Jump to content

My portfolio of top capital allocators


Adam

Recommended Posts

I would love to hear your thoughts on a portfolio I'm building.

My goal for this portfolio, which is about 20% of my total invested assets, is to invest in the absolute best capital allocators/investors, and hold on to them for at least the next decade or two.

This will be my main growth engine for the total portfolio, while the rest is mostly index stock/bonds based.

 

My current picks are:

BRK.B - Berkshire Hathaway

MKL - Markel Corporation

FFH.TO - Fairfax Financial

PSH.AS - Pershing Square Holdings

TPOU.L - Third Point Offshore

IEP - Icahn Enterprises

BAM - Brookfield Asset Management

HHC - Howard Hughes

 

I plan to have them equally weighted (except maybe HHC, since it's related to PSH) and re-balance as the prices of each become more attractive.

 

I've also considered many others, which for now I think I'll leave out:

Y, WTM, WRB, LRE - all probably good insurers, but don't have great investors running the show.

GLRE, TPRE - I don't like the added uncertainty of the reinsurance business (at least with MKL, FFH the business is solid). I would much prefer to invest directly with the investors (it's possible with Loeb, but not with Einhorn).

L, LUK - both were great in the past but have severe management issues today. P/B is very attractive but I'm not looking for value/speculation in this segment of my portfolio, but to invest with the best of the best, so I'm leaving these two out.

 

Others I'm still considering

SIGB.L

CRS.L

RCP.L

BH

POW.TO

SPLP

HRG

LMCA

BVT

SHLD

OAK

FRMO

and whole bunch of others, but I'll cut off here.

 

I think my main questions are:

- Are my top picks solid? Do you think something is critically missing and should be removed?

- Which companies can serve my goal besides the ones in my top picks (I'm considering adding a bunch of 2nd tier companies which might fit this criteria with a smaller stake for each).

- Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time.

 

Link to comment
Share on other sites

I think you should take a look at the fees being paid to hold PSH and Third Point.  Are you okay with the fees that the holdings pay to the funds?  I think you would be better off with an index than paying those kind of fees.

I am aware of the fees and believe that in the long run these investors are able to outperform the market (S&P500) even with the fees.

Link to comment
Share on other sites

I would love to hear your thoughts on a portfolio I'm building.

My goal for this portfolio, which is about 20% of my total invested assets, is to invest in the absolute best capital allocators/investors, and hold on to them for at least the next decade or two.

This will be my main growth engine for the total portfolio, while the rest is mostly index stock/bonds based.

 

My current picks are:

BRK.B - Berkshire Hathaway

MKL - Markel Corporation

FFH.TO - Fairfax Financial

PSH.AS - Pershing Square Holdings

TPOU.L - Third Point Offshore

IEP - Icahn Enterprises

BAM - Brookfield Asset Management

HHC - Howard Hughes

 

I plan to have them equally weighted (except maybe HHC, since it's related to PSH) and re-balance as the prices of each become more attractive.

 

I've also considered many others, which for now I think I'll leave out:

Y, WTM, WRB, LRE - all probably good insurers, but don't have great investors running the show.

GLRE, TPRE - I don't like the added uncertainty of the reinsurance business (at least with MKL, FFH the business is solid). I would much prefer to invest directly with the investors (it's possible with Loeb, but not with Einhorn).

L, LUK - both were great in the past but have severe management issues today. P/B is very attractive but I'm not looking for value/speculation in this segment of my portfolio, but to invest with the best of the best, so I'm leaving these two out.

 

Others I'm still considering

SIGB.L

CRS.L

RCP.L

BH

POW.TO

SPLP

HRG

LMCA

BVT

SHLD

OAK

FRMO

and whole bunch of others, but I'll cut off here.

 

I think my main questions are:

- Are my top picks solid? Do you think something is critically missing and should be removed?

- Which companies can serve my goal besides the ones in my top picks (I'm considering adding a bunch of 2nd tier companies which might fit this criteria with a smaller stake for each).

- Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time.

 

Everyone wants to beat the market. But unfortunately it isn't easy.

 

If you want to be a "defensive investor" like one described by Ben Graham in Intelligent Investor, you are better off focusing on two things:

(1) Live below your means and save

(2) Dollar cost average into a low cost index fund.

 

If you want to do better than the market over a long period of time, there is no easy way. You got to be "enterprising" investor and that requires work.

Link to comment
Share on other sites

A little ridiculous to expect this to drive growth in your portfolio. You are taking ten companies that likely hold anywhere from 10-100 companies each and expecting equal weightings in those holding companies of 2% each to outperform the market. You probably will end up owning 150 companies that only represent 20% of your portfolio. This will likely mirror the market as you are diversifying holding companies. Might as well just buy a low cost index fund.

Link to comment
Share on other sites

I think many people have considered a similar strategy as you're proposing (basically owning a basket of investment gurus).  I would expect the portfolio to perform inline with the S&P over time, especially if you add more names. 

 

This is the classic problem with diversification.  Every additional holding is likely to only bring your returns closer to the average (Howard Marks talks about this a lot).  You're obviously hoping the "average" of the basket is higher than the market as a whole, but that is not a bet I would make with any substantial sum based on my own experience.

Link to comment
Share on other sites

Everyone wants to beat the market. But unfortunately it isn't easy.

 

If you want to be a "defensive investor" like one described by Ben Graham in Intelligent Investor, you are better off focusing on two things:

(1) Live below your means and save

(2) Dollar cost average into a low cost index fund.

 

If you want to do better than the market over a long period of time, there is no easy way. You got to be "enterprising" investor and that requires work.

 

I'm already doing (1) and (2).

And I'm learning how to be an investors by my own means, but that will be long process (given that I'm also working full time).

Of course I'm not assuming that beating the market is easy, although I am assuming it is possible, that is why I want to delegate that job to those who:

a) have a proven record

b) seem to know what they are doing

c) are accessible via publicly traded companies

 

This is the classic problem with diversification.  Every additional holding is likely to only bring your returns closer to the average (Howard Marks talks about this a lot).  You're obviously hoping the "average" of the basket is higher than the market as a whole, but that is not a bet I would make with any substantial sum based on my own experience.

I am concerned that adding too many holdings will bring me closer to the market mean (even though that won't be a disaster since I'm mostly an index guy), but that is why I focus on a small basket of only the best of the best, and I am assuming/hoping for the "average" to beat the market over a 10+ year period.

Link to comment
Share on other sites

A little ridiculous to expect this to drive growth in your portfolio.

"Growth engine" was probably not the proper phrasing. I do mean for it to substantially beat the market over time (more than 1-2% annual).

Link to comment
Share on other sites

This is not a bad idea and not a bad selection. Whether you will outperform market (which market? US? ;) ) and index (which index? SP500? ;) ), is a 64K$ question.

 

I hold a bunch of names you mentioned. I do try to value them and buy/sell accordingly. Although I can't say my weightings reflect the relative values well. E.g. I don't think MKL is cheap right now.

 

(Some of these comments depend on the country you're in, so... this is USA centric).

 

I don't hold

TPOU.L - Third Point Offshore - I am not sure Dan Loeb is a great investor. TPOU might be better than TPRE as you say. Not sure if US investors can hold TPOU.L

IEP - Icahn Enterprises - Don't want to deal with K1 reporting

BAM - Brookfield Asset Management - same? I don't remember if BAM is LP and does K1's. Also I am a bit skeptical about RE cos, even the ones with distinguished pedigree as BAM.

HHC - Howard Hughes - too hard pile for me.

 

I hold some LMCA+a-lot-more-Malone-cos and FRMO.

IMO, FRMO is overpriced. I would not buy it here.

 

I also have some CKI.TO/CLKFF. Not sure if it's gonna perform great decade+ though.

 

Edit: currently I have been buying BRK pretty much. Might add a bit to Liberties, but out of all this list BRK is still most attractive IMO. I may change my mind at any time though.  8)

Link to comment
Share on other sites

This is not a bad idea and not a bad selection. Whether you will outperform market (which market? US? ;) ) and index (which index? SP500? ;) ), is a 64K$ question.

Indeed, the benchmark is SP500.

 

I'm a non-US (and non-Canada) citizen. I trade with Interactive Brokers and exempt from withholding tax (except for US dividends), and am taxed by my country's laws, which basically say that all foreign stocks are taxed at 25%, except for REITs. Are any of the companies I mentioned considered REITs ?

 

"Not sure if US investors can hold TPOU.L" - why should US investors have a problem with TPOU?

 

"Don't want to deal with K1 reporting" - not sure if my tax laws have a similar issue with foreign public L.P.'s, but that is a good point and I'll check with an accountant.

 

"RE cos" - pardon my ignorance, but what does the "cos" stand for?

 

"too hard pile for me" - what do you mean by that?

 

Thanks

Link to comment
Share on other sites

Adam,

I think you’ll do very fine.

 

1) To generate cash (as much as you can), 2) To save it (as much as you can), and 3) To invest it with great capital allocators:

This is imo the name of the game.

 

And don’t worry about the comparison to “the index”! To devote time and energy to 3) will yield good results and will enhance greatly your ability to do 1). Therefore, it will be worthwhile. At least, that’s my experience.

 

If I could add something, I would pay attention also to the quality of the businesses (even a great capital allocator at the helm of a poor business will struggle, and I believe some of the companies in your list are not very high quality businesses), and to the price you are paying (for instance, I own MKL because I think it is very high quality, but I own a small position. Both BRK and FFH are cheaper today, therefore I don’t think you should give equal weight to all of them right now).

My capital allocation strategy is dictated by the best compromise I can find between quality of management, quality of business, and price.

 

I hope this might be useful.

 

Cheers,

 

Gio

 

Link to comment
Share on other sites

I'm a non-US (and non-Canada) citizen. I trade with Interactive Brokers and exempt from withholding tax (except for US dividends), and am taxed by my country's laws, which basically say that all foreign stocks are taxed at 25%, except for REITs. Are any of the companies I mentioned considered REITs ?

 

"Not sure if US investors can hold TPOU.L" - why should US investors have a problem with TPOU?

 

"Don't want to deal with K1 reporting" - not sure if my tax laws have a similar issue with foreign public L.P.'s, but that is a good point and I'll check with an accountant.

 

"RE cos" - pardon my ignorance, but what does the "cos" stand for?

 

"too hard pile for me" - what do you mean by that?

 

Thanks

 

Since you're not US based, I don't think the TPOU.L/PSH.AS status for US investors is relevant to you. Short story: it's complicated. :)

 

"cos" == "companies". Sorry for shortening.

 

"too hard pile for me" - too hard for me to analyze the valuation and the company, so I don't have position and don't plan to have one.

 

Take care.

Link to comment
Share on other sites

A little ridiculous to expect this to drive growth in your portfolio. You are taking ten companies that likely hold anywhere from 10-100 companies each and expecting equal weightings in those holding companies of 2% each to outperform the market. You probably will end up owning 150 companies that only represent 20% of your portfolio. This will likely mirror the market as you are diversifying holding companies. Might as well just buy a low cost index fund.

This is likely reality, perhaps not.

 

In Adams starting post in this topic Adam talked about rebalancing between the positions in the future. That might bring a material difference in ROIC in the long run going forward [positive if done right, or negative if not done right].

 

One of the opportunity costs of not doing what Adam is contemplating [ i.e. by investing in a low cost index fund, as the alternative to Adams proposal] is that you never learn to invest, thereby not learning a lot, most of all about yourself by taking on some risks, and by the personal process of developing your own investment style over time.

 

[ In the topic on this board "Ask Kraven AHA!" Kraven talks a lot about this].

Link to comment
Share on other sites

One of the opportunity costs of not doing what Adam is contemplating [ i.e. by investing in a low cost index fund, as the alternative to Adams proposal] is that you never learn to invest, thereby not learning a lot, most of all about yourself by taking on some risks, and by the personal process of developing your own investment style over time.

 

+1

 

That's similar to what I meant when I said that doing 3) will help you very much in getting better and better at doing 1)! ;)

 

Cheers,

 

Gio

Link to comment
Share on other sites

 

One of the opportunity costs of not doing what Adam is contemplating [ i.e. by investing in a low cost index fund, as the alternative to Adams proposal] is that you never learn to invest, thereby not learning a lot, most of all about yourself by taking on some risks, and by the personal process of developing your own investment style over time.

 

[ In the topic on this board "Ask Kraven AHA!" Kraven talks a lot about this].

 

Well, in my opinion, if one really wants to learn to invest - one can't say I am going to pick some stocks and then forget about them for the next 10 years. He explicitly said the following: "Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time." Unfortunately, buy and hold does not mean buy and forget. If you really want to buy and forget, then a low cost index fund is a reasonably good choice that is as good as (or better than) anything else.

 

If I want to learn to invest, then that's a separate thread. I would not start by trying to pick winners I can hold for a decade and be unwilling to monitor them. Isn't it?

 

 

 

Link to comment
Share on other sites

 

One of the opportunity costs of not doing what Adam is contemplating [ i.e. by investing in a low cost index fund, as the alternative to Adams proposal] is that you never learn to invest, thereby not learning a lot, most of all about yourself by taking on some risks, and by the personal process of developing your own investment style over time.

 

[ In the topic on this board "Ask Kraven AHA!" Kraven talks a lot about this].

 

Well, in my opinion, if one really wants to learn to invest - one can't say I am going to pick some stocks and then forget about them for the next 10 years. He explicitly said the following: "Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time." Unfortunately, buy and hold does not mean buy and forget. If you really want to buy and forget, then a low cost index fund is a reasonably good choice that is as good as (or better than) anything else.

 

If I want to learn to invest, then that's a separate thread. I would not start by trying to pick winners I can hold for a decade and be unwilling to monitor them. Isn't it?

+1

My post was based on - for me - Adams assumed ability and willingnes to allocate time and mental Kjoules to that part of the 20%.

 

Adams basic assumptions for the question in this topic might be different.

 

Piece.

Link to comment
Share on other sites

 

One of the opportunity costs of not doing what Adam is contemplating [ i.e. by investing in a low cost index fund, as the alternative to Adams proposal] is that you never learn to invest, thereby not learning a lot, most of all about yourself by taking on some risks, and by the personal process of developing your own investment style over time.

 

[ In the topic on this board "Ask Kraven AHA!" Kraven talks a lot about this].

 

Well, in my opinion, if one really wants to learn to invest - one can't say I am going to pick some stocks and then forget about them for the next 10 years. He explicitly said the following: "Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time." Unfortunately, buy and hold does not mean buy and forget. If you really want to buy and forget, then a low cost index fund is a reasonably good choice that is as good as (or better than) anything else.

 

If I want to learn to invest, then that's a separate thread. I would not start by trying to pick winners I can hold for a decade and be unwilling to monitor them. Isn't it?

 

+1

 

Link to comment
Share on other sites

Thanks everyone.

As I mentioned I am learning how to invest on my own, but I assume that will take a decent while.

For the meantime, part of my strategy is having part of the portfolio "managed" by smart investors who know what they are doing, that is why I want to hold the companies I mentioned.

 

rishig - I want to hold the companies without trying to guess if it's a good time to get in or out, since that completely beats the purpose of delegating the investing decisions to these managers, but I do plan to balance the holdings based on price and/or P/B - haven't decided yet exactly how.

 

I would love to hear more comments on the holdings and best alternatives.

Link to comment
Share on other sites

If I could add something, I would pay attention also to the quality of the businesses (even a great capital allocator at the helm of a poor business will struggle, and I believe some of the companies in your list are not very high quality businesses), and to the price you are paying (for instance,  I own MKL because I think it is very high quality, but I own a small position. Both BRK and FFH are cheaper today, therefore I don’t think you should give equal weight to all of them right now).

 

I hold BRK, MKL, and FRFHF.

 

And always consider BAM, L, Y, LUK, GLRE, and TPRE.

 

I'd probably add to BRK and FRFHF today (quality, valuation) but not to MKL or BAM (valuation) or L, Y, LUK, GLRE, or TPRE (quality).

 

Edited to add: I'd consider OAK and PSHZF too, but don't want to deal with K-1 and 8621 forms.

 

Link to comment
Share on other sites

 

One of the opportunity costs of not doing what Adam is contemplating [ i.e. by investing in a low cost index fund, as the alternative to Adams proposal] is that you never learn to invest, thereby not learning a lot, most of all about yourself by taking on some risks, and by the personal process of developing your own investment style over time.

 

[ In the topic on this board "Ask Kraven AHA!" Kraven talks a lot about this].

 

Well, in my opinion, if one really wants to learn to invest - one can't say I am going to pick some stocks and then forget about them for the next 10 years. He explicitly said the following: "Do you think these companies are worthy of holding for a decade or two? I don't want to switch/monitor them all the time." Unfortunately, buy and hold does not mean buy and forget. If you really want to buy and forget, then a low cost index fund is a reasonably good choice that is as good as (or better than) anything else.

 

If I want to learn to invest, then that's a separate thread. I would not start by trying to pick winners I can hold for a decade and be unwilling to monitor them. Isn't it?

 

I think having a portfolio like this is probably best when starting to invest if you track it closely. Most of your time will be spent reverse engineering some the best investors/businessmen's ideas.

Link to comment
Share on other sites

How many more years does Fairfax/Prem Watsa need to make horrendous decisions until people stop referring to them/him as a top capital allocator? 8 straight yeas isn't enough?

I (really) don't know much about the decisions they made, but from 2008-2014 (including both) they annualized 10.5%, while S&P500 annualized 7.2%. It's not amazing and not as good as other on the list, but it's not horrendous for sure.

Link to comment
Share on other sites

Guest longinvestor

Thanks everyone.

As I mentioned I am learning how to invest on my own, but I assume that will take a decent while.

For the meantime, part of my strategy is having part of the portfolio "managed" by smart investors who know what they are doing, that is why I want to hold the companies I mentioned.

 

rishig - I want to hold the companies without trying to guess if it's a good time to get in or out, since that completely beats the purpose of delegating the investing decisions to these managers, but I do plan to balance the holdings based on price and/or P/B - haven't decided yet exactly how.

 

I would love to hear more comments on the holdings and best alternatives.

 

Adam,it is great that you have a 10+ year plan of learning. That said, you have 9 years 363 days to go yet. Don't get browbeaten by reading a message board. You appear to be be doing so, going from buy-forget-hold to buy-watch-hold to buy-balance(?)-hold etc. Who knows, you may do just fine with your original thought. Reportedly dead people's portfolios have done well http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/! So have forgetful investors http://www.businessinsider.com/forgetful-investors-performed-best-2014-9 I've done OK as well with your kind of strategy, it is 10 years for me. Dead me will likely do fine as well.

 

Another huge benefit of your 20% allocation, you have chosen to free up 20% of disposable time for something else that may be a passion. Who knows, your 20% will do so well that you will pursue your passion 100% of the time. 

 

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...