Vitaliy Katsenelson writes “One of the biggest hazards of being a professional money manager is that you are expected to behave in a certain way: You have to come to the office every day, work long hours, slog through countless e-mails, be on top of your portfolio (that is, check performance of your securities minute by minute), watch business TV and consume news continuously, and dress well and conservatively, wearing a rope around the only part of your body that lets air get to your brain. Our colleagues judge us on how early we arrive at work and how late we stay. We do these things because society expects us to, not because they make us better investors or do any good for our clients.
Investing is not an idea-per-hour profession; it more likely results in a few ideas per year. A traditional, structured working environment creates pressure to produce an output — an idea, even a forced idea. Warren Buffett once said at a Berkshire Hathaway annual meeting: “We don’t get paid for activity; we get paid for being right. As to how long we’ll wait, we’ll wait indefinitely.”
Source: http://contrarianedge.com
Graham and Doddsville – Interview with Value Investors
Mario Gabelli’s advice to novice analyst’s “The key is to start by getting to know an industry ex-tremely well. That gives you a great perspective. For example, we have a conference on the auto parts industry. Start off by reading everything that‘s happened in the last 20 years in an industry. So you read all the trade info and then you cross check. Then understand how that industry relates to other indus-tries. And then you need to understand the stock. First understand the business and then understand the stock. Those two things don‘t al-ways go in lockstep.
Source: www.grahamanddodd.com
Warren Buffett Buys IBM
Buffett’s interview to CNBC was for three long hours. More specifically, in the below link (CNBC interview) – Buffett explains what attracted him to IBM, what he looked for in IBM; before committing a whopping USD 10.7 billion (for a 5.5% stake). Most notably, Buffett did not speak to IBM Management or any of the senior executives. Till the SEC disclosures were released, IBM management had no clue that Buffett was buying their stock.
CNBC Transcript: Warren Buffett Explains Why He Bought $10.7B of IBM Stock (Part 5) [20 Minutes interview – Well worth your time]
Returns and how they get that way – Howard Marks
In my opinion, superior returns come most dependably from buying things for less than they're worth and benefiting from the movement of price from discount to fair value. Making money this way doesn't require increases in intrinsic value, which are uncertain, or the attainment of prices above intrinsic value, which is irrational.
Source: http://www.oaktreecapital.com
Exclusive interview with Michael Mauboussin
At the end of the day, successful investing is about buying something for less than its worth. Saying it somewhat differently, the idea is to always look for gaps between fundamentals – for example, the financial performance of a company – and expectations, which is the stock price. While that may be stating the obvious, the devil is in the details. How do you know that price and value are misaligned? Why are markets inefficient? What makes it so difficult to go against the crowd.
Source: www.manualofideas.com
Personal Best – Atul Gawande
Not only surgeons, we think, investors too can learn a lot from this thought provoking article. “Top athletes and singers have coaches. Should you?” asks Atul Gawande.
Gawande begins “No matter how well trained people are, few can sustain their best performance on their own. That’s where coaching comes in.
I have been a surgeon for eight years. For the past couple of them, my performance in the operating room has reached a plateau. I would like to think it’s a good thing—I have arrived at my professional peak. But mainly it seems as if I have just stopped getting better.”
Source: http://gawande.com
One thing I have learned in studying the great investors is that they all have a great investment process that drives everything they do.
There’s no secret formula. No valuation algorithms hidden away in Omaha. No short cuts. You need to create a solid investment process based on a rational investing philosophy that has been proven to generate market-beating results.
I think of value investing as quite a contrary approach, almost by definition. It’s almost always a very few people who can be the real value investors because, by definition, it is a strategy that is different from everyone else’s.
People have a difficult time taking the long-term view. Human nature hasn’t changed, and people want to do well in the short term and make money as fast as possible. They can’t handle fluctuations. So if people buy something at US$10 and it goes to US$7 or US$8 or US$5, they think they have made a mistake and they want to sell. They can’t look through that to the long term, which, of course, was Ben Graham’s great contribution.
The goal of studying highly successful long-term investments of the past is to develop a framework for trying to identify stocks that, hopefully, will have similar characteristics when we buy them, and after we have bought them. As Warren Buffett has said, “The investor of today does not profit from the growth of the past.” As Mr. Buffett has also observed, if this were not the case, the average librarian would be rich from the stock market. We also want to try to avoid stocks that will have the future characteristics of the worst performing stocks of the past. It is always easier to find (or avoid) something if you know what to look for.
In May, I observed in “How Quickly They Forget” that investors had returned to pro-risk behavior despite the lingering presence of significant macro worries. And then just three months later, a number of exogenous events caused the markets to undergo a significant decline and one of the greatest paroxysms of volatility ever seen. All of the reasons existed well before. Investors simply hadn’t taken them to heart.
I never cease to marvel, and complain, about the way investors flip-flop – focusing on just the positives at one moment and just the negatives at another – and the speed at which they do it. But I learned long ago not to be surprised by this phenomenon or expect it to stop occurring, but instead to look past the market’s behavior and assess the underlying realities. Thus I decided to take the occasion of my summer vacation to write a memo parsing the recent events and touching on the outlook.
Lately I’ve been getting this nagging feeling that everything I touch turns to dirt. Every time I buy a stock that is already down a lot, the one that my analysis leads me to believe is cheaper than dirt, it declines more. Did I completely lose my ability to value stocks? Did I start ignoring Will Rogers’ advice to buy stocks that go up, and if they don’t go up, don’t buy them?
No, I didn’t get dumber, and my stock-picking skills haven’t diminished. I was simply a willing participant in the latest cyclical bear market. Bear markets make you feel dumber than you are, the same way bull markets make you feel smarter than you are.
Source: http://contrarianedge.com/