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A good manager lost me a ton of money. What should I do?

August 09, 2012 | About:
Many of us have been in this position. We love our money manager. He’s almost like a member of the family. We trusted him and gave him a pretty fair chunk of our capital. At first he did great but since the end of 2004; $10,000,000 in principal has shrunk to just $4,309,820 including all dividends received. Ouch. It would have been even worse if I’d agreed to reinvest those payouts using dollar cost averaging.

Mystery Portfolio – Results Dec. 31, 2004 – Aug. 7, 2012

mystery-portfolio-chart-2005-aug-7-2012-

I’m not an industry expert but it seems like the businesses I own aren’t looking so good. My money manager friend showed me these composite figures {from all the separate businesses} to help me understand why he has stayed with these so long. The numbers are all on a per- share basis for easy understanding. See what you think.

mystery-portfolio-per-share-data-2005-20mystery-portfolio-results-2005-2011.jpg

Gross revenues increased reasonably but cash flow and EPS both declined. Dividends went up strictly because the payout ratio increased. The moderate cumulative gain in book value might not truly have been meaningful as 74% of the figure represents intangibles.

I asked if perhaps it had just been a really bad 7.5 years. When we checked; it turned out that the DJIA had gained over 22% and the NDAQ-100 actually surged by 66.96% - excluding all dividends.

YE 2004 Aug. 7, 2012 % Change*
DIA ETF $107.51 $131.38 22.20%
QQQ ETF 39.92 66.65 66.96%
* Excluding Dividends


dia-qqq-dec-31-2004-aug-7-2012-source-bi

What really irked me was that my portfolio went down with the broad indices in 2008-09 but never recovered, even 3.5 years later.

My buddy says he’s sticking with these less-than-stellar companies because he knows and respects the CEOs. I’d rather be bailing out and moving on to healthier, growing companies. What would you do?

Disclosure: No positions in any stocks mentioned

SPOILER ALERT:

If you’re still wondering… my money manager is an obscure guy named Warren Buffett. The ‘portfolio’ consisted of all Washington Post’s [WPO] many divisions.

Newspapers and for-profit education are two industries that appear to be in permanent decline. Perhaps we’ve reached the time when personal loyalty from Mr. Buffett towards WPO management needs to be overridden by concern for Berkshire Hathaway’s [BRKa] shareholders. Berkshire Hathaway currently owns about 27% of WPO.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.MarketShadows.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.1/5 (20 votes)

Comments

sww
Sww - 1 year ago
1. If you blame Buffett then you do not understand him.

2. W** is only one of the holding

3. Check out the cost basis of this particular stock

4. Check out the dividend return on cost basis

5. Read Snow Ball then you understand Buffett will not sell it - ever

6. If you have 10,0000,000 that time, you should invest in Berkshire and not the individual stock

Cogitator99
Cogitator99 - 1 year ago
It's a somewhat flawed argument. The cost basis of WPO is much, much lower; on a percentage return basis this is one of his best investments. If you cherrypick a particular period (which btw coincides with the secular decline of newspapers), then of course you'll get this result.

You have to take the bad with the good with Buffett, his policy of never selling such holdings have made BRK a haven for those that want to sell their businesses to a permanent parent. Don't think anyone can refute that the good has outweighed the bad though, overall.
Dr. Paul Price
Dr. Paul Price premium member - 1 year ago


NOT selling and giving back 56.9% over 7.5 years is the same as buying something new and losing 56.9%.

Sins of ommission hurt just as much as sins of commission.

BRK sharesholders would have been much better off if WB had sold WPO long ago. What he paid decades ago is irrelevant.
adamcz
Adamcz - 1 year ago
Stockdocx and Paul Price (same person or two different people?) think Warren could have danced in and out of these long term positions with zero lost opportunities to buy family run companies that he promises to hold forever. I don't buy it.

Warren Buffett absolutely crushed the market during this time frame, doubling the return of the S&P. If you put 100% of your portfolio in Washington Post, you should probably stick to indexing.
batbeer2
Batbeer2 premium member - 1 year ago
Hi Stockdocx99

Is it reasonable to believe the individual divisions of WPO would trade at a cumulative $ 2.5B?

It seems to me that would be the key assumption if one is to take the price action of the stock as the performance of an imaginary portfolio.

>> Newspapers and for-profit education are two industries that appear to be in permanent decline.

I believe it's the not-for-profit state-sponsored post-secondary education system in the US that's in a permanent decline. That is probably why the department of education is expanding its budget for students enrolling in the for-profit schools.


superguru
Superguru - 1 year ago
"I believe it's the not-for-profit state-sponsored post-secondary education system in the US that's in a permanent decline. That is probably why the department of education is expanding its budget for students enrolling in the for-profit schools" - Batbeer

That's sad. And wrong way to go. I am assuming you are not including private universities like Stanford, Harvard, Univ of Chicago, USC etc in for profit education group.

For profit education is ready for major technological disruption as well as on receiving regulatory reforms. Just look at Khan Academy, Cousera and Udacity. These are by far much much superior efforts than say University of Phoenix or Kaplan.

batbeer2
Batbeer2 premium member - 1 year ago
>> I am assuming you are not including private universities like Stanford, Harvard, Univ of Chicago, USC etc in for profit education group.

Yes.

>> That's sad. And wrong way to go.

What is your opinion of a school that doesn't register with the department of education so their students can apply for federal loans?

A majority of post-secondary institutions in the US fit that description. I can think of a dozen reasons why this is the case. None of these reasons have anything to do with providing decent post-secondary education at a reasonable price. At best, one could say the interest of most post-secondary institutions in the US is not aligned with the interest of students. This is why COCO, EDU et al exist.

You may or may not like the federal (title IV) system but the current state-sponsored system is (morally) bankrupt.

Bill Gates talks about this:

http://www.thegatesnotes.com/Topics/Education/Bill-Gates-State-Budgets-Education

He has a website for tracking the system. Play around with it, there's a lot of information there.

http://collegecompletion.chronicle.com/

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