The Mistakes Made in Value Investing By The BigWigs and Ourselves

[LC]

If you guys are so good...then why are you still on COBF?

 

 

Without looking it up. Can anyone tell me the difference between accrual and cash basis accounting?

 

I'm not "good" at all, look at my portfolio I am pretty much stupid and lazy. I probably bring down the average here, I am not a professional or brilliant amateur. I am just glad you all tolerate me.

 

Accrual and cash....timing differences when accounting statements recognize revenues and associated expenses. cash based means when cash comes in u get revenue, cash goes out u have expense. accrual is based on when the revenue/expense is 'earned'. i.e. if i have a contract which pays me 10k up front but i earn the revenue over 5 years, i have to defer it and recognize it as a i earn it.

[randomep]

If you guys are so good...then why are you still on COBF?

 

 

Without looking it up. Can anyone tell me the difference between accrual and cash basis accounting?

 

Good question. I start to think we need a CoBF bar raiser program to improve the quality of the threads here.  :)

The quality of the threads are getting lower and more posts filled with "Oh Bruce added 100000 shares today". Or "Oh Prem Watsa said he expected a huge upside"

 

Sensational news sells, that' the bottom line. When I started onboard CoBF I tried to recommend my microcap picks, most times I got zero replies, nada!

 

I soon found that any discussion about manager fails, interest rates, inflation or a handful of stocks like VRX, ZINC, BAC with invoke a strong reaction.

 

It is what it is.....

[premfan]

Any culture does down when the ceo/founder is not involved in the daily operation of the business. The chairman is running  a public company now and this forum is not a priority anymore. Which is absolutely the right move.

[RichardGibbons]

If you guys are so good...then why are you still on COBF?

 

So true!  If Magnus Carlsen is so good at chess, then why does he bother reading about new variations in chess openings?  If LeBron thinks he's so good, why does he waste his time going to practices?  If Buffett's such a good leader, why did he spend years at Toastmasters?  If Sergey Brin has such a great search engine, why's he wasting Google's resources optimizing it?

 

Fools, all of them!

 

 

 

[ni-co]

There is risk and unknowns for all of us. We have to act with very incomplete information.  As a result we can say much of what happens is luck.  Suppose you get AA in texas holdem. You go in knowing your 80% fav against any hand preflop.  Going in is the right thing to do and no matter what happens in the hand. Nobody says oh man I should've known better that my AA would get sucked out.

 

+1. Though this analogy has many (poker-specific) problems I can relate to that. Selling a position at a loss doesn't mean you made a mistake; selling it at a profit doesn't mean that you're a genius. When your chance is 50:50 to make 10x your money or to lose it all, having lost it all doesn't mean that you are stupid. However, you're an idiot if you put 100% of your portfolio into it.

[Graham Osborn]

Yet another well-intentioned thread winds its way to a watery grave.  Anyone care to return to the OP and list the mistakes *they* made?

[randomep]

Yet another well-intentioned thread winds its way to a watery grave.  Anyone care to return to the OP and list the mistakes *they* made?

 

Sure, I can oblige.... but I don't know if a lot of my investments are failures therefore I don't know if there is any mistake at all!

 

I originally am a bigcap cloner type. Mostly buying whatever Buffett, Berkowitz and Lampert buys.

 

3yrs ago, I started doing small cap investing.  Stocks I bought since then I still hold because I am disciplined in doing 25% turnover (or maybe even 20%).  So here I am, with a bunch what I feel are uncorrelated cheap stocks.  Most of my stocks have no debt, are trading less than book and trading at less than 10x earnings.  But their stock price just won't budge. They are fine companies but how do companies like this typically turn out, in the past?

 

This is not rhetorical, I am reaching for help here!  Any past experience or advice is appreciated.  But please note that my companies are not run by a**hole management and none are money losers.

 

 

 

 

[cpan]

This thread had a nice start so let me jump back to the original topic.  Here are my mistakes:

 

Amex - Brought it because:  1. Valueact bought it. 2. Thought the third payment network should be valued higher than a regional bank but not realizing the market was richly priced over all. 3. Didn't appreciate how hard the banks were competing in this space.  Maybe this is still not a mistake but definitely could have bought it cheaper.

 

Italy/Spain index -  I think I just heard Mab Faber talk about applying low P/E across different countries.  Thought these countries should start to recover after 3/4 years.  Yet, not realizing I know nothing about these countries.  To ignorant to know about catalonia or NOL on Italian banks.  This one was well deserved spanking. 

 

POSCO - Thought I understood that it was a commodity producer but couldn't get Charlie Munger's words out of my head about POSCO is so advanced that its not a commodity producer.  Bought it early and it went up.  Thought I was smart but I was just lucky.  Then see it go down.  I hear Charlie Munger changing his mind about the brutal reality of competition.  Chulk it up as learning experience.

 

[Green King]

As mentioned above please don't take advise from others you don't know or know to have superior performance. Make your own decision. If they are not working do a post mortem. what do you think they are worth today and what do think they were worth the day your bought them. why did you buy it and did it happen.

 

If you are doing pure graham or net net investing you should have a larger number of positions 30 to 100. Sell them when they become fully valued.

 

[randomep]

Yet another well-intentioned thread winds its way to a watery grave.  Anyone care to return to the OP and list the mistakes *they* made?

 

This is not rhetorical, I am reaching for help here!  Any past experience or advice is appreciated.  But please note that my companies are not run by a**hole management and none are money losers.

 

If it has been 3 years and the stocks have not budged, you may want to reconsider.  Although you haven't lost money, holding on to these stocks is still an opportunity cost. 

 

As for PE/BV, BAC and C have both been trading at less than 10 PE and below TBV for several years so cheap can stay cheap for long.  And these are big caps which should trade more efficiently than small caps which have the added element of just getting ignored.

 

Are you waiting for any company specific catalysts in these investments?

 

ok when I think again, what I said isn't true. These stocks do move.  A typical one is a japanese distributor, PE now is about 6, its a netnet, no debt..... but of course it has sh*ty ROE. On paper the stock has doubled in 3yrs. But in reality I factor in currency changes and the fact that you never get in 100% from day one. You build up a position. And it really frustrates me that the return is not where it should be.  My question to all is when do the business metrics normalize.  Or is this japanese company destined to trade at a 6x multiple?

 

So I am waiting for no catalyst, except multiple expansion. I own a Greek insurer trading at 4x earnings. a  Hong Kong real estate companies trading at 1/6 book.

 

Looking at Hong Kong, its market is at 2007 levels, but last year it was 40% higher. So there is potential to break out, and to carry my stocks with it.  If it doesn't happen then that's my mistake for waiting.

 

sorry for the confusion post but my frustrations are clear.....

[oddballstocks]

If you guys are so good...then why are you still on COBF?

 

 

Without looking it up. Can anyone tell me the difference between accrual and cash basis accounting?

 

After attending two FFH dinners I have come to realize that there are some very well known people reading and hanging out here.  At least this was true in the past.  I don't think posting on a message board should be taken as a sign for/against anything.

 

On the accounting, sure I can detail the difference and I'm guessing most can.  The point is "does it matter?"  I own a company that uses tax basis accounting, a little extra mental horsepower there, but that's it.  Show me an investment where the invest-ability hinges on understanding cash vs accrual accounting.  When I was studying for the CFA I used to think these little accounting things were the difference between a good investor and a poor investor.  They're really the price of admission to doing anything related to business.  "Accounting is the language of business" is very true, you can be a rough conversationalist and get by, or be perfectly fluent.  Question is what's the marginal gain?

 

Here's my tongue in cheek definition:

 

Accrual accounting: What MBA's and public companies use, a company can book revenue and earn a profit without ever seeing a cent of cash, the magic of the public markets

Cash basis accounting: What real world companies use, revenue is cash in hand, expenses are paid with cash, what's left is profit.  Why any non-public small business would use accrual accounting is beyond me, unless they love to pay CPA fees or they're in the business of multi-year projects.

[Jurgis]

 

ok when I think again, what I said isn't true. These stocks do move.  A typical one is a japanese distributor, PE now is about 6, its a netnet, no debt..... but of course it has sh*ty ROE. On paper the stock has doubled in 3yrs. But in reality I factor in currency changes and the fact that you never get in 100% from day one. You build up a position. And it really frustrates me that the return is not where it should be.  My question to all is when do the business metrics normalize.  Or is this japanese company destined to trade at a 6x multiple?

 

So I am waiting for no catalyst, except multiple expansion. I own a Greek insurer trading at 4x earnings. a  Hong Kong real estate companies trading at 1/6 book.

 

Looking at Hong Kong, its market is at 2007 levels, but last year it was 40% higher. So there is potential to break out, and to carry my stocks with it.  If it doesn't happen then that's my mistake for waiting.

 

sorry for the confusion post but my frustrations are clear.....

 

Sorry, randomep, I can't really help here. I think oddball is the expert on these kind of situations. Get on a plane, buy him a beer, and go through your positions with him. I'm sure he'll have input. ;) No, seriously. If I had to choose an expert for your issue, it'd be him. ;)

 

The remainder of this is my thoughts that are not directly helpful, so please skip. :)

 

....

 

....

 

What randomep described is one reason why I don't do the niche egregiously undervalued stock investing that we discussed with oddball. With mediocre businesses it's very hard for me to know when to hold and when to fold (sorry for repeat of what I wrote to oddball ;) ). Yeah, stocks don't go up. Or they go up some, then go down some, then go up some. And since the business is crappy (ok, not crappy, "mediocre" ;) ) and management is mediocre, you really don't know what you are waiting for. Numbers look so so, maybe OKish, maybe not. Maybe it will get better, maybe it won't. So I lose patience, I lose interest, I sell. And then bam it's 3x+ in next couple years. ;) (See UVIC story). Or I sell and the business goes nowhere for another 10 years and I'm glad I sold. ;)

 

For some reason or other I believe that it's easier for me to hold stocks in good/great businesses with good/great management. E.g. BRK - and I'll include BAC here for cheesiness ;) - and I'll include Malone constellation for "these-are-not-value-stocks-are-you-kidding". We'll see how this works out, since that's also experiment in progress and I don't know if I will manage to hold these forever.

 

With great businesses, the issues are (usually) different. Stocks become overvalued and you have to decide whether to sell or hold. Or stocks are already overvalued and you have to decide whether to buy/add or not. Or stocks are overvalued and they drop a bit and you have to decide whether to add or not. Or business experiences slowdown and you're no longer sure if it's a good/great business (AXP, IBM now perhaps?) and you have to decide whether to buy/hold/sell.

 

------------------------------

 

And yeah, whether you do egregiously cheap or great-businesses, you still have to figure out position sizing, which is another 100 page topic by itself... ;)

[oddballstocks]

 

ok when I think again, what I said isn't true. These stocks do move.  A typical one is a japanese distributor, PE now is about 6, its a netnet, no debt..... but of course it has sh*ty ROE. On paper the stock has doubled in 3yrs. But in reality I factor in currency changes and the fact that you never get in 100% from day one. You build up a position. And it really frustrates me that the return is not where it should be.  My question to all is when do the business metrics normalize.  Or is this japanese company destined to trade at a 6x multiple?

 

So I am waiting for no catalyst, except multiple expansion. I own a Greek insurer trading at 4x earnings. a  Hong Kong real estate companies trading at 1/6 book.

 

Looking at Hong Kong, its market is at 2007 levels, but last year it was 40% higher. So there is potential to break out, and to carry my stocks with it.  If it doesn't happen then that's my mistake for waiting.

 

sorry for the confusion post but my frustrations are clear.....

 

Sorry, randomep, I can't really help here. I think oddball is the expert on these kind of situations. Get on a plane, buy him a beer, and go through your positions with him. I'm sure he'll have input. ;) No, seriously. If I had to choose an expert for your issue, it'd be him. ;)

 

The remainder of this is my thoughts that are not directly helpful, so please skip. :)

 

....

 

....

 

What randomep described is one reason why I don't do the niche egregiously undervalued stock investing that we discussed with oddball. With mediocre businesses it's very hard for me to know when to hold and when to fold (sorry for repeat of what I wrote to oddball ;) ). Yeah, stocks don't go up. Or they go up some, then go down some, then go up some. And since the business is crappy (ok, not crappy, "mediocre" ;) ) and management is mediocre, you really don't know what you are waiting for. Numbers look so so, maybe OKish, maybe not. Maybe it will get better, maybe it won't. So I lose patience, I lose interest, I sell. And then bam it's 3x+ in next couple years. ;) (See UVIC story). Or I sell and the business goes nowhere for another 10 years and I'm glad I sold. ;)

 

For some reason or other I believe that it's easier for me to hold stocks in good/great businesses with good/great management. E.g. BRK - and I'll include BAC here for cheesiness ;) - and I'll include Malone constellation for "these-are-not-value-stocks-are-you-kidding". We'll see how this works out, since that's also experiment in progress and I don't know if I will manage to hold these forever.

 

With great businesses, the issues are (usually) different. Stocks become overvalued and you have to decide whether to sell or hold. Or stocks are already overvalued and you have to decide whether to buy/add or not. Or stocks are overvalued and they drop a bit and you have to decide whether to add or not. Or business experiences slowdown and you're no longer sure if it's a good/great business (AXP, IBM now perhaps?) and you have to decide whether to buy/hold/sell.

 

------------------------------

 

And yeah, whether you do egregiously cheap or great-businesses, you still have to figure out position sizing, which is another 100 page topic by itself... ;)

 

I am always up for a beer.  I'm in Pittsburgh, let me know when you're around Randomep.. will also be in Toronto in a few weeks.  Appreciate the complements Jurgis.

 

In real estate there's a phrase that your money is made at the buy.  I believe investing is similar, in that if you're buying some crappy company you make your money on the initial discount.

 

Let's look at a real world dead money situation, Hanover Foods.  This is as dead as dead comes.  I believe they went private at $125/share, they're in the $80s now.  This is 10+ year later, dividends won't make up for it.

 

I own some, I like the company, it's completely average.  They make frozen food, we sometimes have it if it's on sale, it's average frozen food.  I couldn't tell the difference between Hanover and some other brand.

 

Anyways it's at $84 and book value is in the $300s, exact value doesn't even matter much at this point.  They're showing some growth, a few percentage points a year.  Say I have to hold this for 10 years and BV grows at 5%, by then BV will be around $500 a share.  Maybe by then the market sees the undervaluation and they trade towards 50% of BV to $250, that's a return of 11.5% a year.  Anything higher is icing on the cake at this point.  You can do the same exercise with 20 years, 30 years etc.  The longer this goes no where the juicer it becomes.  Ever seen a company with a $500 BV trade for $84?  I have a few times, and every single time they went on to gain 3-5x and sometimes 10x.  Maybe worst case scenario it goes 20 years and the price never changes, you'd have $84 shares with $1000 per share in BV.

 

Egregious undervaluations like this are corrected.  Case in point Western Lime.  Shares were trading for $5k and flying under the radar, went no where for years.  Then suddenly they receive a buyout offer, the price?  $50k per share.  Shareholders who held for years earned 10x at once.  There were rumors that Tweedy still owned a few shares from decades ago, and guess what? With the 10x buyout they made a decent return.

 

At the same time you do need to sleep with one eye open.  If someone comes along (and in Japan especially) and offers a decent price you get out.  A company's metrics will only be normalized in the past, never current, never in the future.  In Japan things jump quickly.  A stock going from 400Y to 800Y with a 1000Y BV is common, you sell at 800Y because six months later it'll be back at 400Y.  I learned this once and never forgot it, after that I sold at each crazy Mr Market opportunity.

[JBTC]

Yet another well-intentioned thread winds its way to a watery grave.  Anyone care to return to the OP and list the mistakes *they* made?

 

This is not rhetorical, I am reaching for help here!  Any past experience or advice is appreciated.  But please note that my companies are not run by a**hole management and none are money losers.

 

If it has been 3 years and the stocks have not budged, you may want to reconsider.  Although you haven't lost money, holding on to these stocks is still an opportunity cost. 

 

As for PE/BV, BAC and C have both been trading at less than 10 PE and below TBV for several years so cheap can stay cheap for long.  And these are big caps which should trade more efficiently than small caps which have the added element of just getting ignored.

 

Are you waiting for any company specific catalysts in these investments?

 

ok when I think again, what I said isn't true. These stocks do move.  A typical one is a japanese distributor, PE now is about 6, its a netnet, no debt..... but of course it has sh*ty ROE. On paper the stock has doubled in 3yrs. But in reality I factor in currency changes and the fact that you never get in 100% from day one. You build up a position. And it really frustrates me that the return is not where it should be.  My question to all is when do the business metrics normalize.  Or is this japanese company destined to trade at a 6x multiple?

 

So I am waiting for no catalyst, except multiple expansion. I own a Greek insurer trading at 4x earnings. a  Hong Kong real estate companies trading at 1/6 book.

 

Looking at Hong Kong, its market is at 2007 levels, but last year it was 40% higher. So there is potential to break out, and to carry my stocks with it.  If it doesn't happen then that's my mistake for waiting.

 

sorry for the confusion post but my frustrations are clear.....

 

I just want to add one point which has not been touched on so far.

 

You seem to have quite a few positions in international markets. I don't do this type of investing personally but my impression is it's easier to find net-nets overseas. So naturally a Graham follower would spend a lot of time looking into those overseas markets.

 

But Graham didn't invest in overseas markets himself (I assume). As value investors we buy stocks trusting they represent partial ownership in companies. But that is demonstrably not true in many markets.

 

In many markets, more emerging than developed, a stock is just a piece of paper, nothing more.

 

A stock certificate only becomes ownership when there is law, governance, reasonably accurate reporting, management integrity. Don't take these things for granted.

 

Even in mature markets such as HK, you can certainly find so-called a 50-cent dollar, one example being a holding company trading at 50% of the value of its main asset.

 

In general, buying things in far-flung geographies probably constitutes investing in things you don't know.

 

[theasiareport]

I live in one of these far flung "overseas markets" where net-nets and heavily discounted companies exist - Singapore. I completely agree that investing in these co's from overseas is very very hard.

 

There are plenty of local financial news sites detailing insider buy/sells, and especially in Singapore, its not hard to know whose out to screw you, or which companies have perpetual discounts because of historical/political reasons.

 

But you need to be on the ground to get comfortable with the situation. Real estate in Singapore and real estate in Hong Kong is vastly differently... but the impression I get from my friends overseas is that its taken in the same brush.

 

There's a huge information asymmetry - but I get the impression plenty of formers are flying blind when I see some of the posts.

[ni-co]

Ok, sorry for watering down this thread. My mistakes worth mentioning:

 

JCP: This was largely a sizing issue and also being seduced by a great thinker (Ron Johnson) and large asset values into a shitty declining business like department stores (the old Buffett saying, you know…). I also bought into SHLD but don't regard it as a mistake because after the JCP debacle the high risk of failure was obvious from the start to me and I sized it accordingly. In both cases, large names brought me to the ideas but I don't regard this as a mistake either since I didn't follow them blindly.

 

Value investing + options is a mixed bag for me but since this thread is about mistakes, I certainly made a lot in this area. The most important ones in order of importance to me:

 

- Underestimating liquidity constraints. You can be right but a 50% bid/ask-spread doesn't let you exit a position while time decay is eating you alive.

 

- Oversizing has been mentioned several times here. Rightly so! I oversized option positions many times. That said, there is one non-obvious thing that hasn't been mentioned. Apart from total loss — which is the obvious risk — there is also the risk of success!

With options, there are opportunities with 5:1, 10:1 or even larger payouts and mathematics tell you to apply something like the Kelly criterion to them. Of course, I don't know my odds exactly so I have to adjust my position size downwards anyway and I also have size limits for my initial positions (depending on how much I'm prepared to lose). That said, there is a problem I incurred a few times:

If your position goes into the right direction it suddenly becomes a large part of your portfolio and this, as a result, becomes very volatile in total. Usually this is also the time when the expiration date is near, so that your portfolio returns become more and more dependent on pure chance (i.e. weekly or even daily price fluctuations). In the end, I always ended up cutting my position at least once, sometimes several times. This is all fine and dandy but since I calculated with, say, 5:1 odds at the beginning, I was now cutting my odds, too! So your seeming 5:1 odds may really be only 2:1 if you want to do it in size. I underestimated this problem several times when initiating positions and I'm really struggling find the right balance.

 

- In general, it's very easy to overpay for options on single volatile stocks. What I learned from those mistakes is: Volatility is your biggest enemy. When buying into options it seduces you to overpay and even if volatility is increasing only after you bought, while theoretically good for your options, bid ask spreads often widen immensely, thereby reducing your gains if you want to exit your position before expiration. So be prepared to hold those LEAPs until expiration (and to encounter the chance problem mentioned in the paragraph above).

[kiwing100]

 

 

 

This is tangentially related.  I've never liked books about success because of what I mentioned above.  I think success is objective, some things work for some people and not for others.  But I LOVE books about failure. [Emphasis added] Failure is 100% repeatable.  If you take something that's working and engage in a series of steps you can ensure failure.  In a lot of ways I like to study failure, then look for ways to avoid it.  By avoiding failure I work to increase the odds of success.

 

 

Oddball, do you have favorite books on failure you'd like to recommend?

 

Billion Dollar Lessons, anything about Enron, When Genius Failed, The Match King, Invisible Giants (Van Sweringen Brothers book, very off the radar, engaging book)

 

 

 

I'd add "Fools Rush In" as a great case study of the disastrous Time Warner/AOL merger. The personalities are fascinating.

 

Oddball,

 

Studying failure is great, fun, interesting and you learn what areas to avoid in the investment world.  My bookshelf is littered with books on company failures, investment failures and personal bankruptcies and I collect news stories of such failures. 

 

As Charlie Munger says, "tell me where I'm going to die so I won't go there"  - classic Jakobi inversion - if you know how to lose money, then you stay away from those areas.  By only studying success, you overlook what can go wrong.  Klarman and Berkowitz focus on what can go wrong before what can go right.  I've heard Berkowitz say that they try and kill the company in his investment thesis before he invests

 

Warren Buffett's favourite business book was "Business Adventures"  - it is a great read for investors and is a collection of stories - there's a story about business group think, cornering the stock market, currency peg devaluation.  They've reprinted the book recently so you can get a copy.

 

Here is an article from Bill Gates on the book.

 

http://www.marketwatch.com/story/gatess-and-buffetts-favorite-business-book-is-out-of-print-2014-07-17

 

Quote from Berkowitz interview:

What is your strategy for the fund? If I was to build a stock screen like Bruce Berkowitz, what would it look like?

 

We start with this basis: The only thing you can spend is cash. We want companies that generate significant cash in most times. That is how we start. We don’t care much about what they make, but we have to understand it. The balance sheet has to be strong; we want to make sure there are no tricks in the accounting. Then we try and kill the company. We think of all the ways the company can die, whether it’s stupid management or overleveraged balance sheets. If we can’t figure out a way to kill the company, and its generating good cash even in difficult times, then you have the beginning of a good investment.

 

 

 

 

[randomep]

Thanks all for the replies for my cry for help. Yes, I think I agree with the Grreen King that on an individual stock basis I am just on my own, even Berkowitz can't help me. However, I wished posters would share more about their own experiences with more obscure stocks instead of digging in on their opinions on SHLD, or VRX or ZINC.

 

Back to the OP topic, maybe my mistake is going to HK and Japan. Or maybe not hedging my currency exposure in S Africa. But 3 years is too short to conclude anything. 

 

That is one problem with learning from your mistakes. The feedback loop is too long.  It could take a decade or more to realize a mistake.I believe that Pabrai and Bill Miller are case in point. They had great runs before 2007 then got hammered at the worst possible time. Those who follow them now are realizing that their strategy is bad but it took 15 years, depending on one's age, that may be too late.

 

For me, I am definitely not backing from my foregin exposure considering how undervalued foreign markets are compared to the US.  This needs another 2-3yrs at least to play out. Foreign stocks report only twice a year. Psychologically it is tough investing in those markets and so I expect a larger MOS. And I get it plenty. Just now I got 2 reports.  My HK real estate stock broke even for the year, but said they booked more than HK$1B in revenue which hasn't been

recognized.  My S Africa car retailer reported $2.50 EPS and the stock jumped but still only trades at $14.90, go figure.

 

 

[Jurgis]

That is one problem with learning from your mistakes. The feedback loop is too long.  It could take a decade or more to realize a mistake.

 

Yes. What's even worse, market behavior changes through that decade and things that worked 5 years ago may not work now, and may or may not work next 5 - 10 years.

 

And if you attempt to shorten the feedback loop, you are more exposed to market short term swings and learning wrong lessons.

 

Fun, isn't it?

[orthopa]

My .02 as I think this is a great exercise to improve.

 

I have a hard time selling a position that has appreciated thinking it will continue to remain over valued. Unless the story has "changed" things should continue right? Problem is the downturn is often very violent.

 

Thankfully I have missed out on JCP, ZINC, VRX, SHLD, OUTR and the like. Maybe it was luck but didn't past my gut test or I didn't feel like I understood them and the story to make it a large part of the portfolio. Laziness may have protected me here somewhat.

 

What I find hardest is sitting and doing nothing. Letting cash build and just waiting. This is what "alot" of the greats do, Buffet, Klarman and it is hard since it feels like one always needs to be doing "something". Cash just sits there and earns nothing but much better then losing $$$. I believe it was munger who said sometimes your best investment is not making one.

 

FWIW I think a lot of recent mistake some have made is because the market is not cheap. This is a slow/frustrating time for truly value investing or buying with a good MOS so right away a lot of great businesses that are not candidates. You then widen your circle of competence to start to include some more risky investments.

 

I also think there is a lot to be said for boring investments. If the business is very simple to understand it takes a lot out of the equation and I think the number of risks to the business is less as a result.  Valuation plays the larger role. In a more complicated investment there are many more moving parts and much more to understand and get right.  Valuation becomes a smaller part of what you need to get right in addition to many other things. A small change in one of those many things can could really decrease the value of the business. Hard I think for most people to counter act that with research.

 

I have made the mistake of taking a position or wanting to buy a company and then using figures/valuation ranges that fit my thesis. Not the other way around. I have also cornered my self in positions such as OCN with a simple thesis that proved very wrong. "I convinced myself that someone had to service these mortgages and no one can do it more efficient then OCN." It cost me 3% of portfolio as a result.  When the facts change, time to get out.

 

I also find myself thinking its better to get 8-9% a year plus 3-4% in divs from a boring steady investment with a very high probability of success then finding that gem that "could" compound at very high rates with synergies, acquisitions, all of which will eventually justify the premium being paid, etc.

 

Definitely always learning and trying to improve that for sure.