The 400% Man!

[JBird]

He bought a ton of BRK on margin.. I think these results are largely a function of leverage

 

You're clearly not an investor in the fund.

[leeway]

This is from the letter that mentioned the unconventional idea of BRK. I think "unconventional" means the resistance to the idea back then, and has nothing to do with leverage.

 

Three years ago BRK represented a slam-dunk idea yet drew unease from outsiders that had read our letters, causing many to leave us at the altar due to our unconventional stance and commitment to our reasoning.

 

We unloaded most of our BRK position in 2014. Our decision was driven by outside opportunities and a diminishing gap between price and value. I’m happy to report that over roughly 41 months of ownership, our unconventional BRK holding outpaced the S&P in fine fashion, registering a gain of more than 170%. The premise of our BRK thesis always rested upon minimal risk concurrent with a high probability of adequate return, analogous to a 3-yr T-bill yielding 15%. Such an unusual opportunity (carrying almost zero chance of major loss) and associated large position size should be considered an anomaly rather than a regular occurrence.

[karthikpm]

He bought a ton of BRK on margin.. I think these results are largely a function of leverage

 

You're clearly not an investor in the fund.

 

Ha! That is correct.. Some element of "sour grapism"  ;D

 

It is 5 million to buy into their AVM ranger fund.. Just don't have that kind of cash.

[mhdousa]

This is from the letter that mentioned the unconventional idea of BRK. I think "unconventional" means the resistance to the idea back then, and has nothing to do with leverage.

 

Three years ago BRK represented a slam-dunk idea yet drew unease from outsiders that had read our letters, causing many to leave us at the altar due to our unconventional stance and commitment to our reasoning.

 

We unloaded most of our BRK position in 2014. Our decision was driven by outside opportunities and a diminishing gap between price and value. I’m happy to report that over roughly 41 months of ownership, our unconventional BRK holding outpaced the S&P in fine fashion, registering a gain of more than 170%. The premise of our BRK thesis always rested upon minimal risk concurrent with a high probability of adequate return, analogous to a 3-yr T-bill yielding 15%. Such an unusual opportunity (carrying almost zero chance of major loss) and associated large position size should be considered an anomaly rather than a regular occurrence.

 

It was leverage. There was a Smartmoney article about it. And this is from the 2011 letter:

As BRK declined in price (though in our opinion, increased in

value), we bought more—a lot more: able to borrow at around 1.5%, we levered BRK into a

50%+ position. Though not advocates of leverage, we believe the low cost and modest amount,

combined with BRK’s iron-clad safety and cheap price, makes our action sensible.

[merkhet]

Yes, he levered his position in Berkshire -- though I think his results over-time were not largely a function of leverage.

[Txvestor]

He levered the fund to take a very large position in Berkshire hathaway approaching 60%. I vaguely remember he levered the fund by something in the 30-40% range. This was when berkshire b share was trading in the 70s and 80s barely above book value and occasionally dipping under. That was right around the time when Buffet put a floor on the price by saying he would buyback shares at less than 110% of book value. Ironically even then it lingered right above that 110% for quite a while. He later raised that to 120%.

Hard to beleive it was just barely over 2yrs ago. Not very long before the time Buffett disclosed his Prostate Cancer diagnosis if my memory serves me correct.

Pabrai made mention of the leverage Mecham used as well in one of the interviews he did recently, implying he would not have taken that risk.

It was a calculated risk, in my opinion, as Berkshire was(atleast in retrospect) clearly undervalued at the time, but what if the economy soured? For the last 3yrs that has always been a background possibility. That is why he calls it unconventional. It will likely be a one off.

Leverage can certainly spruce up your returns but it can also kill you on the downside. Notwithstanding the bailouts of 2008/9, leverage is not a healthy approach IMHO, even if it means you have to settle for lower returns. Ironically we(the collective market) are more levered than ever and the US gov't is effectively standing behind that leverage, and traders and investors now count on the Fed. and bailouts in a worst case, instead of using valuations as a floor the way value investors have been taught to do. Sad state of affairs overall for people with unlevered cash and those beleiving in free markets and or a pure value oriented mindset.

That said it can be argued that even WEB used some leverage over the decades with permanent capital via the insurance float. However there are qualifiers. It is permanent, leverage is limited and structural, and backed by very reliable virtually permanent cash flows of subsidiaries and in the hands of one of the best capital allocators in history. Thats a lot of caveats for us mere mortals when compared to margin.

 

[Guest longinvestor]

This is from the letter that mentioned the unconventional idea of BRK. I think "unconventional" means the resistance to the idea back then, and has nothing to do with leverage.

 

Three years ago BRK represented a slam-dunk idea yet drew unease from outsiders that had read our letters, causing many to leave us at the altar due to our unconventional stance and commitment to our reasoning.

 

We unloaded most of our BRK position in 2014. Our decision was driven by outside opportunities and a diminishing gap between price and value. I’m happy to report that over roughly 41 months of ownership, our unconventional BRK holding outpaced the S&P in fine fashion, registering a gain of more than 170%. The premise of our BRK thesis always rested upon minimal risk concurrent with a high probability of adequate return, analogous to a 3-yr T-bill yielding 15%. Such an unusual opportunity (carrying almost zero chance of major loss) and associated large position size should be considered an anomaly rather than a regular occurrence.

 

As well stated as it could be.

 

As to them unloading their outsized BRK position for other opportunities is what they are expected to do being a fund manager. Surely AV will do fine. But, what if you held a 60% position for longer than the 41 months, say, for 5, 10 years, won't that beg the question to investees, "Why don't I do that myself?" redeem 60% and avoid paying fees. It is very difficult to "do nothing" while managing money for others. Even if it is the correct thing to do.

 

IMO, the years 2008-9-10-11...probably represented the best ever years for an individual investor willing to be bold and unfettered like Meacham. On the flipside, as we are now finding out, some of the worst years for the fund management world. Hedge funds are closing in droves, money is flowing out of active funds to index funds etc.  The book that they all read like sheep was obviously wrong. Managers like Meacham are the true exception.

 

 

 

 

 

[philly value]

This is from the letter that mentioned the unconventional idea of BRK. I think "unconventional" means the resistance to the idea back then, and has nothing to do with leverage.

 

Three years ago BRK represented a slam-dunk idea yet drew unease from outsiders that had read our letters, causing many to leave us at the altar due to our unconventional stance and commitment to our reasoning.

 

We unloaded most of our BRK position in 2014. Our decision was driven by outside opportunities and a diminishing gap between price and value. I’m happy to report that over roughly 41 months of ownership, our unconventional BRK holding outpaced the S&P in fine fashion, registering a gain of more than 170%. The premise of our BRK thesis always rested upon minimal risk concurrent with a high probability of adequate return, analogous to a 3-yr T-bill yielding 15%. Such an unusual opportunity (carrying almost zero chance of major loss) and associated large position size should be considered an anomaly rather than a regular occurrence.

 

As well stated as it could be.

 

As to them unloading their outsized BRK position for other opportunities is what they are expected to do being a fund manager. Surely AV will do fine. But, what if you held a 60% position for longer than the 41 months, say, for 5, 10 years, won't that beg the question to investees, "Why don't I do that myself?" redeem 60% and avoid paying fees. It is very difficult to "do nothing" while managing money for others. Even if it is the correct thing to do.

 

IMO, the years 2008-9-10-11...probably represented the best ever years for an individual investor willing to be bold and unfettered like Meacham. On the flipside, as we are now finding out, some of the worst years for the fund management world. Hedge funds are closing in droves, money is flowing out of active funds to index funds etc.  The book that they all read like sheep was obviously wrong. Managers like Meacham are the true exception.

 

I'm amazed how Tom Russo has managed to run his fund with as little turnover as he has. A number of his core positions have been the same for decades now.

[caprivenky]

The last  6.5 yr is his running the fund without outside  intervention.

His 15 yr return is 22%

 

Cheers

 

[merkhet]

The last  6.5 yr is his running the fund without outside  intervention.

His 15 yr return is 22%

 

Cheers

 

What was the outside intervention from before?

[Txvestor]

I think a large institutional investor was trying to "comanage". His partner Ben mentioned that in one of the earlier letters. Specifically mentioned was an investment in overstock.com, that did not work out and they held on for far too long, losing other opportunities when Alan i believe wanted to cut that and move on. 

[indythinker85]

http://www.valuewalk.com/2015/02/allan-mecham-letters-2014/

[Liberty]

http://manualofideas.com/members/pmr201004_allan_mecham_interview.pdf

[frugalchief]

http://manualofideas.com/members/pmr201004_allan_mecham_interview.pdf

 

Thanks for posting.  Great insight.

[fareastwarriors]

Updated holdings: http://www.dataroma.com/m/holdings.php?m=AV

[kab60]

I think it's very interesting; he dumped BAC, his #1 or #2 position, and went massively after BRK and Cimpress (which was hammered in August) and to a less degree DNOW (which he sold down a bit in Q2) and MSM. Cimpress has already payed of handsomely, while BAC has beformed better than BRK. MSC hasn't been good, but DNOW probably has depending on when exactly he bought it. I like this guy and his picks (and started cloning him earlier this year).

[widenthemoat]

I noticed Allan purchased a very small amount of TripAdvisor. Ernst Teunissen, former CFO of Cimpress (Alan's largest position), just took over as CFO of TripAdvisor. Maybe a tracking position to see if Ernst can create a culture focused on IV per share growth? Haven't read TripAdvisor's financials but maybe someone can shed some light on their competitive advantages?

[Liberty]

Meecham's 2015 letter:

 

http://www.valuewalk.com/2016/03/arlington-value-capital-2015-annual-letter/?all=1

[Guest roark33]

I think a large institutional investor was trying to "comanage". His partner Ben mentioned that in one of the earlier letters. Specifically mentioned was an investment in overstock.com, that did not work out and they held on for far too long, losing other opportunities when Alan i believe wanted to cut that and move on.

 

It wasn't a large institutional investor.  It was his partner's father.  They had very little capital at the beginning (like most funds) and Ben's father wanted the fund to invest in Overstock.  That position was the source of a majority of the losses.

[Poor Charlie]

Anyone have Arlington's older letters (pre-2013)?

[Snorky]

I've got 2010-2014, I'm can't attach mobile now...if u give me your email, I send them to you.

[Poor Charlie]

I've got 2010-2014, I'm can't attach mobile now...if u give me your email, I send them to you.

 

Thanks for your response!  Sent you a PM.

[Guest notorious546]

I've got 2010-2014, I'm can't attach mobile now...if u give me your email, I send them to you.

 

Thanks for your response!  Sent you a PM.

 

I would like them as well. might be easier just to post to here?

[Snorky]

As soon as im on my desktop pc, I can post them here.

[Mephistopheles]

As soon as im on my desktop pc, I can post them here.

 

thanks!