Plagarizing Stock Picks by the Greats

[chrispy]

Munger’s holdings at DJOC consist of ~99% US banks all purchased sometime in 2009.  At that time I was still getting my feet on the ground and was not involved with investing at all.  Therefore it is hard for me to understand the emotions/anxiety/fear of the time for most human investors.

 

For those that can shed some light on this period:

 

Would an investor have been able to learn about these purchases, and similar purchases by WEB, and had the courage to jump into what were risky businesses?  Is it that these purchases weren’t made public until the end of the quarter/year that made it not feasible to do this?  In other words, did the stamp of approval by Munger/Buffett make these a no brainer for the educated investor?

 

Part of me is just interested in the history of this period and how things have transpired since.  The other part is trying to determine how much it is worth studying the recent purchases by successful money managers.

[augustabound]

While I understand I'm not directly answering your question. I would go and check out the archives here around that time.

 

Judging by the timeline, the board migrated from MSN in February 2009 so the timing was perfect.  ;D

[netnet]

So I would go to the newspaper or magazine archives and read the front page of say the Wall Street Journal or the Business section of the sunday New York Times or Fortune over the whole year (by the way Buffett did this for the 30's)

 

To go to the next level. Now from a distance it is hard to get a real feel for this, but to get it emotionally, imagine the most terrifying event in your life, (if it's too painful skip this). Now go back and re read some of the headlines. Feel the fear and the emotions in the pit of your stomach.

 

Third level:  Feel the emotional turmoil of the above and try to figure out how to deal with that if you were in it.  Could you have bought BRK or Amazon and then watched it decline by another 25% without losing faith, selling, etc.

 

(Remember that even Buffett likes to evaluate companies without knowing the price history.  He just want to know the current price. )

[zarley]

As I recall it, Munger's moves at DJCO were somewhat known through the quarterly filings for DJCO.  The wording in the early filings was vague, and didn't identify what was being bought, but based on the public comments of Munger and Buffett, alert investors who followed the pair could guess that Wells Fargo was the likely target.  From memory, confirmation that it was Wells Fargo (and possibly one or two other positions) didn't happen until much later.

 

So, "in the know" investors could surmise what was going on.  However, that time in the market was so volatile and gut-wrenching that even those who knew, may not have wanted to act on that knowledge.  While I knew Buffett and Munger were happy to buy as much Wells Fargo as they could as it slipped under $10, I didn't do the same (for a variety of reasons).  It is hard to overstate the emotional impact of what happened in the second half of 2008.  There were days I felt sick to my stomach and worried about the possibility of an implosion of the US financial system.  The hardest thing to do was to sell something good that was down 50% to buy something else that was even cheaper.

 

With all that said, the idea of portfolio cloning, or riding coat tails isn't new.  Sites like Dataroma (http://www.dataroma.com/m/home.php) are useful for tracking this sort of thing.  To me it's useful to see who's buying what as a source of ideas, but wouldn't suggest anyone buy just because someone else is buying. 

[oddballstocks]

The emotion of 2008 and 2009?

 

I remember placing a buy order in March 2009 and thinking "I will lose this money, maybe some of it, maybe all of it, but there is a tiny chance I won't."  That was the psychology.  Everything you did was a loss, everything.

 

But it wasn't just the market.  There was a tangible fear in the air, in people, it was everywhere.  Everyone was worried if they'd still have a job, or if they'd have clients, or what the future might be. The fear was daily.  Every single day people were on edge waiting for the latest development, who was going to fall today?  It was scary and stressful.

 

The best market analogy?  Imagine you're in a very crowded room with a single door and someone yells fire.  That's what the market was like, everyone stampeding towards the door regardless of the consequences.

 

There are still aftershocks from the crisis.  In most of the Rust Belt people talk about how the economy hasn't recovered from the crisis yet.  This is crazy given how much time has passed.  It's also crazy when you look at current market levels.  Multpl.com shows that we're at the third highest Schiller P/E ratio, higher than 1929.  Right now we're fourth in line to 1999, 2002, and 2008, food for thought.

[villainx]

From my understanding of copying the greats, unless you are investing in their vehicles, Berkshire, DJCO, etc., it's hard to gain the same benefits from following their picks.  You might not have the same investing timeline, investing criteria, portfolio, and while the purchases gardner a lot of headlines, the stock sales usually get less (so difficult to time).

 

With regards to the anxiety of that time period. It was crazy because big institutions were literally going or likely to go down (Lehman, Bear, AIG, Citi, etc). Most disciplined approach would have including adding during those periods, whether it's a boring regular contribution to index investments or focusing on some high quality companies.  I'm not sure if it took a lot of courage, but 2008/9 was one of the Fisher hiccup buying opportunities, and the opportunity persisted for awhile after.  So if not at the bottom - which is not when Munger or Buffett aims for or purchased at - there was plenty of time even after conditions improved to go in.  DJCO positions were more secret because the value wasn't high enough to warrant disclosure (until the value increased to warrant disclosure).  Some of Buffett's public moves were before (and after) the bottom.

 

(That said, I don't want to take lightly those that sold out around the bottom, and suffered huge capital loss, or those who were dependent on income and had to bear the brunt of a drastic downturn, or those that just waited around.)

 

Following their process (and discipline) may be of more value. Following the exact purchases of money managers is a tougher call.

[Vish_ram]

Going through 2009 is like, you take a walk in the park, a serene and quiet one and suddenly realize that you are in the middle of a circular firing squad. And someone gave the orders to fire.

[Gardener]

It's also a question of having enough cash on hand to make a meaningful purchase right after the dip.

[Jurgis]

It's also a question of having enough cash on hand to make a meaningful purchase right after the dip.

 

It's also a question that anyone who bought "right after the dip" in 2008-2009, then saw their holdings go down another 30-80%... and likely did not have cash to make a meaningful purchase after second and third leg down.

[Investmentacct]

For me to keep sanity and go all-in as it dipped; this great board what Sanjeev has built was of big help during 08-09.  Also, keeping handy this article was helpful.

 

http://www.nytimes.com/2008/10/17/opinion/17buffett.html

 

Time WEB wrote this article in Ny times, S&P was at 880 in October 2008 , still went further down to 640 in March 9,2009.  Buffett and munger made enough buy calls all along until 2011 for maket and housing.

 

 

[SharperDingaan]

We don't want to hear it - but if you're simply coat-tailing someone, you are being lazy.

It is the idea that if the famous lemmings are jumping off the cliff, you should to - because obviously they know something that you don't, & wouldn't be doing it if they thought it wasn't going to work out. Despite the evidence of repeated cases, after the fact, indicating that the famous lemmings were as clueless as everyone else. When it sours, it isn't a happy experience.

 

You have to do your own research/analysis, and trust in your own judgement; it's that simple.

If you're not able to do that, you're just another lemming - praying there are a whole lot of other lemmings between the cliff edge and yourself. Not a pleasant thought.   

 

There's no blind following.

 

SD

 

[Uccmal]

Go back and review posts in and around March 2009 and into the spring of 2009.  You can see what we were doing. 

 

On March 8 or 9th I was down 75% from January 2009.  I figured I was mostly wiped out so I sold stuff for huge losses and stocked up on Leaps of the very best companies.  I borrowed money wherever I could get it.  On one day in the 2008 portion I was on the phone to get my broker to advance me the money to buy back some puts I had sold, so I could get out of a margin call.  I haven't sold a put since. 

 

It was nasty, scary, bad, and exhilarating all at once.  I was really grateful to have a full time secure job at the time. 

 

There was no way to value companies.  I would imagine that if Buffet or Munger were buying it was strictly on faith and not on valuation.  I bought Leaps in Sbux, Hd, Axp, Wfc, Ge, and maybe one or two others at or near the very bottom.  But there was no way to value anything.  Basically, without an economic recovery everything was worthless.  I went to Sbux and it was still busy.  HD was okay and had recently undergone a management turnaround.  GE I knew as an economic barometer.  WFC, and Axp were the best of the worst.  All of it was qualitative though.  Numbers were useless.

 

FWIW, I think we are going to get a repeat performance soon, although unlikely as bad, since 2009 was a banking collapse.

[DooDiligence]

For me to keep sanity and go all-in as it dipped; this great board what Sanjeev has built was of big help during 08-09.  Also, keeping handy this article was helpful.

 

http://www.nytimes.com/2008/10/17/opinion/17buffett.html

 

Time WEB wrote this article in Ny times, S&P was at 880 in October 2008 , still went further down to 640 in March 9,2009.  Buffett and munger made enough buy calls all along until 2011 for maket and housing.

 

Frugality, temperament & courage combined with the ability to see reality.

 

Buffet is like a Buddha (if the Gautama had money...)

[james22]

It's also a question of having enough cash on hand to make a meaningful purchase right after the dip.

 

It's also a question that anyone who bought "right after the dip" in 2008-2009, then saw their holdings go down another 30-80%... and likely did not have cash to make a meaningful purchase after second and third leg down.

 

The smart money who bought after the market first dropped 50% in the Great Depression went on to lose 90%.

[StevieV]

I was really grateful to have a full time secure job at the time.

 

I was not making individual stock picks at the time.  However, I think this was part of the difficulty for investors during the crisis.  It was a triple threat of problems - (1) the stock market was down; (2) the job market was terrible; and (3) the housing market was also terrible.  So, you couldn't get a job if you needed one, couldn't sell your house if you wanted to move and were watching the value of your investments slip away.

 

On the job front, some people ended up being out of work for a pretty long time 12-18 months.  Also, in some fields, there simply weren't jobs no matter your qualifications. 

 

There were certainly compelling investing possibilities at the time.  I am sure there are people who took advantage of them.  I don't have any personal track record to point to from the time.  However, I agree with others that it was not as easy as it is sometimes made out to be in retrospect.  Uccmal's story is something.  Being on margin at the time must have been something else.

[Guest]

It was insane. Everyday (I mean that almost literally) the Dow was dropping hundreds of points. No one knew when it would end. Forecasters predicted the downturn would last several years. At the time, I was living with my parents and was socking away money like crazy (I only spent maybe $4,000 a year and invested the rest). It just kept going down. I distinctively remember lying in bed one night thinking about how much I lost and was sick (at the time it was more than a couple years salary - which seemed like forever considering I was in my 20s). I kept buying and buying though. Really more about hope than anything. I figured things were always darkest before the dawn. One of my last "big" purchases in March of 2009 was MKL. I purchased it on 3/3/09. Back in 2006, I created a spreadsheet with my "net worth" goals on it. I was on pace in 2007...and so far from it in 2009 I thought it was hopeless. Thankfully, I hit the goal...and then some. Sometimes it's better to be lucky than good.

[StubbleJumper]

Go back and review posts in and around March 2009 and into the spring of 2009.  You can see what we were doing. 

 

On March 8 or 9th I was down 75% from January 2009.  I figured I was mostly wiped out so I sold stuff for huge losses and stocked up on Leaps of the very best companies.  I borrowed money wherever I could get it.  On one day in the 2008 portion I was on the phone to get my broker to advance me the money to buy back some puts I had sold, so I could get out of a margin call.  I haven't sold a put since. 

 

It was nasty, scary, bad, and exhilarating all at once.  I was really grateful to have a full time secure job at the time. 

 

There was no way to value companies.  I would imagine that if Buffet or Munger were buying it was strictly on faith and not on valuation.  I bought Leaps in Sbux, Hd, Axp, Wfc, Ge, and maybe one or two others at or near the very bottom.  But there was no way to value anything.  Basically, without an economic recovery everything was worthless.  I went to Sbux and it was still busy.  HD was okay and had recently undergone a management turnaround.  GE I knew as an economic barometer.  WFC, and Axp were the best of the worst.  All of it was qualitative though.  Numbers were useless.

 

FWIW, I think we are going to get a repeat performance soon, although unlikely as bad, since 2009 was a banking collapse.

 

 

We forget how much uncertainty there was at that time.  For me, it was exhausting as I was deploying any available cash and lightly margining my accounts.  Every day I would go to work, and then every evening I would come home and try to evaluate 10 or 12 excellent new opportunities.  I'd be awake at my computer at 1am sorting through opportunities to try to find the best risk-adjusted place for my dwindling cash.  Just for a stroll down memory lane, the following is something that I posted on the Motley Fool in February 2009 about Wells Fargo preferreds (WFC-L), and I actually assigned a 5 percent probability that Wells would go under:

 

Very timely thread. I just bought some WFC-L yesterday at about $480. I'm already down nearly 10% in less than one day! Nonetheless, with a $75 divvy, it yields out a shade over 15%. My intention is to hold this for the very long term (10+ years), as I believe I have locked in some seriously good returns.

 

My thinking on my Wells preferreds is that there are four broad outcomes that I will get:

 

1) Wells is rock solid, makes a pile of money and five years from now we sit and snicker about 2009

 

-I get the divvies for five years, and the market price heads up to somewhere near par: annual return = 15% for the divvy + about 15% average annual capital gain!

 

2) Wells survives the next 5-10 years but income is weak as it flounders a bit with Wachovia

 

-I get the annual divvies, but maybe no capital gain: return = 15% for the divvies

 

3) Wells runs into modest trouble for a couple of the next five years

 

-Perhaps they skip the divvy for a couple of years out of five, so definitely no capital gain, but with 3 years of divvies out of five the average annual return would be roughly 10%

 

4) All hell breaks loose and Wells goes under

 

-preferred shares probably worthless, permanent loss of capital, but I'll have probably gotten at least a year of dividends before any collapse

 

 

My reading of the Wells financials is that #1 or #2 are by far the most likely outcome. Wells is best of breed and as long as loan losses do not get too silly they will earn a pile of money in 2009....their regulatory capital level is rock-solid.

 

If loan losses do get silly, #3 is a possibility....they would be forced to chop the common dividend, and it is possible that the preferreds could be chopped for a couple of years. This would be a bad outcome, but not disastrous.

 

I cannot imagine what the environment in the US would look like if #4 occurs. If Wells goes under, what bank would still be left standing? What would the unemployment rate be like if Wells fails? The US dollar would be worth what in those circumstances? It is possible, but I view it to be remote. And my Wells preferreds would probably be the least of my concerns in those economic conditions.

 

So summing it up my expected annual returns for the next 5 years:

 

 

Scenario          Probability      Average Annual Return

#1                50%            30%

#2                30%            15%

#3                15%            10%

#4                  5%            -25%

 

Average return across scenarios: 19.5%

 

 

Seems like a no-brainer.

 

SJ

[benhacker]

I'll reminisce a bit too...

 

I didn't think after early '09 the situation was that dire, but in late '08 it was real scary when it felt like legal boundaries and legislation was shifting daily.

 

I sent clients a note in early march asking for funds and highlighting some ideas (WFC common / pfds being one), and I had a sophisticated client say that they had another fund manager who told them they wouldn't be a buyer of Wells until it got to $3 (or maybe $2) / share.

 

I responded nicely that if this manager wasn't buying at $10, they wouldn't be buying at $2 either, regardless of what they said as clearly they didn't know how to value a bank, or they were scared shitless and didn't want to just say the truth (like many at the time) that banks were too scary. :)

 

Wells Preferreds were probably the most crazy idea during the time for me as I thought after the Treasuries early '09 announcements, permanent loss was probably <1% chance.  WNA.p and WFC.pL both got briefly under 30% of par if I recall.

 

I don't think the real puke lows during crisis' like this are so much about fear, as it is about liquidations, and the fact that market makers can only absorb so much (as well as new investors).  It takes a while for folks to rotate from names they know to names that are new (to them) but really cheap, so sometimes the pukes get just totally out of hand beyond all "reasonable" valuation criteria.  The strange thing about '08 - '09 was how divergent valuations were, and not always necessarily correlated to risks (many preferred and exchange trade bonds went to hell but only due to liquidity I think)... some investors ran out of money and were liquidated, and others didn't/weren't.

 

Small example, at the very end of '08 I swapped PGR shares for NICK shares and I just remember thinking that the risk tolerance and circle of competence for holders of NICK and PGR must simply have no overlap since the valuations (for albeit very different businesses) were so different.  But then I had to admit that I hadn't swapped PGR to NICK until that point, so what was *I* waiting for (I owned both)?

 

I think it was like 1.5-2x book for PGR to 0.3x book for NICK... both were profitable during '08 and NICK was riskier, but still, bonkers differences.

 

I also don't think the '08 crisis in the market was really that much different in scale in the '73-4 situation.  Both saw >50% real market declines (worse than the Great Depression in real terms), and newspaper coverage at the time was similarly apoplectic.

 

The fact of the matter is, that when stocks drop 40-50% in real terms, people think the world is going to end... by definition.  '08 was "different" but it always is (and will be) "different".

 

If you care to disagree with my last point that's great, but I'd love to hear someone disagree who had serious dollars in the market in '73-74... I don't think they would say it was so much different...  I think the relative youth of individual investors, their short tenure, and the demographics of this board, as well as recent (3-4 decade) market behaviors has given folks an improper scale of what a market crisis really is and what it looks like.

 

My 2 cents.

[Libs]

I couldn't sleep on Sunday night, March 8, 2009, and lo and behold, I get up at 4 AM and there's Buffett on CNBC. He said something along the lines of, WFC has $40B of normalized pre- tax, pre -provision profit, and you could by it for 2 X ( or some such ridiculous number).

 

I was 100% into BRK at the time, and sold half and put it into WFC at $10 on Monday. This is probably my greatest investment memory. Buffett himself had basically endorsed it.

 

For me, the fear was in 2008. But by March of 2009 I was sure we were going to be ok, and I was filled with greed.

[Guest longinvestor]

I was actually in glee as the market tanked. Going into the crisis, I was ~50% in FFH, 20% BRK, held a smattering of value funds (Weitz, Longleaf..) and about 5% in an Ultrashort fund and ~5% LVLT. I ended 2008 down ~20%. I followed Prem Watsa's instinct about the coming turmoil. And also Berkshire's piling up of cash pre-crash. Big regret and lesson learned is that I did not have any cash to deploy during the crisis. The ultrashort came in handy but I wasn't thinking clearly enough despite having positioned for the crash. Since 2009, I've concentrated more into BRK; ~75%. And the other thing I'm proud of doing post-crisis was to do a Roth conversion in 2010 with depressed holdings and the two year tax payment deal. The tax bite was tough but the taxes have all been paid back to me and some. I suppose the post-crisis pendulum swing made the crisis worthwhile! The Roth deal is likely the investing  feather I will always wear in my cap.

 

Back to the topic of this thread, like an earlier poster has stated, I have learned that there is no need to plagiarize the greats; it should work out OK to put the money in their hands. And arguably putting a lot of money in their hands before singular events like 2008 may work out more than OK. Will let time tell, but I am on a good track so far. Not claiming any particular skill (does sitting on the ass count?) but luck has played large as well. Knowing the folks on COBF and the predecessor boards, MSN and even the Yahoo (FFH) pages has meant everything to me. THANKS!

[Jurgis]

I was fired at the end of 2008. Got about half year salary payout - yeah, more cash to invest.  8) My 401(k) was already investable into stocks, so not much gain there... although I rolled it over to IRA at some point. Had to sell everything and buy it all back, but Fido gave me 100 free trades.

 

Got a job at a startup in 2009. That lowered amount of new investable money. But also did Roth conversion at lower tax bracket due to some unemployment and lower salary at startup.

 

It's good to have profession that is in demand even in downturns...  8)

 

The big question in 2008-2009 was where to shift money. Yeah, buying quality works, but the real gains were made by buying stuff on the edges that survived and went up 10x+ I'd put WFC prefs somewhere into that area. I bought Euro prefs and energy stocks. Both were possibly a bit over the edge in terms of risk, but both did great. I'm sure I bought some crap that did not do well - ah, Chinese reverse mergers.  8) I held some WSC at the time... probably not the best choice for multibagger coming out of the bottom.

 

Also, yeah, looking at stock forums from 2008-2009 is interesting. I don't think it gives all the picture of the time though. Hah, just found a post of someone talking about shorting stocks in January 2009... found someone talking of shorting BRK... Sounded like a good idea at the time, I'm sure. Maybe even worked for lower quality stocks. Did not work for BRK.

 

Found this from Jan 2009:

My current largest 10 positions: GTE, SNDA, GLW, NOK, CRDN, WSC, BRKB, HOG, OXY, GPOR

What was I thinking? ;)

[james22]

Big regret and lesson learned is that I did not have any cash to deploy during the crisis.

 

What is your current cash position?

[chrispy]

Thank you for all of the responses.  I enjoyed reading all of them and picked up quite a few things.  They were detailed and shed some light on what was an eventful period. 

 

The takeaway is that like almost all things in life, there is no easy way to success and each has to do their own work!

 

The tech bubble and the housing bubble/great recession all within the past 15-20 years have been great cautionary tales for me.  I really like the idea of reading the 2008/2009 WSJ archives.

[John Hjorth]

Thanks to all participants in this topic for sharing your '08 - 09' experiences in this topic. Crazy stuff to read. It's very educational.

 

I'm just happy to read that your are all still around & kicking.

 

Uccmal : Your post about the margin call actually made my neckline bristle.

 

SharperDingaan : Your post in this topic is spot on. Investing = Work.

 

StevieV : Thanks for reminding me. Personally I did not loose one dime on investing during the crisis. I lost money on everything else mentioned by you.

 

Since the late '90's I was a 100% bond investor, investing in long term Danish morgage bonds in tax deferred accounts. Basically no work related to it, just reinvesting interest and addings every quarter. It worked quite well, based on the "no work" approach, generating an above Danish inflation return after tax - untill the long term interest rates on Danish morgage bonds tanked up to and during the crisis - so I got redeemed on just about everything, ending with a cash pile - of which I had - at that time - absolutely no clue what to do with.

 

But I learned - the hard way - what to do with it... - absolutely not my basic intention of what I wanted to do with it!

 

Next thing: The shit hit the fan with regard to work: I got fired, and the job market here in Denmark freezed to below zero. To keep my self afloat, I had to attack the tax deferred accounts, paying 60% tax [penalty rate about 20% for advance withdrawals]. Because of indebtness, causing negative cash flow over time.

 

Many years ago, I had a GF [she was a blonde, DooDiligence!], and the relationship was just "Strindbersk". Her absolutely favorite comment to make me go ballistic/nuclear was : "You are soo dumb - just a highly educated idiot!". Maybe I will just give her a call tomorrow to chat.

 

- - - o 0 o - - -

 

The years after the crunch spent on making money, working, and getting rid of all debt, hoarding cash for investments, and hoarding credit lines - here , there and everywhere, so that it will never happen again.

[Guest longinvestor]

Big regret and lesson learned is that I did not have any cash to deploy during the crisis.

 

What is your current cash position?

 

I'm fully invested but have 22% x 75 % = approx. 17% cash but not in my hands! Berkshire's cash position. Really don't see a reason to hold it myself.

 

That said, I have some ongoing withdrawal needs for which I have a plan to raise cash over the next couple of years. Fortunately, LVLT is being merged with CTL and there is meaningful cash payout as part of the deal and potentially a nice chunk of promised dividends for the next few years. Looks like my cash needs should be taken care of. Of course, LVLT was all luck, no skills involved.