Munger interview WSJ 4/17/20

[Gregmal]

I'll say that Buffett has beaten Klarman and Miller by a pretty large margin over the past 10 years. I'm quite sure of that. Klarman has been bearish since at least 2010. Why March of 2020 presents better bargains than any other month in the past 10 years? Beats me.

 

And Miller had a large stretch of luck but I don't think is an elite investor. Why do I say that? He barely beat the S&P 500 over his entire tenure if you go from inception to his exit (after fees). And that is with a ton of extra volatility. To be fair, the fund is expensive so he had a pretty high hurdle to start off with.

 

He started on April 16th, 1982. If you run the numbers from June 30th 1982 -April 30th 2012 (his last day from what I can find) he underperformed the S&P 500. If you can go almost 30 years and underperform, what's the point? And he had worse drawdowns! An elite investor doesn't take on more risk and have worse returns.

 

Come on... you're substantially underselling Bill Miller. Managing money, charging the fees he does, and still beating the markets over a multi decade period is pure insanity. As money manager, especially of non private vehicles, having your cake(taking down the fees) and eating it too just doesnt happen very often, if at all. He is certainly a unique investor and sees things in a different light than most. Look at when and where he figured out RH, and compare that to the BRK position taken last fall...

[vinod1]

It's very dangerous to try to shrug off Munger's and probably Buffett's prudence or conservatism as a consequence of their age or personal financial needs  or even legacy.

 

If the situation would call for it, I am certain they would swing for the fences. Look at what Buffett did in september 2008 or Munger in March 2009. All-in in a very short period of time.

 

I agree with them that the right time for investment hasn't come yet. The risk/reward just isn't there. A few weeks ago we had a low point, and some traders thought there was a good trade to be made, and they did, but Buffett and Munger aren't traders. They buy to keep. And from that perspective, the time to buy hasn't come yet.

 

I've lived through quite a few cycles, and have never seen a true bottom with market sentiment as it is right now. I get constantly phone calls from people who have zero experience in the stock market with questions how they can and in what they have to invest. Brokers can't handle the applications from small investors and I read a broker had to cancel 40% of the applications because the appliers didn't have the necessary knowlegde to open an account. At a true bottom, almost nobody, and certainly no amateurs are interested in stepping in.

 

I mean, look at the S&P500. About 10% lower YTD. I can't comprehend this. The economic damage is real. Talk to a business owner instead of a stock trader and you get a real view of what is happening. There is an enormous value destruction going on, and no Fed or government is going to compensate this.

 

It's a simple fact that people in lockdown aren't producing any output anymore. That output is gone forever and won't be compensated, no matter how much money they print. Millions of people and businesses are surviving right now by eating up their reserves. These reserves are gone and not available anymore to consume or to invest after the crisis. The compounding effect in the economy is working in reverse at the moment, and it is not that easy to turn it around again. So I think the economic consequences will be felt long after the virus has been contained.

 

In these circumstances, a 10% correction from the rosy times earlier this year look a little paltry. Besides, I can't image a bull market of more than 10 years stops with a crash of 35%, only to resume 4 weeks thereafter. The imbalances are not cleansed out of the system. Look at Tesla : everything comes to a standstill, but the share price is up 70% YTD?

 

So we have time to see this thing evolve. There's certainly no need to rush in and the true long term opportunities will come. In this, I am completely on Munger's page.

 

Good points and I agree with most with one exception.

 

In Q4, 2008 and Q1, Q2 of 2009, Buffett hardly added 2% or 3% of the portfolio directly in stocks. He did the preferred deals that he got invited, but otherwise nothing much. He did buyout BNI at the end of 2009.

 

Checking dataroma, from Q4 2008 to Q4 2009 and including both those quarters, Buffett actually sold about 4%-5% of the stock portfolio.

 

I would not call that swinging for the fences.

 

Vinod

[scorpioncapital]

Here's another way to look at it. While insurance float has zero or low cost in general, it's still what is essentially a low-cost margin account. If YOU were invested on margin, say 70-30 as Berkshire is with investments+cash would you add even in such a downturn? You're already fully invested if you consider your leverage level. As such you either need a SEVERE cataclysm to add or things to get better and rotate some existing holdings into new ones. Ok, it's not a margin account since they are conservative and there is no 'call of loan' risk. But it's still leverage, well used. You have a high bar for action since the leverage already gives you good returns in normal times. You don't need to stretch except in very special situations and this apparently is not enough.

[stahleyp]

If an investor had two options (which they did) to invest in LMVTX or VFINX at the start of Miller's career, the investor would have been probably better off in VFINX after taxes. And fewer sleepless nights.  Unless the investor started within a couple months of his start date, the index fund is unquestionably the better choice.

 

Even if he had worked for free,  with the tax efficiency of the index fund, I believe, an investor would have still been better off with the index fund. Though I'm not certain of that. I agree that managing billions of public dollars over a 30+ year career and beating the market with high fees is not easy. But was he just lucky? And if you aren't doing better for your investors, what's the point? Just to make yourself rich at their expense?

 

But, let's look at another example. Let's look at Miller Opportunity. He started the fund in Dec 1999. A great time to be a value investor! Literally, almost perfect. This is a midcap fund (per morningstar) so we'll compare against VFINX and VIMSX.

 

So from Jan 2020-March 2020:

LMOPX: (2.14% fee!!): 3.78% annual return

VFINX: 4.73%

VIMSX: 7.76%.

 

I'll throw VIVAX in there too (vanguard value index): 5.05%.

 

Keep in mind that he doesn't just have to stick to one index so if we take a blended (50% VFINX and 50% VIMSX) he still didn't beat it...before fees.

 

So even we add back the 2.14% fee and give him a return of 5.92% which beats the S&P 500 but still greatly underperforms the midcap index...which is his category.

 

Keep in mind this is all before taxes. To be fair, his funds don't have a lot of turnover so the tax drag is probably pretty low for an active fund.

 

Here's another fun one. Over the past 15 years LMNOX (his institutional version at 1.15% expense) has underperformed his category and index by 1.80% and 3.43%, respectively. So even if he had been working for free over the past 15 years...index is still better. Before and after taxes! Is 15 years with a smaller fund not good enough to (probably) judge someone's ability?

 

I see no evidence that he is a superior investor. I see plenty of evidence that he is lucky and that he has taken on excessive amounts of risk to barely beat the market (before accounting for taxes).

 

 

 

[Gregmal]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

[Ronchong]

Great point. I don't think Buffett's action is comparable to Klarman, Millier, Ackman (or whoever you like) because Buffet is not playing in the same field as them.

 

While both groups make Investments, one subtle difference that has not been mentioned so far is that Buffet is a businessman that does investments on the side.

 

Berkshire is not like the rest. Berkshire is not a hedge fund but is a conglomerate that has real businesses, physical assets and thousands and thousands of employees whose livelihood depends on them. The economic loss that is going to stem from this is also real. You cant just exit or enter a business like you can with stock holdings. People gets affected.

 

Without knowing how this is going to turn out, I don't think anyone should fault buffett for being conservative. He has a lot more considerations that a normal fund manager has.

[buffetteer1984]

Miller's hedge fund was up 100% last year.  Unless he's been trailing the s&p by a wide margin over the past decade, which he hasn't,  I think that one year like that more than adds value vs berkshire which has not beaten the s&p at any point, not even during this pandemic and they're sitting on 20% cash.

 

Yeah I agree berkshire is different but not entirely.  They still hold half their market cap in liquid equities.  They can buy and sell whatever (example airlines).  So you're sitting there with 125 bil waiting for an elephant (whole business) but it never presents itself while you hold on to equities that you bought at higher prices (since 2016) and watch the price go down why not at least add to the marketable securities? A few percent maybe? If he was down to his 20 bil threshold i can understand conserving cash for operation purposes but 125 bil? And do nothing?  This pandemic presents more opportunities because there are companies earning power that will not be permanently damaged.  Google's value today is likely more appealing than in the past just simply cause their earning power isn't impaired yet the price is reflecting it would be.  Not every company will face a doomsday scenario.  There's a reason the nasdaq is barely down this year.  It constitutes 5 of the strongest companies where the long term intrinsic value is barely hurt from even a years of lost earnings.

 

Great point. I don't think Buffett's action is comparable to Klarman, Millier, Ackman (or whoever you like) because Buffet is not playing in the same field as them.

 

While both groups make Investments, one subtle difference that has not been mentioned so far is that Buffet is a businessman that does investments on the side.

 

Berkshire is not like the rest. Berkshire is not a hedge fund but is a conglomerate that has real businesses, physical assets and thousands and thousands of employees whose livelihood depends on them. The economic loss that is going to stem from this is also real. You cant just exit or enter a business like you can with stock holdings. People gets affected.

 

Without knowing how this is going to turn out, I don't think anyone should fault buffett for being conservative. He has a lot more considerations that a normal fund manager has.

 

 

[KJP]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I agree with your broader point (which I don't think is disputed) that beating an S&P 500 index fund over 30 years after fees while running a U.S. open-end mutual fund (with all of the '40 Act constraints that entails) is very difficult.  See, for example, the long-term returns here:

https://www.tweedy.com/resources/vf/FactsTWEBX,%2020200331.pdf

https://southeasternasset.com/investment-offerings/longleaf-partners-fund/

https://fpa.com/docs/default-source/funds/fpa-crescent-fund/literature/fpa-crescent-fund-update-q1-2020.pdf?sfvrsn=2

https://www.sequoiafund.com/Performance

 

This list is cherry-picked from a group I've heard of (which suggests they're fairly well regarded) and that have lasted decades, so its got a big survivorship bias, which ought to bias the returns higher.  Yet still the performance is underwhelming.

 

But if an individual investor is incapable of putting $1,000 on the 1st of every month into an S&P 500 index fund, come hell or high water, then that investor also isn't going to continually give that money to Bill Miller either for the same reasons.  So, what is Bill Miller's active management doing for them?

 

Also, if Bill Miller has amazing analytic ability as you suggest, do his returns suggest to you that analysis actually isn't worth very much? 

[Peregrine]

I don't get why people think his comments are such a contradiction. Berkshire emerged from 08 with a ton of liquidity as well.

 

Yes, Munger plunged a lot of excess cash into stocks at the Daily Journal in 09, but that's not a vast conglomerate with massive insurance operations.

[Gregmal]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I agree with your broader point (which I don't think is disputed) that beating an S&P 500 index fund over 30 years after fees while running a U.S. open-end mutual fund (with all of the '40 Act constraints that entails) is very difficult.  See, for example, the long-term returns here:

https://www.tweedy.com/resources/vf/FactsTWEBX,%2020200331.pdf

https://southeasternasset.com/investment-offerings/longleaf-partners-fund/

https://fpa.com/docs/default-source/funds/fpa-crescent-fund/literature/fpa-crescent-fund-update-q1-2020.pdf?sfvrsn=2

https://www.sequoiafund.com/Performance

 

This list is cherry-picked from a group I've heard of (which suggests they're fairly well regarded) and that have lasted decades, so its got a big survivorship bias, which ought to bias the returns higher.  Yet still the performance is underwhelming.

 

But if an individual investor is incapable of putting $1,000 on the 1st of every month into an S&P 500 index fund, come hell or high water, then that investor also isn't going to continually give that money to Bill Miller either for the same reasons.  So, what is Bill Miller's active management doing for them?

 

Also, if Bill Miller has amazing analytic ability as you suggest, do his returns suggest to you that analysis actually isn't worth very much?

 

I mean, the names you quoted I hold in high regard as well. Definitely upper echelon. Ive read about a few dozen firms the past few months that went into business in the past year or two looking to exploit a market downturn, that are already out of business.

 

I think an individual should be capable of putting $1000 a month into an index fund, but how many actually do, consistently? The biggest reason for a manager, is to make decisions for you. There is an underlying psychological truth applicable to most human beings, especially coddled North American ones; they HATE taking responsibility or making commitments to anything. Look at Dalal in the coronavirus thread for the most blatant example of failing to commit. EVERYONE talks, IE "oh the index would have done better", but many refuse to back it up. There is no single greater commitment than putting ones money to work, and no more "real" and "personally challenging" way to do that than directly hitting the buy/sell button oneself. One of my favorite quotes of all time is from Tepper and its along the lines of "there is a certain rush when it comes to putting in your orders. When you hit the buy or the sell button, you are effectively betting that the guy on the other side of the trade is an idiot". Not many people are wired like that and that is why things like index funds and mutual funds exist in the first place. Look at how many people post here... now look at how many post in the buy/sell threads?

 

So in a round about way, is buying Miller's fund efficient? IDK probably not. That said would I pay what I charge people to manage their money? Probably not. But having someone else do the work for you is always expensive. Ever get your brakes done? $300 do it yourself but then be accountable for the performance of your work. $800 for a guy with barely a high school diploma and a drug habit to do it, but most walk away with peace of mind...

[KJP]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I agree with your broader point (which I don't think is disputed) that beating an S&P 500 index fund over 30 years after fees while running a U.S. open-end mutual fund (with all of the '40 Act constraints that entails) is very difficult.  See, for example, the long-term returns here:

https://www.tweedy.com/resources/vf/FactsTWEBX,%2020200331.pdf

https://southeasternasset.com/investment-offerings/longleaf-partners-fund/

https://fpa.com/docs/default-source/funds/fpa-crescent-fund/literature/fpa-crescent-fund-update-q1-2020.pdf?sfvrsn=2

https://www.sequoiafund.com/Performance

 

This list is cherry-picked from a group I've heard of (which suggests they're fairly well regarded) and that have lasted decades, so its got a big survivorship bias, which ought to bias the returns higher.  Yet still the performance is underwhelming.

 

But if an individual investor is incapable of putting $1,000 on the 1st of every month into an S&P 500 index fund, come hell or high water, then that investor also isn't going to continually give that money to Bill Miller either for the same reasons.  So, what is Bill Miller's active management doing for them?

 

Also, if Bill Miller has amazing analytic ability as you suggest, do his returns suggest to you that analysis actually isn't worth very much?

 

I mean, the names you quoted I hold in high regard as well. Definitely upper echelon. Ive read about a few dozen firms the past few months that went into business in the past year or two looking to exploit a market downturn, that are already out of business.

 

I think an individual should be capable of putting $1000 a month into an index fund, but how many actually do, consistently? The biggest reason for a manager, is to make decisions for you. There is an underlying psychological truth applicable to most human beings, especially coddled North American ones; they HATE taking responsibility or making commitments to anything. Look at Dalal in the coronavirus thread for the most blatant example of failing to commit. EVERYONE talks, IE "oh the index would have done better", but many refuse to back it up. There is no single greater commitment than putting ones money to work, and no more "real" and "personally challenging" way to do that than directly hitting the buy/sell button oneself. One of my favorite quotes of all time is from Tepper and its along the lines of "there is a certain rush when it comes to putting in your orders. When you hit the buy or the sell button, you are effectively betting that the guy on the other side of the trade is an idiot". Not many people are wired like that and that is why things like index funds and mutual funds exist in the first place. Look at how many people post here... now look at how many post in the buy/sell threads?

 

So in a round about way, is buying Miller's fund efficient? IDK probably not. That said would I pay what I charge people to manage their money? Probably not. But having someone else do the work for you is always expensive. Ever get your brakes done? $300 do it yourself but then be accountable for the performance of your work. $800 for a guy with barely a high school diploma and a drug habit to do it, but most walk away with peace of mind...

 

I see your point now.  It's not efficient to invest with Miller, but you believe its psychologically necessary for many people who otherwise wouldn't invest in anything, even an index fund.  So, for those people, paying Miller to produce 5-7% annual returns is better than the alternative of them putting their money in a CD paying 1-2%, and thus he provides a very valuable service.  It's an explanation of active management that can justify it despite structurally lower returns than index funds, which I think is a more compelling argument than Murray Stahl's increasingly convoluted arguments about the purported perils of indexation.

[stahleyp]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I'm actually surprised you're supporting Miller here. I've seen plenty of times that you've talked poorly about how fund managers are paid for their underperformance.

 

What if we didn't get the TARP bailouts? Miller probably wouldn't have even lasted to 2012. His drawdown was almost 70%! You can't just compare Miller against his peers and determine whether he was "elite" or not. Those peers didn't start at the same time, they could have different mandates, less clout within the organization, etc.

 

Like I said, discount his first couple months and he trailed the market. Look at a different fund (with few assets and no fees) trailed the market. Look at the amount of risk he took and he still trailed the market.

 

It was fairly well known that index funds beat active managers even in 1982. I'm not comparing him to a market time strategy, different allocations or what people stick to or not. We're comparing US long only stocks vs US (mostly) long only stocks. If you can't beat a simple index, with vast resources, why are you elite? Because you might have beat some guys that didn't have the same slack from their employers?

 

If you had to take Miller vs an S&P 500 index fund over say, the next 10 years, which would you choose?

 

 

[stahleyp]

Miller's hedge fund was up 100% last year.  Unless he's been trailing the s&p by a wide margin over the past decade, which he hasn't,  I think that one year like that more than adds value vs berkshire which has not beaten the s&p at any point, not even during this pandemic and they're sitting on 20% cash.

 

Yeah I agree berkshire is different but not entirely.  They still hold half their market cap in liquid equities.  They can buy and sell whatever (example airlines).  So you're sitting there with 125 bil waiting for an elephant (whole business) but it never presents itself while you hold on to equities that you bought at higher prices (since 2016) and watch the price go down why not at least add to the marketable securities? A few percent maybe? If he was down to his 20 bil threshold i can understand conserving cash for operation purposes but 125 bil? And do nothing?  This pandemic presents more opportunities because there are companies earning power that will not be permanently damaged.  Google's value today is likely more appealing than in the past just simply cause their earning power isn't impaired yet the price is reflecting it would be.  Not every company will face a doomsday scenario.  There's a reason the nasdaq is barely down this year.  It constitutes 5 of the strongest companies where the long term intrinsic value is barely hurt from even a years of lost earnings.

 

Great point. I don't think Buffett's action is comparable to Klarman, Millier, Ackman (or whoever you like) because Buffet is not playing in the same field as them.

 

While both groups make Investments, one subtle difference that has not been mentioned so far is that Buffet is a businessman that does investments on the side.

 

Berkshire is not like the rest. Berkshire is not a hedge fund but is a conglomerate that has real businesses, physical assets and thousands and thousands of employees whose livelihood depends on them. The economic loss that is going to stem from this is also real. You cant just exit or enter a business like you can with stock holdings. People gets affected.

 

Without knowing how this is going to turn out, I don't think anyone should fault buffett for being conservative. He has a lot more considerations that a normal fund manager has.

 

LMNOX total 10 year return 90.36%

VFIAX: 201.95%

 

I don't know what his hedge fund is doing. Considering the fees are probably higher, I doubt his investors will do better.

[KJP]

 

If you had to take Miller vs an S&P 500 index fund over say, the next 10 years, which would you choose?

 

Gregmal can, of course, speak for himself, but I think he's suggesting that that's not the real world alternative for many people, who would actually be choosing between Miller and something like a CD.  I don't know if he's right about how many people see their real world alternatives, but you seem to be talking past each other with your question.

[stahleyp]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I agree with your broader point (which I don't think is disputed) that beating an S&P 500 index fund over 30 years after fees while running a U.S. open-end mutual fund (with all of the '40 Act constraints that entails) is very difficult.  See, for example, the long-term returns here:

https://www.tweedy.com/resources/vf/FactsTWEBX,%2020200331.pdf

https://southeasternasset.com/investment-offerings/longleaf-partners-fund/

https://fpa.com/docs/default-source/funds/fpa-crescent-fund/literature/fpa-crescent-fund-update-q1-2020.pdf?sfvrsn=2

https://www.sequoiafund.com/Performance

 

This list is cherry-picked from a group I've heard of (which suggests they're fairly well regarded) and that have lasted decades, so its got a big survivorship bias, which ought to bias the returns higher.  Yet still the performance is underwhelming.

 

But if an individual investor is incapable of putting $1,000 on the 1st of every month into an S&P 500 index fund, come hell or high water, then that investor also isn't going to continually give that money to Bill Miller either for the same reasons.  So, what is Bill Miller's active management doing for them?

 

Also, if Bill Miller has amazing analytic ability as you suggest, do his returns suggest to you that analysis actually isn't worth very much?

 

I mean, the names you quoted I hold in high regard as well. Definitely upper echelon. Ive read about a few dozen firms the past few months that went into business in the past year or two looking to exploit a market downturn, that are already out of business.

 

I think an individual should be capable of putting $1000 a month into an index fund, but how many actually do, consistently? The biggest reason for a manager, is to make decisions for you. There is an underlying psychological truth applicable to most human beings, especially coddled North American ones; they HATE taking responsibility or making commitments to anything. Look at Dalal in the coronavirus thread for the most blatant example of failing to commit. EVERYONE talks, IE "oh the index would have done better", but many refuse to back it up. There is no single greater commitment than putting ones money to work, and no more "real" and "personally challenging" way to do that than directly hitting the buy/sell button oneself. One of my favorite quotes of all time is from Tepper and its along the lines of "there is a certain rush when it comes to putting in your orders. When you hit the buy or the sell button, you are effectively betting that the guy on the other side of the trade is an idiot". Not many people are wired like that and that is why things like index funds and mutual funds exist in the first place. Look at how many people post here... now look at how many post in the buy/sell threads?

 

So in a round about way, is buying Miller's fund efficient? IDK probably not. That said would I pay what I charge people to manage their money? Probably not. But having someone else do the work for you is always expensive. Ever get your brakes done? $300 do it yourself but then be accountable for the performance of your work. $800 for a guy with barely a high school diploma and a drug habit to do it, but most walk away with peace of mind...

 

I see your point now.  It's not efficient to invest with Miller, but you believe its psychologically necessary for many people who otherwise wouldn't invest in anything, even an index fund.  So, for those people, paying Miller to produce 5-7% annual returns is better than the alternative of them putting their money in a CD paying 1-2%, and thus he provides a very valuable service.  It's an explanation of active management that can justify it despite structurally lower returns than index funds, which I think is a more compelling argument than Murray Stahl's increasingly convoluted arguments about the purported perils of indexation.

 

I find it very, very hard to believe that anyone would be psychologically better off investing with Miller vs an index fund. The dude has way, way higher drawdowns.

 

I just looked this up. Even during the 2000-2002 bear market his drawdown was still almost 40% vs 45% for the S&P 500. That is the worst drawdown I've seen from any "value" investor during that time.

 

Though that's pretty easy to take compared to his almost 70% drawdown from 2007-2009.

 

In other words, if you can't handle the S&P 500 index, you sure ain't going to be able to handle Miller. CDs would be a good spot for that person.

[Gregmal]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I'm actually surprised you're supporting Miller here. I've seen plenty of times that you've talked poorly about how fund managers are paid for their underperformance.

 

What if we didn't get the TARP bailouts? Miller probably wouldn't have even lasted to 2012. His drawdown was almost 70%! You can't just compare Miller against his peers and determine whether he was "elite" or not. Those peers didn't start at the same time, they could have different mandates, less clout within the organization, etc.

 

Like I said, discount his first couple months and he trailed the market. Look at a different fund (with few assets and no fees) trailed the market. Look at the amount of risk he took and he still trailed the market.

 

It was fairly well known that index funds beat active managers even in 1982. I'm not comparing him to a market time strategy, different allocations or what people stick to or not. We're comparing US long only stocks vs US (mostly) long only stocks. If you can't beat a simple index, with vast resources, why are you elite? Because you might have beat some guys that didn't have the same slack from their employers?

 

If you had to take Miller vs an S&P 500 index fund over say, the next 10 years, which would you choose?

 

The reason I feel different here is because Miller isn't Einhorn or Paulson. He has a much more challenging vehicle to operate than just a standard run of the mill hedge fund. He also doesnt consistently make the same mistakes. I think guys who are flexible and adapt deserve credit. Right? Lee Cooperman, great track record, how many times Lee are you going to buy some pos energy company and watch it go bankrupt? Icahn too? Einhorn; how long are you going to short Amazon because its PE does make sense, to YOU! John Paulson, awesome you did 1000% annualized for a few years starting out and nailed the big short trade, but -30% a year for the bulk of the recovery while popping up new funds every other year banking on marketing your trades from yesteryears? Get the fuck out. Miller is IMO of course, higher quality than those guys who rightfully deserve lots of criticism.

 

Your point on the bailouts? Well, part of the game was predicting that would happen. Again, case in point, David Tepper. No bailout, Tepper is just another guy with a fund and sneaky good returns rather than the guy holding the current heavy championship belt.

[Gregmal]

 

If you had to take Miller vs an S&P 500 index fund over say, the next 10 years, which would you choose?

 

Gregmal can, of course, speak for himself, but I think he's suggesting that that's not the real world alternative for many people, who would actually be choosing between Miller and something like a CD.  I don't know if he's right about how many people see their real world alternatives, but you seem to be talking past each other with your question.

 

Yea I'd probably just take the index. But I'd also probably watch Millers portfolio and occasionally margin up to steal a few of his ideas!

[stahleyp]

The evidence that he is a superior investor is no more apparent than simply looking at all the failures during even a fraction of that timeframe. Then look at the guys who got by, but trailed miserably. If you can put Miller up against peers and show me he is nothing special, I am open to changing my opinion of him. But the guy definitely has been in the upper echelon of investors. Fees are part of the game; everyones returns would be different without them. Most people, honestly, probably cant even buy an index fund. Things are always presented as "well ya coulda bought an index fund and done better". But thats hogwash because no one does that and sticks to it. You've got folks who want to time the markets, folks who are too scared of everything to put in a full allocation, folks who try to make buying an index into a complex strategy with hedging techniques, etc. Everyone makes that claim. Ive yet to meet many who strictly just "buy the index" without any of the above issues. Saying "oh but fees" IMO is silly. Thats how these guys run a business. My dining bill would be much more economic if not for tips...my insurance would be cheaper if not for agency markups...my home sale proceeds would be greater without realtor commissions...thats life. You need a service, you pay for it. If you can do better yourself, then do it. But the number of people who think they can do it better and the number that actually can are very different.

 

Miller also has shown a remarkable ability to go anywhere and analyze anything in any sector. Compare that to guys like Buffett who immediately write off half the investing universe because they dont get it, or guys like Icahn who are undoubtedly rich, but cant seem to get out of their own way and continuously make the same mistakes with shit like energy stocks.

 

I'm actually surprised you're supporting Miller here. I've seen plenty of times that you've talked poorly about how fund managers are paid for their underperformance.

 

What if we didn't get the TARP bailouts? Miller probably wouldn't have even lasted to 2012. His drawdown was almost 70%! You can't just compare Miller against his peers and determine whether he was "elite" or not. Those peers didn't start at the same time, they could have different mandates, less clout within the organization, etc.

 

Like I said, discount his first couple months and he trailed the market. Look at a different fund (with few assets and no fees) trailed the market. Look at the amount of risk he took and he still trailed the market.

 

It was fairly well known that index funds beat active managers even in 1982. I'm not comparing him to a market time strategy, different allocations or what people stick to or not. We're comparing US long only stocks vs US (mostly) long only stocks. If you can't beat a simple index, with vast resources, why are you elite? Because you might have beat some guys that didn't have the same slack from their employers?

 

If you had to take Miller vs an S&P 500 index fund over say, the next 10 years, which would you choose?

 

The reason I feel different here is because Miller isn't Einhorn or Paulson. He has a much more challenging vehicle to operate than just a standard run of the mill hedge fund. He also doesnt consistently make the same mistakes. I think guys who are flexible and adapt deserve credit. Right? Lee Cooperman, great track record, how many times Lee are you going to buy some pos energy company and watch it go bankrupt? Icahn too? Einhorn; how long are you going to short Amazon because its PE does make sense, to YOU! John Paulson, awesome you did 1000% annualized for a few years starting out and nailed the bulb short trade, but -30% a year for the bulk of the recovery while popping up new funds every other year banking on marketing your trades from yesteryears? Get the fuck out. Miller is IMO of course, higher quality than those guys who rightfully deserve lots of criticism.

 

Your point on the bailouts? Well, part of the game was predicting that would happen. Again, case in point, David Tepper. No bailout, Tepper is just another guy with a fund and sneaky good returns rather than the guy holding the current heavy championship belt.

 

Tepper is good. I have no gripe with him. He was down 25% (from what I see in 2008). Market was about 37%, LMVTX down about 55%, LMNOX 65%! If bailouts didn't happen, there is a good chance Tepper would've survived. Miller...probably not.

 

I don't know what Cooperman or Einhorn did during the downturn. I'll say the only one of these guys I would put my hard earned money with is Tepper (but I'm so small they wouldn't take me anyway!).

[stahleyp]

 

If you had to take Miller vs an S&P 500 index fund over say, the next 10 years, which would you choose?

 

Gregmal can, of course, speak for himself, but I think he's suggesting that that's not the real world alternative for many people, who would actually be choosing between Miller and something like a CD.  I don't know if he's right about how many people see their real world alternatives, but you seem to be talking past each other with your question.

 

Yea I'd probably just take the index. But I'd also probably watch Millers portfolio and occasionally margin up to steal a few of his ideas!

 

haha fair enough! ;)

[AzCactus]

This is an interesting, but also an odd thread.  Several people have been making assumptions about Berkshire with very limited concrete evidence.  Here are the facts

 

1. Charlie Munger isn't the primary individual making investments at Berkshire.  He may not even be second or third

2. Berkshire's first obligation is to current employees and making sure that they do not need govt bailout/assistance-(yes I know as of Q4 they had ~128 billion in cash)

3. Most importantly, we have no idea what Berkshire may have bought and we won't know until they release their 13f.

4. Lastly, the Covid situation isn't over, so maybe Warren thinks lows might be retested.  I think between all the businesses Berkshire owns and his friendship with Gates, he knows more about the overall economy/situation than most.

 

 

Sorry about formatting

[Gregmal]

On the index vs active discussion, I think an interesting aspect that many flip into a conventional wisdom but ultimately detrimental narrative is that an index is an unguided ship and with active management you have someone captaining that ship for you to navigate tough times. However, this assumption I often faulty. Index funds dont make decisions, which, bringing this back full circle to Buffett and Munger; sometimes, in fact a lot of the time, the less decisions you have to make, the better. And more often than not, sitting on your hands and doing nothing, is the best move. Sounds obvious but on a deeper level, its actually quite contrarian.

[buffetteer1984]

I agree, i've definitely jumped the gun on making any assumptions on what berkshire has or has not done.  My caveat is more when this is all said and done and they're still just sitting there with 125 billion saying they couldn't find opportunities, I would be annoyed as a shareholder.  Now if some are right and the economy completely blows up, honestly I wouldn't want to be holding ANYTHING not even berkshire.  If we think this will ultimately pass, then we shouldn't be trying to time anything, especially after a decline of 35-40%.  What's the worse that can happen beyond that? Another 10%? Which is why I bring up that many others are seeing "value" even if berkshire themselves are not publicly stating so.  I think that was the main point of discussion with mungers article and his conservative take on the record.  Afterall, we're all trying to make the best investment decisions here.  I'm sure if warren came out tomorrow and said listen this is a generational buy, we'd all feel alittle better.  But because he isn't, we're more cautious, while there are investors that are just as "savy" taking action, which is the point of the names I brought up.

 

This is an interesting, but also an odd thread.  Several people have been making assumptions about Berkshire with very limited concrete evidence.  Here are the facts

 

1. Charlie Munger isn't the primary individual making investments at Berkshire.  He may not even be second or third

2. Berkshire's first obligation is to current employees and making sure that they do not need govt bailout/assistance-(yes I know as of Q4 they had ~128 billion in cash)

3. Most importantly, we have no idea what Berkshire may have bought and we won't know until they release their 13f.

4. Lastly, the Covid situation isn't over, so maybe Warren thinks lows might be retested.  I think between all the businesses Berkshire owns and his friendship with Gates, he knows more about the overall economy/situation than most.

 

 

Sorry about formatting

[thepupil]

I don't have too much to add here, but the only thing I'd point out is that while it's true Berkshire has excess capital, it is also true that Berkshire has enough risk assets/earning assets to make an ROE that will provide shareholders with a return that preserves and grows purchasing power.

 

A lot of people just need equities to deliver their promise of something like 3% real return over time and their retirement math works.

 

Berkshire with $125 billion is not optimal and I want them to have done something (would love for them to sell Apple and buy back $60 billion of stock) or do a $50 billion Bank of Berkshire Bailout Program: "we'll give any good company a quick loan tomorrow: 1st lien up to 5x EBITDA, 6% PIK + warrants for 15% of your company; no dividends or buybacks allowed, not callable for 5 years. No forms to fill out or government buraecracy to deal with. Companies save on cash interest, get the buffett stamp and can focus on their operations rather than liquidity.

 

But if Berkshire does nothing, if warren just thumb sucks, it will generate an ROE from its existing businesses that preserves and grows my and my family's wealth in a tax efficient manner.

 

I sometimes think people get so focused on the huge amount of money and the opportuntiy costs, and are less focused on the %'s.

 

Berkshire has $140 billion or so in safe stuff (cash + bonds). It has $817 billion of assets and $430 billion of equity. Something like 70% of their equity will generate a return.

 

Everyday schmucks like my family keep about 70% of their retirement in risk assets. Berkshire is a portfolio in one go.

 

I'd love for Berkshire to risk up; the excess capital and growth thereof is a reason for the discount, but if they just build cash for the next 5 years or until WEB passes, it's not an entirely terrible outcome either.

 

As for me: I would guess they bought some stock back (maybe 1-2% of the company) and were modest net buyers of equities.

 

[Cevian]

Let the government get out of the way and see how quickly the phone starts ringing.

 

We'd have a Berkshire Airline by now for sure.  ;)

[tng]

I think the phones will start ringing after the economy opens. Right now everybody is waiting for their bailout. Some businesses have stopped paying rent (and it is okay for now because nobody is going to kick them out and the real estate owners don't have anybody to put in either). When things open and the government can no longer write checks for everybody, it will become obvious who the survivors are and deals will need to be made. There will be a ton of businesses that are solid, but need to make back payments to continue operating.