Category Archives: Investing Gurus

Advice for New Investors

Applause for Jim Grant

Jim Grants

https://vimeo.com/chrisderrico/review/131241569/0f1bbc32bc

 

Investing in Nightmares (Tim McElvaine)

Bears

McElvaine Stock-Market-Superstars-2008   Book Excerpt.

McELvaine Presentation


HAVE A GREAT WEEKEND!

Great Annual Reports/Shareholder Letters; Catch-22

the outsiders

How-the-outsiders-became-one-of-the-most-important-business-books-in-america/

I recommend the above book!

When we read annual reports and shareholder letters we are searching for good businesses, cheap assets and excellent operators and capital allocators.

From the Preface of  The Outsiders: In assessing performance, what matters isn’t the absolute rate of return but the return relative to peers and the market. You really only need to know three things to evaluate a CEO’s greatness: The compound annual return to shareholders during his or her tenure and the return over the same period for peer companies and for the broader market (S&P 500)

Context matters greatly–beginning and ending points can have an enormous impact, and Welch’s tenure coincided almost exacly with the epic bull market that began in late 1982 and contiued largely uninterrupped until early 2000. During this remarkable period, the S&P 500 averaged a 14 annual return, roughly double its long-term average. It is one thing to deliver a 20 percent return over a period like that and quite another to deliver it during a period that includes several severe bear markets.

A baseball analogy helps to make this point. In the steroid saturated era of the mid-to-late 1990s, twenty-nine nome runs was a pretty medicore level  of offensive output (the leaders consistently hit over sixty). When Babe Ruth hidid it in 1919, however, he shattered the prior record set in 1884 and changed baseball forever, ushering in the mdoern power-oriented game. Again, context matters.

The other important element in evaluating a CEO’s track record is performance relative to peers, and the best way to assess this is by comparing a CEO with a broad universe of peers. As in the game of duplicate bridege, companies competing within a  industry are usually dealt similar hands, and the long term difference between them, therefore, are more a factor of managerial ability than expernal forces.

When a CEO generages signifiantly better returns than both his peers and the market, he deserves to be called “great,” abnd by this definition, Welch, who outperformed the S&P 500 by 3.3 times over his tenure at GE, was an undeniably great CEO.

He wasn’t even in the same zip code as Henry Singleton:

From a Deep-Value Member: Hi guys and girls:

Seeing as though we have such a passionate investors in John’s group, and we’re in annual report season, I wondered if everyone could nominate their top 5-10 “must read” shareholder letters. I will collate the results and re-post the top 10 back to you all when done (hopefully by the coming weekend). I think the idea here is for us all to hear about a few undiscovered names, rather than the obvious ones… so there is nothing too small or obscure as long as you think it conveys something meaningful and insightful.

Please reply with “shareholder letter” in the title as it will make this a little easier for me. Also… we can all assume Berkshire is an annual must read, so lets leave this on one off the list. I’m curious to hear what people have to say. Let me start off seeing as though I have put forward the idea.

  1. Fairfax Financial Letter 20015
    Markel Corporation Annual Report 2014
  2. Burgundy AM (Canada) Stoicism-and-the-Art-of-Portfolio-Intervention       2014-Confessions_of_a_Buffetteer (from Canada)
  3.  http://www.leithner.com.au/links.php (Australian Grahamite-FABULOUS) http://www.chrisleithner.ca/newsletter/index.php#.VUzyCvlVhBc    Great links to investing material/lessons.

Cut and past the above–excellent web-site with a trove of Graham an Dodd links, materials and letters!

JP Morgan
Amphenol
Overstock.Com
Serco Plc
Amerco

……………………………………………

After two weeks of sifting and sorting, I can reveal our top 10 favorite shareholder letters.  It’s an eclectic mix.

Thank you to all you who contributed.

  1. Complete_Buffett_partnership_letters-1957-70
  2. Aristotle Capital Annual Letters Managers-and-Baseball-Aristotle-Borowski-7.22.13     Aristotle-The-Essence-2015Q1-ACML-15-197-Kosher-Meat   Aristotle-Commentary-2015Q1-Value-Equity-ACML-15-220
  3. Ned Goodman Annual Letters Dundee 2013-Annual-Report and Dundee Annual-Report-2012
  4. Ennismore Asset Management Letters OEIC – Most Recent NL  and  Globo – Jan 2014 (Good to see the international managers mentioned)
  5. Oaktree Capital ManagementHoward Marks Liquidity
  6. Packaging Corp of America Shareholder Letters PCA_2014AnnualReport  (??)
  7. Skagen Fund 2015 04 01_Market-report  (looks interesting!)
  8. Expeditors EXPD_2014_Full
  9. Seacor Holdings  SEACOR 2014_Annual_Report (A brilliant man in a mundane group of businesses)
  10. Grantham Mayo van Otterloo – Quarterly Letters  breaking-out-of-bondage-and-are-we-the-stranded-asset- and gmo-7-year-asset-class-forecast-(1q-2015)

Here are my (from another reader/contributor) favorite letters:

Skagen from Norway – Just finished reading it today – good stuff!
http://ipaper.skagenfondene.no/Skagenfondene/English/SKAGENFundsAnnualReport2014/
Go straignt for the PDF (icon in the middle)

About Skagen: We search for companies that are priced significantly lower than our estimation of the value of the underlying operations. Our ideal investment is a company which is Undervalued, Under-researched and Unpopular, and that has potential triggers which could make hidden values visible and therefore create excess returns for our clients.

Troy Asset Management in the UK
http://www.taml.co.uk/archive-reports/investment-reports

Orbis Fund management in Bermuda
https://www.orbisfunds.com/Home   (Free registration required)

Ennismore Small European Value
http://www.ennismorefunds.com/

GMO
www.gmo.com (free registration required but worth it)
Their Quarterly letter is a real gem.
http://www.gmo.com/websitecontent/GMO_Quarterly_Letter_4Q14.pdf

RECM in South Africa
https://www.recm.co.za/

California based Aristotle Capital
http://www.aristotlecap.com/news-events-2/publications/

John Chew: Fantastic to have the international contributions!

Great Value Investing Blogs as chosen by another blogger:

Just wanted to drop a quick note to let you know that we featured csinvesting in a recent roundup of the best dividend / value investing columns:  http://dividendreference.com/articles/2015/170/10-brilliant-value-investing-experts-worth-reading/    (Nice words, but all I need to do to stay humble is ask the opinion of my Ex.

 

Catch-22 

HAVE A GREAT WEEKEND!

 

 

Tim McElvaine: Kissing a lot of frogs to find a prince or Portrait of a Deep Value Investor

“Value investing is about praying on the emotions of the seller,” McElvaine said, noting that he loves to be a buyer of un-loved securities when their owners need out at any cost.

McElvaine pointed to a Globe and Mail headline about beat-up mining stocks being great tax-loss sale candidates this past December. He bought up shares in Sprott Resource Corp and Anglo American recently for trading at considerable discounts to NAV (more info at chat.ceo.ca/mcelvaine).

Six years into the global bull-market and McElvaine’s funds are about 25% in cash to provide an opportunity to buy assets if prices return to Tim’s liking.

Is the US bull-market over? McElvaine talked about what could go right in the United States, and suggested that a great way to stimulate the US Economy would be to wipe out student loan debt, which is $1 trillion of $1.3 trillion owned by the US Government, according to McElvaine. That move could put $1 trillion back in the hands of the most aggressive consumers.

There was a brief moment before Tim’s speech that my dad and I got to share a word with him, and I asked how do they know if a cheaply priced security represents a value gap, meaning it’s undervalued and going higher, or is it a value-trap, as so often cheap stocks get cheaper.

“You don’t know,” Dad and McElvaine agreed, which reminded me of something Tim taught me 6-7 years ago:

“You’ve got to kiss a lot of toads in this business to find your prince.”

Take the time to read his annual reports and transcripts, then go the extra mile and look at the annual reports of the companies he mentions–do you see what he sees?  For example, in the chat of his presentation for 2014 (see bold index and then the link) he mentions that Sprott Resource Corp is trading for about $1.00 Cdn while its NAV is above $3.00 or “It’s not pretty, but it’s cheap.”  Can you learn from his approach and analysis? What would you do differently? You have to be a contrarian with a calculator to buy what is hated.

Some reports below:

Buying dollar bills for fifty cents Recent talk on his investments.
2014-Transcript-of-May14-Annual-meeting

2013-Annual-Report and 2013-Partners-Confererence-Transcript

2012-Annual-Report and 2012-Transcript-Partners-Conference-website-version

Go deeper: http://mcelvaine.com/reports/

Tomorrow: I will post a reader’s list of great annual reports.

I love reading Warren Buffett’s letters and I love contrasting his words with his actions…I love how he criticizes hedge funds, yet he had the first hedge fund,” Mr. Loeb said. “He criticizes activists, he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself.  – Business Insider LINK

http://investmentresearchdynamics.com/warren-buffet-is-the-definition-of-scumbag/     (A bit over the top but I like to present the contrasting view whether I agree or not).

Prof. Greenwald on Value Investing

OVERVIEW Value_Investing_Slides

Greenwald_2005_Inv_Process_Pres_Gabelli in London

Greenwald Overview of VI

A Value Investing Class in Three Minutes

sentiment_cycles
Buying High

Next Week

I have been too busy to do another lesson but be ready next week! For those attending the Berkshire Hathaway Meeting in Omaha enjoy the experience. Flash your Deep-Value Group card for up to 95% discounts.

HAVE A GREAT WEEKEND!

Joel Greenblatt

Investment Checklists-Adapt Them for Yourself. GOODHAVEN

sacr

Someone sent me a postcard picture of the earth.
On the back it said, “Wish you were here.” — Steven Wright

Investment Checklists 

We left-off here Last Lesson on Gross Profitability and Magic Formula and in that post, the next focus would be on investment checklists.  We have been reading Chapter 2: A Blueprint to a Better Quantitative Value Strategy in Quantitative Value (I will email the Book to new students if they are in the Deep-Value Group at GOOGLE. Go here: https://groups.google.com/forum/#!overview then type: DEEP-VALUE and ask to join.).

On pages 56 to 59 of this chapter the author discusses the case for a checklist. Atul Gawande in his book The Checklist Manifesto: How to Get Things Right argues for a broader implementation of checklists. The author believes that in many fields, the problem is not a lack of knowledge but in making sure we apply our knowledge consistently and correctly. 

The Quantitative Value Checklist

  1. Avoid Stocks that can cause a permanent loss of capital or avoid frauds and financial distress/bankruptcy.
  2. Find stocks with the cheapest quality.
  3. Find stocks with the cheapest prices.
  4. Find stocks with corroborative signals like insider buying, buyback announcements, etc.

Below are several books on checklists.

As students may know, I throw A LOT of information at you to force a choice on your part.   You have to focus on what material can be adapted to your needs. In the three books above, you will find many interesting ideas that may be helpful in learning how to build your own list.

The more experienced you are, then the shorter the checklist.  The point of a checklist is to be disciplined and not overlook the obvious while freeing up your mind for the big picture.   Yes, you check off if there is insider buying, but if insiders are absent, but the company has a strong franchise and the price is attractive, then those factors may be overwhelmingly positive.  You may ask, “Do I understand this business?” Then it may take weeks of industry reading to say yes or no.

Checklists are helpful, but only if you adapt them to your method.

Next, we will be reading Chapter 3, Eliminating Frauds in Quantitative Value. We are trying to improve our ability to build a margin of safety.

goodx

The Problem with Investor Time-frames

Note the dark line in the chart above representing the returns of the Goodhaven Fund. Two analysts/PMs split off from Fairholme and started in mid-2011. They had a big inflow in early 2014 and then some of their investors panicked as they vastly “underperformed the market.”  I don’t know if these managers are good or bad but making a decision on twelve to twenty-four months of data is absurd unless the managers completely changed their stripes (method of investing).  Therein lies opportunity for those with longer holding periods like five years or more.

holding-period

Shareholder_Message_1114 (Some investors run for the door)

2014_AR

2013_AR

HAVE A GREAT EASTER and WEEKEND!

fredgraphcreditmarketdebtgdp

How Markets Work; A Case Study in Pundits: Savaged by the Truth: Jim Cramer

How Markets Workusd1

Bull-market-top-in-for-the-u-s-dollar/ (Video-Market Psychology)

3-DXY-CoTs-1024x645

Jim Cramer at his best

 

https://www.deepcapture.com/jim-cramer-is-a-complicated-man/

In short, Maier is contending that advice Cramer was giving the public under the guise of helping them manage their savings (“SmartMoney“) was actually being driven by Cramer’s need to dump his own positions without cratering the market. When a trusting public acted on Jim’s tip and bought shares, he dumped his shares onto the public. The only lesson Cramer learned from the “four orphans” incident, Maier claims, was that he, Cramer, had the power to move stocks through the press.

And: https://www.deepcapture.com/how-cnbc-becky-quick-jim-cramer-and-joe-kernan-can-solve-its-collapsing-viewership/

The link above has an amazing article written by Patrick Byrne on the slimy sleaziness of Jim Cramer.

Ignore pundits!

 

Shareholder Maximization-The Dumbest Idea in the World; Is Skill Dead?

CRB 2015 long term

JM_The Worlds Dumbest Idea_1214

Video: http://eic.cfainstitute.org/2014/10/23/shareholder-value-maximization-the-dumbest-idea-in-the-world/

Excellent video on Austrian economics and entrepreneurship:

http://mises.org/library/entrepreneurship-austrian-economics-and-cryptorevolution

Advice

I am a first year MBA student in XXXX. I am from a background of (being) a software engineer and an equity researcher in China. I was very interested in Value Investing and tried to apply it to personal investment in past 8 years. Currently, I am exploring career opportunities in the Investment Management area and see that you have been working and teaching in this area for a long time. I would learn more about your experience in this area and get some advice from you.

I would write-up investment ideas within your circle of competence to show fund managers your critical thinking skills and approach to investing.  Or if you have a great understanding of a particular industry or company that is public you can present your ideas to the fund managers who own the company.   Show your past investment results. Why did you make the decisions you made?  Try to sell your ideas to the appropriate money managers.   But only you can determine what your strengths particular interests.   Your reports should meld your interests with your skills.

Icahn

Our activist friend, Carl Icahn’s High River LP, Icahn Partners LP and Icahn Partners Master Fund LP collectively bought 6.6 million Chesapeake shares on March 11 at $14.15 each, bringing the investor’s total stake in the company to 11 percent, according to a filing on Monday. Prior to the purchases, Icahn controlled about 9.9 percent of Oklahoma City-based Chesapeake. That compares with an 11.11 percent stake owned by Southeastern Asset Management Inc. as of Dec. 31, the largest holding according to the latest filings.

The Forgotten Depression (Video)

Forgotten-depression-1921-crash-cured-itself