Category Archives: Investing Gurus

Li Lu’s Lecture; Value Investing Videos

Go comics 1

JUN 24, 2010

Li Lu’s 2010 Lecture at Columbia

Many of you enjoyed my previous transcript of a talk Li Lu gave at Columbia University. Thanks to Joe Koster, you can now view a more recent lecture he gave to Bruce Greenwald’s value investing class in April of 2010. Seen here: http://www7.gsb.columbia.edu/video/v/node/1365?page=26 Based on Berkshire’s investment in BYD, the fact that Lu manages Charlie Munger’s money, and that even Buffett would give money to Lu if he ever retired (according to Greenwald) makes me think Li Lu is an investor worth watching.

With that in mind, I believe it is insightful to study whatever you can find about him and his approach. I think this lecture from 2010 is great. The recording has some audio issues making it difficult to hear and I thought that some of you might enjoy reading notes from the talk. This is not a true transcript, but an approximation of what was said. I think it comes pretty close, having listened to the lecture a few times. I think you will find it helpful and Lu’s talk rewarding.

Bruce Greenwald: Warren Buffett says that when he retires, there are three people he would like to manage his money. First is Seth Klarman of the Baupost Group, who you will hear from later in the course. Next is Greg Alexander of the Sequoia Fund. Third is Li Lu. He happens to manage all of Charlie Munger’s money. I have a small investment with him and in four years it is up 400%.

http://streetcapitalist.com/2010/06/24/li-lus-2010-lecture-at-columbia/

http://www.bengrahaminvesting.ca/Resources/videos.htm#2006_Guest_Speakers

Letters to a young analyst (Great blog for books): 

http://www.readingthemarkets.blogspot.com/2014/09/brakke-letters-to-young-analyst.html

Scottish Vote on Independence: https://www.youtube.com/watch?v=PD5Imb7vWSc

 

A Bear and a Value Investor Throw in the Towel

fairbanks-and-chaplin

Bull could run 5 more years, carry S&P 500 close to 3,000 only seemed interesting because the forecast sounded a bit extreme. We quickly scanned the headline, thinking that whoever was making this assertion surely hadn’t breathed a word about this when the SPX traded at just below 670 points in March of 2009. Such wildly bullish forecasts are strictly a function of SPX 2000 in our opinion, on a par with the “Dow 36,000” forecast, which gained some notoriety in the late 90s. One of the reasons behind the SPX 3000 forecast mentioned in the article did amuse us greatly though, namely the following:

They cite extensive deleveraging in the U.S. as well as the uneven global recovery among other reasons why “this could prove to be the longest U.S. expansion – ever.”

CHART-1-total-US-credit-market-debt-owed

and

CHART-4-NYSE-investor-credit-SPX-since-1980

http://www.acting-man.com/?p=32732#more-32732

An emerging market value investor’s plea:

“This Is A Circus Market Rigged By HFT And Other Algo Traders”

Andrew Cunagin, the founder of Rinehart Capital Partners LLC, a hedge fund backed by hedge-fund veteran Lee Ainslie and specialized in emerging-markets stock-picking, and who as the Wall Street Journal reported earlier, is closing. The closure is not news: what Cunagin blames the closure on, however, is.

From the WSJ:

“This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors,” Mr. Cunagin wrote, referring to the high-speed traders who have attracted wide attention this year for the alleged advantages they hold over more traditional investors.

Mr. Cunagin, 43, said in an interview from Cape Town, South Africa, where he was scouting potential future investments, that there was “clear evidence of penetration” by high-frequency traders in the stock markets of South Korea and Mexico, among other areas.

You can see the evidence of dark pool trading…you’ll see half the day’s trading volume occur in the last seconds of trading,” he said. “There’s just evidence that this is not a level playing field.”

In his late-August letter, Mr. Cunagin criticized the “dash for trash” among other traders, including exchange-traded funds, that “puts to shame even the most speculative excesses of the dot.com era.” He said those factors, along with the impact of high-frequency trading, contributed to his fund’s recent poor performance.

Rinehart launched in August 2007, just two months before many emerging markets hit their precrisis peaks. The fund lost 12% in 2008, outperforming most funds during a dramatic pullback for emerging markets world-wide, and made money in the subsequent three years. More recently, however, it struggled, posting losses of 7% in 2012, 15% in 2013 and 4% through midyear this year.

So is this just sour grapes as yet another trader “fought the Fed”, and lost due to two minor disadvantages: a limited balance sheet, and being forced to stay liquid longer than the central planners can stay irrational?

Perhaps, he does however, make a point: “The frustrating thing is that this is precisely the time when you shouldn’t be giving up,” Mr. Rinehart said in the interview. “Anyone who shorted the ‘dot coms’ in the 90s had bad performance, and those ended up being the trades of the decade.

The flipside is that everyone else who went long the dot coms felt richer and richer, if only on paper, and invest more and more cash into the clear bubble until they too lost everything in the end. But such is the poetic justice of the, rigged or otherwise, market: first it wipes out all the shorts, then it drags everyone on the long side, and then it goes bidless and wipes out the longs.

Rinse, repeat.

* * *

Some other excerpts from Cunagin’s letter, courtesy of the WSJ’s Money Beat blog:

The dislocation of returns from traditional vehicles of wealth creation and protection has created a violent rip tide of fund flows from conservative segments of the risk spectrum to the most speculative, giving rise to another, more dangerous bubble. With yields ZIRPed and alpha dead, beta and the ethereal pursuit of “market-” and theme-driven (social media, bio-tech, Chinese internet) returns have become the only game in town, with central banks as the arbiter. Post-2008 monetary policies have rewarded the beta investor who’s gone “all in” on market risk and themes, while punishing harshly the market-neutral, alpha investor who discounts allocations on the basis of value. New paradigms have emerged as a result, defined by binary outcomes of risk-on/risk-off, taper-on/taper-off, win big/lose big. With new innovations of beta-engineering—instruments such as E-minis, QQQ, dollar-yen carry trade—investors are pursuing en masse too little reward in exchange for too much risk. As one commentator put it recently, “the market has become a roulette table, with dimes on black and dynamite on red.”

Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality. And just as in past cycles, the manager who doesn’t subscribe to the new rules, who goes against the grain of convention is viewed as out of touch or left behind.

If there’s an expression that’s come to capture the zeitgeist of the QE era, it is the notion of what is or is not “working” across the asset allocation spectrum. I’ve read reports from equity strategists advising clients to stick with growth themes since “value isn’t working.” Technical analysts assure us that, despite what you’ve been brought up to believe, a strategy of buying high (especially on dips) while selling low is what “works” in this market. I’ve heard from prominent allocators frustrated that “nothing seems to work in emerging markets.” And, most dishearteningly, I’ve heard from Rinehart investors who have rightly observed that, despite steady performance in the past, our strategy is “just not working now.”

The assumption, of course, is that if it’s not working then it’s wrong and if it is working, it’s right. That’s fair enough. As a service provider, we serve at the pleasure of clients, and no manager is ever owed an explanation for being hired or fired. But it’s worth asking, what is it that investors seek? That is, just what is working?

Since the beginning of our fund’s drawdown in early 2012, a Bloomberg index of the “Worst Balance Sheet” companies of the S&P500 has returned to-date over +30% on an annualized basis. An MSCI index of the “Most-Shorted” companies of the Russell 3000—a proxy for the visibility of bad valuations, bad managements, and bad fundamentals—has also returned over +30% annualized. These perversions are even more pronounced within EMs, exacerbated by record fund outflows in the first half of 2014, exceeding even those of the 2008 crisis. This dash for trash puts to shame even the speculative excesses of the dot.com era. This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization. Nonetheless, it’s an internal dynamic to which we are uniquely levered, by design, as an alpha strategy. One thing is certain, managers whose strategies are working may be bright and well-informed with advanced metrics on which they make investment decisions, but a reasonable assessment of value is not among them. Do previous cycles not bear asking, what other measure is there?

Sequoia Transcript Sequoia 2014 Transcript

Update on Sept. 11, 2014: Another bear throws in the towel for not being BULISH enough

HAVE A HAPPY WEEKEND!

Deep Value

 

41l84-m2xuL._AA160_

 

Interview-with-benzingas-deep-value-letter-author-tim-melvin-about-my-new-book-deep-value/

Another Value Investing Program (Marty Whitman)

Whitman

http://orangevaluefund.com/Welcome.html

Learn about “SAFE and “CHEAP.” 51LTsFHG74L._AA160_

Munger’s book recommendations

http://www.farnamstreetblog.com/2014/08/book-recommendations-from-billionaire-charlie-munger/

 

Munger Discusses Blue Chip Stamps

Blue Chip

A case study of Warren Buffett and Charlie Munger’s investment in and management of Blue Chip Stamps. Includes:

If you find any errors or have any other contributions, make a pull request or contact me through the Twitter handle @maxolson.

GO HERE: https://www.gitbook.io/book/maxolson/blue-chip-stamps

PS: On the road, but I haven’t forgotten about Yamana. I wouldn’t buy above $8.00.

If gold is down because the market thinks the Fed will raise rates and end QE, then those assumptions are based on fantasy. HOW can the FED EVER stop QE without the house of cards collapsing?  What does history say:  http://www.zealllc.com/2014/goldrrf.htm

 

Here is the Argentina Peso in free-fall:

Peso Monthly

HAVE A GREAT WEEKEND!

 

Jean-Marie Eveillard Lecture

Jean Marie

Jean-Marie Eveillard
Adviser, First Eagle Investment Management

March 13, 2014

Quotes

“We don’t look at gold as a commodity, but as a form of insurance against what Peter Bernstein calls extreme outcomes. In most circumstances in which worldwide equity markets would go down – and not just for a week or two – the price of gold would go up, providing a partial offset to the hits we’d take in our equity portfolio”.

“In general, there aren’t many countries in which we wouldn’t invest. But if a country is too economically or politically prevail, we pass. The main country in which we won’t invest today is Russia. There’s still too much risk for foreign (or even local) investors that you’ll think you own an asset and then Mr. Putin decides you don’t”.

“The knock on diversified funds is that they’re index-huggers, which given the geographic breadth of where we invest, is not at all the case for us. I know the argument that you should only own your best 30 or 40 ideas, but I’ve never proven over time that I actually know in advance what those are”.

“Our cash balance is purely a residual of whether or not we’re finding enough to invest in”.

“If one is wrong in judging a company to have a sustainable competitive advantage, the investment results can be disastrous”.

“Top executives from a Japanese property company and casualty insurer we’ve owned for years just in our office last month explaining the extent of the CDO exposure in their investment portfolio, which was upsetting to us. We said,”Didn’t the fact that you were buying a triple-A rated product with a yield much in excess of what you could get from Procter & Gamble sound too good to be true?”. But that kind of thing happened around the world.

References

  1. “Jean-Marie Eveillard on Toyota Motor Corp. Situation”. gurufocus.com. 23 February 2010. Retrieved 2010-03-09.
  2. a b “Jean-Marie Eveillard”. panachemag.com. Retrieved 2010-03-09.
  3. “Jean-Marie Eveillard – Profile”. gurufocus.com. Retrieved 2010-03-09.
  4. a b Birger, John (19 June 2007). Eveillard: A value maestro’s encore. FORTUNE Magazine. Retrieved 2010-03-09.
  5. “Jean-Marie Eveillard and Ralph Wanger to Receive Fund Manager Lifetime Achievement Awards at Morningstar Investment Conference”. Morningstar.com. 26 June 2003. Retrieved 2010-03-09.
  6. “Columbia Business School Directory”.

Video Lecture at Ivey School in 2014:

http://www.bengrahaminvesting.ca/Resources/Video_Presentations/Guest_Speakers/2014/Eveillard_2014.htm    Worth the time.

81Y3Ak

 

Seth Klarman

Seth+Klarman+Allen+Company+Annual+Meeting+7bct-wIFGiHl

…When men live by trade–with reason not force, as their final arbiter–it is the best product that wins, the best performance, the man of best judgment and high ability and the degree of a man’s productiveness is the degree of his reward.   (Atlas Shrugged)

Seth Klarman

Below are links to Seth Klarman’s investor letters and appearances.  I would try to study his philosophy, attitude, and approach to investing–see if you can integrate some of his approach to YOUR OWN methods.

New material from a reader (generous!) KLARMAN Response to Lowensteins Rational Investors found here:Graham Dodd Revisted by Lowenstein

Seth-Klarmanm-Interview-Financial-Analyst-Journal

klarman-value-investors-different

klarman-yield_pig

Klarman_on_running_a_fund_interview

Seth_Klarman-Why_Most_Investment_Managers_Have_It_Backwards

SethKlarman-TIFF_2009

Klarman 2013 Letter Excerpts

A BLOG DEVOTED TO Klarman  http://www.rbcpa.com/klarman.html

1408066-month_gold

Yamana Valuation

Upon returning from vacation, I have put off updating my valuation of Yamana. When there are fish, you must fish.   I promise to have it posted by this weekend.   I do recommend anyone who wants to hear a good management team explain their strategy for managing assets to listen to Yamana’s second quarter’s conference call:

http://www.gowebcasting.com/events/yamana-gold-inc/2014/07/31/second-quarter-financial-results/play

Yamana Gold Inc_ Q2 2014 MDA Final (SEDAR)_v001_t1ii3h

Yamana Gold Inc_Q2 2014

PresentationQ2 2014 – Conference Call Final

Asking a girl for her phone number

Another Investing Blog

Fund_Raising

economic_forecast

An interesting blog:http://alephblog.com/ The writer seems to approach investing through the different lens of actuarial risk–another approach to help you broaden your perspective on investing.

Value Investing Flavors

Classic the fundamentals of market-tops
Advice to students of investing (that’s us!)

But if I had control over what Finance students were taught, I would do the following:

1) I would reduce the math content for finance students and increase the qualitative understanding of markets.  No more MPT.

2) I would increase the level of understanding on how to relate with people, because that makes a big difference in negotiating trades.

3) I would want them to work in a simple business, like a hot-dog cart, or mowing lawns, so that they could begin to get an idea of how tough it is to earn a profit.  My best boss in my life grew up watching his parents’ delicatessen, and it shaped his view of how to make a profit.

4) I would revise the concept of the cost of capital to make it credit-centric.  All the efforts to calculate the cost of equity capital from equity market correlations are bogus.  They don’t make any economic sense.  In most cases, the cost of equity should not exceed the yield on an average CCC bond.

5)  I would tell them that changes in inflation and real GDP don’t have as large of an impact on corporate profits as is commonly thought, both positively and negatively.  I would tell them to focus on the stock, and drop the complex model.  Few in the investment business work off a complex model, and if you need one, you can buy Value Line, which I like, which tries to use a single macroeconomic model for 1700 popular stocks. 

Mostly, I would teach them to think broadly, and realize the most of the complex investment math is easy to get wrong.

The article:

What I Would & Would Not Teach College Students About Finance

My Theory of Asset Pricing

Have a Good Weekend!

Decline SPY

hy credit and SP 500

HY credit is where the fun may begin.  I would be terrified to buy the dip–unless I knew the company cold.

something-good

All Things Charlie Munger

munger

Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past. –Charlie Munger

Thanks to a reader:

The-Best-of-Charlie-Munger-1994-2011

Read: https://www.hightail.com/download/ZUcweFlkWkJwTVZBSXRVag

Munger’s analysis to build a Trillion Dollar Business from Scratch

Munger-Talk-at-Harvard-Westlake

Munger Mental Models

 

 

 

 

Victor Sperandeo on the Inevitability of U.S. Hyperinflation

Why we are doomed

debt-GDP

http://www.oftwominds.com/blogjuly14/interest-debt7-14.html

Update on Hyperinflation Talk Presented 2010 by Victor Sperandeo,

EAM Partners L.P.                                                                May 13, 2013

On February 16, 2010, I first gave a speech titled “Hyperinflation: A Statistical Inevitability” at a charity event in Dallas, Texas. In essence, the talk was a “warning” that unless the growth of the nominal debt versus nominal GDP changed to a more normal balance, the US would “eventually” suffer from hyperinflation.

Hyperinflation is a debt problem whose root cause is when a country’s level of debt rises to a level that when its economy goes into a deep recession (or depression) the country cannot borrow money or raise enough taxes to cover its expenditures, and therefore it is forced to print money to cover a greater percentage of its expenditures than the markets and investors think is sustainable. This concludes in the country’s inability to pay the interest on its debt, which progressively consumes its overall budget, causing the country to continue to print money to pay its ever increasing debts and interest thereon, which ultimately leads to a loss in confidence in its currency, ending with hyperinflation as the result.

Editor: Note the difference between inflation and hyperinflation (hyperinflation is NOT just an ultra-high rate of inflation) See links below.

Where the U.S. Stands Today

My original speech was based on the 2010 Congressional Budget Office’s Budget and Economic Outlook Fiscal Years 2010-2020. At the time, total US debt was growing at an unsustainable rate of 11.90% compounded from 2006 -2010 (fiscal years) while gross GDP was growing at a nominal rate of 2.75%. Debt was increasing at 4.3 x’s higher than growth. Clearly, this was an unsustainable situation.

Further, the reason that I state hyperinflation will occur “within” the next 10 years has a logical basis. If one takes the position that the net debt will grow at 5% a year, total U.S. debt will be $27.324 trillion in 10 years (not including current off-balance sheet items or unfunded liabilities). As the CBO does not project total U.S. debt, only public debt, the $27.324 trillion figure is based on my projection.

Now, what will interest rates be in 10 years? The CBO says an average yield is 4.6% (CBO 2/13 Report page 5), but let’s assume it reverts to the mean for bills and bonds of the last 52 years, or from 1961, which was 6.01%. Assuming that spending increases 5.08% a year from 2014-2023 (CBO 2/13 Report page 3), they say annual spending will be $5.082 trillion in 2023 net of annual interest.

However, annual interest in 2023 on my projected $27.324 trillion total U.S. debt (using the historic average interest rate of 6.01%) will be $1.642 trillion, or 32% of projected 2023 annual spending without interest and 24% of projected 2023 annual spending with interest. Today, interest is 6% of the budget. Therefore, one has to ask the question, where does the approximately 20% difference come from? I believe U.S. bond holders will sell what they own, the U.S. dollar will decline, and the Fed will print money at a rate that will make today’s Fed look like they are Shaolin Monks.

See full article here:Hyperinflation by Victor Sperandeo

A history of hyperinflation in pre-revolutionary France: Fiat_Inflation_in_France_by_White

Wheel

Children fiatburn fiatth

An Austrian economist, Joseph Salerno discusses in nineteen minutes the theory of hyperinflation (High School Lecture) http://youtu.be/xVDZVhdT2gY

I am interested to hear from readers how the U.S. will AVOID hyperinflation assuming our current trends continue. What will politicians try to avoid default.  What do YOU think?

Two short, six minute videos discussing Market Wizard, Victor Sperandeo: http://youtu.be/OBkb69tvVqs and http://youtu.be/8XfSz3MT3Xg

51hEgR+btOL._AA160_

51I5evOzW8L._AA160_

Yamana valuation to be posted Friday.