Concentrated Equity Strategies

[ValueMaven]

I don’t see much written here on this topic, but which value oriented equity managers would you allocate capital too (say for a 401K) over a long-period of time vs. allocated simply to Mr. Buffett’s Vanguard S&P 500 recommendation?  I’ve put together a small list, and am interested in see what others might suggest:

 

Sequoia

Yacktman

Horizon Kinetics

Fairhome

Chou Associates

Hummingbird

Lyrical

 

Or maybe you just allocate to BRKB and Fairfax and call it a day :0

 

Sincerely,

ValueMaven

[Oreo]

Horizon Kinetics and Lyrical are the 2 that I would go for from your list. With regards to the rest of the names, I expect an average reader of CoBF to outperform them over the next 10 years. And Sequoia: I do not have precedents in my mind where the quality of future investment decisions / culture survived a massive error in judgement on the scale of what Sequoia did with VRX, even when the nominal culprit/PM is managed out of the company. So I wouldn't give Sequoia my capital. But I'm a dumbo, what do I know.

 

In general, I'd say it's VERY tough to pick a mutual fund that will reliably outperform the S&P. I pick Horizon and Lyrical here (personally) because I dislike them the least. Two others worth looking into might be Orbis and Generation.

 

 

[Jurgis]

I'd say "allocate to BRKB and Fairfax and call it a day"

But then I'm not super sure that's a good approach either.

 

If I had to select from others, I'd probably go with Sequoia with all the caveats.

Other caveats: I haven't looked at Yacktman for a while. I have no knowledge of Hummingbird and Lyrical.

 

I doubt very much that "an average reader of CoBF" will outperform indexes over the next 10 years.

[ValueMaven]

It is a very interesting question actually…something that isn’t frequently talked about.  Say for example Horizon Kinetics – whom I found VERY interesting, 30% of the portfolios is allocated to Texas Pacific Trust – which is basically a liquidating trust, Howard Hughes – which is a spinoff holding company, and Icahn Enterprises.  The strategy underperforms on a rolling 3Yr, 5Yr and 10Yr vs. the SPY gross of fees by a meaningful amount, and has a 165bps management fee.  Even Fairhome also under-performs by a meaningful amount.  So the question is: Assuming your company/401k plan allows you to allocate directly toward equities (some do, most don’t) are you better off just allocating to BRKB/Fairfax, or some mixture of SPY and HYG (high yield etf). 

 

Sincerely,

ValueMaven

[Jurgis]

One consideration could be that if you allocate BRK/FFH, then you don't really need to hold bond/cash allocation since these guys hold a bunch of bonds/cash for you already.

 

So even if SPY outperforms BRK/FFH, realistically SPY/bonds-or-cash portfolio may still lag BRK/FFH/no-bonds-no-cash portfolio.

 

Another consideration is that SPY is pretty highly valued now and BRK/FFH less highly valued. So there is higher probability that BRK/FFH will outperform SPY directly (even without considering cash/bond allocation). This is one reason why I hold pretty large position in BRK/FFH.

 

BTW, I would not hold SPY/HYG, because IMO HYG is quite correlated with SPY, so if SPY drops a lot, you won't get a good opportunity to rebalance since HYG may drop a lot too. But that's somewhat separate discussion.