“Investing with people who are smarter investors than you is an intelligent way to achieving your investment goals. In fact, for most of us, I believe it’s the only way.”
Amazing coups
In late 2007 Warren Buffett sold Berkshire Hathaway’s (BRK-A) (BRK-B) significant stake in Petrochina (PTR). According to a CNBC interview (Oct. 18, 2007) at the time Warren said “It was 100 percent a decision based on valuation”. All up Berkshire Hathaway booked a profit of $3.5 billion on an investment of $500 million initiated in 2000. It was yet another wonderful investment coup pulled off by the greatest investor of our times.
In 2007, the busy bees of Leucadia National Corporation (LUK, Financial) pulled a similarly spectacular investment in Australian iron ore miner Fortescue Resources. According to their recent 10K Annual report, Leucadia’s investment of $452 million, made in 2006 & 2007, is worth around $1.8 billion as of 31st December 2007 . A return of four-fold in under 2 years.
A rare breed of investors
For Leucadia National & Berkshire Hathaway, investments such as these are not anomalies, they’ve each been doing this for decades. That is why each company can boast returns of 20% plus returns over many years.
The fact is, 99% plus of individual investors will never accomplish these kinds of investment results over say a 20 year time period. An equally smaller percentage will achieve 15%+ returns over 20 years.
But how many investors actually believe they can?
Far more investors believe they can, when in reality they can’t.
The human ego is a powerful thing. It’s very easy after a couple of successful investments to believe in your own investment genius. The problem is that succeeding over long periods of time requires a level of discipline and business acumen that nearly everyone lacks apart from a very small group of individuals.
Financial media stock tipping
There are vast amounts of financial news available to stock investors. Stock tips are rampant. The latest hot oil play, a new company snapping up Eastern European real estate or a Chinese coal mining gem.
Reading these latest reports, it’s easy for investors to end up with starry eyes and false expectations. Building your portfolio around these tips is likely to lead to disappointment most of the time.
The best investors ignore the news and spend their time engaged in SEC filings and talking to people, in the know, within certain industries they are thinking of investing in. They have an innate ability to filter through the noise and get to the heart of the matter on an investment.
Put that ego in check
This gets me to the point of my discussion. I don’t want you to feel bad if you’re new to investing & I have checked your aspirations. Some of you may have stopped reading this article above where I spoke about why a 20% return over 20 years is impossibility for most.
So here is my suggestion
Suppress that ego. Acknowledge there are smarter investors out there than you. Partner with those people and profit with them.
Save the heartache and sleep well - Invest with the best
Here is one option. Go for a great mutual fund with one of the smartest investment teams in the world. The Fairholme Fund (FAIRX) has a great track record of compounded returns in excess of 17% since 1999. This far outpaces the stagnant S&P index over the same time frame. Bruce Berkowitz & the Fairholme managers have over 90% of their own net worth tied up in the fund so they eat their own cooking. Their largest investments are Berkshire Hathaway (BRKA/B) & Canadian Natural Resources (CNQ) and they have smaller investments in Leucadia National Corporation (LUK) & Sears Holdings (SHLD). Fairholme is renowned for doing enormous research before each investment & leaving no stone unturned. The fact is, most of us would not be able to do the kind of groundwork Fairholme is able to do before making an investment, so Fairholme has a big advantage over smaller investors from the get go, that’s why their returns have been, & I would hazard will be, better than 99% of small investors. There are other great mutual funds apart from Fairholme out there that are worth your attention also.
Here is a second option for investors. Invest directly with great capital allocators such as Berkshire Hathaway (BRKA/B) or distressed investment specialists Leucadia National Corporation (LUK). Again we’re keeping that ego in check and tieing our fortunes to the success of smarter investors than ourselves. My only warning here is valuation. Buying shares in public companies, however great, should be based on a strict valuation criteria. Bruce Berkowitz suggested in Fairholme’s latest annual report that Leucadia’s valuation was no longer in bargain territory “…Although Leucadia does not seem inexpensive, its roster of lottery tickets, liquidity and history of success in difficult times allows us the luxury of patience. (Fairholme Fund Annual report 2007)”
Putting it together
Great returns for small investors are possible but it’s much harder to do it alone. Following stock tips on CNBC won’t get you to that comfortable retirement!
Investing with people who are smarter investors than you is an intelligent way to achieving your investment goals. In fact, for most of us (including your author!), I believe it’s the only way.
Disclaimer: The opinions expressed by the author in this article represent the author’s own views and are not intended as investment advice and should not be relied upon as investment advice.
Disclosure: I own shares in Fairholme Fund (FAIRX), Berkshire Hathaway (BRKB)
____________
Souce: Insurance Stock InvestorAlso check out:
Amazing coups
In late 2007 Warren Buffett sold Berkshire Hathaway’s (BRK-A) (BRK-B) significant stake in Petrochina (PTR). According to a CNBC interview (Oct. 18, 2007) at the time Warren said “It was 100 percent a decision based on valuation”. All up Berkshire Hathaway booked a profit of $3.5 billion on an investment of $500 million initiated in 2000. It was yet another wonderful investment coup pulled off by the greatest investor of our times.
In 2007, the busy bees of Leucadia National Corporation (LUK, Financial) pulled a similarly spectacular investment in Australian iron ore miner Fortescue Resources. According to their recent 10K Annual report, Leucadia’s investment of $452 million, made in 2006 & 2007, is worth around $1.8 billion as of 31st December 2007 . A return of four-fold in under 2 years.
A rare breed of investors
For Leucadia National & Berkshire Hathaway, investments such as these are not anomalies, they’ve each been doing this for decades. That is why each company can boast returns of 20% plus returns over many years.
The fact is, 99% plus of individual investors will never accomplish these kinds of investment results over say a 20 year time period. An equally smaller percentage will achieve 15%+ returns over 20 years.
But how many investors actually believe they can?
Far more investors believe they can, when in reality they can’t.
The human ego is a powerful thing. It’s very easy after a couple of successful investments to believe in your own investment genius. The problem is that succeeding over long periods of time requires a level of discipline and business acumen that nearly everyone lacks apart from a very small group of individuals.
Financial media stock tipping
There are vast amounts of financial news available to stock investors. Stock tips are rampant. The latest hot oil play, a new company snapping up Eastern European real estate or a Chinese coal mining gem.
Reading these latest reports, it’s easy for investors to end up with starry eyes and false expectations. Building your portfolio around these tips is likely to lead to disappointment most of the time.
The best investors ignore the news and spend their time engaged in SEC filings and talking to people, in the know, within certain industries they are thinking of investing in. They have an innate ability to filter through the noise and get to the heart of the matter on an investment.
Put that ego in check
This gets me to the point of my discussion. I don’t want you to feel bad if you’re new to investing & I have checked your aspirations. Some of you may have stopped reading this article above where I spoke about why a 20% return over 20 years is impossibility for most.
So here is my suggestion
Suppress that ego. Acknowledge there are smarter investors out there than you. Partner with those people and profit with them.
Save the heartache and sleep well - Invest with the best
Here is one option. Go for a great mutual fund with one of the smartest investment teams in the world. The Fairholme Fund (FAIRX) has a great track record of compounded returns in excess of 17% since 1999. This far outpaces the stagnant S&P index over the same time frame. Bruce Berkowitz & the Fairholme managers have over 90% of their own net worth tied up in the fund so they eat their own cooking. Their largest investments are Berkshire Hathaway (BRKA/B) & Canadian Natural Resources (CNQ) and they have smaller investments in Leucadia National Corporation (LUK) & Sears Holdings (SHLD). Fairholme is renowned for doing enormous research before each investment & leaving no stone unturned. The fact is, most of us would not be able to do the kind of groundwork Fairholme is able to do before making an investment, so Fairholme has a big advantage over smaller investors from the get go, that’s why their returns have been, & I would hazard will be, better than 99% of small investors. There are other great mutual funds apart from Fairholme out there that are worth your attention also.
Here is a second option for investors. Invest directly with great capital allocators such as Berkshire Hathaway (BRKA/B) or distressed investment specialists Leucadia National Corporation (LUK). Again we’re keeping that ego in check and tieing our fortunes to the success of smarter investors than ourselves. My only warning here is valuation. Buying shares in public companies, however great, should be based on a strict valuation criteria. Bruce Berkowitz suggested in Fairholme’s latest annual report that Leucadia’s valuation was no longer in bargain territory “…Although Leucadia does not seem inexpensive, its roster of lottery tickets, liquidity and history of success in difficult times allows us the luxury of patience. (Fairholme Fund Annual report 2007)”
Putting it together
Great returns for small investors are possible but it’s much harder to do it alone. Following stock tips on CNBC won’t get you to that comfortable retirement!
Investing with people who are smarter investors than you is an intelligent way to achieving your investment goals. In fact, for most of us (including your author!), I believe it’s the only way.
Disclaimer: The opinions expressed by the author in this article represent the author’s own views and are not intended as investment advice and should not be relied upon as investment advice.
Disclosure: I own shares in Fairholme Fund (FAIRX), Berkshire Hathaway (BRKB)
____________
Souce: Insurance Stock InvestorAlso check out:
