Mr. Francis Chou's 2016 annual report is out

[Cigarbutt]

Annual report is out.

Interesting comment on short term results vs long term.

Interesting take on Rainmaker, typical value investing style.

I'm not sure what to think anymore?

 

[lessthaniv]

Where are the Rainmaker comments? I must be completely blind but I cant find it...

[bookie71]

Is there a link to the report?

[Agrippa07]

Is there a link to the report?

This is the link to their annual reports:

http://choufunds.com/ann_reports.html

[Cigarbutt]

lessthaniv,

For Rainmaker comments, see p.43.

Little useful trick maybe. When on a page/in a document, press control and f keys, type relevant word in box ie Rainmaker, and follow the guide.

[Spekulatius]

Chou' style seems to be to buy really crappy business at a very low price. This does not seem to work out well right now.

[investmd]

Don't see the 2016 annual report on choufunds.com website. 2015 is the latest one listed.

 

[Cigarbutt]

investmd,

The Chou funds website is one of those sites where you may have to "actualize" the page to make the last report "appear". The 2016 report is available.

Spekulatius,

Good point. Investing on principles (à la Buffett) is likely (for most) to give more reliable (and good) results than investing on styles (à la Graham).

For some, the investing process anchor has to do with consistency. To improve is about evolution isn't it? Charles Darwin, the unconventional thinker behind the non-creationist revolution, deducted that most attempts to improve resulted in failure. Food for thought.

On top of that (like Mr. Chou), if you have good results for a stretch of time, confidence bias may combine with the quasi-automatic attention bias (tend to reject contradictory evidence especially if it is "negative" information). It is tough to be consistently different AND better.

To be consistently different or espouse the "wisdom" of the crowd is the question.

In the meantime, to be different may not look advantageous.

[tylerdurden]

Chou' style seems to be to buy really crappy business at a very low price. This does not seem to work out well right now.

 

His banks stocks are working obviously. Who knows whether others will work at some point too perhaps. I guess if you are a value investor you should always look into the intrinsic value vs. the market value. Not market value as an absolute indicator...

[vegaseller]

Chou' style seems to be to buy really crappy business at a very low price. This does not seem to work out well right now.

 

to be honest, I don't know why people on here constantly pump his stuff, his long term returns have been miserable.

[Spekulatius]

Chou' style seems to be to buy really crappy business at a very low price. This does not seem to work out well right now.

 

His banks stocks are working obviously. Who knows whether others will work at some point too perhaps. I guess if you are a value investor you should always look into the intrinsic value vs. the market value. Not market value as an absolute indicator...

 

I think the intrinsic value of most of his holding has been going down. Someone in the SHLD thread brought up the great mental picture of a large sack of cash that is on fire.

Well, it matter less how large the sack of cash is - the much more important question is if the fire can be put out at all, because if it can't, the cash will turn into ashes; is is just going to be a matter of time.

[fareastwarriors]

Chou' style seems to be to buy really crappy business at a very low price. This does not seem to work out well right now.

 

to be honest, I don't know why people on here constantly pump his stuff, his long term returns have been miserable.

 

Who's pumping? There are barely anything about Chou.

[samaniv]

His long-term record seems bad due to his short-term underperformance (as he noted in this years annual report). Go back a couple years and see the long-term performance.. not sure it's fair to judge off some bad recent years. As Greenblatt talks about in magic formula, its works, because it doesn't always work.

[lessthaniv]

A good strategy for buying a mutual fund is to identify who the top managers are based on their long term results. Then, wait for them to have a very weak period. Buy into the weakness. Poor short term results don't indicate a loss of intelligence.  Chou's Associates fund has been around for a long time. Since 1987, Chou has suffered 8 negative calendar year performances - 2 of which are 2015 and 2016. Go do the math for yourself to discover the kinds of returns you'd have if you patiently acquired units in his worst years.

 

... then revisit where the fund currently is.

 

I have a ton of respect for Francis. He is a great manager.

 

 

 

[mcliu]

I think his recent results leave much to be desired, but at least he has the decency to admit that his performance was weak and waive (even return) fees. That's unheard of in the industry.

[AzCactus]

A good strategy for buying a mutual fund is to identify who the top managers are based on their long term results. Then, wait for them to have a very weak period. Buy into the weakness. Poor short term results don't indicate a loss of intelligence.  Chou's Associates fund has been around for a long time. Since 1987, Chou has suffered 8 negative calendar year performances - 2 of which are 2015 and 2016. Go do the math for yourself to discover the kinds of returns you'd have if you patiently acquired units in his worst years.

 

... then revisit where the fund currently is.

 

I have a ton of respect for Francis. He is a great manager.

 

I think reducing or returning fees during periods of under-performance is a very admirable trait.  Additionally, being in business since 1987 (30 years) is an awesome accomplishment by itself.  With that said calculating the returns based on if you had acquired units in his worst years can start to sound a little like trying to time things. His return is what is---good years are factored in and bad years are factored in---they all matter. 

[lessthaniv]

Value investing is a process which itself is based on timing. Sometimes stocks trade below/above intrinsic value and you time your entries to initiate positions when you feel value is present.

[investmd]

investmd,

The Chou funds website is one of those sites where you may have to "actualize" the page to make the last report "appear". The 2016 report is available.

Spekulatius,

Good point. Investing on principles (à la Buffett) is likely (for most) to give more reliable (and good) results than investing on styles (à la Graham).

For some, the investing process anchor has to do with consistency. To improve is about evolution isn't it? Charles Darwin, the unconventional thinker behind the non-creationist revolution, deducted that most attempts to improve resulted in failure. Food for thought.

On top of that (like Mr. Chou), if you have good results for a stretch of time, confidence bias may combine with the quasi-automatic attention bias (tend to reject contradictory evidence especially if it is "negative" information). It is tough to be consistently different AND better.

To be consistently different or espouse the "wisdom" of the crowd is the question.

In the meantime, to be different may not look advantageous.

 

Invested with Chou because he is not afraid to go against the crowd, does his own work on valuation and has insight. This "different" approach is bound to have lumpy up and down results. Ten years is a good period of time to assess a money manager as it allows for boom and bust cycles. The past 10 years is a perfect example. Unfort. 10 year results have been below par. He has picks that have been doubles and triples but others that have lost >50% of value. Question I have is has he changed his strategy  based on last 10 years? Has he come up some algorithms to avoid large future losses? I do NOT agree with his example in the annual letter saying that one negative 20% return can negatively affect 10 year result and that is the way it is.Thought that was weak on his part and dissapointing. Funds do not generally make 8% a year as in his example- they do that through lumpy results that average out to 8%. Over 10 years, index has done better.

[Cigarbutt]

Your comment resonates with my opinion of Mr. Chou.

I think that his approach has been consistent.

Based on that approach, one has to conclude though that his long term results have become subpar.

Why then? Investment environment has changed? Probably yes. Secular or cyclical? That remains to be seen.

We may realize though, retrospectively, in the next years, how unusual the last 10 to 15 years have been.

A lot of deep value investors show subpar results these days.

Mr. Buffett has publicly commented recently that markets were on the cheap side (given low interest rates remaining low going forward).

Interesting perhaps to reconcile (try to anyways) this with what he said in 1999 and 2001.

http://archive.fortune.com/magazines/fortune/fortune_archive/2001/12/10/314691/index.htm

He cautioned about the rear view mirror bias. He also said that stocks would do well if corporate profits would remain high or go higher (they have), if interest rates would remain low or go lower (they have). Mr. Buffett alluded to the stock market cap vs GDP ratio.

Based on the above, I would submit that we live (from the investment perspective) in an unprecedented era.

Perhaps it would be wiser to wait for more equilibrium before pronouncing a definitive judgement on competent investment professionals such as Mr. Chou.

[finetrader]

I can't help but think about Berkowitz's comment "everybody needs a charlie" when I look at Chou funds.

[investmd]

A good strategy for buying a mutual fund is to identify who the top managers are based on their long term results. Then, wait for them to have a very weak period. Buy into the weakness. Poor short term results don't indicate a loss of intelligence.  Chou's Associates fund has been around for a long time. Since 1987, Chou has suffered 8 negative calendar year performances - 2 of which are 2015 and 2016. Go do the math for yourself to discover the kinds of returns you'd have if you patiently acquired units in his worst years.

 

... then revisit where the fund currently is.

 

I have a ton of respect for Francis. He is a great manager.

 

I think reducing or returning fees during periods of under-performance is a very admirable trait.  Additionally, being in business since 1987 (30 years) is an awesome accomplishment by itself.  With that said calculating the returns based on if you had acquired units in his worst years can start to sound a little like trying to time things. His return is what is---good years are factored in and bad years are factored in---they all matter.

 

Agree. Returning fees during periods of under performance is very difficult and a reflection of honesty. It's the kind of trait that makes him stand out as someone who is not following "herd mentality". However, I haven't seen him return fees for a few years - last I know was several years ago on the Chou Europe fund.

 

[investmd]

A good strategy for buying a mutual fund is to identify who the top managers are based on their long term results. Then, wait for them to have a very weak period. Buy into the weakness. Poor short term results don't indicate a loss of intelligence.  Chou's Associates fund has been around for a long time. Since 1987, Chou has suffered 8 negative calendar year performances - 2 of which are 2015 and 2016. Go do the math for yourself to discover the kinds of returns you'd have if you patiently acquired units in his worst years.

 

... then revisit where the fund currently is.

 

I have a ton of respect for Francis. He is a great manager.

 

I think reducing or returning fees during periods of under-performance is a very admirable trait.  Additionally, being in business since 1987 (30 years) is an awesome accomplishment by itself.  With that said calculating the returns based on if you had acquired units in his worst years can start to sound a little like trying to time things. His return is what is---good years are factored in and bad years are factored in---they all matter.

Also agree, that return are what they are - you have to factor the bad in with the good. Out of a $500M fund, believe $80-90M was invested in Valeant which is down 70% from his average cost. Am OK with concentration and bets of conviction. We don't want to pay a money manger for their 65th best idea in the name of diversification. However, if a huge concentrated bet doesn't work out, it has to count in the results and the underlying reason for loss should be worked in to a future algorithm as how to avoid large losses. If he is continuously "holding his nose" & "buying when there is a stench" and the strategy hasn't delivered over 10 years...is it an appropriate strategy that can outperform a passive index fund investing strategy??

[Spekulatius]

I think the issue with a lot of deep value investor is that they forget about rule #1 from Buffet (or Graham for that matter) : Don't lose money!

 

With most of Choe's holding, I see a lot of ways where he can lose money - VRX, RFP and other are very very risky stocks. They may trade below intrinsic value, but there are huge error bars with those intrinsic value estimates. I think WEB had very low losses throughout his career, because he considered the downside much more than Chou does and stayed within a much narrower circle of competence.

[Cigarbutt]

Fair enough. Mr Chou's style has always been deep value though. I would submit that, if you "forget" the last 5-10 years, Chou funds returns approximate the returns that Mr. Ben Graham had. Deep value investing has become very awkward in the last 5 to 10 years. General price levels are high and, even in that field, there is a lot of competition.

Maybe, it has to do with the "trade-offs" that Mr. Vito Maida described.

Of course those "trade-offs" diminish the margin of safety and likely lower returns.

What is a deep investor to do in those circumstances?

Keep high cash levels? Liquidate à la Buffett in 1969?

Waive fees and cross fingers?

Simple but not easy.

[kevin4u2]

Wrong, Buffett has had two 50% drawdowns, peak to trough with Berkshire, I believe.  He has also had many other investments that have done terrible, losing nearly everything.  He has discussed these in his annual reports, take a look. 

 

Don't lose money is a relative term, not a short term temporary term. 

 

I think the issue with a lot of deep value investor is that they forget about rule #1 from Buffet (or Graham for that matter) : Don't lose money!

 

With most of Choe's holding, I see a lot of ways where he can lose money - VRX, RFP and other are very very risky stocks. They may trade below intrinsic value, but there are huge error bars with those intrinsic value estimates. I think WEB had very low losses throughout his career, because he considered the downside much more than Chou does and stayed within a much narrower circle of competence.