Mr. Francis Chou's 2016 annual report is out

[Cigarbutt]

kevin4u2,

Maybe the best comparable period for Mr. Buffett (vs Mr. Chou) is when he ran his partnership (1957-68, fund closed 1969).

Did Mr. Buffett make mistakes. Yes. In fact, he tends to talk about them a lot. But.

When you read his letters, he often mentioned that he was expecting to lag the markets in good years and to perform relatively well in poor years for the markets.

He clearly emphasized margin of safety and rule #1.

From 1957 to the end of the partnership years, he obtained better results in good market years.

He never had a negative year.

Even in bad years for the markets (negative return), he always had positive returns!

A picture is worth a thousand words.

https://i2.wp.com/vintagevalueinvesting.com/wp-content/uploads/2016/09/Warren-Buffett-Partnership-return-chart.jpg

 

According to The Brooklyn investor 02/17:

 

"Buffett Partnership (1957-1969)

Beat the market 13 out of 13 times: Chance of occuring: 0.012% or 1 in 8,192.

 

Given that Buffett partnership gained 29.5%/year with a 15.7% standard deviation while the DJIA returned 7.4%/year with a 16.7% standard deviation and the Partnership had a 0.67 correlation, the partnership returns is 6.0 standard deviations away from the DJIA.  6 standard deviations make the partnership returns a 1 in 1 billion event.

 

What's astounding is that the standard deviation of Buffett's returns is actually lower than the DJIA."

 

If Mr. Buffett is your yardstick, I submit that one has to be humble.

I would also say (vs finetrader's comment) that Mr. Buffett did not have his Charlie then.

In value investing, it may help to collide ideas (like on this board) or to your favorite Charlie, but, at the end of the day, this is not committee investing. Your partner is the one looking at you in the mirror.

 

So, if you're a deep value investor today, what do you do?

 

In 1967, Mr. Buffett, who since then has gone through drawdowns, terrible investments, losing nearly everything etc, had this to say:

"When the game is no longer being played your way, it is only human to say the new approach is all wrong, bound to lead to trouble, etc. I have been scornful of such behavior by others in the past. I have also seen the penalties incurred by those who evaluate conditions as they were – not as they are. Essentially I am out of step with present conditions. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean foregoing large and apparently easy profits to embrace an approach which I don’t fully understand, I have not practiced successfully and which, possibly, could lead to substantial permanent loss of capital."

 

It's all about our inner score card. Isn't it?

 

[alwaysinvert]

Buffett had sizable holdings that were not marked-to-market. A bit of a cheat if you are going to put any weight on standard deviation.