Tag Archives: BPL

Warren Buffett: Liquidator to Operator

Dempster Mills

Dempster Mills Case Study:

Dempster_Mills_Manufacturing_Case_Study_BPLs  Note the difference in strategy between Buffett and Graham in this type of investment.

As previously discussed, we have read the Preface and Chapter 2, Contrarians at the Gate in Deep Value where we learned about Graham and liquidations and the great mean-reverting mystery of value investment. Klarman’s writings were also read (Margin of Safety) to learn about his approach to liquidation and valuation. Valuation is an imprecise art where value is no one precise number.  Finally, Mr. Market is there to serve us not guide us. Therefore, think of all the pundits, experts, and CNBC commentators we can ignore for the rest of our investing careers.

If readers have questions or comments, do not hesitate to write. I try not to look at my emails but once a week. I neither have a cell phone nor a TV, but time is scarce so I can respond faster (or another student can to your questions) here in the comments section.

Now we transition into reading Chapter 3 of Deep Value, “Warren Buffett: Liquidator to Operator.”  Buffett was Graham’s prized student who forged his own way.   There are about ten books written on Buffett every year. We will now focus on his early career by going through his Complete_Buffett_partnership_letters-1957-70_in Sections

After Dempster, we will study Sanborn Map and then See’s Candies. Put on your thinking caps.   Go the extra mile and find out more about these companies if you have the interest.   Focus on how Buffett estimated the intrinsic value of Dempster Mills AND how he managed the investment over time.   What made up his margin of safety BESIDES the price discount?

Reader Question:   Do I know Toby Carlisle, and do I think his approach works?

Yes, I have had the pleasure of meeting Toby. A nice guy who seems like a Renaissance man similar to Graham but with a darker sense of humor. Toby taught me how to speak Australian English.   You don’t thank your host for a delicious meal by saying, “That was excellent.!”   You say, “What a belly-bust!”   You don’t go out to drink beers, you go out to “rip down a frosty.”  I am indebted for those tips.  I learned during my working days in Cairns, Australia that fly-crawling was the national sport.  If you could choose which fly could crawl the furthest along a wall or ceiling, you were the champ.  The game had a huge element of randomness. I digress…

Since we haven’t finished our course of study on Deep Value Investing, I am no expert to comment upon his approach. But Deep Value investing can work since it does the opposite of a naive strategy. Hard-core contrarian-investing is difficult because buying what has been losing or is obscure, despised, and loathed goes against human nature.  Are you more attracted to go into a full restaurant than one with cobwebs across the window?   So far in our readings, net/nets seem more likely to be small, illiquid securities, so the investing approach may be more suited for individuals with a limited amount of capital who can go anywhere to find bargains.

Even the great Walter Schloss managed small amounts of money using his deep value approach. As his accounts grew, he would return capital to his partners, thus keeping the amounts of money he managed appropriate for the illiquidity of the names he bought and sold.  He would also buy and sell scale down and up, I heard.

Why don’t you call him at his firm, Eyquem Investment Management LLC or visit www.greenbackd.com and find his email address. Ask for his record so far in managing accounts.  What happens when there are only six or seven net/nets–does he concentrate into those?

Are my instructions clear?

Addendum: Does Intuition Have a Role in Quantitative Investing?

http://blogs.cfainstitute.org/investor/2015/01/19/theres-alpha-in-your-right-brain/

Video on Volatility, Buffett Partnership Letters, Blog and Podcast Links

Buffett’s Partnership Letters

A reader alerted me that this blog has no link to Buffett’s original partnership letters. For shame, here they are:

Links to each original letter: http://www.rbcpa.com/WEB_letters/WEB_Letters_pre_berkshireTURNEDOFF.html

Newly typed Consolidated Letters for easier reading (suggested for ease of study)Complete_Buffett_partnership_letters-1957-70_in Sections

Readings and Videos in Economics

http://mises.org/Literature/

http://www.libertyclassroom.com/

Video on Boone Pickens discussing Natural Gas: http://martinkronicle.com/2012/05/02/boone-pickens-pickens-plan-natural/

Developing skills and understanding your own foibles–Trader and Stock Blogs http://www.brettsteenbarger.com/trader_development.htm  Search for topics of interest.  Often trading blogs focus on the psychological aspects of trading since traders make many more discrete decisions than long-term investors, thus trading blogs can be of use to understanding how we make decisions under pressure and uncertainty.

Recent CNBC Munger Interview http://video.cnbc.com/gallery/?video=3000088395

Podcast on Steve Case’s book, The Indomitable Investor. Why people on main street do not understand how Wall Street works. His main point, “Bad investors think of ways to make money and good investors think of ways not to lose money.” http://martinkronicle.com/2012/04/02/steve-sears-indomitable-investor/

www.greenbackd.com is back posting with great articles on Greenblatt’s Magic Formula and more.

Fascinating 5 minute Video on Stock Market Volatility:

Artemis Capital Management LLC is pleased to present “Volatility at World’s End: Two Decades of Movement in Markets” a unique visualization of implied and realized stock market volatility from 1990 to 2011. The video was originally shown as part of Christopher Cole’s speech at the 2012 Global Derivatives and Risk Management Conference in Barcelona Spain on April 17th.

The movement of stock prices has been an obsession for generations of speculators and traders. On a higher level mathematicians believe that modern markets are an extension of the same fractal beauty found in nature. Visualized these stock markets may take the shape of a turbulent ocean with waves made of human hopes, dreams, greed, and fear. Merging the world of high-finance and high-art Artemis Capital Management LLC is proud to present a creative visualization of stock market volatility over the last two decades.

Volatility at World’s End: Two Decades of Movement in Markets is a depiction of real stock market volatility using trading data from 1990 to 2011. The visuals are designed from S&P 500 index option data replicating the implied volatility wave (or variance swap curve) extending to an expiration of one year. The front of the volatility wave contains the same data used to calculate the CBOE VIX index. The movement of this wave demonstrates changing trader expectations of the future stock market volatility. As the wave moves through time the expected (or implied) volatility surface transforms into a realized volatility surface derived from historical S&P 500 index movement. The transition represents what professional traders call “volatility arbitrage”. The color variation in the volatility waves show the volatility-of-volatility or internal movement of the wave. The track underneath the volatility wave represents underlying S&P 500 index prices.

Volatility at World’s End: Two Decades of Movement in Markets VIDEO (5 minutes) http://www.artemiscm.com/research/volitility-at-worlds-end-two-decades-of-movement-in-markets/