Greenwald Video with Gurus like Li Lu. Michael Burry Notes

Two readers/contributors sent me these links. Thanks again.

My two cents, the video is worth viewing, but if you look up the companies in Michael Burry’s research and follow along, you will benefit more. I would rather bet on Michael Burry rather than Li Lu. Be skeptical of any “Guru” and never cease to think for yourself. Many Gurus know a hell of a lot less than you think they know.

I am amazed that no one on the panel discusses the causes of the boom & bust which flattened most money managers in 2008/09.

Professor Greenwald’s Panel Discussion with Li Lu and other “Gurus.”

http://www.gurufocus.com/news/154825/bruce-greenwald-moderates-panel-discussion-that-includes-charlie-munger-favorite-li-lu

Michael Burry Research Report Write-Ups

A contributor, eclecticvalue provides a scribd link here: http://www.scribd.com/doc/74831871/Burry-Writeups

I will place several investor letters and research reports from Michael Burry (a self-taught investor who sits alone in a room and thinks.) in the Value Vault.

For keys to the Value Vault: email me at aldridge56@aol.com with VALUE VAULT in the subject line. You will receive a link and then you can sync to your desk-top.   Thanks for all the contributions to the Value Vault!

14 responses to “Greenwald Video with Gurus like Li Lu. Michael Burry Notes

  1. Too much quality, John 😉

    I’m building up a bit of a backlog on your posts, so I really need to play catchup. Now that you’ve brought up the subject of gurus, I wonder what you think of Bill Miller – the hot hand that went cold – and Buffett.

    Was Miller ultimately just chasing beta, or was there some genuine skill there?

    I tend to scoff at people who put Buffett down to just luck – but there was an interesting comment by Taleb that he can’t distinguish Buffett’s performance from luck. The main evidence seems to be down to the fact that Buffett has actually had quite a few duds – and that only just over half of them have been successes. Buffett himself has said that if you took away his five best investments, he would have performed about average.

    Thoughts?

    • I will reply with a post after taking time to think. But my quick response: Bill Miller bought falling knives scale down and it worked until it didn’t. He didn’t understand what a credit crisis would do to over-leveraged financial companies. I scream from the top of my lungs for people to understand Austrian Business Cycle Theory. You can’t time the market but you can be aware of the obvious. What? Investment Banks leveraged 50 to 1 might collapse, home prices rising 5 times greater than income growth would stop rising, Americans spending 115% of their income might have to cease–I mean who knew? Why do people go insane all at once? The Federal Reserve distorts real interest rates and the government ceaselessly hampers the market (Fannie, Freddie, tax breaks, minority lending laws, etc., etc.).

      I also do not think that Bill Miller, Mohnish Pabrai, etc. fully understand what they are doing ALL the time. They leave their circle of competence. Unfortunately that happens when they have too much capital so their overall record may slightly outperform (as Bill Miller’s did from 1990 onward) but MOST of their investors lose since they pile in at the top. They all invest after a great 5 or 10 year investment record. They don’t understand how the record was generated. Pabrai buys leveraged assets so he does well when the market booms (35% per year) and not so well when a crash occurs (down 75% at one point in 2008). I do believe he will outperform simply by avoiding glamour stocks and buying ugly, obscure companies after a long decline if he is diversified enough and can invest for a long enough time but by only 2% or so.

      Buffett is right. Read Fortune’s Formula–a few big investments drive returns.

      I will reply in more detail later……………Thanks.

  2. Can’t seem to download the Burry Writeups file….

    J

  3. Dear Joe:

    I corrected the scribd.com download for the Burry Writeups. Try it now.
    Thanks for letting me know. Best,
    John Chew

  4. Indeed, Lu did not look impressive. But I suspect it is part cultural. He did not seek to impress. Temperament is at least 50% of investing process. Lu went through life and death situations in China on the scale few of us could imagine. I suspect this could help with his characters in coping with turmoils in the financial markets.
    wy

  5. John,
    I know you’ve talked about taking 5% positions… Do you yourself try and follow Buffett and the Kelly Formula, etc and take concentrated positions. How as your portfolio strategy changed over time, especially as you sat in on classes at Columbia?

    • I expect you might answer my questions in a future post, some day down the road?

      • Sorry TC, I never intentionly ignore anyone. As my ex-wife tells me: “If the phone don’t ring you will know its me.” I missed your post which I will answer forthwith after this reply.

    • Yes, I have evolved over time. I began as a physical commodities trader then a futures trader on the Open Board of Trade in Chicago. When I started in stocks, I invested all my money on leverage into a micro-cap financial services company (Trade Acceptance Drafts). I invested/bought shares at $3 and then the price went up to $33 over the next three years with me piling in along the way. In fact, it was the only stock I traded for two years. I raised 12 million for the company with a phone book as my contact list. I met customers, went on sales calls, knew the CEO and Chairman of the Board. I ate, slept and breathed the company. Was I mentally ill? Hubris and the belief in perfect knowledge plus many other quirks.

      Dan Loeb became a big short seller (alias Mr. Pink) and eventually the company went bankrupt and the CEO that I knew is hiding in Israel wanted for extradition. The company was Actrade International. Google it and Mr. Amos Aharoni. A morality tale and horror story.

      God still believed in me. I sold out around $22 and told any clients to sell because when I asked the CEO to break apart the financial activities of the company for transparency, he refused. Well, if you can’t see out the window of a car going 100 miles an hour, you better get out. But if the CEO didn’t ignore me, then I might have gone down with all hands.

      Columbia and MBA schools are over-rated, in my opinion. Go to the value vault instead. Even Joel G will tell you he learned not from Wharton but reading and applying Graham. There ain’t no secret but learning from everywhere and applying the principles to what is in front of you today and tomorrow.

      I am much more diversified, especially with non-franchise companies and (if they have debt even more so.) There is a time and place for concentration. If you can spot a Royal Flush then shame on you if you don’t get everyone to bet into the pot.

      Hope that helps or post another question.

  6. @TC, I sometimes wonder about John, maybe there’s more to him than meets the eye. Pseudonym, perhaps? Maybe that’s how he can get us dates with Lindsay Lohan and tips from Jim Cramer 😉

    A couple of other observations: I wrote about the Kelly Formula on my blog last month:
    http://alt-mcarter.blogspot.com/2011/11/diary-kelly-formula.html
    and concluded that I wasn’t impressed with the idea.

    Regarding concentrated vs diversified portfolios, I saw a recent article http://bit.ly/uPWqON with the following comment: “39 of 42 Australian funds managers who outperformed their benchmark owed their outperformance to the ‘underweights’ in the portfolios – suggesting that human error is not only the source of underperformance but perhaps also of some of the outperformance.”

    “Pabrai buys leveraged assets” – I’m reminded of the ever-quotable Howard Marks of Oaktree Capital who said, in effect, that leverage doesn’t improve the quality of your decisions, it only magnifies the results.

    I’ve had a look at the Burry papers – and I must say, the guy is in a different league to me entirely. Having said that, couldn’t one say that a large proportion of it was down to luck? The writeups I have seen are from the early 00’s. I remember, at about that time, constructing a “Dorfman Robot” portfolio at around that time – named after John Dorfman, of course. I simply selected half a dozen stocks from different industries that were on low PEs and had reasonable debt. The portfolio rose 40% in a year. So even a robot would have done very well following a value strategy in the early 00’s. This very much brings to mind something that Grantham said: “Low PBV stocks or small cap stocks only outperform when priced to do so”. I’ve summarised his “beyond excellent” paper in which I found the quote here: http://bit.ly/ths3AN

    • Dear Mark:

      There is an investor who invested in technology companies in Fortune’s Formula and his returns were driven by huge gains in certain companies–typical of several successful private investors.

      Luck? Certainly the sample size is too small to definitively say it is skill.

      Perhaps it is the pursuit of the impossible that drives us–becoming a consistently outstanding investor.

      Michael Burry shows the power of thinking independently, alone in a room. The difference is that he relentlessly pursued his idea and won (like a successful entrepreneur).
      Luck? Perhaps, since there is no SCIENTIFIC way to distinguish on one or two events.

      You are certainly right about leverage–a faster way to heaven or hell.

  7. Thanks, I appreciate it!

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