2012 Returns

[bmichaud]

+26%

 

Dozens of positions.  No position started at larger than ~1% of portfolio.  I invest like my investing idols, Graham and Schloss.  I buy when things are very cheap and sell when they reach IV.  Cash never less than ~30%.  No leverage.

 

Kraven,

congratulations! Fantastic job!

I think very few investors on this board can claim to have studied Mr. Graham as extensively as you surely have. Therefore, let me ask you two questions:

 

1) How do you reconcile Mr. Graham advice that “investing is most intelligent, when it is most businesslike” with the way he actually invested? I really do not know of a single businessman who holds interests in dozens of positions and who sells them as soon as they reach IV… What am I missing here? Was Mr. Graham just advising that investing is no hobby, but serious business? If so, don’t you think that wonderful phrase loses a little bit of its strength and meaning? Isn’t is just obvious that investing is serious business?

 

2) Is it true that at the end of his career Mr. Graham acknowledged he had made more money investing in Geico, than in all his other positions combined? Or is it just a myth? If it is true, how can this statement be reconciled with the way he invested throughout his whole career?

 

Don’t get me wrong! Your results speak very loudly for themselves! No doubt about it! And congratulations again! You are a much much much better investor than I am! It is just that you wrote your investing idols are Graham and Schloss, so I was curious!

 

Thank you,

 

giofranchi

 

Gio, thanks for the kind words and good questions.  Ha ha, I seriously doubt that I am a better investor than you or anyone on this board for that matter.  I just do my thing.

 

1) How do you reconcile Mr. Graham advice that “investing is most intelligent, when it is most businesslike” with the way he actually invested? I really do not know of a single businessman who holds interests in dozens of positions and who sells them as soon as they reach IV… What am I missing here? Was Mr. Graham just advising that investing is no hobby, but serious business? If so, don’t you think that wonderful phrase loses a little bit of its strength and meaning? Isn’t is just obvious that investing is serious business?

 

That line from Graham is one of my favorites.  With all due respect, I think you are thinking of being a "businessman" and "businesslike" in too narrow a fashion.  It would seem to me that you are equating the terms with running a business.  But it's more nuanced than that in my opinion.  I think when Graham talked about investing in a businesslike manner he was in the first instance distancing himself from how he saw most people of his day investing.  That is, they would buy something on a whim or based on a tip or what their friend or shoeshine guy said.  So for Graham, a "businessman" doesn't just jump into an endeavor without analyzing it and making a decision based on the facts.  Further, one of Graham's goals was to develop security analysis as a profession.  So in that vein he wanted an investment "scheme" to include thoughts about profit and loss and knowledge of own's results.  So "businesslike" to me in the broader sense mean being professional about investing.  Be serious about it.  Treat it in the same manner one would treat any type of work.

 

But you raise an interesting point.  I think there are many on the boards who equate "proper" investing with Buffett and Munger.  So a focused portfolio that one buys and holds until the earlier of eternity or a reason for the investment thesis changing.  That's one way to do it.  It's a damn good way if you can do it, but it never made sense to me.  I don't want to buy something that's arguably 2% below fair value today and let it compound for years.  I can't see the future in that way.  I would rather buy something at 50-60 cents on the dollar and let it revert to the mean.  Then I sell.

 

Graham also said that he buys his stocks like he buys groceries, not perfume.  That was always one of my favorite sayings from him.  I have always envisioned myself as running a grocery store or something.  My inventory is my stocks.  In one aisle you may have the high end filets and lobsters, but in another aisle is the gum and candy and paper plates.  To me it's all good.  What do I care what someone buys?  Come into my store and buy a pack of gum.  Sure, I might just make 2 cents on that, but gum sells all day long and it doesn't take a lot of time to determine your gum inventory.  You buy it, you stick it on the shelf and someone will buy it from you.  It doesn't take long to track it. 

 

So for me, businesslike is treating my investing as a business.  Our difference, if we actually even have one, is that you are equating each stock you own as if you ran the business while I see it as inventory.  While I do fervently believe that each stock I own is an ownership in a business, it is also just a piece of paper.  It's both, Graham says that as well.  We have the best of both worlds.  So I buy thinking of the business, but then put it on the shelf.  Everything is for sale!  I run things professionally and can't imagine running it in any more businesslike manner.

 

2) Is it true that at the end of his career Mr. Graham acknowledged he had made more money investing in Geico, than in all his other positions combined? Or is it just a myth? If it is true, how can this statement be reconciled with the way he invested throughout his whole career?

 

I don't recall whether Graham acknowledged it or not, or whether others said that about him after he died.  I don't think it's actually true, although someone can correct me if that's wrong.  My recollection is that while on paper he did make a ton of money on GEICO, I don't believe he actually sold the stock or all of it anyway and was holding at the time of his death when GEICO was on it's "last legs" and just a buck or 2 a share. 

 

Even if we assume for sake of argument that he made most of his money on GEICO (which I don't believe he did as noted above), it wouldn't change my views at all.  One, Graham made lots of money by investing in his net nets and so forth.  He was a millionaire many times over long before GEICO did anything.  Remember that he retired to California in the last 1950s.  After that point he taught and dabbled, but didn't really do much.  So any profits that came from GEICO were late in life.  And whatever he got out of it was really a "mistake". I don't mean a mistake in the sense that he didn't intend to buy it, but he didn't really care about investing all that much after he retired.  He held the position but I don't think it was because of the modern "compounding machine" reasons.  I think it was in his portfolio, he retired, he kind of forgot about it.

 

So for me, what Graham means to investing has nothing to do with his GEICO investment.  His brilliance was out there for the world to see long before GEICO did something or not in his portfolio.

 

Hope I answered your questions.

 

Kraven - this is a wonderfully well-written description of the Graham & Dodd process. Love the grocery store analogy!

[vinod1]

 

But you raise an interesting point.  I think there are many on the boards who equate "proper" investing with Buffett and Munger.  So a focused portfolio that one buys and holds until the earlier of eternity or a reason for the investment thesis changing.  That's one way to do it.  It's a damn good way if you can do it, but it never made sense to me.  I don't want to buy something that's arguably 2% below fair value today and let it compound for years.  I can't see the future in that way.  I would rather buy something at 50-60 cents on the dollar and let it revert to the mean.  Then I sell.

 

Graham also said that he buys his stocks like he buys groceries, not perfume.  That was always one of my favorite sayings from him.  I have always envisioned myself as running a grocery store or something.  My inventory is my stocks.  In one aisle you may have the high end filets and lobsters, but in another aisle is the gum and candy and paper plates.  To me it's all good.  What do I care what someone buys?  Come into my store and buy a pack of gum.  Sure, I might just make 2 cents on that, but gum sells all day long and it doesn't take a lot of time to determine your gum inventory.  You buy it, you stick it on the shelf and someone will buy it from you.  It doesn't take long to track it. 

 

So for me, businesslike is treating my investing as a business.  Our difference, if we actually even have one, is that you are equating each stock you own as if you ran the business while I see it as inventory.  While I do fervently believe that each stock I own is an ownership in a business, it is also just a piece of paper.  It's both, Graham says that as well.  We have the best of both worlds.  So I buy thinking of the business, but then put it on the shelf.  Everything is for sale!  I run things professionally and can't imagine running it in any more businesslike manner.

 

 

Kraven - I like your analogy so much that I copied it into my notes.

 

Thanks

 

Vinod

[QLEAP]

I loved the questions as well :-) thanks Gio and Kraven !

[rkbabang]

A few observations on this post that I found interesting was that after 135 votes the poll results show a classic normal distribution curve. Although, I don't have access to the numbers and the granularity seems coarse, I suspect that the median returns would be very close to the returns of the S&P500.

 

so, I was thinking about this some more (it was bothering me as I expected general outperformance from the board)--the graph is deceiving.  It looks like a normal distribution, but the y-axis (in this case) is not linear, it is <0, 0-10 (gap of 10), 10-25 (gap of 15), 25-50 (gap of 25), 50+ (gap of 25), so I bet the underlying data are not centered around the S&P TR, but a bit above it.

 

Admittedly it is a poorly done poll indeed.  I did this because I didn't realize that it was possible to add more than 5 choices, but I see by your compounding poll that it is possible.  I thought I was limited to 5 categories and I wanted to capture negative returns as well as really high returns.  This left only 3 categories to work with in the middle.  I broke them up best I could.  Had I known I could create more options I would have done a much finer granularity.  These types of polls are not scientific anyway.  They are self selected in at least two ways.  One is that we choose to be members of this board, and two we need to choose to answer the poll.  Also someone could lie or estimate mistakenly when answering.  They are fun though.  And I agree with your analysis.  There are 60 people (right now) in the 10-25% category which contains the 16% S&P500 return, but there are more people in the categories above that (55 people) than there are in the categories below that (46 people), and as you pointed out the higher categories have larger ranges than the lower ones, so it stands to reason that the center is on the higher end of that middle category, not the lower.

 

Also, I apologize for the offensive looking results using 5 categories produces.  Like being flipped off every time you look at it.

[racemize]

A few observations on this post that I found interesting was that after 135 votes the poll results show a classic normal distribution curve. Although, I don't have access to the numbers and the granularity seems coarse, I suspect that the median returns would be very close to the returns of the S&P500.

 

so, I was thinking about this some more (it was bothering me as I expected general outperformance from the board)--the graph is deceiving.  It looks like a normal distribution, but the y-axis (in this case) is not linear, it is <0, 0-10 (gap of 10), 10-25 (gap of 15), 25-50 (gap of 25), 50+ (gap of 25), so I bet the underlying data are not centered around the S&P TR, but a bit above it.

 

Admittedly it is a poorly done poll indeed.  I did this because I didn't realize that it was possible to add more than 5 choices, but I see by your compounding poll that it is possible.  I thought I was limited to 5 categories and I wanted to capture negative returns as well as really high returns.  This left only 3 categories to work with in the middle.  I broke them up best I could.  Had I known I could create more options I would have done a much finer granularity.  These types of polls are not scientific anyway.  They are self selected in at least two ways.  One is that we choose to be members of this board, and two we need to choose to answer the poll.  Also someone could lie or estimate mistakenly when answering.  They are fun though.  And I agree with your analysis.  There are 60 people (right now) in the 10-25% category which contains the 16% S&P500 return, but there are more people in the categories above that (55 people) than there are in the categories below that (46 people), and as you pointed out the higher categories have larger ranges than the lower ones, so it stands to reason that the center is on the higher end of that middle category, not the lower.

 

no worries, I made the same mistake the last time I did a poll.  Last year, we just had a thread and not a poll, so we are improving every time!  I also think we get more responses in polls than in threads because of the anonymity.

[Investmentacct]

62.5% on individual portfolio. Got lucky.

 

Since overall AUM number is very low , percentage return was higher.

 

Most of the help from bac warrants and brk.b.

 

Thanks to everyone's help. Esp. Kudos to Ericopoly and Sanjeev's call.

 

 

 

 

 

[txlaw]

I loved the questions as well :-) thanks Gio and Kraven !

 

+1

[infinitee00]

A few observations on this post that I found interesting was that after 135 votes the poll results show a classic normal distribution curve. Although, I don't have access to the numbers and the granularity seems coarse, I suspect that the median returns would be very close to the returns of the S&P500.

 

so, I was thinking about this some more (it was bothering me as I expected general outperformance from the board)--the graph is deceiving.  It looks like a normal distribution, but the y-axis (in this case) is not linear, it is <0, 0-10 (gap of 10), 10-25 (gap of 15), 25-50 (gap of 25), 50+ (gap of 25), so I bet the underlying data are not centered around the S&P TR, but a bit above it.

 

....

 

Also, I apologize for the offensive looking results using 5 categories produces.  Like being flipped off every time you look at it.

 

@racemize, I agree with you. I wonder what the plot would look like if we broke it up into standard deviation ranges. Its good to see that with more votes now, the distribution has clearly moved towards the higher end of the return spectrum.

 

@rkbabang, LOL ! That was my first thought when I saw the plot. It does look like a collective FU from COBF members to the rest of the market ;)

 

[Parsad]

@rkbabang, LOL ! That was my first thought when I saw the plot. It does look like a collective FU from COBF members to the rest of the market

 

No, just proof of Buffett's "Superinvestors of Graham & Doddsville" analogy.  This not a one-off.  Many of the same people who made a ton of money on BAC, also made it on Steak'n Shake a couple of years ago, on WFC & GE a couple of years before that, and Fairfax a few years earlier.  Swing big when Mr. Market offers you a 30 cent dollar!  Cheers!

 

[ubuy2wron]

I have not read every post  however congrats are in order for many members here. I had an average year 14-15% after fees no leverage with 7 figures in my acccounts. This is equal to the returns I have generated since Jan 1 2000. My mistakes this year were pretty much the same mistakes I have made in the past ,selling too soon when a position is working. The average return according to the survey was nothing short of spectacular I presume that their may be a little reporting bias in the results however the value of the ideas shared here seems pretty self evident. Kudos Parsad.

[Edward]

24.8% increase in NAV after fees for the fund. Year end positions were:

 

Investment                                      % of Assets

Cash                                                19.3

NRG Energy                                      7.3

France Telecom                                10.5

Renault                                            13.7

Enterprise Inns                                10.6

Finsbury Food Group                        11.8

Fortress Paper                                  10.3

American International Group            9.0

Bank of America warrant A                10.4

Co. Bank of Australia P25D2013        0.0

Fortescue Metals Group                    (3.0)

 

Much thanks to the board for the FTP idea, would have never come up with that myself. Also to Bruce Berkowitz and the board for BAC and AIG. 

[PLynchJr]

I did 55% in my personal accounts and 15% in a family account I manage.  My accounts are very concentrated.  Bank of America and Apple were my biggest holdings / winners.  The family account is more conservative and diversified.  I'm dealing with what most here would consider tiny sums so nothing to really brag about.  Huge thanks to all the contributors here for all the wonderful ideas and sharing.

 

[twacowfca]

A few observations on this post that I found interesting was that after 135 votes the poll results show a classic normal distribution curve. Although, I don't have access to the numbers and the granularity seems coarse, I suspect that the median returns would be very close to the returns of the S&P500.

 

so, I was thinking about this some more (it was bothering me as I expected general outperformance from the board)--the graph is deceiving.  It looks like a normal distribution, but the y-axis (in this case) is not linear, it is <0, 0-10 (gap of 10), 10-25 (gap of 15), 25-50 (gap of 25), 50+ (gap of 25), so I bet the underlying data are not centered around the S&P TR, but a bit above it.

 

Admittedly it is a poorly done poll indeed.  I did this because I didn't realize that it was possible to add more than 5 choices, but I see by your compounding poll that it is possible.  I thought I was limited to 5 categories and I wanted to capture negative returns as well as really high returns.  This left only 3 categories to work with in the middle.  I broke them up best I could.  Had I known I could create more options I would have done a much finer granularity.  These types of polls are not scientific anyway.  They are self selected in at least two ways.  One is that we choose to be members of this board, and two we need to choose to answer the poll.  Also someone could lie or estimate mistakenly when answering.  They are fun though.  And I agree with your analysis.  There are 60 people (right now) in the 10-25% category which contains the 16% S&P500 return, but there are more people in the categories above that (55 people) than there are in the categories below that (46 people), and as you pointed out the higher categories have larger ranges than the lower ones, so it stands to reason that the center is on the higher end of that middle category, not the lower.

 

Also, I apologize for the offensive looking results using 5 categories produces.  Like being flipped off every time you look at it.

 

You're right. It does look like a rude gesture with a finger.  It 's not a normal distribution.  It's kurtosis with higher than normal central distribution and fat tails.  That's the typical distribution for fractal phenomena, including most financial performance or price time series distributions.  :)

[Packer16]

Congrats all on great returns and thanks to this board for providing me some info on financials (BAC in particular).

 

Packer