I think this is an article many gurufocus.com readers will enjoy, as many of us are trying to beat Wall Street following the approach laid out by Buffett.
Here is a man with a modest education and likely a modest IQ. Yet he is thriving because he has an abnormal level of discipline and patience.
Patience and discipline is not a gift at birth. It is simply something that requires willpower. The willpower to sit on your hands and do nothing for months on end. The willpower to not panic when Mr. Market disagrees with you. And the willpower to not buy into your own success and stray outside your circle of competence.
Patience is hard. But an outstanding investment weapon.
Enjoy the article.
On a fall day in 2010, half a dozen wealthy investors and portfolio managers converged on an office in midtown Manhattan. These were serious Wall Street moneymen; in aggregate, they handled more than a billion dollars. They had access to the most exclusive hedge funds and investment partnerships and often rubbed shoulders with the elite of New York, Greenwich and Palm Beach.
But on this day, they had turned out to meet an unknown college dropout from Utah -- and to find out how he was knocking them all into a cocked hat.
The unknown, Allan Mecham, had been posting mind-bogglingly high returns for a decade at a tiny private-investment fund called Arlington Value Management, and the Wall Streeters were considering jumping on board. For nearly two hours, they peppered him with questions. Where did he get his business background? I read a lot, he replied. Did he have an MBA? No. I dropped out of college. Did he have a clever computer model or algorithm? No, he replied. I don't use spreadsheets much. Could the group look at some of his investment analyses? I don't have any of those either, he said. It's all in my head. The investors were baffled. Well, could he at least tell them where he thought the stock market was headed? "I don't know," Mecham replied.
When the meeting broke up, "most people left the room mystified," says Brendan O'Brien, a New York City money manager who was there. "They were expecting to see this very sharp-dressed, fast-talking guy. They were saying, I don't get it, I don't understand why he wouldn't have a view on the market, because money managers get paid to have a view on the market." Mecham has faced this kind of befuddlement before -- which is one reason he meets only rarely with potential investors. It's tough to sell his product to an industry that's used to something very different. After all, according to their rules, he shouldn't even be in the business to begin with.
Over a 12-year stretch, through the end of 2011, Mecham, now a mere 34 years old, has earned an astounding cumulative return of more than 400 percent by investing in the stock of U.S. companies -- many of them larger ones like Philip Morris, AutoZone and PepsiCo. That investment performance leaves the stock market indexes and most mutual funds trailing far in the dust. Of the thousands of mutual funds in America, only a smattering of stock-oriented funds have done better, according to Lipper. Arlington, which is structured like a hedge fund, has put most firms in that category deep in the shade as well. It even managed to turn a profit during the crash of 2008, when Standard & Poor's 500-stock index fell nearly 40 percent. And Mecham has done this mostly while sitting in an armchair, in an office above a taco shop, in downtown Salt Lake City.
Mecham doesn't look, talk or act like a typical Wall Street manager. He's soft-spoken. He doesn't use jargon. He dresses like he works in a bookshop, with a patterned shirt and a plain tie. And the story of his success, arguably, says a lot about the flaws of the fund-management industry. By his own account, and those of other investors who have vetted his fund, Mecham has no secret sauce or amazing algorithm; what's extraordinary about this young man is how ordinary he is. But his investment approach relies on a handful of common-sense tactics -- focusing on just a few stocks, for example, and avoiding or ignoring short-term statistical analysis -- that big money-management firms either can't use or are reluctant to try. Skeptics and admirers alike agree that Mecham's approach involves a higher-than-usual potential for hefty losses. Russ Kinnel, director of fund research at Morningstar, says most fund customers would be unlikely to take that chance. "Pension funds, consultants, investors in general are quite benchmark-centric," Kinnel notes; they get uncomfortable when their money managers deviate.
But that notwithstanding, it would be a bit of a stretch to characterize Mecham as a rebel -- this is a man, after all, for whom one of the highlights of the past year was a trip to Omaha. (He took his girlfriend to Warren Buffett's annual investment conference.) As does virtually every other manager in the business, Mecham says he would like to raise more capital to invest -- his firm is small, with $80 million under management. But for now, the handful of pros who have jumped on his bandwagon are happy to have the fund remain undiscovered. It's clear that several think they're onto something special.
After the awkward New York meeting, O'Brien, who runs Gold Coast Wealth Management, was sufficiently intrigued to do more digging -- and after spending months talking with Mecham and checking his results, he got on board, investing more than $1 million with the Utah unknown. "To use a sports analogy," O'Brien says, finding Mecham was like "one of the rare few times when a star free agent becomes available in the beginning of his prime."
It's sensible these days for investors to approach the story of any stock market wunderkind with caution -- all the more so in the private-investment world, where money managers operate without the checks, balances and scrutiny that large mutual funds endure. Many such funds don't have to register with the Securities and Exchange Commission, especially if they're small and if big research companies like Morningstar don't track their performance. With the minimum stakes in such funds often very high -- at Arlington Value, the ante is typically at least $1 million -- investors have an even bigger incentive to do their own due diligence. (O'Brien, for instance, says he spoke to Arlington's auditors to confirm the investment figures, then did a background check on the auditors.) Factor in that the history of Wall Street is littered with the careers of investment hotshots who flamed out, and betting on a manager ultimately becomes a leap of faith.
Link to the remainder of the article:
http://www.smartmoney.com/invest/strategies/the-400-man-1328818316857/#printMode
Here is a man with a modest education and likely a modest IQ. Yet he is thriving because he has an abnormal level of discipline and patience.
Patience and discipline is not a gift at birth. It is simply something that requires willpower. The willpower to sit on your hands and do nothing for months on end. The willpower to not panic when Mr. Market disagrees with you. And the willpower to not buy into your own success and stray outside your circle of competence.
Patience is hard. But an outstanding investment weapon.
Enjoy the article.
On a fall day in 2010, half a dozen wealthy investors and portfolio managers converged on an office in midtown Manhattan. These were serious Wall Street moneymen; in aggregate, they handled more than a billion dollars. They had access to the most exclusive hedge funds and investment partnerships and often rubbed shoulders with the elite of New York, Greenwich and Palm Beach.
But on this day, they had turned out to meet an unknown college dropout from Utah -- and to find out how he was knocking them all into a cocked hat.
The unknown, Allan Mecham, had been posting mind-bogglingly high returns for a decade at a tiny private-investment fund called Arlington Value Management, and the Wall Streeters were considering jumping on board. For nearly two hours, they peppered him with questions. Where did he get his business background? I read a lot, he replied. Did he have an MBA? No. I dropped out of college. Did he have a clever computer model or algorithm? No, he replied. I don't use spreadsheets much. Could the group look at some of his investment analyses? I don't have any of those either, he said. It's all in my head. The investors were baffled. Well, could he at least tell them where he thought the stock market was headed? "I don't know," Mecham replied.
When the meeting broke up, "most people left the room mystified," says Brendan O'Brien, a New York City money manager who was there. "They were expecting to see this very sharp-dressed, fast-talking guy. They were saying, I don't get it, I don't understand why he wouldn't have a view on the market, because money managers get paid to have a view on the market." Mecham has faced this kind of befuddlement before -- which is one reason he meets only rarely with potential investors. It's tough to sell his product to an industry that's used to something very different. After all, according to their rules, he shouldn't even be in the business to begin with.
Over a 12-year stretch, through the end of 2011, Mecham, now a mere 34 years old, has earned an astounding cumulative return of more than 400 percent by investing in the stock of U.S. companies -- many of them larger ones like Philip Morris, AutoZone and PepsiCo. That investment performance leaves the stock market indexes and most mutual funds trailing far in the dust. Of the thousands of mutual funds in America, only a smattering of stock-oriented funds have done better, according to Lipper. Arlington, which is structured like a hedge fund, has put most firms in that category deep in the shade as well. It even managed to turn a profit during the crash of 2008, when Standard & Poor's 500-stock index fell nearly 40 percent. And Mecham has done this mostly while sitting in an armchair, in an office above a taco shop, in downtown Salt Lake City.
Mecham doesn't look, talk or act like a typical Wall Street manager. He's soft-spoken. He doesn't use jargon. He dresses like he works in a bookshop, with a patterned shirt and a plain tie. And the story of his success, arguably, says a lot about the flaws of the fund-management industry. By his own account, and those of other investors who have vetted his fund, Mecham has no secret sauce or amazing algorithm; what's extraordinary about this young man is how ordinary he is. But his investment approach relies on a handful of common-sense tactics -- focusing on just a few stocks, for example, and avoiding or ignoring short-term statistical analysis -- that big money-management firms either can't use or are reluctant to try. Skeptics and admirers alike agree that Mecham's approach involves a higher-than-usual potential for hefty losses. Russ Kinnel, director of fund research at Morningstar, says most fund customers would be unlikely to take that chance. "Pension funds, consultants, investors in general are quite benchmark-centric," Kinnel notes; they get uncomfortable when their money managers deviate.
But that notwithstanding, it would be a bit of a stretch to characterize Mecham as a rebel -- this is a man, after all, for whom one of the highlights of the past year was a trip to Omaha. (He took his girlfriend to Warren Buffett's annual investment conference.) As does virtually every other manager in the business, Mecham says he would like to raise more capital to invest -- his firm is small, with $80 million under management. But for now, the handful of pros who have jumped on his bandwagon are happy to have the fund remain undiscovered. It's clear that several think they're onto something special.
After the awkward New York meeting, O'Brien, who runs Gold Coast Wealth Management, was sufficiently intrigued to do more digging -- and after spending months talking with Mecham and checking his results, he got on board, investing more than $1 million with the Utah unknown. "To use a sports analogy," O'Brien says, finding Mecham was like "one of the rare few times when a star free agent becomes available in the beginning of his prime."
It's sensible these days for investors to approach the story of any stock market wunderkind with caution -- all the more so in the private-investment world, where money managers operate without the checks, balances and scrutiny that large mutual funds endure. Many such funds don't have to register with the Securities and Exchange Commission, especially if they're small and if big research companies like Morningstar don't track their performance. With the minimum stakes in such funds often very high -- at Arlington Value, the ante is typically at least $1 million -- investors have an even bigger incentive to do their own due diligence. (O'Brien, for instance, says he spoke to Arlington's auditors to confirm the investment figures, then did a background check on the auditors.) Factor in that the history of Wall Street is littered with the careers of investment hotshots who flamed out, and betting on a manager ultimately becomes a leap of faith.
Link to the remainder of the article:
http://www.smartmoney.com/invest/strategies/the-400-man-1328818316857/#printMode
