The SuperInvestors of Corner of Berkshire & Fairfax!

[Parsad]

Ever since Eric posted his cumulative results, and there has been a massive flood of questions for him, I've found that there has been complaints and compliments regarding this. 

 

The complainants are concerned that novice, or even well-tenured, investors will start to leave a practical, rational investment framework to emulate Eric's strategies on LEAPs and options.  The compliments come from various investors who have experienced tremendous success, by learning from others on the board and from sharing investment ideas, including strategies similar to Eric.

 

First, this forum works because there is limited interference from me, and the vast majority of posters are incredibly respectful.  We have no spam, no jackasses, and really the worst experience for most users are my jokes! 

 

Second, since this forum started 11 years ago, there has been an enormous congregation of wealth on here.  One that cannot be simply attributed to the distribution that would occur in the general public, or even on other investment sites.  I can name off the top of my head, some 20 investors on here (excluding Eric), who have become financially independent over the last decade, and have handily beaten 99.99% of investment managers in the world.  That's just off the top of my head and doesn't include those that I do not know about. 

 

While we have about 1,400+ members, almost all of these 20 investors started in the first few years of the board, so really the base of membership you should compare when examining them is about 500...so 4%.  This 4% of investors have not simply beaten the market, but killed the market.  Most are only a double away from 8 digit portfolios (or already there) and started with significantly less than a few hundred thousand dollars.  In other words, they have grown their portfolios by 5-20 times the original base...in ten years or less!  And that occurred during some of the most tumultuous times in financial history.

 

So I understand the concern, that board members may be showing attributes similar to Mr. Market's manic-depressive state on certain topics, but the general base of investors on here is no different than the general public...that will happen.  Learning from one another...be it from the bulls or the bears, leveraged or unleveraged, novice or experienced...is what you have access to here.  I do not want to interfere with that process by over-moderating this forum, as the financial health of many future financially independent investors is at stake! 

 

Use common sense, understand your own temperament, do not seek get-rich quick strategies without understanding the risks involved, and focus on the fundamentals Ben Graham taught...always seek a margin of safety!  Cheers and good luck!

[Palantir]

A humble suggestion to the aforementioned Superinvestors. Only if you are inclined, and have a lot of free time, which I doubt. But I will make a request.

 

I think it would be a big educational resource to the novices, like yours truly, if some of you post case studies of your investments. Not a lot of detail, but a summary showing what interested you about the opportunity, market valuation, how intrinsic value differed from MV, what the catalyst was, and how long you planed on holding.

 

Reason being, I have not found many case studies for specific investments.

[Parsad]

A humble suggestion to the aforementioned Superinvestors. Only if you are inclined, and have a lot of free time, which I doubt. But I will make a request.

 

I think it would be a big educational resource to the novices, like yours truly, if some of you post case studies of your investments. Not a lot of detail, but a summary showing what interested you about the opportunity, market valuation, how intrinsic value differed from MV, what the catalyst was, and how long you planed on holding.

 

Reason being, I have not found many case studies for specific investments.

 

Unfortunately, the case studies are all in the board...years of posting their ideas and comments...including the old MSN Board.  Cheers!

[ericd1]

Said differently, if I may...the case studies evolve here in real-time! In my opinion learning in real-time with examples you can watch is a great way to help the learning process.

 

[Parsad]

Said differently, if I may...the case studies evolve here in real-time! In my opinion learning in real-time with examples you can watch is a great way to help the learning process.

 

Exactly correct.  In the case studies here, you get the actual emotion that comes out from the underlying investment...you don't get that in a completely sterile and analytical paper.  That's why many analysts are terrible investors...the underlying psychology is no different than everywhere else.  Cheers!

[sampr01]

Hi Sanjeev..

 

I know that you invested heavily in SD, so, I will ask a question .... Are you using any option strategies or only commons?. Do you think it follows CHK path and with same time frame.

 

Thanks Superinvestor Sanjeev.. ;D

 

Said differently, if I may...the case studies evolve here in real-time! In my opinion learning in real-time with examples you can watch is a great way to help the learning process.

 

Exactly correct.  In the case studies here, you get the actual emotion that comes out from the underlying investment...you don't get that in a completely sterile and analytical paper.  That's why many analysts are terrible investors...the underlying psychology is no different than everywhere else.  Cheers!

[Parsad]

Hi Sanjeev..

 

I know that you invested heavily in SD, so, I will ask a question .... Are you using any option strategies or only commons?. Do you think it follows CHK path and with same time frame.

 

Thanks Superinvestor Sanjeev.. ;D

 

Said differently, if I may...the case studies evolve here in real-time! In my opinion learning in real-time with examples you can watch is a great way to help the learning process.

 

Exactly correct.  In the case studies here, you get the actual emotion that comes out from the underlying investment...you don't get that in a completely sterile and analytical paper.  That's why many analysts are terrible investors...the underlying psychology is no different than everywhere else.  Cheers!

 

I'm not superinvestor.  Our fund is in the top 99.9%, but those guys are head and shoulders higher in returns...granted they used their own personal funds and we have a public fund. 

 

Nope, nothing unusual.  I thought the stock was cheap, we averaged in on common and we'll wait for development of the underlying assets, a sale of part or all of the assets, or any other form of return on capital.  No leverage, no options.  I think TPG and the new board will make money for shareholders, while maintaining a prudent balance sheet and a keen eye on capex.  All of the excess compensation and conflicts of interest will also go.  Cheers!   

[alwaysinvert]

Hi Sanjeev..

 

I know that you invested heavily in SD, so, I will ask a question .... Are you using any option strategies or only commons?. Do you think it follows CHK path and with same time frame.

 

Thanks Superinvestor Sanjeev.. ;D

 

Said differently, if I may...the case studies evolve here in real-time! In my opinion learning in real-time with examples you can watch is a great way to help the learning process.

 

Exactly correct.  In the case studies here, you get the actual emotion that comes out from the underlying investment...you don't get that in a completely sterile and analytical paper.  That's why many analysts are terrible investors...the underlying psychology is no different than everywhere else.  Cheers!

 

I'm not superinvestor. Our fund is in the top 99.9%, but those guys are head and shoulders higher in returns...granted they used their own personal funds and we have a public fund. 

 

Nope, nothing unusual.  I thought the stock was cheap, we averaged in on common and we'll wait for development of the underlying assets, a sale of part or all of the assets, or any other form of return on capital.  No leverage, no options.  I think TPG and the new board will make money for shareholders, while maintaining a prudent balance sheet and a keen eye on capex.  All of the excess compensation and conflicts of interest will also go.  Cheers! 

You just stole my pick-up line.

[Packer16]

Sanjeev,

 

If I remember correctly last Spring you said you didn't feel comfortable with SD at your annual meeting.  What made you more comfortable recently versus last Spring?

 

Packer

[Parsad]

Sanjeev,

 

If I remember correctly last Spring you said you didn't feel comfortable with SD at your annual meeting.  What made you more comfortable recently versus last Spring?

 

Packer

 

$2.6B!  ;D  Cheers!

[blainehodder]

Solid post! I didn't mean to be a downer on anyone in the conservative BAC poll thread.  This board is a great resource with some truly unreal investors!

[racemize]

Solid post! I didn't mean to be a downer on anyone in the conservative BAC poll thread.  This board is a great resource with some truly unreal investors!

 

I am happy to have people remind us of risks!

[Yours Truly]

Would love to hear from these 20 super investors and am wondering if they all used a strategy similar to Eric's or had a heavy concentrated portfolio

[twacowfca]

Would love to hear from these 20 super investors and am wondering if they all used a strategy similar to Eric's or had a heavy concentrated portfolio

 

It's a barbell strategy with asymmetrical and convex payoffs for most investors on the board who have had 20% to 30%+ annual returns over the last 7 to 12 years.  This means ultra concentrated positions often with non recourse leverage through options or leaps or warrants for high conviction ideas.  On the other hand, it means having enough in reserve to live to fight another day if a high conviction idea doesn't work out or if that idea takes longer to work out than expected.

 

Interestingly, this strategy can be less risky (in the sense of permanent, destructive loss of value) if well thought out than conventional "low risk" strategies that equate volatility with risk.

:)

[Sunrider]

What I would find really useful is a thread (or multiple) of the Star investors posting their current high conviction ideas with some indication of portfolio weighting. Secondly, it would be useful if there was information on how they structured their exposure (e.g. common, leaps, warrants, etc.)

 

I've become much more concentrated since starting to read these boards - largely based on the comfort gained from thoughts and analyses presented here but I find that I spend a lot of time on reading about my large positions and those threads with most activity - I'm sure that does not necessarily align with the most interesting opportunities around at the time. So for example, somebody may be posting something on a new idea or a tidbit of information on an old idea - because it's already been discussed there will be comparably little posting and thus it's easy to miss that this may actually a great thing to start looking into.

 

What do you guys think? Would you be willing to do that?

 

Cheerio - C.

[LC]

What I would find really useful is a thread (or multiple) of the Star investors posting their current high conviction ideas with some indication of portfolio weighting. Secondly, it would be useful if there was information on how they structured their exposure (e.g. common, leaps, warrants, etc.)

 

Cheerio - C.

Sent a PM!

[twacowfca]

What I would find really useful is a thread (or multiple) of the Star investors posting their current high conviction ideas with some indication of portfolio weighting. Secondly, it would be useful if there was information on how they structured their exposure (e.g. common, leaps, warrants, etc.)

 

I've become much more concentrated since starting to read these boards - largely based on the comfort gained from thoughts and analyses presented here but I find that I spend a lot of time on reading about my large positions and those threads with most activity - I'm sure that does not necessarily align with the most interesting opportunities around at the time. So for example, somebody may be posting something on a new idea or a tidbit of information on an old idea - because it's already been discussed there will be comparably little posting and thus it's easy to miss that this may actually a great thing to start looking into.

 

What do you guys think? Would you be willing to do that?

 

Cheerio - C.

 

That's a good observation.  I like hard puzzles, but the best ideas are often the simplest ones.  For example, the many hundreds of postings about how to unravel The Gordian Knot of BAC's future could have been summarized at the end of 2011 as:

 

(1  It's TBTF; therefore it won't fail.

 

(2  Despite lots of legal issues and issues with quality of assets, it's selling for @ 40% of TBV, a four

    sigma bargain for a big bank on the road to recovery.

 

(3. Lots of outstanding value investors, including Buffett, (sort of) liked it at a much higher price.

 

(4  it's bottoming out at about $5.00 in December at the typical seasonal low point after much selling

    for tax losses and portfolio dressing.

 

The decision was simple, despite the complexity of the situation: there must be a pony in there somewhere, and it's an incredible bargain in a recovered market.  Some people with dry powder took a huge bite (Sanjeev comes to mind).  But I was too caught up with my attention on more complicated situations and wound up with only a nibble.

 

The moral is: not only should high conviction ideas be concentrated, but mental concentration itself should be reserved for the clearest, simplest, potential grand slam home run ideas.

[LC]

Would love to hear from these 20 super investors and am wondering if they all used a strategy similar to Eric's or had a heavy concentrated portfolio

 

It's a barbell strategy with asymmetrical and convex payoffs for most investors on the board who have had 20% to 30%+ annual returns over the last 7 to 12 years.  This means ultra concentrated positions often with non recourse leverage through options or leaps or warrants for high conviction ideas.  On the other hand, it means having enough in reserve to live to fight another day if a high conviction idea doesn't work out or if that idea takes longer to work out than expected.

 

Interestingly, this strategy can be less risky (in the sense of permanent, destructive loss of value) if well thought out than conventional "low risk" strategies that equate volatility with risk.

:)

Can you explain further what you mean by "barbell"? I am only familiar with the barbell-style bond portfolio. Is it similiar, in that you hold a majority of short-term (and presumably low volatility) instruments such as cash or treasuries which are ready to be deployed, and then have a minority in highly-levered, high-conviction ideas? Let's say for illustrative's sakes, 80% cash and 20% BAC options?

 

 

Why not simply alter the structure to use 40% cash and 60% less-levered BAC securities (commons or preferred for example)? I am very curious as I feel with your strategy (if I am understanding it correctly), if you have a string of consecutive mistakes, you can lose a large portion of capital!

 

 

[Palantir]

 

Unfortunately, the case studies are all in the board...years of posting their ideas and comments...including the old MSN Board.  Cheers!

 

Are you suggesting I need to read these threads seriously and carefully rather than spending my time making inane gutter-minded comments about 16-yr old stocktrading actresses? What a drag.

[Parsad]

 

Unfortunately, the case studies are all in the board...years of posting their ideas and comments...including the old MSN Board.  Cheers!

 

Are you suggesting I need to read these threads seriously and carefully rather than spending my time making inane gutter-minded comments about 16-yr old stocktrading actresses? What a drag.

 

Palantir, you're a smart guy...you can do both!  ;D  Cheers!

[Sunrider]

Sure - but feels a bit like bothering people?

 

Perhaps easier if there was a central place where people update their significant holdings/best ideas when they feel they have changed?

 

Thanks - C.

 

What I would find really useful is a thread (or multiple) of the Star investors posting their current high conviction ideas with some indication of portfolio weighting. Secondly, it would be useful if there was information on how they structured their exposure (e.g. common, leaps, warrants, etc.)

 

Cheerio - C.

Sent a PM!

[alwaysinvert]

Eric has gotten a lot of the limelight lately, but I thought I could hijack this thread and compliment two of my favourite posters: txlaw and twacowfca. Always well thought out, always balanced and always logically coherent. Txlaw was the main reason why I got interested in Dell and I haven't given him the credit he deserves for that until now. Cheers for that!

[stahleyp]

Eric has gotten a lot of the limelight lately, but I thought I could hijack this thread and compliment two of my favourite posters: txlaw and twacowfca. Always well thought out, always balanced and always logically coherent. Txlaw was the main reason why I got interested in Dell and I haven't given him the credit he deserves for that until now. Cheers for that!

 

+1

[Uccmal]

Would love to hear from these 20 super investors and am wondering if they all used a strategy similar to Eric's or had a heavy concentrated portfolio

 

It's a barbell strategy with asymmetrical and convex payoffs for most investors on the board who have had 20% to 30%+ annual returns over the last 7 to 12 years.  This means ultra concentrated positions often with non recourse leverage through options or leaps or warrants for high conviction ideas.  On the other hand, it means having enough in reserve to live to fight another day if a high conviction idea doesn't work out or if that idea takes longer to work out than expected.

 

Interestingly, this strategy can be less risky (in the sense of permanent, destructive loss of value) if well thought out than conventional "low risk" strategies that equate volatility with risk.

:)

 

That sums it up nicely. 

 

Parsad, Dont you mean your fund is in the top 0.1%, rather than top 99.9%.  :-). 

[Parsad]

Would love to hear from these 20 super investors and am wondering if they all used a strategy similar to Eric's or had a heavy concentrated portfolio

 

It's a barbell strategy with asymmetrical and convex payoffs for most investors on the board who have had 20% to 30%+ annual returns over the last 7 to 12 years.  This means ultra concentrated positions often with non recourse leverage through options or leaps or warrants for high conviction ideas.  On the other hand, it means having enough in reserve to live to fight another day if a high conviction idea doesn't work out or if that idea takes longer to work out than expected.

 

Interestingly, this strategy can be less risky (in the sense of permanent, destructive loss of value) if well thought out than conventional "low risk" strategies that equate volatility with risk.

:)

 

That sums it up nicely. 

 

Parsad, Dont you mean your fund is in the top 0.1%, rather than top 99.9%.  :-).

 

Thanks Al!  Yes, I meant top 0.1%.  Top 99.9% isn't quite that exclusive!  ;D  Cheers!