Fundamental Investors Struggle in 2011, Central Banks and Europe, Cholesterol

“Fullness of knowledge always and necessarily means some understanding of the depths of our ignorance, and that is always conducive to both humility and reverence.” — Robert A. Millikan

Do you wish to be great? Then begin by being. Do you desire to construct a vast and lofty fabric? Think first about the foundations of humility. The higher your structure is to be, the deeper must be its foundation. –Saint Augustine

Fundamental Value Investors Struggle This Year

I am puzzled by the performance graph as compared to the S&P 500; the Index, not including dividends, is flat for the year.  How can the performance of so many money managers be so negative? Fundamental investors (whoever they are?) are down 20% or more! Thoughts? My guess is that managers had to liquidate on the violent sell-offs throughout the year due to client redemptions.

Are there any lessons here? If a money manager had simply held stocks and done nothing all year, clients’ accounts would be in the black with dividends included.

More on Central Banks in Europe:

Lessons in Economics

Interest rates in a gold coin standard: An article on understanding interest rates. What would interest rates be under an expanding economy with no currency debasement?

A lecture on Keynes and Social credit. This lecture is really about how Central Banks “pay off” government debts through inflation. A lesson on how production creates demand. Productivity (Says Law) drives wealth creation and economic growth not consumption.

Interesting Charts and Graphs this Past Year  Click on the links within this article. Remember correlation is not causation.


With all the spiked eggnog you will be drinking over the holidays, you will need to know How to Interpret Cholesterol Test Results 

Can I hear your Primal Scream?

4 responses to “Fundamental Investors Struggle in 2011, Central Banks and Europe, Cholesterol

  1. ” Fundamental investors (whoever they are?) are down 20% or more! Thoughts? ”

    In the words of Mike Burry: just because a stock is on a PER of 8, doesn’t mean it can’t go down to 4.

    I also like this one from a writer on the Motley Fool UK: “Value investing – it’s no panacea”.

    Also, I think it disabuses the notion that value stocks are somehow inherently safer than other types. As Asweth Damadaran points out, PE is usually a function of risk and expected growth. It could simply be that the risky, low-growth shares got pummeled by the market.

    In order to get into deep value territory, a stock must usually start from not-so-deep territory, so unless you get your timing right, or invest in only rare truly already deeply-discounted shares, there’s a tendency to catch falling falling knives.

    I’m disappointed with my performance this year. I’m not expecting to be hailed as the next Mike Burry anytime soon. Still, the good news is that I’ve done better than Bruce Berkowitz. Way better. Although that wouldn’t be hard, of course.

  2. As the previous person commented, the word “value” is much too narrow and one dimensional to describe the various situations good managers exploit to outperform in the long run. I like the word “expectations” since the difference in expectations encompasses growth, price, quality and many other things that a good money managers key in on.

    IMHO, the biggest single factor that would have helped managers to beat the market was going long large quality companies in US.The return to quality is long overdue (the cumulative spread of returns between low quality stocks and high quality stocks in US hit historical extremes back in February). Of course hindsight is 20/20, but continuous focus on understanding and improvement is what wins in the long run… this blog and the value vault is a huge help with both. This blog is the real story of 2011!

    • “the biggest single factor that would have helped managers to beat the market was going long large quality companies in US.”


      I don’t know if you’ve heard of a guy named Neil Woodford. He is a highly respected UK fund manager, and the vast bulk (but not exclusively) of the funds he manages are, and always were, in high-quality high capital returns companies. His fund has lagged from about 2009 to early 2011 as he refused to engage in “the dash for trash”. Earlier this year he did warn that he thought the banks were risky, and that the valuations of high-quality companies was the cheapest he had ever seen. He called it perfectly.

      As it turned out, I heeded his advice, and moved from the dodgy stuff to boring-but-safe investments. That move saved me a packet. Of course, one could argue that I was just lucky in making the right call

    • Thanks Frank.

      One value investor told me that value investing is trying to buy cash flows at a discount.
      If you look at history after a credit or banking crisis like 2007/2009 and 1990s (S&L), leveraged companies that do not
      go bankrupt have the greatest returns–a 20 cent airline stock goes to $12. Of course, those returns do not factor in the ones that
      go belly down.

      John Templeton sort of used this approach during the Great Depression

      Once these asset based (non-franchise) companies reach their earnings power value one or two years out of the depression then they are at or above full values.
      Don’t overstay yourwelcome.

      Certainly, high quality companies are at attractive prices–good value compared to alternatives but not stupid cheap. Go where the value is. There
      will come a time like 1973 or 1996-1998 when high quality, large caps trade at silly prices. As the Bible says……………

      Ecclesiastes 3

      To everything there is a season,
      and a time to every purpose under the heaven:

      A time to be born, and a time to die;
      a time to plant, and a time to pluck up that which is planted;

      A time to kill, and a time to heal;
      a time to break down, and a time to build up;

      A time to weep, and a time to laugh;
      a time to mourn, and a time to dance;

      A time to cast away stones,
      and a time to gather stones together;
      a time to embrace, and a time to refrain from embracing;

      A time to get, and a time to lose;
      a time to keep, and a time to cast away;

      A time to rend, and a time to sew;
      a time to keep silence, and a time to speak;

      A time to love, and a time to hate;
      a time of war, and a time of peace.

      Ecclesiastes 3:1-8

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