Category Archives: Investing Gurus

Question on Buffett’s Record as an Investor

Posted on March 1, 2012 | 9 comments

Empty your mind, be formless, shapeless–like water. Now you put water into a cup, it becomes the cup, You put water into a bottle, it becomes the bottle, You put it in a teapot, it becomes the teapot. Now water can flow or it can crash! Be water my friend. – Bruce Lee. Ok, this quote comes from the world of martial arts, but the lesson transcends mere combat.

Research Question on Buffett

Today, someone asked if Warren Buffett–over the past five, ten and fifteen years–had a good investment record in marketable securities. The very idea that anyone would have the temerity to even consider such a question caused me to do this: http://www.youtube.com/watch?v=vK0wvZ70VrU

But after three people pulled me off of the questioner, I thought for a moment, “What proof did I have that Buffett has performed well? Where was my evidence, studies, facts, etc. that Buffett has performed better than a dart board portfolio?

I ask you, has anyone done or know of any research on Buffett’s investment performance in marketable securities? Of course, Buffett is hindered by massive assets and cash flows, but what is his performance compared to various benchmarks like mutual funds and the S&P 500? If no one has seen any proof, is Buffett being worshiped for his performance record of thirty years ago?

Let me know if you have any thoughts. No rush.

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Investing “Guru” Mark Tier’s Interview

Posted on February 27, 2012 | 6 comments

In finance, you cannot easily prove a model right by observation. Data are scarce and, more importantly, markets are arenas of action and reaction, dialectics of thesis, antithesis and synthesis. People learn from past mistakes and go on to make new ones. What is right in one regime is wrong in the next.

In finance you play against God’s creatures, agents who value assets based on their ephemeral opinions. Can you comprehend other pretenders’ uncertainty?–Mark Bradbury

Mark Tier, An “Austrian Investment Guru”

Mark Tier on Effective Investing, Where the World Is Headed and Why Financial Literacy Helps

Sunday, February 26, 2012 – with Anthony Wile

My lessons: Austrian economics is important for understanding reality but beware of being a macro-economist. Mark Tier filed as an investor but then learned from Soros and Buffett. If he can, you can too!

 Excerpt:

Mark Tier: I’m from Australia but in 1977 I moved to Hong Kong. I’m still based there, but I spend most of my time these days in the Philippines. In a sense I’ve been a nomad all my life. My father was in the army so we rarely spent more than three years in any one place. We ended up in Canberra − that’s Australia’s equivalent of Washington − where I went to high school and university.

I studied economics and political science at the Australian National University. In my final year of economics I discovered Ludwig von Mises (thanks to Ayn Rand). In what should have been my last exam I made a fundamental mistake: I argued from Mises’ perspective against the examiners. So I had to repeat that final year to get the degree.

Then, when I got out into the real world, I found that I had to unlearn pretty much everything I’d been taught. (I also had to struggle to unlearn nonsense economics from university).

My professors were all Keynesians; reality is Misesian.

Daily Bell: Bring us up to the present and how you began to focus on investing.

Mark Tier: I’ve always wanted to be a writer. When I was 14, I’d get up early and pound an ancient typewriter for a couple of hours before going to school.

After graduating, I started writing a book that was published as Understanding Inflation (and became an Australian bestseller in 1974). I put an ad in the back for an investment newsletter − and I’ve been “unemployable” ever since. When I moved to Hong Kong I renamed it World Money Analyst. In 1991 I sold it and “retired.” That lasted about three months. I was a partner in another newsletter business for a few years. Since 2000 or thereabouts, I’ve written three books and am now working on a couple of others.

Daily Bell: What’s your track record been like?

Mark Tier: Actually, until I figured out what became The Winning Investment Habits of Warren Buffett & George Soros, lousy.

Ironically, in the World Money Analyst I advised other people what they should do with their money. My own forays into the market usually ended with burnt fingers.

Once I applied (starting in 1998) what I call the 23 “winning investment habits” to my own investing, everything changed.

For the next six years my personal stock investments went up an average of 24.4% per year − compared to the S&P’s 2.3% − without a single losing year, compared to three for the S&P. A major, major transformation.

I can’t tell you my precise track record since then as I stopped keeping track of it. Put it this way: except for a dip in 2008, my net worth has gone up or remained stable. And that’s after paying the rent, putting food on the table, putting four kids through private schools and university, and indulging in vices like latest electronic gadgets and expensive cigars.

And when I get up in the morning, I have the luxury of choosing to do whatever I want to do with my day. Mostly, I write.

Entire interview here:http://www.thedailybell.com/3644/Anthony-Wile-Mark-Tier-on

Mark Tier’s web-site and books on investing:http://marktier.com/Main/index.php

Video lecture on smoking and property rights:http://www.youtube.com/watch?v=udlouHR4YcQ

Audio Interview: http://www.la.org.au/audio/221011/interview-mark-tier

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Economics: Synopsis of Euro Crisis; Growth in US Money and Banking Reserves…Interesting Reading

Posted on February 25, 2012 | 2 comments

The most expressive market is the one the one that the Fed isn’t overtly manipulating. Though Treasury yields might as well be frozen, the gold price is soaring. Why has it taken flight–not on account of an inflation problem. Gold is appreciating in terms of all paper currencies–or, alternatively paper currencies are depreciating in terms of gold–because the world is losing faith in the tenets of modern central banking. …..Gold is hard to find and costly to produce. You can materialize dollars with the tap of a computer key.–James Grant (Wall Street Journal, Dec. 5, 2009)

Monetary Policy seems extremely accommodating

Check here for the latest Federal Reserve monetary statistics: http://www.federalreserve.gov/releases/h3/current/

Fed reserves are rising across the board, excess reserves, required reserves, non-borrowed reserves, total reserves and the monetary base are increasing. Last month required reserves are up 5%–an annualized rate of 60%.

Watch what Mr. Bernanke does. This data indicates that the rising prices in the commodities market and in the U.S. stock market are going to continue. The manipulated (nominal prices) economy will be strong as well.

The developing price-inflation is going to surprise everyone traditional economists and Wall Street pundits but not YOU. www.economicpolicyjournal.com

The EURO CRISIS

A good synopsis of the cause and effects of the Euro Crisis.

http://mises.org/daily/5914/The-Future-of-the-Euro

The problems of the eurozone are ultimately malinvestments. In Greece these days the struggle continues about who will ultimately foot the bill for these investments. During the early 2000s an expansionary monetary policy lowered interest rates artificially. Entrepreneurs financed investment projects that only looked profitable due to the low interest rates but were not sustained by real savings. Housing bubbles and consumption booms developed in the periphery.

In 2007 the bubbles began to burst. Housing prices started to stagnate and even to fall. Homeowners and builders started to default on their loans. As banks had financed and invested into these malinvestments, they suffered losses. After the collapse of the investment bank Lehman Brothers interbank lending collapsed and governments intervened. They bailed out banks and, thereby, assumed the losses of the banking system resulting from the malinvestments.

As malinvestments were socialized, public debts soared in the eurozone. Furthermore, tax revenues collapsed due to the crisis. At the same time, governments started to subsidize industrial sectors and unemployment.

Moreover, even before the crisis, governments had accumulated malinvestments due to their excessive welfare spending. Two causes had incentivized social spending in the periphery. The first cause is low interest rates. These low interest rates were caused by an expansionary monetary policy by the European Central Bank (ECB) and the single currency in itself. The euro came with an implicit bailout guarantee. Market participants expected stronger governments to bail out weaker ones in order to save the political project of the euro if worse came to worst. The interest rates that the Italian, Spanish, Portuguese, and Greek governments had to pay came down drastically when these countries were admitted into the euro. The low interest rates gave these countries leeway for deficit spending.

The second cause is that the euro is a tragedy of the commons, as I explain in my (Philipp Bagus) book The Tragedy of the Euro.

Of Interest

A fair bet? http://www.youtube.com/watch?v=mhXJcfczNIc

Jeremy Grantham pontificates: http://www.gmo.com/websitecontent/JGLetter_LongestLetterEver_4Q11.pdf

Postscript: I will work on answering readers’ questions this weekend. Thanks for your infinite patience.

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Investing “Gurus”

Posted on February 23, 2012 | 10 comments

From John Stuart Mill, “Of the Influence of Consumption on Production” (1844):  Among the [economic] mistakes which were most pernicious in their direct consequences . . . was the immense importance attached to consumption. The great end of legislation in matters of national wealth, according to the prevalent opinion, was to create consumers…It is not necessary, in the present state of the science, to contest this doctrine in the most flagrantly absurd of its forms or of its application. The utility of a large government expenditure, for the purpose of encouraging industry, is no longer maintained.

Taxes are not now esteemed to be like the “dews of heaven, which return again in prolific showers.” It is no longer supposed that you benefit the producer by taking his money, provided you give it to him again in exchange for his goods. ….The more you take from the pockets of the people to spend on your own pleasure, the richer they grow (Obamanomics); that the man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor to the tradesman whom he robs, and that the same operation, repeated sufficiently often, would make the tradesman’s fortune…

What a country wants to make it richer, is never consumption, but production.

JS Mill is damning the nonsense of Keynes and all those who believe in “stimulating aggregate demand.”

Investment “Gurus”

Be your own “guru.” Meanwhile interesting reading here:

http://fpafunds.com/pdfs/commentaries/Caution_Danger.pdf  Mr. Rodriquez says the greatest investing advice ever is: Read history! Read history! Read history!  I second that admonition.

An excellent blog for new investors:

http://www.gannononinvesting.com/

A few of Geoff Gannon’s recent articles are linked below. I have no affiliation– and if I did, I would mention it upfront–but new investors can certainly learn from his Pod-casts and articles. Just read critically and think about what you can use. Geoff never went to college, but he is self-taught with (in my opinion) an excellent attitude towards investing. He seems rational while remaining focused on price versus value.

Can You Build a Liquid Portfolio with Illiquid Stocks?

Free Cash Flow: Adjusting for Acquisitions, Capital Allocation, And Corporate Character

What Are the Minimum Requirements for a Good Net-Net

Pain and Patience: Net-Nets, Magic Formulas, and Micro Caps

How to Read a 10-K: What is the Most Important Part? (Footnotes and trying to understand the customer).

Walter Schloss: 1916 – 2012

How Do You Estimate a Stock’s Intrinsic Value?

What Stocks Would Phil Fisher Buy Today?

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Glenn Greenberg Video Lecture to MBA Students

Posted on February 22, 2012 | Leave a comment

How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.–Robert Allen

Glenn Greenberg

Glenn Greenberg presents to students at Columbia Business School. Mr. Greenberg apprenticed under a deep value investor in cyclical companies but now invests in franchises. I enjoyed his comments when he mentioned his early career at Morgan Stanley as a “money mismanger”–confirmation of this blog’s admonition of ignoring Wall Street.

What you can learn is how intensively he thinks of the businesses he invests in. Professor Bruce says he is an excellent business economist. What do YOU  think?

More Columbia Investing Videos here:

http://www7.gsb.columbia.edu/valueinvesting/coursesfaculty/recordings

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Free Courses on Mental Models, ValueX Vail, and More…..

Posted on February 21, 2012 | Leave a comment

Free Courses

Mental Models

Learn how to think better with a lattice-work of mental models: https://www.coursera.org/modelthinking/auth/welcome. This is a 10-week live video lecture series with quizzes and interaction with the professor.

Constitution 101: The Meaning and History of the Constitution

Live and archived lectures February 20, 2012 to April 30, 2012. You will be asked for a donation, but you can choose to decline and take the course.

www.hillsdaleoffer.com/constitution101

Interesting Links

www.simoleonsense.com

Jim Rogers: Don’t trust the government as an investor. http://lewrockwell.com/wenzel/wenzel160.html

The Superinvestor, Walter Schloss, dies. www.greenbackd.com

VALUEx Vail 2012

The Second Annual VALUEx Vail will be held in Vail, Colorado, June 20th through 22nd.  

VALUEx Vail is designed for serious investors to share ideas and learn from one another’s experiences, all while enjoying each other’s company and fun activities in the gorgeous Colorado mountains.

Here are my thoughts and pictures from VALUEx Vail 2011.

We’ll have about six brief presentations every evening (Wednesday, Thursday, and Friday) for about two hours, followed by dinner (we’ll alternate restaurants every night).  In addition will have a “dessert speaker” who will do an informal talk and Q&A on an interesting subject.  To conclude each day, the more adventurous types are welcome to join us at the bar for drinks.

Success of VALUEx Vail depends on participants’ presentations.  Therefore, all attendees will be asked to share ideas, whether they will be shared in a 15-minute presentation, in a “dessert talk,” or more informally late at night in the bar.  We’ll only have time for about twenty 15-minute presentations; therefore, while everyone should be willing to present, we’ll chose only twenty presenters.  The presentation could be on any investment topic, including but not limited to stock ideas (long or short), geopolitical discussion, sector or industry analysis, insights into the investment process, etc.  Once we finalize the attendee list, we’ll contact you about your presentation.

In the morning, if you can get up after the night before (!), please join the group for breakfast.  Sometime after breakfast we’ll do a fun activity.  Last year we did ziplining, had lunch at a ranch, and took a gondola to the top of the mountain (and got rained out and had lunch on top of the mountain).  The location of the group lunch will depend on which fun activity we choose.

VALUEx is a perfect opportunity for a family vacation.  Family members, including children of all ages, are encouraged to participate in fun activities during the day.  I’ll bring my whole family.

My family has been going to Vail for almost twenty years.  We spend a few weeks there every summer, riding bikes, going for long walks, riding the gondola to the top of the mountain, or simply doing nothing.  Here are a few pictures I have taken in Vail over the years

Accommodations: In late April or early May we’ll send a list of recommended hotels.  Mid-June is fairly slow in Vail, hotel prices are very reasonable, and you should not have a problem (with a reasonable lead time) finding a decent room.  Almost everything in Vail is within walking distance.  There are no cars allowed in Vail Village or Lions Head (the western side of Vail), so you either walk, ride the free bus (which comes along every 10 minutes), or ride a bike, which you can also rent nearby.

Dress code: very casual, comfortable clothes

Cost: This is a not-for-profit event.  There will be a nominal fee ($200) to cover organizational/activity expenses.  You have until May 1st to change your mind and receive a full refund; it will not be refundable after that.

Attendees will be responsible for hotel, food, and activities.  It is important to note that we are not in the conference business.  All we are doing is taking your hard-earned money and transferring it to the even more hard-working service providers (restaurants, activity providers, etc.)  Last year the cost of exclusive use of the facility where presentations were held, plus food and drinks, averaged about $150 an evening per attendee.  As we get closer to the event we’ll send you a link where you’ll be able to prepay for dinners and activities.

How to apply: Since all content is attendee-generated, we are more concerned about the quality of attendees than about quantity (also, for best flow of ideas, we limit size to 40 attendees).  If you’d like to attend send me an email vk@imausa.com , and in a few paragraphs tell me about yourself, your experience, your areas of expertise, and a  topic/idea you’d like to discuss at the conference.  I understand that things may change in a few months, but this will give me a general idea.  It is important to note that you don’t have to be a professional value investor to apply.  Though we envision that the majority of attendees will be professional value investors, there is also value in a diversity of views, so if you are a die-hard nonprofessional value investor, please apply!

 Contact information: If you have questions, please feel free to contact Cristy Reid at cr@imausa.com or (303) 796-8333.

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The 400% Man

Posted on February 15, 2012 | 2 comments

“I put instant coffee in a microwave oven and almost went back in time.” –Steven Wright

A reader who blogs at http://valueprax.wordpress.com/2012/02/15/wall-street-mesmerized-perplexed-by-400-man-but-why-valueinvesting/  sent me this interesting article. The lessons here are simple, you have huge advantages over traditional money managers if you invest independently. You have to be patient and selective.  Pedigree does not matter but clear, rational and independent thinking does matter.

Focus on understanding the businesses behind your stocks and understand the businesses from the CUSTOMERS’ perspective.

The 400% Man

How a college dropout at a tiny Utah fund beat Wall Street, and why most managers are scared to copy him.

By BRETT ARENDS  (abbreviated)

On a fall day in 2010, half a dozen wealthy investors and portfolio managers converged on an office in midtown Manhattan. These were serious Wall Street moneymen; in aggregate, they handled more than a billion dollars. They had access to the most exclusive hedge funds and investment partnerships and often rubbed shoulders with the elite of New York, Greenwich and Palm Beach.

But on this day, they had turned out to meet an unknown college dropout from Utah — and to find out how he was knocking them all into a cocked hat.

The unknown, Allan Mecham, had been posting mind-bogglingly high returns for a decade at a tiny private-investment fund called Arlington Value Management, and the Wall Streeters were considering jumping on board. For nearly two hours, they peppered him with questions. Where did he get his business background? I read a lot, he replied. Did he have an MBA? No. I dropped out of college. Did he have a clever computer model or algorithm? No, he replied. I don’t use spreadsheets much. Could the group look at some of his investment analyses? I don’t have any of those either, he said. It’s all in my head. The investors were baffled. Well, could he at least tell them where he thought the stock market was headed? “I don’t know,” Mecham replied.

Rule-Breaker’s Rules

Money pros who know him say none of Allan Mecham’s investing tactics are astonishingly difficult — but for various reasons, most investors don’t use them.

  1. Ignore the economy..
  2. Don’t diversify.
  3. Don’t sweat the spreadsheets.
  4. Think decades, not quarters.
  5. Don’t just do something. Stand there!

His investment approach will be familiar to anyone who has been even a casual follower of Buffett. Mecham looks for businesses with great long-term prospects, great management, strong cash flow and big defensive “moats,” or barriers to entry for potential competitors. And he stresses the importance of sitting still and doing nothing. “Activity is the enemy of returns,” says Mecham. “If I find two new ideas a year, that’s phenomenal.” Two ideas a year adds up to a pretty small portfolio — Mecham typically owns between six and 12 stocks. (That’s one thing that sets him apart from mutual fund managers; because of industry regulations on diversification, traditional funds typically have to have at least 15 holdings.)

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Investment Book Recommendation

Posted on February 13, 2012 | 1 comment

Normally I am not a huge fan of investment books since many are poor substitutes for the classics.

The Investment Checklist The_Investment_Checklist by Michael Shearn (2012) gives new and intermediate investors a more programmed approach to analyzing investments including competitive advantages. I have no affiliation with the author, but I recommend.  Is the book perfect? No. Figuring out if management is motivated is harder than the checklist approach would make it seem. However, you will benefit by being relentlessly thorough BEFORE you invest.

Two reviews below.

Anyone wishing to utilize a disciplined method for investing should read this book by Shearn.
Good investing mean avoiding mistakes and taking calculated risks. Identification of risk involves deep thinking about “what can go wrong?”. This is where this book shines, since it forces you to adopt a structured approach of working through a checklist of the possible unknowns.  Too many unanswered items? – Take a pass until you can complete the checklist.

What I really liked about the book are the tons of real life examples of exactly what he means.  You look at investor conference calls in a different way, as it has an exhaustive section on evaluating management and their responses. Are they honest? Are the overly promotional? What are they trying to hide? You see real life examples of both sides – the good and the bad ones.

The book made me think of many situations in the past that were strong clues about excessive risk.

Another useful aspect of the book is that it provides many outside sources (websites, etc) to check your facts. Investing in teen retailers? Shearn provides a number of free sources to verify and understand trends.

I’ve no doubt that this book will make me better at researching a company.
For anyone not employing a checklist – the Shearn checklist provides a great template to success.

R. Michael Knipp
Private Investor

Good book – a little discussion on valuation would have been nice,January 4, 2012
By Andrew Wesley McDill (Chicago, Illinois United States) – See all my reviews

Overall, I thought the book was very interesting and well written. It did a nice job of helping people learn how to think about businesses from a strategic and competitive point of view. The one thing that would have made the book better would have been some discussion to tie the strategic analysis of the company to some valuation frameworks. There was some mention of what the author and his firm were paying for certain companies when they purchased the stock, but it was not a complete discussion of valuation and the related value investing concept of a margin of safety. With that said, I do think that the anecdotes included in the book were helpful and added good context.

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Buffett on Inflation or Why Stocks Beat Gold and Bonds

Posted on February 9, 2012 | Leave a comment

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains — in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date. –Warren Buffett

Warren Buffett: Why stocks beat gold and bonds

In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.

http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29

Obviously, the readers of this blog are aware of the Federal Reserves easy monetary policy–growing monetary aggregates, zero interest rate policy, and high reserves in the banking system. However, as followers of Austrian economics (some of us), we realize that there is no perfect correlation between X growth in money supply and Y increase in nominal stock prices. The world is an extremely complex place and to model precision and prediction is MADNESS. However, you can gain a sense of how the wind blows. If people wish to hold lower cash balances then the effects of inflation will be increased.

Learn more here about monetary policy: www.economicpolicyjournal.com and www.mises.org and http://scottgrannis.blogspot.com/

Inflation Swindles the Equity Investor

 

I strongly urge you to read one of the greatest articles on investing by Buffett, How Inflation Swindles the Equity Investor. HERE: http://www.scribd.com/doc/65198264/Inflation-Swindles-the-Equity-Investor

We spoke at length about investing and inflation during this post: http://wp.me/p1PgpH-1h

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A Course on Mental Models–Helping Us All to Decide and Think Better

Posted on February 8, 2012 | Leave a comment

Perfect solutions of our difficulties are not to be looked for in an imperfect world.–Winston Churchill

Model Thinking

If you haven’t signed up, then here is another chance. I signed up; I need all the help possible.

Hi Everyone,

Good News!!! The course ‘Model Thinking’ will go live very shortly. When it does go live, we’ll be asking you to officially register and agree to some standard terms and conditions. In the interim, you can now go to the site, at http://www.coursera.org/modelthinking/lecture/preview and watch the first two sets of lectures. The first set of lectures covers the benefits of modeling and provides a framework for the course. The second set covers Thomas Schelling’s seminar model of segregation as well as a model of standing ovations that I developed with John Miller of Carnegie Mellon University.

The full site with quizzes, discussion forums, and all the other bells and whistles will be operational very shortly. I thank you all for your patience. Enjoy the first few lectures!!

As we say in Ann Arbor… Go Blue!!!

Scotte

Interesting Free Investing Newsletters and Links

Just in case you missed these:

Ask for a free quarterly newsletter by emailing: Hewitt.Heiserman@EarningsPower.com,

Ask to be on his email list: kessler@robotti.com,

and his weekly emailings:sfriedman@gmail.com  There will be overlap, but you will find interesting articles, videos and value investors. Read ruthlessly, however, I don’t bother to read about Fairholme’s investment in BAC or AIG, because those companies are out of my circle of competence. Only read what benefits YOU.

Recommended blogs:

big picture blog: http://www.ritholtz.com/blog/

http://www.simoleonsense.com/weekly-roundup-16-a-curated-linkfest-for-the-smartest-people-on-the-web/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+SimoleonSense+%28Simoleon+Sense%29

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