Mr. Taleb likes owner-operators

[Guest hellsten]

I guess many owner-operators are also the ones who "help" write the laws :)

 

Jack Abramoff said something along the line of "the lobbyists will bring in the exact draft bills of what they want, because they want to make sure it's exactly what they need".

 

NY Times review:

http://tv.nytimes.com/2012/11/12/arts/television/park-avenue-money-power-the-american-dream-on-pbs.html

 

“The cheapest person over all was David Koch,” says the doorman, whose identity is shielded.

 

“You would never get a tip from Mr. Koch,” he recalls. What about a lucrative holiday gift? “A $50 check for Christmas,” he says.

[giofranchi]

Hey Gio,

 

Here´s another owner-operator who writes all the check herself:

 

Gert Boyle of Columbia Sportswear (also found on the Wealth Index)

 

http://www.youtube.com/watch?v=E4u_VPAMiRY

 

Thank you very much sportgamma,

you see what I mean? Would you short such a lady?! Well, you will end with a dart in your neck, or falling down a cliff, if you do that!! Clearly not my idea of “profitable” fun!!  ;D ;D ;D

 

I enjoy your videos tremendously! Please, keep posting them!

 

giofranchi

 

 

[WhoIsWarren]

 

WhoIsWarren,

thank you very much. You don’t write often, but anytime you post something, it is always very interesting, very well thought out, and very well written (which is at least as important as the first two).

I agree with your friend that the list of companies in the wealth-index is just fertile ground for further investigation… well, actually he thinks it is fertile ground to find short candidates, while I think it is fertile ground to find long candidates!  ;D

Anyway, I look for owner-managers in their 40s, 50s, or early 60s, with a time horizon of at least 2 decades left to go on compounding capital. I also look for some sort of value investing philosophy underlying their past deeds, I look for them to have shown strategic thinking and opportunism in the past. I look for someone who is in the business of buying $1 bills for 50 cents, is very good at it (no, an outlier is better!  ;) ), and has the possibility to go on doing that business for the next 20 years. The sole exception in my firm’s portfolio is Mr. Malone, who is in his early 70s. With Liberty Media I was forced to compress my time horizon to “just” 10 years.

Please, ask your friend if he would short the company run by the kind of manager I have just described. I really would like to know his answer, because all I know about business screams to go long, not short!

 

giofranchi

 

Giofranchi -- now you are embarrassing me! And while we're on the subject, I enjoy your posts a lot.  Perhaps that's because I can most identify with your style of investing and I'm desperately seeking out others to confirm my innate bias!  Hopefully not....

 

And as for my infrequent posts, may I just say that I look at the amount of posts that you and some other very regular contributors make and I think -- how do they do it, where do they get the time??  I can barely keep up with what's been written, viewing videos posted up etc. that by the time I'm finished it's late and time for bed.  I must be seriously slow!

 

I think what my friend was referring to was that the most successful and well-known of the owner-operator companies are likely to be close to the end of their lives and that somebody else -- an inferior owner-manager if you like -- will be running the company in the not too distant future.  He likened it to buying great companies after they've already been great.  As you say giofranchi, what we should ideally be doing is hitching a ride from those owner-operators who likely have a couple of decades of their working lives ahead of them.

 

You bring up another crucial point in my opinion.  I don't believe it's enough to buy any old owner operator -- some of them are complete plums and have become very wealthy despite themselves.  You've got to feel confident that the owner-operators "get it".  They systematically look for bargains, try to buy the proverbial 50 cent on the dollar.  My thesis is that this attitude (combined with a great work ethic) at the top permeates down through the organisation and invariably this culture gets ingrained into DNA long after the father figure has departed.  Think about Berkshire or Leucadia or Fairfax or Markel.  Will the culture there change after Buffett / Munger / Steinberg / Cummings / Watsa / Markel (x2) retire?  Perhaps they won't have the same drive or same genius, but even at that I believe they'll be more equipped to grow value for OPMIs than the vast majority of agent managers.

 

Anyone disagree with my thesis?

[giofranchi]

 

WhoIsWarren,

thank you very much. You don’t write often, but anytime you post something, it is always very interesting, very well thought out, and very well written (which is at least as important as the first two).

I agree with your friend that the list of companies in the wealth-index is just fertile ground for further investigation… well, actually he thinks it is fertile ground to find short candidates, while I think it is fertile ground to find long candidates!  ;D

Anyway, I look for owner-managers in their 40s, 50s, or early 60s, with a time horizon of at least 2 decades left to go on compounding capital. I also look for some sort of value investing philosophy underlying their past deeds, I look for them to have shown strategic thinking and opportunism in the past. I look for someone who is in the business of buying $1 bills for 50 cents, is very good at it (no, an outlier is better!  ;) ), and has the possibility to go on doing that business for the next 20 years. The sole exception in my firm’s portfolio is Mr. Malone, who is in his early 70s. With Liberty Media I was forced to compress my time horizon to “just” 10 years.

Please, ask your friend if he would short the company run by the kind of manager I have just described. I really would like to know his answer, because all I know about business screams to go long, not short!

 

giofranchi

 

Giofranchi -- now you are embarrassing me! And while we're on the subject, I enjoy your posts a lot.  Perhaps that's because I can most identify with your style of investing and I'm desperately seeking out others to confirm my innate bias!  Hopefully not....

 

And as for my infrequent posts, may I just say that I look at the amount of posts that you and some other very regular contributors make and I think -- how do they do it, where do they get the time??  I can barely keep up with what's been written, viewing videos posted up etc. that by the time I'm finished it's late and time for bed.  I must be seriously slow!

 

I think what my friend was referring to was that the most successful and well-known of the owner-operator companies are likely to be close to the end of their lives and that somebody else -- an inferior owner-manager if you like -- will be running the company in the not too distant future.  He likened it to buying great companies after they've already been great.  As you say giofranchi, what we should ideally be doing is hitching a ride from those owner-operators who likely have a couple of decades of their working lives ahead of them.

 

You bring up another crucial point in my opinion.  I don't believe it's enough to buy any old owner operator -- some of them are complete plums and have become very wealthy despite themselves.  You've got to feel confident that the owner-operators "get it".  They systematically look for bargains, try to buy the proverbial 50 cent on the dollar.  My thesis is that this attitude (combined with a great work ethic) at the top permeates down through the organisation and invariably this culture gets ingrained into DNA long after the father figure has departed.  Think about Berkshire or Leucadia or Fairfax or Markel.  Will the culture there change after Buffett / Munger / Steinberg / Cummings / Watsa / Markel (x2) retire?  Perhaps they won't have the same drive or same genius, but even at that I believe they'll be more equipped to grow value for OPMIs than the vast majority of agent managers.

 

Anyone disagree with my thesis?

 

Well, I agree 100%! But you already knew that!  ;)

 

And, please, don’t tell my partners that I spend so much time posting on this board… they are a bunch of dull engineers… they won’t understand… and I will run the risk to get fired!!  ;D

 

giofranchi

 

[twacowfca]

Anyone follow Universal Insurance Holdings (UVE), an equity-heavy P&C insurer concentrated in Florida? The CEO and COO are in their 40s and own 34% of the company.

 

Yoshikazu Tanaka owns around 30% of GREE (3632.JP) and is a self made billionaire at age 35. I think I'd rather invest alongside him than Zuckerberg.

 

I had some UVE for a while, but it didn't but found that holding it was causing to much discomfort for me. Their risk is very concentrated (or was...think they expanded their operations to other state(s)).

 

I held UVE a few years ago too. Haven't looked at it for awhile. The growth was there and decent dividends, but the earnings were very lumpy resulting in that uncomfortable feeling!!!  Perhaps time to revisit.

 

And then couple that with some history of under reserving...

 

Yeah.  This popped up on a thread over a year ago.  It took about 45 minutes to put it in the too hard pile.  If I'm not mistaken they had some huge number for DAC that was way bigger than anything I had ever seen, as well as reserving issues.  Plus, a lot of the buyers of their policies (?) or whatever they sell were outside the US.  Too many yellow flags to want to spend time on them.

[twacowfca]

 

WhoIsWarren,

thank you very much. You don’t write often, but anytime you post something, it is always very interesting, very well thought out, and very well written (which is at least as important as the first two).

I agree with your friend that the list of companies in the wealth-index is just fertile ground for further investigation… well, actually he thinks it is fertile ground to find short candidates, while I think it is fertile ground to find long candidates!  ;D

Anyway, I look for owner-managers in their 40s, 50s, or early 60s, with a time horizon of at least 2 decades left to go on compounding capital. I also look for some sort of value investing philosophy underlying their past deeds, I look for them to have shown strategic thinking and opportunism in the past. I look for someone who is in the business of buying $1 bills for 50 cents, is very good at it (no, an outlier is better!  ;) ), and has the possibility to go on doing that business for the next 20 years. The sole exception in my firm’s portfolio is Mr. Malone, who is in his early 70s. With Liberty Media I was forced to compress my time horizon to “just” 10 years.

Please, ask your friend if he would short the company run by the kind of manager I have just described. I really would like to know his answer, because all I know about business screams to go long, not short!

 

giofranchi

 

Giofranchi -- now you are embarrassing me! And while we're on the subject, I enjoy your posts a lot.  Perhaps that's because I can most identify with your style of investing and I'm desperately seeking out others to confirm my innate bias!  Hopefully not....

 

And as for my infrequent posts, may I just say that I look at the amount of posts that you and some other very regular contributors make and I think -- how do they do it, where do they get the time??  I can barely keep up with what's been written, viewing videos posted up etc. that by the time I'm finished it's late and time for bed.  I must be seriously slow!

 

I think what my friend was referring to was that the most successful and well-known of the owner-operator companies are likely to be close to the end of their lives and that somebody else -- an inferior owner-manager if you like -- will be running the company in the not too distant future.  He likened it to buying great companies after they've already been great.  As you say giofranchi, what we should ideally be doing is hitching a ride from those owner-operators who likely have a couple of decades of their working lives ahead of them.

 

You bring up another crucial point in my opinion.  I don't believe it's enough to buy any old owner operator -- some of them are complete plums and have become very wealthy despite themselves.  You've got to feel confident that the owner-operators "get it".  They systematically look for bargains, try to buy the proverbial 50 cent on the dollar.  My thesis is that this attitude (combined with a great work ethic) at the top permeates down through the organisation and invariably this culture gets ingrained into DNA long after the father figure has departed.  Think about Berkshire or Leucadia or Fairfax or Markel.  Will the culture there change after Buffett / Munger / Steinberg / Cummings / Watsa / Markel (x2) retire?  Perhaps they won't have the same drive or same genius, but even at that I believe they'll be more equipped to grow value for OPMIs than the vast majority of agent managers.

 

Anyone disagree with my thesis?

 

Well, I agree 100%! But you already knew that!  ;)

 

And, please, don’t tell my partners that I spend so much time posting on this board… they are a bunch of dull engineers… they won’t understand… and I will run the risk to get fired!!  ;D

 

giofranchi

 

Great comments, Gio and others.

 

The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better.  Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset.

 

Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds.  :)

 

:)

[WhoIsWarren]

 

The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better.  Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset.

 

Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds.  :)

 

:)

 

twacowfca, that's very interesting.

 

Do you happen to have a link to those stats or know where I might find them?

[twacowfca]

 

The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better.  Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset.

 

Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds.  :)

 

:)

 

twacowfca, that's very interesting.

 

Do you happen to have a link to those stats or know where I might find them?

 

I'm almost certain that the link has been posted on this forum in a previous thread, and the study discussed.  Hopefully a search will find it.  :)

[netnet]

The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better.  Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset.

 

Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds.  :)

 

I too would love to see it.  In doing this kind of data massaging, one has to very careful, or you might only find what you want to find.  The first flag is the survivor bias

[twacowfca]

The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better.  Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset.

 

Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds.  :)

 

I too would love to see it.  In doing this kind of data massaging, one has to very careful, or you might only find what you want to find.  The first flag is the survivor bias

 

I got a hard copy of the study a year or so ago as I like to do when reading interesting long doccuments. It's in another residence.  I think it used the Compustat database, which is capable of eliminating survivor bias.  To the best of memory, the study's methodology was good.

[giofranchi]

The statistics are that if the returns of the less than 20% of the S&P 500 that were then run by owner operators were removed, the returns of the remainder would be so poor that a money market fund would have done better.  Combine that with the exceptional returns from engaged, ethical, shareholder focused CEOs, and it only gets better with this smaller subset.

 

Then eliminate all but good businesses in good to OK industries without drastic change on the horizon and buy at a good price. Do nothing more than this, and your long term returns will be better than 99 % of diversified funds.  :)

 

I too would love to see it.  In doing this kind of data massaging, one has to very careful, or you might only find what you want to find.  The first flag is the survivor bias

 

I got a hard copy of the study a year or so ago as I like to do when reading interesting long doccuments. It's in another residence.  I think it used the Compustat database, which is capable of eliminating survivor bias.  To the best of memory, the study's methodology was good.

 

Well, sincerely, I don’t need any statistical study at all… To me it is just plain common sense! Any business owner knows this, because he experiences every day how tough it is to keep up with very motivated, shrewd, and opportunistic competitors.

 

Do you remember the movie “Heat”, starring Al Pacino and Robert De Niro, directed by Michael Mann? Pacino plays the cop, while De Niro is the villain. Before the robbing of a bank, there is a scene in which Jon Voight warns De Niro about how skillful Pacino really is, saying something like the following: “He is a fanatic, always at work, never takes a break, with someone like him at heel, I wouldn’t rob that bank.” It turned out he was right!  ;)

 

giofranchi

 

[Sportgamma]

Well, when your the one paying the bills...

 

His production company, Closest to the Hole, rose from his need to be self-sustaining: “Producing gives you a lot of control, and that’s always been the issue for me,” he says. “I would rather be the one driving the car. If we crash, at least I can blame myself.”

 

Inherently frugal, he’s figured out how to do more with less. For example, his upcoming action comedy 2 Guns, opposite Denzel Washington, was originally budgeted at $150-million (U.S.). Wahlberg hired the rising Icelandic director Baltazar Kormakur, who knows how to make small budgets look big, and shot it in New Mexico in 50 days, for half the price.

 

“Before us, The Lone Ranger was there,” Wahlberg says, grinning. “It’s about two guys on horses, and it cost $280-million to make. What the fuck were these horses doing? Do they fly? It’s crazy!”

 

http://www.theglobeandmail.com/arts/celebrity-news/who-is-the-real-mark-wahlberg/article7519422/