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Steven Forbes Interviews Ron Muhlenkamp
Posted by: guruek (IP Logged)
Date: December 8, 2008 08:40PM

We like to invest in good companies when the price is right. We prefer stocks to bonds because we want management working for us as opposed to against us. There's two ways you can put money into a company. You can loan them money, in which case the management's job is to minimize your return. Or you can actually be an owner of the business, in which case their job is to maximize return. We like management working for us.

We think in terms of investing in companies as opposed to buying and selling stocks. Now, we're small enough that we can't really buy companies like Warren Buffet might. But that's the philosophy we come with. So we always want to own good companies. And we start with our definition as return on shareholder equity.

Actually, if you made a column and sorted companies by return on equity and sort them by reputation, you'd find that they pretty much marked with each other. The best companies by and large have the best reputation. But we don't know how to quantify reputation. We do know how to quantify return on equity. Historically, we tell the general public that we're trying to buy Pontiacs and Buicks when they go on sale. You know some folks who say the only thing you want to buy is the best companies. And the trouble is the best companies don't very often go on sale.

This happens to be a time when the Cadillacs are on sale, not just the Pontiacs and the Buicks but the Cadillacs are on sale, to the extent that, in fact, what we own today, our average return on equal is 18%. Corporate average throughout America is about 13 and, frankly, has been between 12 and 15 since World War II. It's an amazingly stable number.

The best companies run around 20 or maybe a little above that. So at 18 we think we've got at least Buicks. And in today's economy, which interest rates are 5% or 6%, inflation's on the order of two, although those numbers are moving around a little bit. But if interest rates are five or six percent, if we can get eight or nine percent return on our equity, we think that's worth book value or, in this case, it would be about an 11 or 12 multiple.

Well, in today's economy we can get 18% to 20% return on equity at PEs (price-to-earnings ratios) below 10. So today we can buy Cadillacs below Chevy prices. The difficulty is, of course, that two months ago you could buy Cadillacs at Pontiac prices. They keep getting cheaper. We think what's going on is that there's people out there who are forced to sell. And as you know, the markets are auctioned markets.

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Guru Discussed: Ronald Muhlenkamp: Current Portfolio, Stock Picks
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Re: Steven Forbes Interviews Ron Muhlenkamp
Posted by: fk (IP Logged)
Date: December 9, 2008 06:17PM

Good read. I'm not happy with how his fund has performed the past 52 weeks, but he's a smart guy with some good insights.

Guru Discussed: Ronald Muhlenkamp: Current Portfolio, Stock Picks
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Re Steven Forbes Interviews Ron Muhlenkamp
Posted by: joemc73 (IP Logged)
Date: March 21, 2012 10:20AM

He's a smart guy, but he really seems to be losing his focus. I don't know if the guy sits in his office and watches Fox News while listening to Rush Limbaugh, but his recent letters sure sound like it. I'm glad to say that I got sick of receiving this commentary, and sold out my entire position of MUHLX. Ron needs to quit the politics and get back to investing - his fund performance is also evidence of that. Corporate deregulation and lower taxes aren't going to fix his fund.

Guru Discussed: Ronald Muhlenkamp: Current Portfolio, Stock Picks
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