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Berkshire Subsidiaries Update


Parsad
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Another article that mentions how a Berkshire sub is doing, in a roundabout way.

 

"Also, when I flew into the Netjets Center in San Francisco on the way back from Las Vegas, I had never seen it so crowded. I’m talking packed with Gulfstream V’s, not Cessna 152’s. "

 

http://oilprice.com/Finance/Economy/The-Most-Bizarre-Recession-in-History.html?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+oilpricecom+%28Oil+Price.com+Daily+News+Update%29

 

Dan

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Another article that mentions how a Berkshire sub is doing, in a roundabout way.

 

"Also, when I flew into the Netjets Center in San Francisco on the way back from Las Vegas, I had never seen it so crowded. I’m talking packed with Gulfstream V’s, not Cessna 152’s. "

 

http://oilprice.com/Finance/Economy/The-Most-Bizarre-Recession-in-History.html?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+oilpricecom+%28Oil+Price.com+Daily+News+Update%29

 

Dan

 

That's not surprising. The unemployed are largely the ones with high school degrees or less (not historically a Netjets demographic).

 

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Buffett's consistently optimistic view of the US economy is a major disconnect from the more cautious views of other highly respected gurus (Watsa, Klarman, Grant, Rodriguez, Grantham, Gross and El-Arian, Soros) and ECRI's recession call.

 

It's hard to ignore Buffett given his track record and his unique ability to take the pulse of the economy through BRK's operating companies. On the other hand (if I am not mistaken), he has been on the record saying that he missed the housing bubble and it seems he did not see the 2008 recession coming either.

 

Just wondering how good his economic forecasting record has really been and whether the pulse he holds on the economy is only a coincident indicator and not very useful in forecasting?

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Just wondering how good his economic forecasting record has really been and whether the pulse he holds on the economy is only a coincident indicator and not very useful in forecasting?

 

The better question is why is he richer than all of the other guys combined?  He was actually richer than all of them combined 20 years ago!  It's because he doesn't pay too much attention to forecasting, and pays more attention to the things he can actually control...the price he pays and his emotions.  He's better than all of them at that...hands down!  Cheers!

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Just wondering how good his economic forecasting record has really been and whether the pulse he holds on the economy is only a coincident indicator and not very useful in forecasting?

 

The better question is why is he richer than all of the other guys combined?  He was actually richer than all of them combined 20 years ago!  It's because he doesn't pay too much attention to forecasting, and pays more attention to the things he can actually control...the price he pays and his emotions.  He's better than all of them at that...hands down!  Cheers!

 

Which is why I don't understand why he is out there so often adamantly saying there will be no double-dip and betting that the unemployment rate will be below 7% by next year. ??? What is he doing if not forecasting?

 

Btw, absolute wealth is not a good measure of investing success since it does not take into account time in the business. If you adjust for the 10+ year headstart Buffett had on Soros, the fact that Soros has been giving billions away, and the fact that he retired from active investing some years back, Soros's $24b wealth is not too shabby. During his active time investing, I believe Soros had superior performance to Buffett even after 2+20 fees.

 

 

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Which is why I don't understand why he is out there so often adamantly saying there will be no double-dip and betting that the unemployment rate will be below 7% by next year. What is he doing if not forecasting?

 

WEB doesn't really forecast at all.  His comments are usually in response to questions people have for him...be it the economy, housing bubble or in relation to investments.  In fact, he's almost always adamantly stated that he doesn't spend much time thinking about those things.

 

Btw, absolute wealth is not a good measure of investing success since it does not take into account time in the business. If you adjust for the 10+ year headstart Buffett had on Soros, the fact that Soros has been giving billions away, and the fact that he retired from active investing some years back, Soros's $24b wealth is not too shabby. During his active time investing, I believe Soros had superior performance to Buffett even after 2+20 fees.

 

I would go back and rethink that.  Buffett gave up the hedge fund game before he turned 30, including all of the lucrative compensation for $100K a year.  If Buffett had continued to run the Buffett partnerships as hedge funds, they would be by far the largest investment funds in the world today, even after his compensation.  And I would guess his net worth would have eclipsed the wealth of both Bill Gates at his peak ($100B+) and the Walton family at their peak ($100B+) combined. 

 

There were only two core benefits from Berkshire...float and permanent capital...otherwise everything he did within Berkshire, he could have done inside the world's largest hedge fund or private equity fund.  Berkshire was actually a constraint on personal wealth creation for Buffett considering how the financial industry developed over the last 40 years.  Cheers!

 

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My personal view is that Buffet retired from Buffet Partners because as he said "you shouldn't be doing the same thing you were doing at 30 at 60" (paraphrasing). Something changed with Buffett, he obviously got bored of being retired and missed the game.

 

During those times, Buffett would have NEVER had the access to capital he had through a public holdings company with a fund. Fund aum's were very volatile and outflows ocurred rapidly. Buffett didn't plan it this way he merely ended with control of Berkshire as part of the distribution of Buffet Partners, LP and couldn't help but allocate the capital efficiently. In the subsequent years, Munger and all the other Graham and Dodd investors that ran partnerships experienced significant outflows.

 

Float for example, or owning the Bank in Illinois would have never even been allowed under an LP Structure as they require regulatory approvals. Buffet's idea for using float to invest in equities as opposed to a fund was a genius one, but gave him a clear advantage over the likes of Soros.

 

I believe that Buffett and Soros have accumulated their wealth in totally different ways. As a fund manager Soros has made a lot more money by just picking stocks. But as a business builder/investor Buffett has made history by compounding his way to greatness. I also believe that if you adjust buffett's wealth to Berkshire's intrinsic value he would most likely be worth over $100b.

 

So again my position is that Buffett based on his equity and debt investments alone, with no float, bank capital or ability to raise debt at low yields, did not necessarily exhibit better stock picking abilities than Soros.

 

You are also forgetting another very important element that contributed to his accumulation of wealth. By owning shares in berkshire, buffet has never once paid capital gains tax as he never sold any shares allowing his wealth to compound tax free. In a fund structure, Buffett would have had to pay the 15% Carried interest each and every year plus the Nebraska state tax rate (if there is one im not sure).

 

No doubt that Soros earning over $50B in his lifetime (PRE TAX PRE GIFTS) is extremely impressive.

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If Bill Gross or Fidelity can manage a trillion dollars, you don't think Buffett would have easily gathered that much in AUM, with his record?  I don't think it would have been difficult for him to raise capital after the Buffett Partnerships.  But he chose to go a different way because he was concerned about valuations.  Cheers! 

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Which is why I don't understand why he is out there so often adamantly saying there will be no double-dip and betting that the unemployment rate will be below 7% by next year. What is he doing if not forecasting?

 

WEB doesn't really forecast at all.  His comments are usually in response to questions people have for him...be it the economy, housing bubble or in relation to investments.  In fact, he's almost always adamantly stated that he doesn't spend much time thinking about those things.

 

Btw, absolute wealth is not a good measure of investing success since it does not take into account time in the business. If you adjust for the 10+ year headstart Buffett had on Soros, the fact that Soros has been giving billions away, and the fact that he retired from active investing some years back, Soros's $24b wealth is not too shabby. During his active time investing, I believe Soros had superior performance to Buffett even after 2+20 fees.

 

I would go back and rethink that.  Buffett gave up the hedge fund game before he turned 30, including all of the lucrative compensation for $100K a year.  If Buffett had continued to run the Buffett partnerships as hedge funds, they would be by far the largest investment funds in the world today, even after his compensation.  And I would guess his net worth would have eclipsed the wealth of both Bill Gates at his peak ($100B+) and the Walton family at their peak ($100B+) combined. 

 

There were only two core benefits from Berkshire...float and permanent capital...otherwise everything he did within Berkshire, he could have done inside the world's largest hedge fund or private equity fund.  Berkshire was actually a constraint on personal wealth creation for Buffett considering how the financial industry developed over the last 40 years.  Cheers!

 

I agree.  Consider the fact that Soros hit a multi grand slam home run with his incredibly leveraged speculation against the British Pound relatively early in his career.  Take that away, and his returns aren't so great.  Or consider Bill Miller with his mediocre value investing portfolio that appeared to be superior in the 90's because he had a small number of tech bubble stocks like AOL in it.

 

Look closely at the process WEB has used and the six sigma consistency of his results over a long lifetime of investing, and the sensible conclusion is that he is in a class by himself.  :)

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My personal view is that Buffet retired from Buffet Partners because as he said "you shouldn't be doing the same thing you were doing at 30 at 60" (paraphrasing). Something changed with Buffett, he obviously got bored of being retired and missed the game.

I believe, he has said something along the same lines that he didn't think retirement and travel wasn't for him.  I think, he also said something about wanting to stay out of the horse-race of outperforming in his last partnership letter.  (I read these some time ago - these are recollections.)

Which is why I don't understand why he is out there so often adamantly saying there will be no double-dip and betting that the unemployment rate will be below 7% by next year. ??? What is he doing if not forecasting?

I remember hearing him say in a talk to students that he doesn't concentrate on the when only the what of an event.  I am sure his think is along the lines of when unemployment rate is below 7% rather than unemployment rate below 7% next year.

 

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I agree.  Consider the fact that Soros hit a multi grand slam home run with his incredibly leveraged speculation against the British Pound relatively early in his career.  Take that away, and his returns aren't so great.  Or consider Bill Miller with his mediocre value investing portfolio that appeared to be superior in the 90's because he had a small number of tech bubble stocks like AOL in it.

 

Look closely at the process WEB has used and the six sigma consistency of his results over a long lifetime of investing, and the sensible conclusion is that he is in a class by himself.  :)

 

You should look into Soros's track record. He started in 1969/70 and already had a 20+ year track record of about 30% compound returns (net of 2+20!) when he made the bet on the pound. It was definitely not early in his career; if anything he went into semi-retirement not long after that when he switched his focus to politics and philanthropy.

 

Neither is he a one-trick pony as you suggest - his funds made $1b from the pound. Let's say his share was $500b pretax. How would taking this away have made a difference to his track record or his reported $24b current net worth (which is net of taxes and some $7b that he has given away)?

 

People don't make any allowance for the fact that Soros started his career at the beginning of the difficult 1970s whereas Buffett started in the 1950s when the enivronment was much more favourable.

 

There is no question that Buffett is a six sigma investor. That doesn't mean Soros isn't just because he has a different style from Buffett. As Moore Capital pointed out, people often do not realise that Soros also practices value investing except that he overlays this with macro trades. It's the same way people often overlook the fact that Buffett's earlier returns were bolstered by arbitrage returns.

 

I remember hearing him say in a talk to students that he doesn't concentrate on the when only the what of an event.  I am sure his think is along the lines of when unemployment rate is below 7% rather than unemployment rate below 7% next year.

 

 

I believe he has mentioned a bet he made with Peter Orzag about where the unemployment rate will be at the end of Obama's first term. Maybe, it was just a whimsical thing but it does seems that he has been more ready to play the forecasting game these days.

 

I would go back and rethink that.  Buffett gave up the hedge fund game before he turned 30, including all of the lucrative compensation for $100K a year.  If Buffett had continued to run the Buffett partnerships as hedge funds, they would be by far the largest investment funds in the world today, even after his compensation.   

 

This is by no means a given. Consider that he grew BRK's BVPS at an annual rate of 23.6% from 1965-2000. If he had maintained his 25% fee structure, the net return to investors would only have been in the 15-18% range. Would this have been enough to make him the biggest hedge fund, let alone the biggest investment fund? Soros compounded at closer to 30% net between from 1970 to the mid-1990s, yet I doubt that ever got much more than $10b in outside money. (Also, it is unlikely that Buffett would be managing as much money as Fidelity for the same reason Francis Chou manages only a fraction of what IGM does despite vastly superior returns.)

 

In any case, it was not my intention to make this a choice between Buffett or Soros (or Watsa, etc). I think Buffett is unique even among value investors in his ability to stay out of trouble even in very bad markets.

 

What I have noticed is that other good pure value investors - e.g. Munger, Whitman, Berkowitz, Chou, McElvaine, the people at AIC, Mark Mobius (someone mentioned Miller but I hesitate to put him in this category) - have had their otherwise outstanding returns significantly damaged by major bear markets. The question whether there is a lesson here. It is interesting, for example, to compare Francis Chou's performance versus FFH's given their close association and similarity of thinking. FFH's past performance over the past 3 and 5 years are significantly better. Why? It is likely that Francis was handicapped by his inability to make the same macro bets that FFH was able to because of his fund rules.

 

This why I think that we need to look beyond the record of Buffett to say that it is folly to consider macro in extreme cases. Buffett is likely the outlier that we can't replicate.

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This is by no means a given. Consider that he grew BRK's BVPS at an annual rate of 23.6% from 1965-2000. If he had maintained his 25% fee structure, the net return to investors would only have been in the 15-18% range. Would this have been enough to make him the biggest hedge fund, let alone the biggest investment fund?

 

That's my point...Berkshire was a constraint on his personal wealth creation.  He averaged 29.5% gross and 23.8% net to partners between 1957 and 1969 inclusive, with no single down year when the Dow had four! 

 

If he was able to achieve 20% annual returns net, and I'm a firm believer that he could have easily achieved that as he got older and better, he could have readily accumulated enough in assets as a fund manager, and would be running the largest investment fund in the world today...if he had chose to do that.  He also once said that with smaller sums of money, he could return 50% a year!  Cheers! 

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This is by no means a given. Consider that he grew BRK's BVPS at an annual rate of 23.6% from 1965-2000. If he had maintained his 25% fee structure, the net return to investors would only have been in the 15-18% range.

 

Oec,

 

I like your posts and agree about Soros, but let's not forget that the BVPS growth rate of 23.6% was AFTER Berkshire paid corporate taxes.

 

The way people got so incredibly wealthy owning Berkshire was because he grew their share of the pie at a massive rate and, as long as they didn't sell, they never paid personal income taxes.

 

Hedge funds must produce much higher returns for indivdiuals exposed to current taxes (especially if they are of the short-term variety). 

 

Just a minor nitpick.

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What I have noticed is that other good pure value investors - e.g. Munger, Whitman, Berkowitz, Chou, McElvaine, the people at AIC, Mark Mobius (someone mentioned Miller but I hesitate to put him in this category) - have had their otherwise outstanding returns significantly damaged by major bear markets. The question whether there is a lesson here. It is interesting, for example, to compare Francis Chou's performance versus FFH's given their close association and similarity of thinking. FFH's past performance over the past 3 and 5 years are significantly better. Why? It is likely that Francis was handicapped by his inability to make the same macro bets that FFH was able to because of his fund rules.

 

None of the people you mentioned are leveraged.  Prem is leveraged.  I think Francis can ignore macro for the most part, because it would be nearly impossible to wipe him out. 

 

On the other hand...a 50% drop in Fairfax equities, a magnitude 5 hurricane hitting the Gulf Coast, and a magnitude 8 earthquake rocking Los Angeles all in the same year could do that at Fairfax...without hedges and reinsurance, of course!  Francis, Buffett, Whitman, McElvaine, et al have the luxury of ignoring macro for the most part, Prem doesn't.  Cheers! 

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Parsad,

 

"None of the people you mentioned are leveraged.  Prem is leveraged.  I think Francis can ignore macro for the most part, because it would be nearly impossible to wipe him out." 

 

Sure Parsad, Francis can ignore macro all he wants because he is not leveraged, so can you. You can ignore the fact that the Canadian dollar went from 66 cents to par with the US, you can ignore the financial system collapsing in 2008, and governments and/or the monetary system collapsing now, but you are both going to be getting much worse returns during the 2000 to 2015 period relative to Prem who, poor guy, is leveraged and therefore has to pay attention to macro.

 

Your logic of relating the need for attention to macro, to the use of leverage escapes me.

 

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I have to say that this is probably the only thing I disagree with you on!

 

My view has been since 1998 that we are in a historic period of massively overvalued equity prices and other asset prices and we have not yet gone through the full cleansing that we inevitably will either through debt destruction and/or very very significant inflation. Hopefully this period ends by 2015 and we won't have to disagree any longer - I'll just invest with no hedges like you. I can't wait because it will be so much simpler.

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Parsad,

 

"None of the people you mentioned are leveraged.  Prem is leveraged.  I think Francis can ignore macro for the most part, because it would be nearly impossible to wipe him out." 

 

Sure Parsad, Francis can ignore macro all he wants because he is not leveraged, so can you. You can ignore the fact that the Canadian dollar went from 66 cents to par with the US, you can ignore the financial system collapsing in 2008, and governments and/or the monetary system collapsing now, but you are both going to be getting much worse returns during the 2000 to 2015 period relative to Prem who, poor guy, is leveraged and therefore has to pay attention to macro.

 

Your logic of relating the need for attention to macro, to the use of leverage escapes me.

 

Exactly how much better did Prem do than Francis from 2000 to 2010.  Francis return 7% annualized, while Fairfax's book value increased by 9.9% annualized...using leverage and hedges!  Check the numbers before shouting from the rooftops!  Yes, their actual equity holdings did better on an annualized basis, but what is that position relative to the total assets within Fairfax? 

 

In my own personal portfolio, I've returned better than 20% annualized over the same period...no hedges, no leverage, no shorts.  Over the last five years, MPIC Fund I, LP has returned 12.5% annualized, when the S&P500 returned about 1%...no hedges, no leverage other than the occasional use of options.  Corner Market Capital's own portfolio is up about 12% this year...no hedges, no leverage, no shorts.

 

So feel free to do what your conscious is telling you, but don't extrapolate your use of hedges and macro views as a necessity when trying to invest successfully...even in volatile times.  Cheers! 

 

 

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oec2000

 

Not meaning to belittle Soros.  His returns have had highly significant alpha even without the huge bet against the British Pound.  However, he used great leverage early in his career, and he had at least one or two near blowups of funds he backed late in life. 

 

His book that revealed his methods is mostly incomprehensible.  The only takeaway I got from it is that he was very nimble, willing to change his thesis on a trade at the drop of a hat as circumstances changed or sometimes when things just didn't feel right or when he realized that he had overlooked something that was important.

 

Nevertheless, I do think his alpha was not a random fluke.  He seems to have developed many rules of thumb that have given advantage over a lifetime of trading that he hasn't articulated.

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oec2000

 

Not meaning to belittle Soros.  His returns have had highly significant alpha even without the huge bet against the British Pound.  However, he used great leverage early in his career, and he had at least one or two near blowups of funds he backed late in life. 

 

His book that revealed his methods is mostly incomprehensible.  The only takeaway I got from it is that he was very nimble, willing to change his thesis on a trade at the drop of a hat as circumstances changed or sometimes when things just didn't feel right or when he realized that he had overlooked something that was important.

 

Nevertheless, I do think his alpha was not a random fluke.  He seems to have developed many rules of thumb that have given advantage over a lifetime of trading that he hasn't articulated.

 

I agree 100% with everything Twa said.  Cheers!

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Sanjeev,

 

Not sure I am shouting from the rooftops. The point I am making is, from say 2000 to say 2015, we are in a 1 in 100 year era where there is going to be a cleansing. As such, my point is it makes sense to focus on the "macro" to some degree and hedge against those risks in this period - irrespective of whether you use leverage or not.

 

I am not advocating making a macro bet, I am advocating hedging against potential macro pitfalls that could take away returns a very good value investor like Chou should get. He is a good example, because his funds were legally limited from doing so in certain situations. This 7% compounded return you cite would have been much higher over the last 10 years and it should have been given his knowledge of the various bubbles, etc. I am almost sure he did far far better in his personal accounts, in part, due to some sort of hedge on the macro.

 

Personally, I think that 9% book value increase you cited is a questionable way to look at Prem's returns on investments. The 9% net compounded annual number you cite for Fairfax is comprised of 1) excellent investment returns relative to book far greater than 9%, and this multiplied by 2) horrible underwriting losses relative to book due to the 7 lean years of the TIG and Crum acquisitions. Fairfax breaks out their earnings into these two big categories, the first category is the investment side. I think if you worked through those numbers, the returns would be at least 10% higher compounded annually than the 7% Francis got. So I am looking at the numbers before speaking, I am just not looking at them the same way you are.

 

Again, this is not to fault Francis (because he was legally limited in more than one situation to hedge against the macro forces), it is to demonstrate how a very good mutual fund like Chou Funds essentially got much lower returns than it otherwise could have in the last 10 years.

 

 

 

 

 

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I like your posts and agree about Soros, but let's not forget that the BVPS growth rate of 23.6% was AFTER Berkshire paid corporate taxes.

 

The way people got so incredibly wealthy owning Berkshire was because he grew their share of the pie at a massive rate and, as long as they didn't sell, they never paid personal income taxes.

 

Hedge funds must produce much higher returns for indivdiuals exposed to current taxes (especially if they are of the short-term variety). 

 

Just a minor nitpick.

 

Kiltacular,

 

Fair points although leverage (from float) and negative cost float are non-investment factors that helped Buffett's returns and offset the drag from taxes. Also, Buffett would not have been able to do everything he did if he did not have permanent capital - didn't he or Munger say something to the effect that BRK would not have been so successful if their capital was not permanent?

 

As for taxes that investors have to pay, while they do affect net returns, they should not really matter in a discussion on investor ability E.g. Should our evaluation of Soros's investing skills be arbitrarily dependent on whether the govt abolishes capital gains taxes or raises it to 80% tomorrow? Alternatively, you shouldn't have a situation when A, who is not subject taxes, conclude that Soros is great while B, who pays high taxes, concludes that Soros is bad simply because of their individual net returns.

 

Anyway, there are too many variables pulling in different directions for us to be able to say one is better than the other and this is not the issue. They are both 6-sigma investors who have achieved their results by taking different routes and I feel, that as students of investing, we should absorb whatever lessons we can from whomever we can.

 

The Buffett-only people seem to think this is wrong and that it's either Buffett's way or the highway, as though we already know everything that we can about investing from Buffett/Graham and that there is nothing else to be learned. How is saying that "All we need to know about investing can be found in Security Analysis" different from saying that "All we need to know about life is in a particular religious book and we don't need to do science?" Would Buffett have been so successful if had stopped his learning at Graham?

 

Just makes me wonder how the "Buffett-only people" would have reacted if they had been investors in Burry's fund when he started buying CDS. They would probably have berated Burry, as many of his investors did, for straying away from value investing instead of listening to his rationale for his actions.

 

oec2000

 

Not meaning to belittle Soros.  His returns have had highly significant alpha even without the huge bet against the British Pound.  However, he used great leverage early in his career, and he had at least one or two near blowups of funds he backed late in life. 

 

His book that revealed his methods is mostly incomprehensible.  The only takeaway I got from it is that he was very nimble, willing to change his thesis on a trade at the drop of a hat as circumstances changed or sometimes when things just didn't feel right or when he realized that he had overlooked something that was important.

 

Nevertheless, I do think his alpha was not a random fluke.  He seems to have developed many rules of thumb that have given advantage over a lifetime of trading that he hasn't articulated.

 

Twacowfca,

 

I may be wrong but I believe he started out as a stock picker (with Jim Rogers, who, contrary to popular believe, is not a market timer) and did not start to use a lot of leverage until later on when he did more macro investing. The funds that had near blow ups were not run by him. As I said, there was a period when he became more interested in politics and philanthropy and started to subcontract management of his funds as a way to find a successor to manage his own wealth. He finally came back out of retirement when he was unhappy with the results.

 

It is true that his methods are not so easily replicable. But, as I have said, this is not about Buffett vs Soros. My original post was about paying attention to value investing gurus who choose to take account of macroeconomic factors in investing. People sometimes confuse macro investing with market timing (which I agree is a mug's game). Even Buffett himself has done macro investing (buying silver, shorting the USD, selling European government bonds as recently reported).

 

A more logical argument for not doing macro investing is Buffett's Circle of Competence principle. This argument makes sense if you really feel that it is beyond your ability to analyse. However, it seems silly to me to rely on pure dogma to make investment decisions. To use a hypothetical example, despite what Buffett says about the uselessness of gold, if for some reason gold price fell to $50 tomorrow, how many of us would stick to the dogma and not buy a historically coveted commodity at a price more than 90% below the cost of production? This would be pretty close to the dogma espoused by finance professors who say that there cannot be $100 bills lying around on the ground.

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Personally, I think that 9% book value increase you cited is a questionable way to look at Prem's returns on investments. The 9% net compounded annual number you cite for Fairfax is comprised of 1) excellent investment returns relative to book far greater than 9%, and this multiplied by 2) horrible underwriting losses relative to book due to the 7 lean years of the TIG and Crum acquisitions. Fairfax breaks out their earnings into these two big categories, the first category is the investment side. I think if you worked through those numbers, the returns would be at least 10% higher compounded annually than the 7% Francis got. So I am looking at the numbers before speaking, I am just not looking at them the same way you are.

 

You can't pick and choose.  Francis' numbers are significantly higher historically as well.  You can't take away Francis' losses, and you can't take away Prem's losses during the lean years...they don't just disappear...and it's also not fair to exclude from one and not the other. 

 

TIG & C&F were the equivalent of stock picks, and they killed Fairfax because they were so underreserved.  That's no different than me investing say in AIG and getting killed.  And they hurt Fairfax more because of the leverage. 

 

If Fairfax had the same asset to equity as Berkshire, the combined losses from 9/11, TIG & C&F and hurricane losses, would not have hurt as much.  Thus the reason Fairfax NEEDS to use hedges to protect themselves from massive swings in their equity, which would result in downgrades and possibly loss of ability to underwrite property-casualty insurance.  I would prefer to see Prem get the leverage down further...maybe 2.5 or 3-1.  Cheers!   

 

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