Berkowitz, Bruce Almighty

[ERICOPOLY]

Berkowitz is smart to ignore the critics.

 

He is investing in banks when they are safest from an underwriting and capital perspective.

He is investing in insurance when there is a huge discount to book even though interest rates and underwriting are both soft.  The cycle must be near the bottom but it's fully priced in.

 

Both industries are depressed by the current period of low interest rates.  Both are discounted to compensate you for it. 

 

His critics are investing in all sorts of industries that are poised to take it up the arse if this record profits margin period is to regress to the mean over time.

 

Berkowitz' thinking aligns with mine on this one -- hide out in the industries that are depressed by the current interest rate environment.

[PlanMaestro]

The high, thrilling song of the Sirens will transfix him,

lolling there in their meadow, round them heaps of corpses,

rotting away, rags of skin shriveling on their bones...

Race straight past that coast! Soften some beeswax

and stop your shipmates' ears so none can hear,

none of the crew, but if you are bent on hearing,

have them tie you hand and foot in the swift ship,

erect at the mast-block, lashed by ropes to the mast

so you can hear the Sirens, song to your heart's content.

But if you plead, commanding your men to set you free,

Them they must lash you faster, rope on rope.

 

 

Berkowitz is smart to ignore the critics.

 

He is investing in banks when they are safest from an underwriting and capital perspective.

He is investing in insurance when there is a huge discount to book even though interest rates and underwriting are both soft.  The cycle must be near the bottom but it's fully priced in.

 

Both industries are depressed by the current period of low interest rates.  Both are discounted to compensate you for it. 

 

His critics are investing in all sorts of industries that are poised to take it up the arse if this record profits margin period is to regress to the mean over time.

 

Berkowitz' thinking aligns with mine on this one -- hide out in the industries that are depressed by the current interest rate environment.

[goldfinger]

His critics are investing in all sorts of industries that are poised to take it up the arse if this record profits margin period is to regress to the mean over time.

 

Berkowitz' thinking aligns with mine on this one -- hide out in the industries that are depressed by the current interest rate environment.

 

Exactly!

;)

[hardincap]

Didn't Munger invest all of DJCO's investable capital into Wells Fargo during the crisis?  One stock.  100% allocation.

 

DJCO had ~4 or so positions.  WFC was the largest I believe.

 

 

[ERICOPOLY]

And so if you look at some of the heavily diversified portfolios, like an index fund, they have a concentrated risk of mean profit margin reversion.

 

Bruce is not concentrated in that risk.

 

And personally I've got no prediction but it would stand to reason that if the government deficit expanded at a slower pace relative to GDP (if it's due to cuts in spending and tax increases) then it might be a negative for profit margins, or if interest rates went up, or both.  But I am not insinuating anything because I don't know enough in order to be that crafty.

[ERICOPOLY]

I know one of the famous value managers criticized the BofA as a bad business (during the period of time last year when Bruce was calling BofA his best idea).  I think that manager actually called BofA a "bad" or "terrible" business or some other non-quantitative adjective.

 

That manager made HPQ his largest position (or it was right up there amongst the highest weightings). 

 

But looking out 2,5,10,15 years from now, is it easier to have a better handle on what HPQ will earn or what BAC will earn?

 

I too at one point last year said some really good things about HPQ but I fortunately sold to buy things I thought were cheaper before I took a major loss.  I've learned too since then more about what an "inevitable" is, and why that is important.

 

That manager also said in an interview that he thinks Buffett has had better returns because he says Buffett has a better understanding of what a good business is.  Well, Buffett bought IBM, and this other guy bought HPQ.  So that's an example right there I suppose.

[beerbaron]

I know one of the famous value managers criticized the BofA as a bad business (during the period of time last year when Bruce was calling BofA his best idea).  I think that manager actually called BofA a "bad" or "terrible" business or some other non-quantitative adjective.

 

That manager made HPQ his largest position (or it was right up there amongst the highest weightings). 

 

But looking out 2,5,10,15 years from now, is it easier to have a better handle on what HPQ will earn or what BAC will earn?

 

I too at one point last year said some really good things about HPQ but I fortunately sold to buy things I thought were cheaper before I took a major loss.  I've learned too since then more about what an "inevitable" is, and why that is important.

 

That manager also said in an interview that he thinks Buffett has had better returns because he says Buffett has a better understanding of what a good business is.  Well, Buffett bought IBM, and this other guy bought HPQ.  So that's an example right there I suppose.

 

And that mystery manager is Seth K... not it's no good, let's call him S. Klarman.

 

BeerBaron

[merkhet]

Didn't Munger invest all of DJCO's investable capital into Wells Fargo during the crisis?  One stock.  100% allocation.

 

DJCO had ~4 or so positions.  WFC was the largest I believe.

 

http://mungerisms.blogspot.com/2011/02/2010-djco-meeting.html

 

- Roughlyright pointed out that Daily Journal portfolio perfectly matched Wells Fargo and that therefore now we know that munger must have bought Wells with the entire portfolio. Munger said that that was mostly right - they have a little that's not WFC. When asked why the DJ purchased it a a much better price than say Wesco Munger said that it was all accidental - a circumstance of reality - that the DJ needed to hold cash longer to ensure survival of the business and they got lucky on timing.

[hardincap]

Sorry I got confused with Wesco's portfolio.

 

Didn't Munger invest all of DJCO's investable capital into Wells Fargo during the crisis?  One stock.  100% allocation.

 

DJCO had ~4 or so positions.  WFC was the largest I believe.

 

http://mungerisms.blogspot.com/2011/02/2010-djco-meeting.html

 

- Roughlyright pointed out that Daily Journal portfolio perfectly matched Wells Fargo and that therefore now we know that munger must have bought Wells with the entire portfolio. Munger said that that was mostly right - they have a little that's not WFC. When asked why the DJ purchased it a a much better price than say Wesco Munger said that it was all accidental - a circumstance of reality - that the DJ needed to hold cash longer to ensure survival of the business and they got lucky on timing.