The 400% Man!

[investmd]

Am I correct in understanding that Arlington Value Management is closed to new investors?

[Parsad]

Ben will send the letter to me, as soon it comes out.

 

I will post it here immediately.

 

Post only if 100% ok with Ben and Allan...otherwise it will be removed and the poster banned.  Cheers!

[mhdousa]

Do you know where we can read his 2017 letter?

Letter isn't out yet, but, when it is, usually gets posted to:

and

http://minesafetydisclosures.com/fund-shareholder-letters/

[Snorky]

Ben will send the letter to me, as soon it comes out.

 

I will post it here immediately.

 

Post only if 100% ok with Ben and Allan...otherwise it will be removed and the poster banned.  Cheers!

 

Surely i will ask for the "ok" from Ben and post only if they agree.

[WneverLOSE]

Snorky any news ?

 

I see that ValueWalk had an article that they since took down titled "Putting Buffett To Shame" (EDIT: Article URL and name just got changed, it's here https://valuewalkpremium.com/2018/02/arlington-value/) and this is the piece of the article that was available to read for everyone :

 

With nearly $1 billion under management, much of it historically allocated to Berkshire Hathaway, Allan Mecham could be one of the greatest traders of all time. The 'one-man band managing the portfolio,' as Mecham described himself in a September 29, 2017, , produced gross returns that matched the S & P 500 and took in nearly $40 million in fees on the year. But it is not just the ability to be able to convince investors to hand him a 15% performance fee (or 2.4% fixed fee) as opposed to utilizing much less expensive index funds that make Mecham stand out. The hedge fund also continues to deliver performance more than the underlying stocks in which he invests, a topic we previously addressed in . But what makes Mecham more interesting is his calculating average annual performance before fees are taken out, a move that could result in a $500 million assets under management miscalculation.

 

The fact that Arlington Value Capital's performance over a ten-year period is nearly double that of the fund's largest holding, , as well as double that of many other holdings, initially raised questions.

 

After ValueWalk wrote a September 28, 2017, article questioning rather stunning performance, wondering how a fund could persistently deliver returns in up and down markets while outperforming the assets in which the fund invested, Mecham penned a letter to their investors the next day.

 

'An article about Arlington was posted by Valuewalk last night,'

 

Any thoughts about the difference between the holdings performances and reported gains ? is leverage in the BRK holding enough to explain the delta in performance ?

[Snorky]

Hey guys,

 

sorry for the delay, i got the flu the hole last week.

 

Ben send me the letter, but asked me this time, to not publish the letter here on the board and Keep them confidential. For sure i will follow this "request". Sorry for the bad news.

 

My advice to you is, just try to ask Ben yourself. Maybe he send you the letter. There is a not to smalll chance he will do.

 

 

[mhdousa]

An investment advisor in Utah is questioning Arlington's track record.

 

https://www.valuewalk.com/2017/09/arlington/?all=1

 

I think he's barking up the wrong tree as it's unlikely Arlington is a fraud of any kind.

 

That said, I've seen some (plausible?) commentary on Twitter recently about Arlington possibly using some interesting strategies to generate some of its returns (selling puts and covered calls, lending out shares to shorts, etc.).

 

I know some members follow Arlington closely. Any thoughts?

 

I've been thinking about this some, as I know some people invested with Arlington, and they've been spooked by this.

 

I certainly don't think Arlington is a fraud, but how might one convince yourself that it's definitely not? That is, is there anything that would provide definitive proof? 

 

-M

[racemize]

An investment advisor in Utah is questioning Arlington's track record.

 

https://www.valuewalk.com/2017/09/arlington/?all=1

 

I think he's barking up the wrong tree as it's unlikely Arlington is a fraud of any kind.

 

That said, I've seen some (plausible?) commentary on Twitter recently about Arlington possibly using some interesting strategies to generate some of its returns (selling puts and covered calls, lending out shares to shorts, etc.).

 

I know some members follow Arlington closely. Any thoughts?

 

I've been thinking about this some, as I know some people invested with Arlington, and they've been spooked by this.

 

I certainly don't think Arlington is a fraud, but how might one convince yourself that it's definitely not? That is, is there anything that would provide definitive proof? 

 

-M

 

It is very easy to show it isn’t a fraud, you have the auditors check the reported account balances, which I’m sure they do every year.

[mhdousa]

An investment advisor in Utah is questioning Arlington's track record.

 

https://www.valuewalk.com/2017/09/arlington/?all=1

 

I think he's barking up the wrong tree as it's unlikely Arlington is a fraud of any kind.

 

That said, I've seen some (plausible?) commentary on Twitter recently about Arlington possibly using some interesting strategies to generate some of its returns (selling puts and covered calls, lending out shares to shorts, etc.).

 

I know some members follow Arlington closely. Any thoughts?

 

I've been thinking about this some, as I know some people invested with Arlington, and they've been spooked by this.

 

I certainly don't think Arlington is a fraud, but how might one convince yourself that it's definitely not? That is, is there anything that would provide definitive proof? 

 

-M

 

It is very easy to show it isn’t a fraud, you have the auditors check the reported account balances, which I’m sure they do every year.

 

That's what I thought as well. So, if that's the case, and Arlington sends out audited financial statements every year, then why would someone (the original investment advisor in Utah) go through all this effort to try to show it's a fraud?

[AzCactus]

I've heard (in more than one place) that even if Arlington bought at the lowest price and sold in the highest that there returns still don't add up.  Obviously when you add options etc and other ways to generate returns it gets more difficult to measure returns.  But there was one specific year (maybe 2015) where the returns simply seemed a tad high. 

 

All that said I truly doubt this is a fraud

[Parsad]

An investment advisor in Utah is questioning Arlington's track record.

 

https://www.valuewalk.com/2017/09/arlington/?all=1

 

I think he's barking up the wrong tree as it's unlikely Arlington is a fraud of any kind.

 

That said, I've seen some (plausible?) commentary on Twitter recently about Arlington possibly using some interesting strategies to generate some of its returns (selling puts and covered calls, lending out shares to shorts, etc.).

 

I know some members follow Arlington closely. Any thoughts?

 

I've been thinking about this some, as I know some people invested with Arlington, and they've been spooked by this.

 

I certainly don't think Arlington is a fraud, but how might one convince yourself that it's definitely not? That is, is there anything that would provide definitive proof? 

 

-M

 

I've heard (in more than one place) that even if Arlington bought at the lowest price and sold in the highest that there returns still don't add up.  Obviously when you add options etc and other ways to generate returns it gets more difficult to measure returns.  But there was one specific year (maybe 2015) where the returns simply seemed a tad high. 

 

All that said I truly doubt this is a fraud

 

Was that not the year Berkshire made a huge run...and at one point Berkshire made up 50% of the fund, plus they used margin to lever up on that bet?  Any investor can get a copy of the audited financials when they invest capital.  Other than the Berkshire bet, Allan has not really used margin or significant leverage.  Lending stock to shorts or using options is a pretty common practice...so I'm not sure why investors would be concerned about that.  They've been fairly transparent about how they invest, and you can view his 13-F's online to get a pretty good idea when he is adding or selling and roughly what prices he is buying/selling at.

 

I met Allan in Omaha back in like 2006 or something.  We were the only two guys sitting at the bar in the Omaha Marriott, across the street from Borsheim's, and watching the hockey playoffs.  His personality strikes me more as Francis Chou than anyone else.  He's quiet, likes a low profile and doesn't care about the limelight at all.  He just likes doing his own thing and letting Ben handle the marketing, day to day stuff.  He just likes picking stocks, reading and doing his analysis on ideas.  He was stuck around $26M then, had a terrific record after 8-9 years...then as word got out and a couple of articles were written, along with great results, assets ballooned.  When you get bigger, you draw more attention...and when you outperform your peers, you draw even more attention.

 

Not sure what type of comfort people would need...but it doesn't really matter one iota unless you are investing with him.  And if you are, you should be doing your own due diligence such as asking for and reading the audited financials with annual letter, and even calling his auditor and asking questions to get comfort.  I don't think they would regret any investor from doing such due diligence...in fact, they probably are looking for more long-term investors with such a mentality.  Anyway, I believe their fund is closed at the moment...correct me if I'm wrong.  Cheers!

[Guest]

Oh man, it would have been awesome to invest with him in 2006. Wow!

 

Know any other guys like that, Sanj??? :)

[violet_contamination]

Oh man, it would have been awesome to invest with him in 2006. Wow!

 

Know any other guys like that, Sanj??? :)

 

Why not Sanj? ;)

[Shooter MacGavin]

This is directed at the forum, not really at any particular poster, but I would question, in general, if one should applaud an investment manager margining up 5x and then paying himself on the upside.  If you want to take that kind of risk/reward trade off, just do it yourself.  Lever up with the S&P500 Index.  IB will let you borrow up to 4-5x your equity.

 

I've come across more than a few funds (no specific names mentioned) that post these astronomical returns and I've looked at their letters and the their holdings where they literally haven't outperformed the S&P500 on the majority of their holdings. One was even short a bunch of FANGs  and Tesla (which has obviously proved to be a terrible idea over the last 5 or 6 years) and they're still posting these incredible returns. And the only way that happens is with a lot of margin.

 

Yet, if you then see what you yourself could've done instead with an index or Berkshire levered 5X yourself over the past 8 years, you would have a far better record than them and you wouldn't pay them an extraordinary fee. But that doesn't necessarily make it smart unless you were able to hedge the downside at a low cost.  Berkshire fell 45% from top to bottom in September 2008 - Feb 2009, so this notion that the stock won't trade below the 1.2x repurchase price is not accurate, in my view.  Anything can happen in the markets.  You can't know how others behave.

 

If you simply had a portfolio margin account, and margin'ed 5 to 1, borrowed at 2% and invested in the index earning 14.5% over the last 8 years, you would've had 10x your money and you would be on the cover of barron's, arms folded looking out a window. And it would work like a charm until you have a 1st quarter 18 type event or a 2008 event or a 1987 event or whatever in which case you stand a pretty good chance of getting a margin call and closing out at a huge loss (depending on your particular portfolio of course).

 

If you want to take that risk for yourself, then by all means. May be a worthwhile gamble. But why pay someone else to gamble for you?

 

If any investment manager is touting his or her fabulous returns without mentioning the margin risk he or she took as a fiduciary of his or her clients or is not comparing him/herself to what the index would've done with the same level of margin, I think people should definitely raise an eyebrow.

 

Showing great returns with margin is really easy.  But it doesn't make it smart.

 

I'm not opposed to leverage.  For example, generally speaking most of what a PE investor is paying for is not for the investment genius of the manager but  for the cost of capital arbitrage a PE Firm is able to procure, vs. its investors themselves. Hedge funds have an even lower cost of arbitrage, but its far far riskier because of how quickly it can get called back at the worst time.

 

[rb]

This is directed at the forum, not really at any particular poster, but I would question, in general, if one should applaud an investment manager margining up 5x and then paying himself on the upside.  If you want to take that kind of risk/reward trade off, just do it yourself.  Lever up with the S&P500 Index.  IB will let you borrow up to 4-5x your equity.

 

I've come across more than a few funds (no specific names mentioned) that post these astronomical returns and I've looked at their letters and the long thesis where they literally haven't outperformed the S&P500 on the majority of their holdings. (One was even short a bunch of FANGs (which has obviously proved to be a terrible idea over the last 5 or 6 years) and they're still posting these incredible returns. And the only way that happens is with a lot of margin.

 

Yet, if you then see what you yourself could've done instead with an index or Berkshire levered 5X yourself over the past 8 years, you would have a far better record than them and you wouldn't pay them an extraordinary fee. But that doesn't necessarily make it smart unless you were able to hedge the downside at a low cost.  Berkshire fell 45% from top to bottom in September 2008 - Feb 2009, so this notion that the stock won't trade below the 1.2x repurchase price is not accurate, in my view.  Anything can happen in the markets.  You can't know how others behave.

 

If you simply had a portfolio margin account, and margin'ed 5 to 1, borrowed at 2% and invested in the index earning 14.5% over the last 8 years, you would've had 10x your money and you would be on the cover of barron's, arms folded looking out a window. And it would work like a charm until you have a 1st quarter 18 type event or a 2008 event or a 1987 event or whatever in which case you stand a pretty good chance of getting a margin call and closing out at a huge loss (depending on your particular portfolio of course).

 

If you want to take that risk for yourself, then by all means. May be a worthwhile gamble. But why pay someone else to gamble for you?

 

If any investment manager is touting his or her fabulous returns without mentioning the margin risk he or she took as a fiduciary of his or her clients or not are not comparing themselves to what the index would've done on the same margin, I think people should definitely raise an eyebrow.

 

Showing great returns with margin is really easy.  But it doesn't make it smart.

I think that you make some good points but you're generally wrong.

 

First off IB will not let you do 4 or 5x margin. They enforce Reg T margin which is 1:1. In Canada you're actually allowed to have 2:1 margin but IB still enforces 1:1. Of course you can use derivatives to manage that but it's not straight up margin.

 

Second, as long as the strategy is communicated clearly to the investors in the fund I don't see any reason why using margin to generate returns should be a problem. If the investors are ok with it and its risks, game on. Similarly on fees. That is a matter between the manager and his clients. If the clients are aware of what they are paying and they're ok with it why should that be an issue.

 

Thirdly, a lot of what you base your post on is a fallacy. That the people should "do it themselves". Here's the thing: People don't want to do it themselves. So they have other people do it for them. And yes they pay fees for that. It's just how it is.

[Parsad]

If any investment manager is touting his or her fabulous returns without mentioning the margin risk he or she took as a fiduciary of his or her clients or is not comparing him/herself to what the index would've done with the same level of margin, I think people should definitely raise an eyebrow.

 

Showing great returns with margin is really easy.  But it doesn't make it smart.

 

I'm not opposed to leverage.  For example, generally speaking most of what a PE investor is paying for is not for the investment genius of the manager but  for the cost of capital arbitrage a PE Firm is able to procure, vs. its investors themselves. Hedge funds have an even lower cost of arbitrage, but its far far riskier because of how quickly it can get called back at the worst time.

 

You said that this wasn't directed at any manager in particular...noted.  I thought I would just clear up the leverage Arlington used on that Berkshire bet...remember, BRKA stock was trading at about $92K when that bet was made and intrinsic value by Allan was calculated at about $190K per A share.  He took a 50% leverage position and clearly explained it to all partners in his annual report.  He also indicated it was the first time the fund had used leverage, but the upside was very high and the downside reflected fully in the price.

 

Now going back to your comments on leverage...IB allows 5-1 leverage?  If so, that's nuts and I think most investors would still have a losing record doing that, because if they are wrong for any prolonged period, the losses would start to hammer them psychologically.  In fact, I think the average investor using leverage would do worse than the average investor not using leverage...and that's because the average investor is average both analytically and psychologically.  Cheers!

[thepupil]

This is directed at the forum, not really at any particular poster, but I would question, in general, if one should applaud an investment manager margining up 5x and then paying himself on the upside.  If you want to take that kind of risk/reward trade off, just do it yourself.  Lever up with the S&P500 Index.  IB will let you borrow up to 4-5x your equity.

 

I've come across more than a few funds (no specific names mentioned) that post these astronomical returns and I've looked at their letters and the long thesis where they literally haven't outperformed the S&P500 on the majority of their holdings. (One was even short a bunch of FANGs (which has obviously proved to be a terrible idea over the last 5 or 6 years) and they're still posting these incredible returns. And the only way that happens is with a lot of margin.

 

Yet, if you then see what you yourself could've done instead with an index or Berkshire levered 5X yourself over the past 8 years, you would have a far better record than them and you wouldn't pay them an extraordinary fee. But that doesn't necessarily make it smart unless you were able to hedge the downside at a low cost.  Berkshire fell 45% from top to bottom in September 2008 - Feb 2009, so this notion that the stock won't trade below the 1.2x repurchase price is not accurate, in my view.  Anything can happen in the markets.  You can't know how others behave.

 

If you simply had a portfolio margin account, and margin'ed 5 to 1, borrowed at 2% and invested in the index earning 14.5% over the last 8 years, you would've had 10x your money and you would be on the cover of barron's, arms folded looking out a window. And it would work like a charm until you have a 1st quarter 18 type event or a 2008 event or a 1987 event or whatever in which case you stand a pretty good chance of getting a margin call and closing out at a huge loss (depending on your particular portfolio of course).

 

If you want to take that risk for yourself, then by all means. May be a worthwhile gamble. But why pay someone else to gamble for you?

 

If any investment manager is touting his or her fabulous returns without mentioning the margin risk he or she took as a fiduciary of his or her clients or not are not comparing themselves to what the index would've done on the same margin, I think people should definitely raise an eyebrow.

 

Showing great returns with margin is really easy.  But it doesn't make it smart.

I think that you make some good points but you're generally wrong.

 

First off IB will not let you do 4 or 5x margin. They enforce Reg T margin which is 1:1. In Canada you're actually allowed to have 2:1 margin but IB still enforces 1:1. Of course you can use derivatives to manage that but it's not straight up margin.

 

 

https://www.interactivebrokers.com/en/index.php?f=1451

 

Portfolio margin > leverage than reg t

 

[Shooter MacGavin]

This is directed at the forum, not really at any particular poster, but I would question, in general, if one should applaud an investment manager margining up 5x and then paying himself on the upside.  If you want to take that kind of risk/reward trade off, just do it yourself.  Lever up with the S&P500 Index.  IB will let you borrow up to 4-5x your equity.

 

I've come across more than a few funds (no specific names mentioned) that post these astronomical returns and I've looked at their letters and the long thesis where they literally haven't outperformed the S&P500 on the majority of their holdings. (One was even short a bunch of FANGs (which has obviously proved to be a terrible idea over the last 5 or 6 years) and they're still posting these incredible returns. And the only way that happens is with a lot of margin.

 

Yet, if you then see what you yourself could've done instead with an index or Berkshire levered 5X yourself over the past 8 years, you would have a far better record than them and you wouldn't pay them an extraordinary fee. But that doesn't necessarily make it smart unless you were able to hedge the downside at a low cost.  Berkshire fell 45% from top to bottom in September 2008 - Feb 2009, so this notion that the stock won't trade below the 1.2x repurchase price is not accurate, in my view.  Anything can happen in the markets.  You can't know how others behave.

 

If you simply had a portfolio margin account, and margin'ed 5 to 1, borrowed at 2% and invested in the index earning 14.5% over the last 8 years, you would've had 10x your money and you would be on the cover of barron's, arms folded looking out a window. And it would work like a charm until you have a 1st quarter 18 type event or a 2008 event or a 1987 event or whatever in which case you stand a pretty good chance of getting a margin call and closing out at a huge loss (depending on your particular portfolio of course).

 

If you want to take that risk for yourself, then by all means. May be a worthwhile gamble. But why pay someone else to gamble for you?

 

If any investment manager is touting his or her fabulous returns without mentioning the margin risk he or she took as a fiduciary of his or her clients or not are not comparing themselves to what the index would've done on the same margin, I think people should definitely raise an eyebrow.

 

Showing great returns with margin is really easy.  But it doesn't make it smart.

I think that you make some good points but you're generally wrong.

 

First off IB will not let you do 4 or 5x margin. They enforce Reg T margin which is 1:1. In Canada you're actually allowed to have 2:1 margin but IB still enforces 1:1. Of course you can use derivatives to manage that but it's not straight up margin.

 

Second, as long as the strategy is communicated clearly to the investors in the fund I don't see any reason why using margin to generate returns should be a problem. If the investors are ok with it and its risks, game on. Similarly on fees. That is a matter between the manager and his clients. If the clients are aware of what they are paying and they're ok with it why should that be an issue.

 

Thirdly, a lot of what you base your post on is a fallacy. That the people should "do it themselves". Here's the thing: People don't want to do it themselves. So they have other people do it for them. And yes they pay fees for that. It's just how it is.

 

1) Actually, you're wrong about the margin.  I have a portfolio margin account.  Lots of people on this board do. But refer to thepupil's post. He's kindly provided the link.

 

2) Of course.  Do whatever you like. It's just a perverse incentive structure rewarding managers for risk-taking over skill with other people's money.

I take particular umbrage specifically with funds that are underperforming the market on an unlevered basis, risking investor's capital with high levels of margin (and I make a distinction between margin and leverage overall), throwing up good numbers and receiving the accolades from outside investors who aren't paying attention to this "parlor trick". And it happens ALL the time.

 

 

 

 

[Shooter MacGavin]

If any investment manager is touting his or her fabulous returns without mentioning the margin risk he or she took as a fiduciary of his or her clients or is not comparing him/herself to what the index would've done with the same level of margin, I think people should definitely raise an eyebrow.

 

Showing great returns with margin is really easy.  But it doesn't make it smart.

 

I'm not opposed to leverage.  For example, generally speaking most of what a PE investor is paying for is not for the investment genius of the manager but  for the cost of capital arbitrage a PE Firm is able to procure, vs. its investors themselves. Hedge funds have an even lower cost of arbitrage, but its far far riskier because of how quickly it can get called back at the worst time.

 

You said that this wasn't directed at any manager in particular...noted.  I thought I would just clear up the leverage Arlington used on that Berkshire bet...remember, BRKA stock was trading at about $92K when that bet was made and intrinsic value by Allan was calculated at about $190K per A share.  He took a 50% leverage position and clearly explained it to all partners in his annual report.  He also indicated it was the first time the fund had used leverage, but the upside was very high and the downside reflected fully in the price.

 

Now going back to your comments on leverage...IB allows 5-1 leverage?  If so, that's nuts and I think most investors would still have a losing record doing that, because if they are wrong for any prolonged period, the losses would start to hammer them psychologically.  In fact, I think the average investor using leverage would do worse than the average investor not using leverage...and that's because the average investor is average both analytically and psychologically.  Cheers!

 

Sanjeev,

 

On Arlington, fair enough.  I haven't paid much attention to them so I'm admittedly uninformed. The Berkshire repurchase thing was of course a nod to them, so you have a right to clear that up. Personally, if i had been an investor, I wouldn't have been thrilled unless there was a hedge on as well.

 

On leverage, you're absolutely right.  If you have high amounts and/or the wrong kind of leverage, you WILL impair your capital.  It's only a matter of time. To invoke Munger - there are three ways to go broke: 'liquor, ladies and leverage'.

 

 

 

 

 

[mhdousa]

 

I take particular umbrage specifically with funds that are underperforming the market on an unlevered basis, risking investor's capital with high levels of margin (and I make a distinction between margin and leverage overall), throwing up good numbers and receiving the accolades from outside investors who aren't paying attention to this "parlor trick". And it happens ALL the time.

 

I'm curious what funds do this. I know you don't want to name names, but presumably this info is in their letters and out there.

[Dynamic]

Debt leverage is powerful in both directions. Clearly with extremely stable companies like regulated utility monopolies, there is scope for the company to use a lot of debt to finance the capital base and boost ROE. Their income stability makes them low risk to bondholders and affords them modest interest rates.

 

Investment is a lot less certain than those income streams, suffers correlated declines during broad bear markets and usually operates on far lower degrees of certainty of outcome, especially in the short term.

 

However, I think there are rare times when the upside/downside balance is greatly skewed and the downside is limited. The only problem then might be the timing and the short term price action. The problem with debt is remaining solvent until the intrinsic value of your investments is reflected in market price, and intermediate prices falling even lower could lead to a margin call or similar problem with how the counterparty to your debt views your financial position that can wipe you out completely and multiply that string of great returns by zero.

 

Sometimes, I think the problems come with duration mismatch. If you have a 10-15+ year mortgage and can be completely sure of meeting the very modest payments to avoid default, an investment that might need 5 years to have its value recognised could be fine to invest some borrowed money against.

 

But if the counterparty is able to call your debt in at the worst moment you might have to assume that they probably will!

 

So I think you need to consider the effects of possible short-term market price action very carefully to give yourself plenty of leeway to ensure you can ride out the turbulence without crashing. It's far to easy to be overconfident and get addicted to the juiced up returns when things worked out well for you in the past.

[vinod1]

I think having blanket rules in investing is going to only needlessly hurt one's returns. Things like

 

1. Dont invest in financials (banks)

 

2. Dont  invest in Tech

 

3. Dont use leverage, etc.

 

As investors we accept that majority of the time markets are efficient but can occasionally be inefficient for us to make a profitable investment.

 

It is generally true that leverage is risky. But if a rare opportunity comes up, say like the banks (BAC, JPM, etc) over the last few years, I would posit that it is less risky to use leverage (use lots of cash + LEAPS, warrants on deeply undervalued businesses) than most conventional portfolios of value investors.

 

Vinod

[Shooter MacGavin]

I think having blanket rules in investing is going to only needlessly hurt one's returns. Things like

 

1. Dont invest in financials (banks)

 

2. Dont  invest in Tech

 

3. Dont use leverage, etc.

 

As investors we accept that majority of the time markets are efficient but can occasionally be inefficient for us to make a profitable investment.

 

It is generally true that leverage is risky. But if a rare opportunity comes up, say like the banks (BAC, JPM, etc) over the last few years, I would posit that it is less risky to use leverage (use lots of cash + LEAPS, warrants on deeply undervalued businesses) than most conventional portfolios of value investors.

 

Vinod

 

Vinod,

 

I agree wholeheartedly.  We should distinguish between margin leverage and the concept of leverage overall.  I'll take as much long-term , low cost, non callable leverage as I can get.  Margin is where you can get in trouble. You never know when you're going to get called.  You could be right on your valuation and still get shellacked. 

[AzCactus]

Regarding Arlington specifically it's a tad suspect that the accusations come out and the following year they keep their letter private.  He has every right to do so, but the timing is peculiar.

 

 

[racemize]

Regarding Arlington specifically it's a tad suspect that the accusations come out and the following year they keep their letter private.  He has every right to do so, but the timing is peculiar.

 

He probably just doesn't want any attention drawn to him anymore.  I wouldn't if some RIA with no information accused me of fraud, particularly if the fund was closed.  Any partner can easily verify with the auditor that he actually has the money in a brokerage account.