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Steve Romick's Semi-Annual Report


giofranchi
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I am realizing that the investment management field is one where you don't really need to know too much about company analysis.  You simply need to know who the best stock pickers are, track their portfolios, and buy their components on big dips.

 

Then you can paper over your incompetence by writing letters that just discuss macroeconomics, which is easy since that too is information that you can just glean from talking heads.

 

I'm not commenting on whether this particular manager is good or bad.  I'm just saying... this letter gave me absolutely no information about the manager's ability to evaluate companies, but it sure sounded good when he talked about the economy.  So the epiphany is that if one can get away with that... well then I suppose there is room for traders who act like they do research but really don't -- how would anyone suspect from letters like this?

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It was a very good read!  But after reading it, you realize that Steve is like all of us and other investment managers...no one has any clue exactly where things are headed...uncharted territories!  Cheers!

 

That was my key takeaway...

 

That was also my key takeaway! But that is not to say I judge it unimportant or useless… Imho, it means that right now there is no margin of safety: high equity prices + uncharted territories = no margin of safety. So, I stay defensive here. … And right now it feels completely wrong!! My hedges are costing me money and the companies I invested in are lagging the markets … I am surely in a far worse position than any of you! Therefore, I am almost certainly totally wrong, but today I need a HUGE margin of safety to be aggressive… And I really don’t see it: on a micro level, the companies I invested in are very good value, but no extreme bargains; on a market level, equity prices in general appear to be fairly valued at best (actually, they look overvalued to me); and, on a macro level, it is uncharted territories.

That being said, I am here to let my views be challenged and to change my mind accordingly. So, if any of you think that right now there is a good margin of safety in the stock market, I would be really glad to know!

 

So the epiphany is that if one can get away with that... well then I suppose there is room for traders who act like they do research but really don't -- how would anyone suspect from letters like this?

 

ERICOPOLY,

I am really no trader! I ran an engineering firm daily and I just try to allocate its free cash the best way I can. My firm has a very concentrated portfolio of just 9 companies. I do not have the time nor the resources to scan every stock of every market to uncover the “ultimate bargain”. And I do not have the time nor the resources to do some serious research on complicated businesses like BAC or AIG. I do not even believe that it is really indispensable to uncover the “ultimate bargain”, or to study complicated businesses.

Those 9 companies are good businesses, easy to understand, and managed by great people. Believe me: I did some research on those 9 businesses. And I am constantly using the free cash generated by my firm, to buy greater stakes in those companies at good prices. That, I believe, is what in the long run will create wealth.

 

giofranchi

 

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