) to now?

 

My bet for the next 15 years is already in: PDH. 

 

There seems to be an upper limit in dollar value to the success you can have in the fund/lp format.  I haven't done an exhaustive analysis but beyond a certain dollar value you run into capital issues.  Committed capital can be had at very low dollar values (perhaps sub 10 million).  Beyond that you begin to run into periodic liquidity issues.  Not to denigrate several famous value managers but a 12% return over the last 10 years is nothing to write home about.  There are many companies that have exceeded these returns.  The only one I am aware of who seems to outperform is Greenblatt but his results aren't public. 

 

This is a round about way of saying that operating a company that throws off cash is the best way to keep the returns well above the indexes. 

[ourkid8]

Which is fair as the vast majority of us has significantly outperformed Francis.  I still want to keep a 10% allocation of my portfolio to cigar butt investing...

 

Not to denigrate several famous value managers but a 12% return over the last 10 years is nothing to write home about.  There are many companies that have exceeded these returns.  The only one I am aware of who seems to outperform is Greenblatt but his results aren't public. 

 

[Uccmal]

Thought I had better provide examples on my ten year assertion:

 

KO, TD, RY, CM, BNS, BMO, SBux, Pepsi, JNJ, P&G, MCD, AAPL, WDC, ORCL, Gen, Mills, Hershey....

 

[Jurgis]

Thought I had better provide examples on my ten year assertion:

 

KO, TD, RY, CM, BNS, BMO, SBux, Pepsi, JNJ, P&G, MCD, AAPL, WDC, ORCL, Gen, Mills, Hershey....

 

Can you elaborate?

I did the annualized rate of return on KO assuming $20 to $43 in the last 10 years. Assuming current divvie of 1.22 per share and $20 rock bottom, gives me barely 12% annualized.

Are you counting something else when you claim

12% return over the last 10 years is nothing to write home about.  There are many companies that have exceeded these returns.

 

In fact, this shows that 12% annualized is quite hard: buying one of the best companies in the world at the rock bottom price and finishing at the end of major bull market (right now) barely gives you 12% return...

 

Thanks

[Uccmal]

Thought I had better provide examples on my ten year assertion:

 

KO, TD, RY, CM, BNS, BMO, SBux, Pepsi, JNJ, P&G, MCD, AAPL, WDC, ORCL, Gen, Mills, Hershey....

 

Can you elaborate?

I did the annualized rate of return on KO assuming $20 to $43 in the last 10 years. Assuming current divvie of 1.22 per share and $20 rock bottom, gives me barely 12% annualized.

Are you counting something else when you claim

12% return over the last 10 years is nothing to write home about.  There are many companies that have exceeded these returns.

 

In fact, this shows that 12% annualized is quite hard: buying one of the best companies in the world at the rock bottom price and finishing at the end of major bull market (right now) barely gives you 12% return...

 

Thanks

 

I am getting around 16% per year return on Coke.  10% increase on the dividend each year, and 6-7%  increase in stock price.  I pulled those companies listed above in 10 minutes and very quickly estimated that the return beat 12% (some may be close but not there).

 

I deliberately handicapped them by choosing across the market crash time frame.  KO was not rock bottom in 2005.  It visited $20 before 2005, after 2005.  I didn't cherry pick KO or any other.  This was during a time when Coke has been allegedly suffering. 

 

Its not hard to beat 12% return per year for large companies.  It is very hard for fund managers.  Irwin Michael of ABC funds got slaughtered this year by redemptions and forced selling.  He was heavy into oil.  Chou and Pabrai got slaughtered in 2008/09.  Bill Miller got killed in 2008/09.  Berkowitz has done it repeatedly. 

 

In order to really outperform you need unencumbered capital.  Buffett and others have shown us that this is the best way. 

[Tim Eriksen]

 

I am getting around 16% per year return on Coke.  10% increase on the dividend each year, and 6-7%  increase in stock price.  I pulled those companies listed above in 10 minutes and very quickly estimated that the return beat 12% (some may be close but not there).

 

Are you sure about that????

I must be misunderstanding you.  You can't add the % dividend increase to the stock price change.  It is total dividend plus stock price change.  And you calculate the dividend increase as a percentage of the stock price not the prior dividend level.

 

http://performance.morningstar.com/stock/performance-return.action?region=USA&t=KO&stocktab=returns&culture=en-US

 

[Tim Eriksen]

According to Morningstar:

 

KO 9.76%, TD 10.47%, RY 11.88%, CM 6.8%, BNS 7.92%, BMO 6.94%, SBux 12.68%, Pepsi 8.11%, JNJ 7.2%, P&G 7.05%, MCD 13.46%, AAPL 36.93%, WDC 26.61%, ORCL 13.2%, Gen. Mills 9.64% , Hershey 8.13% ....

 

only 5 out of 16.  3 of the 5 barely surpassed 12%. 

[Uccmal]

According to Morningstar:

 

KO 9.76%, TD 10.47%, RY 11.88%, CM 6.8%, BNS 7.92%, BMO 6.94%, SBux 12.68%, Pepsi 8.11%, JNJ 7.2%, P&G 7.05%, MCD 13.46%, AAPL 36.93%, WDC 26.61%, ORCL 13.2%, Gen. Mills 9.64% , Hershey 8.13% ....

 

only 5 out of 16.  3 of the 5 barely surpassed 12%. 

 

There is something wrong with Morningstars Total Return Calculation for Coke, or at least it is not the number we are after.  I am getting slightly over 14% for Coke.  Here is how I did it this time.  I took 100 shares, which cost $2100 in 2005.

 

I reinvested the dividend each year which gives a new share total each year.  After 10 years, start of 2015 there were 166.5 shares (the split was accounted for).  2015 value = 166.5 shares * 43 = $7160.  This is slightly better than 14%.  Ignoring taxes of course but fund managers dont pay taxes so its apples to apples. 

 

My other method of adding the annual dividend increase plus annual stock appreciation works as well, but is not as accurate because I didn't sum the dividend increases for the ten years.  I took 3 and assumed it to be consistent.  The dividend increase drops in later years.  So I am a couple of percent high there. 

 

Unless, I am totally out to lunch the numbers I am calculating are what I would call total return.  Morningstars numbers are something else. 

[Uccmal]

RY - Royal Bank is also over 14%.  Using the quick method.  Annual stock return + div. yield % ~ 14%.

 

Sbux = 14.5% by same method

 

Mcdon = 16%

 

CM not so good.  A couple of others I missed on.  As I said I put it together in 10 minutes.  If I really dug I could find dozens, a couple of which I hold. 

 

I think morningstars total return is missing dividends or something. 

 

Anyway, my point still stands.  12% and much higher is easier to make as a company than as a fund manager.  Buffett and many others have shown us this. 

[Tim Eriksen]

According to Morningstar:

 

KO 9.76%, TD 10.47%, RY 11.88%, CM 6.8%, BNS 7.92%, BMO 6.94%, SBux 12.68%, Pepsi 8.11%, JNJ 7.2%, P&G 7.05%, MCD 13.46%, AAPL 36.93%, WDC 26.61%, ORCL 13.2%, Gen. Mills 9.64% , Hershey 8.13% ....

 

only 5 out of 16.  3 of the 5 barely surpassed 12%. 

 

There is something wrong with Morningstars Total Return Calculation for Coke, or at least it is not the number we are after.  I am getting slightly over 14% for Coke.  Here is how I did it this time.  I took 100 shares, which cost $2100 in 2005.

 

I reinvested the dividend each year which gives a new share total each year.  After 10 years, start of 2015 there were 166.5 shares (the split was accounted for).  2015 value = 166.5 shares * 43 = $7160.  This is slightly better than 14%.  Ignoring taxes of course but fund managers dont pay taxes so its apples to apples. 

 

My other method of adding the annual dividend increase plus annual stock appreciation works as well, but is not as accurate because I didn't sum the dividend increases for the ten years.  I took 3 and assumed it to be consistent.  The dividend increase drops in later years.  So I am a couple of percent high there. 

 

Unless, I am totally out to lunch the numbers I am calculating are what I would call total return.  Morningstars numbers are something else.

 

By definition total return is required to include dividends.  I don't want to sound harsh, but Morningstar is less likely to be wrong than you are.  I know with Coke you are using a split adjusted price.  You should use the original $41.64 to close out 2004, and then the actual dividends up through the stock split in 2012 when you then adjust the number of shares.  Roughing it out I get 10.4% through year end 2014, which is much closer to Morningstar than your numbers.  The beginning of 2005 was a nice trough for Coke too.  It fell nearly 20% in 2004.   

 

BTW you might wan to double check that Buffett has shown this.  BRK-B 10 yr return was about 9.8%

 

As to your main point yes I agree that a good stock picker should have done better than 12% average over the last decade, but it is not as easy as your comments suggest. 

[Uccmal]

According to Morningstar:

 

KO 9.76%, TD 10.47%, RY 11.88%, CM 6.8%, BNS 7.92%, BMO 6.94%, SBux 12.68%, Pepsi 8.11%, JNJ 7.2%, P&G 7.05%, MCD 13.46%, AAPL 36.93%, WDC 26.61%, ORCL 13.2%, Gen. Mills 9.64% , Hershey 8.13% ....

 

only 5 out of 16.  3 of the 5 barely surpassed 12%. 

 

There is something wrong with Morningstars Total Return Calculation for Coke, or at least it is not the number we are after.  I am getting slightly over 14% for Coke.  Here is how I did it this time.  I took 100 shares, which cost $2100 in 2005.

 

I reinvested the dividend each year which gives a new share total each year.  After 10 years, start of 2015 there were 166.5 shares (the split was accounted for).  2015 value = 166.5 shares * 43 = $7160.  This is slightly better than 14%.  Ignoring taxes of course but fund managers dont pay taxes so its apples to apples. 

 

My other method of adding the annual dividend increase plus annual stock appreciation works as well, but is not as accurate because I didn't sum the dividend increases for the ten years.  I took 3 and assumed it to be consistent.  The dividend increase drops in later years.  So I am a couple of percent high there. 

 

Unless, I am totally out to lunch the numbers I am calculating are what I would call total return.  Morningstars numbers are something else.

 

By definition total return is required to include dividends.  I don't want to sound harsh, but Morningstar is less likely to be wrong than you are.  I know with Coke you are using a split adjusted price.  You should use the original $41.64 to close out 2004, and then the actual dividends up through the stock split in 2012 when you then adjust the number of shares.  Roughing it out I get 10.4% through year end 2014, which is much closer to Morningstar than your numbers.  The beginning of 2005 was a nice trough for Coke too.  It fell nearly 20% in 2004.   

 

BTW you might wan to double check that Buffett has shown this.  BRK-B 10 yr return was about 9.8%

 

As to your main point yes I agree that a good stock picker should have done better than 12% average over the last decade, but it is not as easy as your comments suggest. 

 

You are correct.  I was using two different data sets for Coke only.  The others, using the quick method are okay on an approximate basis.  Contingent on todays dividend yield being representative. 

 

When I meant that Buffett has shown that returns are better with a company than a fund I certainly meant earlier in his tenure, not the last ten years. 

 

The thesis is intact.  With permanent capital that a company provides you can do the following that a fund cannot do:

1) Borrow - within reason, and without the risks of a hedge fund

2) Collect cash to deploy at opportune times.  Seth Klarman is the only fund manager I know who does this and he invests in non-conventional investments. 

3) Not be forced to redeem cash and sell stock at the worst possible time.

 

This is why Giofranchi and others on this board have invested with capital deployers. 

[mhdousa]

I may have missed it, but surprised no one mentioned Alan Meachem (the "400% man"). He did another 28% this year, after 2013's nice 52% gain.

[augustabound]

I may have missed it, but surprised no one mentioned Alan Meachem (the "400% man"). He did another 28% this year, after 2013's nice 52% gain.

 

"Reply #7" by Dshachory.  8)

[constructive]

When I meant that Buffett has shown that returns are better with a company than a fund I certainly meant earlier in his tenure, not the last ten years. 

 

He showed the opposite.

 

During the four years he ran both, he averaged 31.9% annual returns in the fund versus 18.5% with Berkshire.

 

During the 12 years he ran the partnership, he beat the market by 15.5% annually, versus 11.9% for the first 12 years at Berkshire Hathaway.

 

And those are net numbers, gross returns are even more in favor of the fund structure.

[AzCactus]

I may have missed it, but surprised no one mentioned Alan Meachem (the "400% man"). He did another 28% this year, after 2013's nice 52% gain.

 

MH--If you don't mind me asking how did you conclude/hear that Meachem earned 28% last year?

[mhdousa]

I may have missed it, but surprised no one mentioned Alan Meachem (the "400% man"). He did another 28% this year, after 2013's nice 52% gain.

 

MH--If you don't mind me asking how did you conclude/hear that Meachem earned 28% last year?

 

A friend is invested with them.

[Guest Schwab711]

I may have missed it, but surprised no one mentioned Alan Meachem (the "400% man"). He did another 28% this year, after 2013's nice 52% gain.

 

MH--If you don't mind me asking how did you conclude/hear that Meachem earned 28% last year?

 

A friend is invested with them.

 

Thanks for bringing up Meacham, I'd never heard of him. I really like his approach and his story gives me hope. I'm probably in a similar boat to him with no formal business background (just a lot of reading), I never use spreadsheets, and concentrated portfolio of quality names. As a side note, I don't think an investor can skip this step! You should know how a DCF works, know approx results for many different growth/discount rates and the approximate IV range based on some cash flow/earnings amount, and finally, it is a must that you how to build detailed company-specific models, whether you physically create one or not. Though at this point I generally use conservative approximations to get a range for IV. I can confirm, if you don't research like the big funds or bulge-brackets do then it is EXTREMELY difficult to break through to get their money. I have turned down equity research positions at firms fitting these classifications because I truly dislike the short-term approach and I don't want my name/research associated or influenced by it.

 

It's frustrating because his approach probably has lower risk than a lot of major funds. The odds of large concentrated bets in KO/PEP or other large companies with entrenched products, consistent cash flow, strong balance sheets, blah blah blah, is much less likely to cause permanent capital loss then a "diversified" portfolio of crap that most hedge funds carry. Historical data will show that excellent, well-run business models will perform admirably at nearly any purchase price. The lower your purchase price, the higher the probability and magnitude of out-performance.

 

I'll also throw my own name in. I think I have a sufficient amount of the right qualities, the right temperament, and the best investing approach to become one of the best money managers by results 15 years from now. I'm going to begin raising outside money within the next 1-3 months so time will tell.

[Guest wellmont]

standard and poors.  ::)

[Travis Wiedower]

I'll also throw my own name in. I think I have a sufficient amount of the right qualities, the right temperament, and the best investing approach to become one of the best money managers by results 15 years from now. I'm going to begin raising outside money within the next 1-3 months so time will tell.

 

What's your investment firm's name if you don't mind me asking?

[turar]

Dave Waters at Alluvial Capital

 

http://alluvialcapital.com

Do you know what he charges? I couldn't find any expense ratio on the site.

[Guest]

standard and poors.  ::)

 

haha. I'll have to agree with you, Peter. It will probably be 90% of money managers out there. ;)

 

Schwab, how long have you been investing?

[Travis Wiedower]

Dave Waters at Alluvial Capital

 

http://alluvialcapital.com

Do you know what he charges? I couldn't find any expense ratio on the site.

 

Management fee is a scale based on AUM: 2% <$100k, 1.5% >$100k and <$1M, 1% >$1M. Qualified clients pay 10% of net profits.

[Uccmal]

When I meant that Buffett has shown that returns are better with a company than a fund I certainly meant earlier in his tenure, not the last ten years. 

 

He showed the opposite.

 

During the four years he ran both, he averaged 31.9% annual returns in the fund versus 18.5% with Berkshire.

 

During the 12 years he ran the partnership, he beat the market by 15.5% annually, versus 11.9% for the first 12 years at Berkshire Hathaway.

 

And those are net numbers, gross returns are even more in favor of the fund structure.

 

My original point is lost in all the cutting and pasting.  Beyond a certain size, fund companies attract more "nervous" capital.  The first few partners may be solid but eventually you get people who are less committed.  I have not seen a fund not get killed at exactly the wrong time, which screws the long term investors every time.  Buffett avoided this by going the company route, and giving himself more or less permanent capital.  His genius was in knowing his partnerships may eventually blow apart. 

 

Also, to your point.  It took awhile for the Berkshire compounding machine to get going.  The better question might be: How would the partnerships have performed into the mid 70s?  Neither Munger, nor Sequoia faired well. 

[Investmentacct]

The difference between Al's calculation and mornignstar return could be due to  dividends are reinvested every year creating larger # of shares per year.

 

 

 

I am getting around 16% per year return on Coke.  10% increase on the dividend each year, and 6-7%  increase in stock price.  I pulled those companies listed above in 10 minutes and very quickly estimated that the return beat 12% (some may be close but not there).

 

Are you sure about that????

I must be misunderstanding you.  You can't add the % dividend increase to the stock price change.  It is total dividend plus stock price change.  And you calculate the dividend increase as a percentage of the stock price not the prior dividend level.

 

http://performance.morningstar.com/stock/performance-return.action?region=USA&t=KO&stocktab=returns&culture=en-US

[Uccmal]

The difference between Al's calculation and mornignstar return could be due to  dividends are reinvested every year creating larger # of shares per year.

 

 

 

I am getting around 16% per year return on Coke.  10% increase on the dividend each year, and 6-7%  increase in stock price.  I pulled those companies listed above in 10 minutes and very quickly estimated that the return beat 12% (some may be close but not there).

 

Are you sure about that????

I must be misunderstanding you.  You can't add the % dividend increase to the stock price change.  It is total dividend plus stock price change.  And you calculate the dividend increase as a percentage of the stock price not the prior dividend level.

 

http://performance.morningstar.com/stock/performance-return.action?region=USA&t=KO&stocktab=returns&culture=en-US

 

My estimates were too high.  I mentioned this above.  The quick and dirty way works better:  Get the CAGR on the stock price and add the dividend yield to it.  Fairly close.  Coke wasn't the best example I could have pulled.