RhubarbXIV

The recession before last, BAC traded up (2001). It's true that banks are sensitive to economic activity, but some types of economic activity more than others. I'm not quite sure I understand using insurers to contrast with banks in leverage (this from a guy who is also quite long AIG-W). There are types of leverage of course, but insurers don't retain 100% of possible incremental claims on their books, either. And it's generally unwise for an insurer to grow revs/profits faster than claims-paying resources, which is in large part their TBV. In my experience, the safe lid in "normal" interest rate environments on ROEs is similar for the best banks and the best insurers (maybe mid-high teens). In addition, in the bulge bracket banks' investment banking, asset management, and trading desks provide a source of income (lumpy, though) that needs very little equity to run effectively. Often better than tech companies and certainly better than most industrials. One contrast I would call against insurers is that it's incrementally easier to determine the quality of underwriting a bank is doing relative to an insurer. Remember Bob Benmosche of AIG's swagger and surliness with the media when all the while he was writing for revenue- in my due diligence I talked to a lot of P&C buyers and they said other sellers (like Hamilton) couldn't compete with AIG on pricing (v. bad, in retrospect- also don't read his book, it's not great). For BAC it was a little easier to look through just their own disclosure to figure out what was happening there. In summary, I have no quibble with banks needing some incremental equity to grow their loan business, I agree returns are limited with the largest banks because acquisitions are effectively impossible. I own the world's least-surprisingly crappy insurer, AIG (for the right price, I believe, including the leverage in the warrants), and I probably wouldn't add massively to either banks or insurers unless they were marked down substantially (but they're big positions already and I'm about 30% cash). Cum grano salis.

I'm pretty comfortable with a P/E of 11x or so. Growing at 7%. Compared to alternatives, I'm pretty content to own well-capitalized participants in the second-oldest profession. Double-digit returns seem pretty great when the rest of the market is probably indicating mid-single-digits or lower. There's a great quote from Jamie Dimon's letter that addresses buybacks, and I think JPM's pricier than BAC given the higher ROE (forgive me if this has been posted before): "While we prefer buying back our stock at tangible book value, we think it makes sense to do so even at or above two times tangible book value for reasons similar to those we’ve expressed in the past. If we buy back a big block of stock this year, we would expect (using analyst earnings estimates for the next five years) earnings per share in five years to be 2%—3% higher and tangible book value to be virtually unchanged." -JD [emphasis mine] Not like buying dented cans at your local value mart, but not destroying value either. JPM and BAC are also spending a ton on organic growth which is my preferred use anyhow (and their best option considering size and regulations). Incidentally, I think these investments by BAC will incrementally improve ROE to a more JPM-like level and allow them to earn possibly a higher valuation relative to TBV than is seen today. Also don't forget where shares were relative to TBV in a, let's say, "pretty good" economy in Q1 2016. The banks don't need a recession to trade down, nor is it a guarantee a recession will trigger a sell-off. No two recessions are alike. Just because they're measured by declines in GDP or whatever the causes, have always been at least subtly different. Say interest rates rise, the yield curve does its convexity thing and pinches VCs, PE, etc., who pays the price then? Just a thought experiment. I guess, in short, I'm with Viking. I own BAC, JPM (formerly WT), and BRK- least original dude here, I know. Once I heard "leave the dance with the one who brung 'ya."

16.2%, but good guess.

1. Ancient Art: Quincy Lee (15.0%) 2. Mittleman: Chris Mittleman (19.1%) 3. Giverny: Francois Rochon (17.5%) 4. Arlington: Mecham (17.6%) Results 2010-2015ye

I don't agree that the numbers are bad across the board. I mean, I'm a grown-ass man, I don't need to dump cheerios on my head whenever I see an expert strike out against a simple algorithm a few times in a row. Most of the funds I listed above still made 6-11% net annualized, which seems to me about in line with what I'd expect from a good fund charging 1-3% annual fees. If they'd all been down like 5% annualized, it'd be a different story, but nobody was. I really don't blame any of them for not keeping up with the S&P when it's on an unsustainable tear of 13% ann. If you want better than 6-11% you've probably got to do it yourself and really put your back into it. I have no idea who on that list will outperform for the 2016-2020 interval, which is really what's important. I suspect some are more likely than others, but I'll keep my opinions to myself for now. Usually when I like an investor that just means they agree with me- probably my worst habit. Maybe in some ways the whole "let the market be your servant not your master" thing might apply here, too. Some good funds are open to new investors for the first time in a long time, there's pressure on fees, etc. Seeing fund flows chase market ETFs at something like 8:1 relative to active managers, maybe the herd thins a bit. Maybe the ETF liquidity paradox breaks. Just try not to be so preoccupied with what everyone else is doing, e.g. the market. Yeah, the S&P500 got laid a lot in high school, but I figure the only way to succeed at investing is to just "do you," whatever that may mean.

Good luck getting Buffett to retire. ::) Yeah, I guess 2015 book value might get him there... :'( Edit: BTW, I found a loophole for Buffett. He's now running a company and not an investment vehicle. Company leaders don't have to close the shop if they underperform... wait but why? :P Hate to break it to you, but he's been in the trailing-5-year BV doghouse since 2009-2013. But also, I don't give a shit. I dig his style.

Good luck getting Buffett to retire. ::)

So for how long does XXX has to underperform to be able to shit on it without being judged as harsh? "This guy is a really great investor! He has underperformed for 20 years only! Wait a bit, he's gonna show you!" Again, wrong question. To judge skill by yearly performance alone could require more than a lifetime's worth of results, depending on your minimal required "alpha" for it to count and the level of certainty you're looking for that it exists. Trying to find a 1-2% effect in a data set where returns aren't distributed normally and have an average of ~9% plus or minus 20% (1915-2015 inflation-adjusted) you'd have to wait until damn near the heat-death of the universe to find small and statistically significant "alpha." You've got to beat the market by a lot for a long time for trailing performance figures to say much about your skill at investing. Buffett, Tepper, Greenblatt, etc. and maybe a few vampires (my hat's off to anyone who can beat the market by 1-2% over 600 years) are really the only ones we can assume to be skillful based on past performance alone. As a general guide, if you're looking at trailing results "do not shit lest ye be shat upon." If you want to find someone you CAN safely shit upon, pull up SeekingAlpha and just go wild in the comments section of the first writeup you find by an analyst who hasn't figured out how to read a 10k. Investing is about making good decisions in the future. If you want to judge other investors, do it by how well you understand and appreciate their process, not by what they've done. There are some real dufuses out there who don't do their homework and probably shouldn't be in business, but once you're past that hurdle, it's got to be about what you like. Past performance is just another method of data-mining.

That "my stupid ass" is just my personal results over the past five years in my personal account.

I think market efficiency is a straw man. Whenever I hear "the market is more efficient nowadays" I substitute in my head "the factor(s) I associate with investment acumen has recently performed poorly" and it makes a lot more sense. An analog might be chess. Consider that the goal never changes: capturing the king [earning a high return on capital]. Over the years the number of avid tournament-level players has varied significantly, but the Elo rating system makes it fairly easy to make informed comparisons between players of different eras- Alekhine v. Carlsen or Morphy v. Anand (top players of different eras) would still make for some great chess. Despite that the goal never changes, the pieces never change, the rules never change, and the skill of top players hasn't changed dramatically, chess openings DO go in and out of style over time. Until the interwar era basically nobody opened d4, but today it happens almost as often as e4. The game itself changes. "P/B beats the market" - sure, and it should, until B becomes less important to the generation of E "Low PE beats the market" - sure, and it should, until the business cycle loads you up with levered cyclicals or failing banks "High ROIC beats the market" - sure, and it should, unless the price you pay gives the market too much time to catch up while your returns converge to the ROIC "Low EV/EBITDA beats the market" "Activism beats the market" -you can see where I'm going with this. So you've got two choices: 1. do something that makes sense in the EXTREME long-term and stick to it come hell or high water for 10-30 years 2. adopt a more fluid adaptive approach and embrace the possibility that you might REALLY screw it up at some point that would take 10+ years to recover from Either way, nobody said it was easy. Some folks get good bounces early, some get 'em late, some not at all, but we're all just playing the odds. SO. For your edification I've compiled a short list of managers who have beaten the market (S&P500) substantially ITD, and yet have underperformed significantly in the past five years to 2015-12-31. References NOT available upon request. Many of the listed funds do not publicly disclose returns. The S&P 500 returned 12.6% 2011-2015, these folks all returned less. Alphabetically: Al Frank Aquamarine (Guy Spier) Ariel Auxier Baupost Berkshire (BV) Chou Cundill Daruma Fairfax Fairholme (Berkowitz) First Eagle FPA Crescent Hancock (Pzena) Horizon Kinetics (Murray Stahl) Longleaf My stupid ass Omega Pabrai Pershing Square (Ackman) Punch Card Royce Russell 2000 (whoever the hell he is) Semper Vic (Tom Russo) Sequoia Third Point (Dan Loeb) Wasatch Yacktman So did someone release an odorless, colorless, tasteless neurotoxin in Omaha at Buffetjam '09? Did these funds suddenly get too big to perform? Probably not (most are well below peak pre-crisis AUM). I also know some smaller guys who just work by themselves and do pretty great, even without satellites (although I do know a guy who speaks Swedish, so maybe that's what it takes nowadays). So is thinking over? Because too many people are doin' it? Doubtful. Maybe? If so, not for long. I've seen something like this before. But there's no guarantee this time will end with us doing donuts of joy in the AZO parking lot while the dotcom unicorns rip the copper out of their office walls for beer money. Regardless, we've gotta try, right? That's why were here after all.

BAC stock has underperformed and the timing to switch into the bullish camp seems rather good - what is there to laugh about? Mayo's really going out on a limb with a $17 year end TBV and a $16 PT.

I'm not convinced saturated fats are all that bad.

The party/card game Spyfall. http://www.amazon.com/gp/product/B00YTHN82W?keywords=spyfall&qid=1452548929&ref_=sr_1_2&s=toys-and-games&sr=1-2 With the leftover money I'd include Codenames, Exploding Kittens, and Funemployed.

Some of this is covered in the Fortune piece Shai linked to above.

I've been reading a lot of Cal Newport lately, and have had some good success interviewing value managers to learn about their process. I find specific process-oriented questions to be the most helpful way to lean and improve- "teach a man to fish," etc, etc. Here are my suggestions: Describe the process, begin to end of the last new investment you've made. Describe your average day. What made you think you were ready to go out on your own? What is different about your approach that yields better results? What has been the hardest period for you in terms of self-doubt/performance/the mental game? How many hours per week do you work? What do you do to relax?