Chou America Funds!

[investmd]

stahleyp,

what is an appropriate amount of leeway for a money manager? Some suggest 10 years. Chou Associates returns over 10 years have been <6%/year. After being in the fund for over 10 years, does one stay the course for fear of missing out? I think this year's annual letter will be important. Will he address why returns have been disappointing and what he is doing to change it? If not, may be appropriate to re-deploy assets?

[OracleofCarolina]

2017 annual report is out. Once again, Chou is waiving the fees since the fund has underperformed its benchmark.

 

Cheers!

[stahleyp]

invest, those are all valid questions (and I don't have a good answer). I believe he trailed for around 13 years at one point (though not nearly by this amount) against his peers. He then made up all of that and then quite a bit more.

[investmd]

2017 annual report is out. Once again, Chou is waiving the fees since the fund has underperformed its benchmark.

 

Cheers!

 

While the Chou America letter is out, he Chou Associates letter is not out yet. Presume it will be similar. it's usually not out till the end of March.

Glad to see that Chou has waived fees for 2015, 2016 & 2017 in Chou America Funds. However, he has not done the same in Chou Associates. Back in 2012 he had waived fees for Chou Europe and found that impressive.

 

Given the lakluster results of a decade, hopefully fees are waived for his Canadian Funds as well.

[AzCactus]

While it is a nice gesture that he is waiving fees it would be far better if he performed well and earned them.  This is akin to a lawyer messing up a case and returning fees charged to the client.  It's nice, but it would be better if he actually just won the case. 

[investmd]

While it is a nice gesture that he is waiving fees it would be far better if he performed well and earned them.  This is akin to a lawyer messing up a case and returning fees charged to the client.  It's nice, but it would be better if he actually just won the case.

 

AzCactus, I agree with you.

However, given that results were not good, instead of pocketing the fees as is in his mandate to do, I do think it is honourable that Francis Chou does return the fees. I don't know of any other mutual fund managers who would do that. I'm hopeful that he returns fees this year for Chou Associates, Chou Europe and Chou Asia as none of them have a good 10 year record ( 5.57%, 2.26%, 6.58%). That kind of 10 year performance is below expectations for the membership on this Board.

[Cigarbutt]

Chou Funds 2017 Annual Report is out:

http://choufunds.com/pdf/AR%202017%20EN.pdf

 

Always read his reports with interest as Mr. Chou is one of the last members of the endangered species of value investors who have been reporting relative under-performance for quite some time.

 

For interest ("cyclicality of active management"), see figure 10: "Even successful funds had multiple periods of underperformance":

http://www.schroders.com/en/sysglobalassets/digital/insights/2017/pdf/active-vs-passive/the-case-for-active-asset-management-sch9627-prof-only.pdf

 

I guess the future will answer some questions but some (AUM) seem to have decided to look for greener pastures.

 

Interesting discussion about a sample portfolio that is comparable to the leading names and that could outperform going forward. The last annual Semper Augustus letter explored a similar theme.

 

His point is that, on a relative basis, he is likely to do better in the future as "recent" performance is related to being "out of sync".

Even positive relative performance may not be that rewarding. No?

 

Reminds me of a chart I saw (and which I reflected upon) recently about relative valuation between equities and commodities.

I see value in commodities and in some areas of oil and gas but I haven't been able to shake off the uncomfortable fact that relative valuation discrepancies can disappear in many ways.

 

https://medium.com/@don.wieczorek/what-is-the-relative-value-of-commodities-versus-equities-right-now-f3ec00774be

 

I sincerely wish good luck to Mr. Chou.

 

 

[LC]

stahleyp,

what is an appropriate amount of leeway for a money manager? Some suggest 10 years. Chou Associates returns over 10 years have been <6%/year. After being in the fund for over 10 years, does one stay the course for fear of missing out? I think this year's annual letter will be important. Will he address why returns have been disappointing and what he is doing to change it? If not, may be appropriate to re-deploy assets?

 

Honestly, this is crazy to me. TEN YEARS???? That's a long time to lose money. Imagine if Buffett underperformed for ten years. No offense to Mr. Chou, whom I've never met but apparently is a great human being, but that is simply too long to keep me as a client.

 

If I invested my money in others, I would give them:

-3 years if they are new

-5 years if they have a "rock solid" history

 

Otherwise I am out. You're essentially telling me that in 5+ years this person was not able to find a means to make money. I am perfectly capable of under-performing all by myself, thank you very much! :D

 

Frankly, if I were managing other people's money, and I couldn't outperform over a 5 year period, I would consider it theft to keep their money under management.

[arbcon]

I haven't met Mr Chou but I sympathize with him. To me, the crucial question is whether the last ten years are a valid test of investment performance given the heavy hand of the government in monetising everything under the sun. I wonder to this day how many securities they bought from the banks for which they paid 100 cents on the dollar were worthless at time of purchase. The money went into the stock market- you know the rest. But,to me, saying a period of negative rates is a valid investment strategy is not something I will ever understand. Fortunately I don't have to.

To the very thoughtful commenter with the 5 year horizon, I remember well the 1969-1974 period where people who were Buffett partners sold Berkshire back to WB after 1969 using exactly that test. Many of those who sold were personal friends of mine.

Of course they didn't understand the value of float,or, more specifically, the value of that float in the hands of WB. I'm talking about sales from 90 to 300 per share on the A stock. But, as I get older, i tend to just pick the highest combination of honesty and talent that I can find and make more of a lifetime investment, with the sole exception of now where everything i look at is overpriced, at least to me.

 

[rb]

I have met Mr. Chou and yes he is a great guy and I also think that he's a great investor. But he's made mistakes. He's gotten too attached to things like Sears and Overstock.com. That was bad. If he didn't hold a sizeable chunk of Berkshire his results would be even worse. Sadly ours is a business that doesn't put too much value on being nice.

 

For a fund manager under performance is the worst thing. But he must get out from under it. He'll have to radically rethink and change what he's doing.

[thowed]

I don't know a great deal about Mr Chou, but this thread throws up a really interesting point for me about investing: The importance of diversification.

 

So Fund managers have a 'style' or 'strategy', be it value, growth, special situations etc.  The fervour especially of value people makes me think of it a bit like a religion.

 

For me, as an investor, I try to be as agnostic as possible.  I don't believe in 'right' and 'wrong' strategies in the markets.  I believe in outperforming the index sustainably for the long-term.

 

Markets may be a weighing machine in the long-term, but they can also stay irrational for longer than you can stay solvent.

 

So as an agnostic, I try to build a portfolio of the best managers with different styles, on the basis that they should all do well over the very long-term, and their blend of styles should mean that there should always be a few pulling their weight.  I guess it's like a sports team, or a tool box - there isn't one player/tool that will do everything for you at all times.

 

The follow-on question would therefore have to be: is Chou one of the best Value managers out there for an agnostic?  I have some sympathy for Value managers, as the past 10-year environment has not been particularly favourable to the style, but I also know that a number of investors and fund managers on this board have been able to outperform.  Anyway I don't know enough about Mr Chou to have an answer for this.

 

[Spekulatius]

I don’t know any Profession where it is Ok to underperform for 10 years and I do not know why money mangement should be different. It‘s as simple as that.

[LC]

I don’t know any Profession where it is Ok to underperform for 10 years and I do not know why money mangement should be different. It‘s as simple as that.

 

Agreed. The worst part is, if you're a fund manager, and you underperform for 10 years, how do you sleep at night collecting fees? Now I know this isn't all managers (the reasonable ones have high water marks etc to prevent this kind of thing), but for the ones that sit back and just rake in fees for the service of losing their clients money, that person I particularly despise.

[nodnub]

I don’t know any Profession where it is Ok to underperform for 10 years and I do not know why money mangement should be different. It‘s as simple as that.

 

I disagree.

 

Let's define underperforming as being in 33 percentile (aka bottom 1/3, a good sized margin under the average)

 

I would say that for most professions, their results aren't even being accurately measured.

 

Imagine you are crippled in an accident and you hire a personal injury lawyer. How do you measure his effectiveness?  How do you know if they did a good job for you? That you got as much as your injuries were worth?

 

What about doctors?  Hospitals probably collect statistics on surgical mistakes and complications, but what about seeing your family doctor?  Do you think someone is tracking their misdiagnoses and mistakes?  I don't. 

 

What about underperforming as a grocery clerk? A bit slower at their work and not as friendly. Remember that one 1/3 of your employees are underperforming! Are you going to fire them all every year? Remember that your top performing grocery clerks probably move on to find other, better paid work. You don't want staff turnover and retraining of 50% per year..

 

So in summary I think that Fund Management is one of the few professions where your results are accurately measured!  There is underperformance in all professions - but it isn't as obvious as in fund management.

 

 

[LC]

Ten years though? Imagine a surgeon with ten years of malpractice claims, a cashier with ten years of stealing from the till, a lawyer with ten years of lost case after lost case.

 

Hell, the lawyer example may even be spot on: Imagine those ambulance chasing/daytime TV commercial lawyers who don't charge unless YOU GET PAID! Even if they settle for far less than your claim is worth, they still get paid, exactly like an underperforming fund manager!

[jmp8822]

One issue with comparison of fund managers' not performing well for any period of time, (especially 10+ years) is the alternatives in investing.  You can buy a Total Stock Market index fund or S&P 500 index fund and know you will be average.  I can't think of another profession where any skills are totally worthless unless you outperform the average.

[investmd]

From what I can gather, Mr. Chou is a very well respected member of the value investing community. He is generous of his time in value investing forums. His annual letters are clear, usually avoid jargon, and often have humour. He has not been afraid to go against the grain, buy when others are selling and has conviction to move to cash when he doesn't see opportunities. Several years ago when he waived fees for Chou Europe Fund, he earned great kudos on my part - don't charge when you can't outperform over a sufficient period of time. He definitely knows a lot more about valuation than I do and he has clearly shown the ability to find 5 & 10 baggers. However, in the face of 10 & 15 year results being <6%/yr I have some questions/concerns:

[*]He recently bought StoneTrust Insurance company from Pabrai Funds. As there is no mention of the purchase in his annual letter, one presumes it is outside of his publicly traded funds. However, if Mr. Chou is going to buy a company for $50-100M, should his investors not know that he has other financial interests - that his time and money are not solely devoted to Chou Funds? I was under the impression that his interests were completely aligned. Does he not have a fiduciary responsibility to disclose this purchase publicly?

 

Why are fees for Chou America waived but no mention of waiving fees for his Canadian Funds: Chou Associates, Europe and Asia? They have all underperformed markets and likely his own estimation over a prolonged period of time. I would much appreciate it if he would waive fees for his flagship funds and give some criteria as to when fees are deserved or not.

 

While times were good, Chou was able to stay low key, not have annual meetings and communicate only by 2 letters a year. Given current results, please consider having a gathering where investors can have an open discussion with manager.

 

Without further disclosure on these topics, I think he risks losing his reputation in the community as an insightful, bright, very honest money manager.

 

My hope is that these comments are not derogatory but rather can stimulate some positive outcomes. The current status is suboptimal for a man of his intellect and character. 

[Parsad]

From what I can gather, Mr. Chou is a very well respected member of the value investing community. He is generous of his time in value investing forums. His annual letters are clear, usually avoid jargon, and often have humour. He has not been afraid to go against the grain, buy when others are selling and has conviction to move to cash when he doesn't see opportunities. Several years ago when he waived fees for Chou Europe Fund, he earned great kudos on my part - don't charge when you can't outperform over a sufficient period of time. He definitely knows a lot more about valuation than I do and he has clearly shown the ability to find 5 & 10 baggers. However, in the face of 10 & 15 year results being <6%/yr I have some questions/concerns:

1. 
   He recently bought StoneTrust Insurance company from Pabrai Funds. As there is no mention of the purchase in his annual letter, one presumes it is outside of his publicly traded funds. However, if Mr. Chou is going to buy a company for $50-100M, should his investors not know that he has other financial interests - that his time and money are not solely devoted to Chou Funds? I was under the impression that his interests were completely aligned. Does he not have a fiduciary responsibility to disclose this purchase publicly?
    

Why are fees for Chou America waived but no mention of waiving fees for his Canadian Funds: Chou Associates, Europe and Asia? They have all underperformed markets and likely his own estimation over a prolonged period of time. I would much appreciate it if he would waive fees for his flagship funds and give some criteria as to when fees are deserved or not.

 

While times were good, Chou was able to stay low key, not have annual meetings and communicate only by 2 letters a year. Given current results, please consider having a gathering where investors can have an open discussion with manager.

 

Without further disclosure on these topics, I think he risks losing his reputation in the community as an insightful, bright, very honest money manager.

 

My hope is that these comments are not derogatory but rather can stimulate some positive outcomes. The current status is suboptimal for a man of his intellect and character.

 

You guys have more access to Francis than any other manager in the world, other than possibly Mohnish Pabrai.  At our dinner alone, Francis is available to answer questions about anything for nearly 2-3 hours.  He is available at the pre-dinner usually for at least an hour.  He is fully accessible at the Fairfax meeting as he is there from 9am to 2pm.  He takes phones calls, emails, letters, etc.  There is no hidden agenda.  What you see is what you get!  He may be the most transparent, yet least understood money manager of his size. 

 

Francis always wanted to buy a vehicle to grow his personal capital.  He had looked at many businesses over the years, and he understands float extremely well...Stonetrust fit his bill!  He has a tremendous amount of wealth already, but he will probably live and work for at least another 20+ years...much of his money will go to charity at some point, and until then, he knows that a float-creating vehicle will be the greatest way to compound it without using debt as leverage.  His interests are aligned with his investors.  Stonetrust is not some get richer than my clients scheme...the only reason it will stay private, is because there is tremendous risk in insurance, and he just wouldn't feel right if investors ended up losing significant capital.  Insurance isn't easy, and with all of the capital chasing business, it isn't going to get easier in the future.  But he is willing to risk his capital to leave something very significant that will help serve others when he is retired or gone.

 

I'll tell you a story that may or may not help you understand him.  Last April, I took the subway north of Toronto to have lunch with Francis.  I'm financially independent, and was going to just take a cab, but he explained very carefully how to catch the subway.  We had a nice lunch, and I very much enjoyed his conversation and thoughts.  At the end of the lunch, he had a book for me and...a subway token!  He said, "I found this in my office, and I thought you could use it on the way back."  I smiled, completely grateful and understood his sentiment.  This is how Francis tells people I'm thinking of you and appreciate your friendship.  And of course, he wouldn't let me pay for lunch, no matter how much I insisted!

 

10 years of underperformance is something alot of managers have suffered during the greatest bull market in history.  When you are a value investor, your ship is going to have a tough time keeping up.  And yes, there will be a handful of value managers who will outperform even during such a market.  I'm not sure that detracts from quality managers like Francis, but simply proves how tough it can be...and sometimes you will underperform for a long-period of time before you outperform again.  In another few years, either Francis will turn it around and catch up to the indices, or he may keep underperforming...only time will tell.  My bet is on the former!  Cheers!

[Spekulatius]

I don’t know any Profession where it is Ok to underperform for 10 years and I do not know why money mangement should be different. It‘s as simple as that.

 

I disagree.

 

Let's define underperforming as being in 33 percentile (aka bottom 1/3, a good sized margin under the average)

 

I would say that for most professions, their results aren't even being accurately measured.

 

Imagine you are crippled in an accident and you hire a personal injury lawyer. How do you measure his effectiveness?  How do you know if they did a good job for you? That you got as much as your injuries were worth?

 

What about doctors?  Hospitals probably collect statistics on surgical mistakes and complications, but what about seeing your family doctor?  Do you think someone is tracking their misdiagnoses and mistakes?  I don't. 

 

What about underperforming as a grocery clerk? A bit slower at their work and not as friendly. Remember that one 1/3 of your employees are underperforming! Are you going to fire them all every year? Remember that your top performing grocery clerks probably move on to find other, better paid work. You don't want staff turnover and retraining of 50% per year..

 

So in summary I think that Fund Management is one of the few professions where your results are accurately measured!  There is underperformance in all professions - but it isn't as obvious as in fund management.

 

In most professions, you still create value for your employees, even if you underperform. An underperforming waitress will still serve customers, an underperforming engineer will still do some engineering work for the company etc. An underperforming money manager however will be measured against the easily obtainable index standard and if he doesn’t beat that or worse underperforms by a wide margin, he does not create any value of hits customers, in fact he costs his customers money. His customers would have been better off, if they had never heard or met this persons, that’s the harsh truth.

 

On the positive side, money mangement is one of the few professions where you can underperform and still become filthy rich.  8)

[Cigarbutt]

Have followed Mr. Chou for a long time, occasionally invested in the same securities and have developed a lot of respect along the way.

 

Some comments from above are retrospective in nature. Perhaps a way to decide if one stays in the fund or not is to consider previous performance as a sunk cost. Decision should be prospective in nature. In terms of fiduciary duty, I would submit that Mr. Chou has been a model. By that, I mean that his investment style was clearly defined and he has remained consistent. Focus on process, not on outcome. Underperformance is disappointing but I would submit it is the Market that has changed and Mr. Chou's results are what you would expect in such circumstances.

 

Earlier today, read a report (Steven Romick) commenting on the present situation:

http://fpafunds.com/docs/quarterly-commentaries-crescent-fund/crescent-q4-2017-vfinal-with-disclosures.pdf?sfvrsn=2

 

"Traditional value investing – buying a business or asset at a discount that offers the potential for upside appreciation while providing downside protection – isn’t what it used to be. First, good historic returns for value investors attracted a lot of capital that arbitraged inefficiencies from the market. Then the world began to change ever more quickly."

 

IMO, if you think that traditional value investing is dead, then, it may be reasonable to look elsewhere.

But if you think that pendulums do swing, then it may be reasonable to expect relatively better results going forward with Mr. Chou.

 

 

 

 

[Parsad]

In most professions, you still create value for your employees, even if you underperform. An underperforming waitress will still serve customers, an underperforming engineer will still do some engineering work for the company etc. An underperforming money manager however will be measured against the easily obtainable index standard and if he doesn’t beat that or worse underperforms by a wide margin, he does not create any value of hits customers, in fact he costs his customers money. His customers would have been better off, if they had never heard or met this persons, that’s the harsh truth.

 

Wasn't this the harsh reality from 1996 to February 2000?  And again, from 2003 to 2008?  And now you have one of the most prolonged bull markets, with unimaginable manipulation of monetary and fiscal policy, from 2009 to 2018.  Value investors looked stupid until February 2000, and then again until October 2008.  Unwinding of bonds, increasing interest rates, huge expansion and growth related to a massive tax cut stimulus, and don't forget that sovereign debt relative to GDP hasn't decreased for almost any developed nation over this expansion period.  Bubble, bubble toil and trouble!

 

On the positive side, money mangement is one of the few professions where you can underperform and still become filthy rich.

 

Alnesh and I just closed our Canadian Fund after a decade of relative underperformance.  The fund was just too small, and operating expenses far too high...we had no fixed fee, only an incentive fee above a 6% hurdle.  We didn't become filthy rich, and we made sure all of our partners left the fund with at least the capital they put in or more...four partners who came in during the last couple of years were made 100% whole from our own funds.  The Chou Funds might not work quite like that, but at least Francis is one of the few managers in the world who tries hard to be accountable.  Cheers!

[Spekulatius]

What surprises me a bit is that so many value investors end up owning the same crappy stocks like Valeant, Sears’s, Resolute Forest. Seems like a lack of original research to me or some group think. all these stocks had yellow or red flags, had balance sheets  etc. Chou had huge stacked in all those stocks and thwt is why he underperformed. It might have worked great in another universe, but as it played out, it wasn’t really a surprise that it didn’t.

 

As a value investor you can’t expect to outperform consistently every year, but I think some introspective is warranted, if 1/3 of your portfolio goes bust. You can’t blame this on macro either. These weren’t really value investment with a margin of safety either. margin of safety stocks is where heads you win, tails you break even or don’t lose much.

 

Those stocks were more like poker bets were heads you win, tails you lose and they got the odds wrong. This, IMO is not not really value investing, at least not Buffet or a Graham style.

[Cigarbutt]

Quote attributed to Mr. Charles Darwin:

"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."

 

Mr. Buffett has been amazing with adaptation and for such a long time. I would say that adaptation allowed BH to compound at similar levels to the market of this era.

 

I would think that Mr. Graham (who was said to be extremely bright) would have done quite poorly under present circumstances.

 

The environment does change (out of your control).

Perhaps helpful to remember that most evolutive changes result in failure and that the efficient crowd does not always know where it's going.

 

At the end of the line, fiduciary or not, this is a personal decision.

 

[investmd]

Have followed Mr. Chou for a long time, occasionally invested in the same securities and have developed a lot of respect along the way.

 

Some comments from above are retrospective in nature. Perhaps a way to decide if one stays in the fund or not is to consider previous performance as a sunk cost. Decision should be prospective in nature. In terms of fiduciary duty, I would submit that Mr. Chou has been a model. By that, I mean that his investment style was clearly defined and he has remained consistent. Focus on process, not on outcome. Underperformance is disappointing but I would submit it is the Market that has changed and Mr. Chou's results are what you would expect in such circumstances.

 

Earlier today, read a report (Steven Romick) commenting on the present situation:

http://fpafunds.com/docs/quarterly-commentaries-crescent-fund/crescent-q4-2017-vfinal-with-disclosures.pdf?sfvrsn=2

"Traditional value investing – buying a business or asset at a discount that offers the potential for upside appreciation while providing downside protection – isn’t what it used to be. First, good historic returns for value investors attracted a lot of capital that arbitraged inefficiencies from the market. Then the world began to change ever more quickly."

 

IMO, if you think that traditional value investing is dead, then, it may be reasonable to look elsewhere.

But if you think that pendulums do swing, then it may be reasonable to expect relatively better results going forward with Mr. Chou.

 

Cigarbutt, thank you for the measured thoughtful response.  Thank you for the link - I see that FPA has also had borderline results over a 15 year period. Appreciate the point about past performance being a sunken point and to look forward from today. On the positive side his investment style is well defined and pendulum will likely swing back. On the downside 1) he is still charging a substantial MER (1.8%) even when value is not added 2) if he is investing in other businesses outside of Chou Funds, he should publicly disclose that and explain why he is not putting 99% of his net worth in Chou Funds. Does that seem fair?

 

[investmd]

From what I can gather, Mr. Chou is a very well respected member of the value investing community. He is generous of his time in value investing forums. His annual letters are clear, usually avoid jargon, and often have humour. He has not been afraid to go against the grain, buy when others are selling and has conviction to move to cash when he doesn't see opportunities. Several years ago when he waived fees for Chou Europe Fund, he earned great kudos on my part - don't charge when you can't outperform over a sufficient period of time. He definitely knows a lot more about valuation than I do and he has clearly shown the ability to find 5 & 10 baggers. However, in the face of 10 & 15 year results being <6%/yr I have some questions/concerns:

1. 
   He recently bought StoneTrust Insurance company from Pabrai Funds. As there is no mention of the purchase in his annual letter, one presumes it is outside of his publicly traded funds. However, if Mr. Chou is going to buy a company for $50-100M, should his investors not know that he has other financial interests - that his time and money are not solely devoted to Chou Funds? I was under the impression that his interests were completely aligned. Does he not have a fiduciary responsibility to disclose this purchase publicly?
    

Why are fees for Chou America waived but no mention of waiving fees for his Canadian Funds: Chou Associates, Europe and Asia? They have all underperformed markets and likely his own estimation over a prolonged period of time. I would much appreciate it if he would waive fees for his flagship funds and give some criteria as to when fees are deserved or not.

 

While times were good, Chou was able to stay low key, not have annual meetings and communicate only by 2 letters a year. Given current results, please consider having a gathering where investors can have an open discussion with manager.

 

Without further disclosure on these topics, I think he risks losing his reputation in the community as an insightful, bright, very honest money manager.

 

My hope is that these comments are not derogatory but rather can stimulate some positive outcomes. The current status is suboptimal for a man of his intellect and character.

 

You guys have more access to Francis than any other manager in the world, other than possibly Mohnish Pabrai.  At our dinner alone, Francis is available to answer questions about anything for nearly 2-3 hours.  He is available at the pre-dinner usually for at least an hour.  He is fully accessible at the Fairfax meeting as he is there from 9am to 2pm.  He takes phones calls, emails, letters, etc.  There is no hidden agenda.  What you see is what you get!  He may be the most transparent, yet least understood money manager of his size. 

 

Francis always wanted to buy a vehicle to grow his personal capital.  He had looked at many businesses over the years, and he understands float extremely well...Stonetrust fit his bill!  He has a tremendous amount of wealth already, but he will probably live and work for at least another 20+ years...much of his money will go to charity at some point, and until then, he knows that a float-creating vehicle will be the greatest way to compound it without using debt as leverage.  His interests are aligned with his investors.  Stonetrust is not some get richer than my clients scheme...the only reason it will stay private, is because there is tremendous risk in insurance, and he just wouldn't feel right if investors ended up losing significant capital.  Insurance isn't easy, and with all of the capital chasing business, it isn't going to get easier in the future.  But he is willing to risk his capital to leave something very significant that will help serve others when he is retired or gone.

 

I'll tell you a story that may or may not help you understand him.  Last April, I took the subway north of Toronto to have lunch with Francis.  I'm financially independent, and was going to just take a cab, but he explained very carefully how to catch the subway.  We had a nice lunch, and I very much enjoyed his conversation and thoughts.  At the end of the lunch, he had a book for me and...a subway token!  He said, "I found this in my office, and I thought you could use it on the way back."  I smiled, completely grateful and understood his sentiment.  This is how Francis tells people I'm thinking of you and appreciate your friendship.  And of course, he wouldn't let me pay for lunch, no matter how much I insisted!

 

10 years of underperformance is something alot of managers have suffered during the greatest bull market in history.  When you are a value investor, your ship is going to have a tough time keeping up.  And yes, there will be a handful of value managers who will outperform even during such a market.  I'm not sure that detracts from quality managers like Francis, but simply proves how tough it can be...and sometimes you will underperform for a long-period of time before you outperform again.  In another few years, either Francis will turn it around and catch up to the indices, or he may keep underperforming...only time will tell.  My bet is on the former!  Cheers!

 

Parsad, you are obviously a friend of Francis Chou and very loyal. I appreciate your thoughts. However, a few points to consider objectively if possible:

1)multiple members on this board have made a point that if over 10 years a money manager doesn't add value over the index, then they shouldn't charge above their expenses. Why is Mr. Chou waving fees for Chou America but not his Canadian funds which have underperformed over 10 & 15 year periods? Why not waive the excess after expenses? Why not discuss this in the annual letter?

2)Why is it that explanation regarding insurance company purchase is coming from you rather than from Mr. Chou to his investors? Most investors in a fund believe that >95% of manager's personal wealth is in the Fund. I would think the same for your fund.

3)Whilst there is access to Mr. Chou at FFH and CornerofBRKFFH meetings, having a forum to speak to your investors is very different. You do hold a separate meeting for your investors and don't say that you make yourself available by responding to queries on this Board....