"If and when I will find what I think is another clear bargain ... it could be tomorrow or in 2017 I dont care .... I will put some other money at work . Until then I will continue to patiently sit on my assets, let my investments compound and my cash position grow, reading, posting and searching for great companies that maybe could be great investments (someday) at the right price."
This time I m going to share with you some excerpts of what I think are between the best articles – speeches – interview for the patient , opportunistic and focused long term investor.
A. On being extremely opportunistic and patient
"...It is not a bit easy. And, of course, 50% will end up in the bottom half and 70% will end up in the bottom 70%. But some people will have an advantage. And in a fairly low transaction cost operation, they will get better than average results in stock picking.
"How do you get to be one of those who is a winner – in a relative sense – instead of a loser?
"Here again, look at the pari-mutuel system. I had dinner last night by absolute accident with the president of Santa Anita. He says that there are two or three betters who have a credit arrangement with them, now that they have off-track betting, who are actually beating the house. They’re sending money out net after the full handle – a lot of it to Las Vegas, by the way – to people who are actually winning slightly, net, after paying the full handle. They’re that shrewd about something with as much unpredictability as horse racing.
"And the one thing that all those winning betters in the whole history of people who’ve beaten the pari-mutuel system have is quite simple. They bet very seldom.
"It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it – who look and sift the world for a mispriced be – that they can occasionally find one.
"And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.
"That is a very simple concept. And to me it’s obviously right – based on experience not only from the pari-mutuel system, but everywhere else.
"And yet, in investment management, practically nobody operates that way..."
From "A lesson on elementary, wordly windsdom as it relates to investment management & Business" by Charles Munger , USC Business School , 1994.
"Forbes: So summing up in terms of what do you think do you bring to value investing that others perhaps don’t, that give you a unique edge?
Pabrai: I think the biggest edge would be attitude. So you know, Charlie Munger (Trades, Portfolio) likes to say that you don’t make money when you buy stocks. And you don’t make money when you sell stocks. You make money by waiting. And so the biggest, the single biggest advantage a value investor has is not IQ; it’s patience and waiting. Waiting for the right pitch and waiting for many years for the right pitch.
Forbes: So what’s that saying of Pascal that you like about just sitting in a room?
Pabrai: Yeah. “All man’s miseries stem from his inability to sit in a room alone and do nothing.” And all I’d like to do to adapt Pascal is, “All investment managers’ miseries stem from the inability to sit alone in a room and do nothing.”
Forbes: So you don’t feel the need to pick 10 stocks a quarter or one stock a quarter, just what turns up?
Pabrai: You know, actually, I think that the way the investment business is set up, it’s actually set up the wrong way. The correct way to set it up is to have gentlemen of leisure, who go about their leisurely tasks, and when the world is severely fearful is when they put their leisurely task aside and go to work. That would be the ideal way to set up the investment business..."
FROM: Forbes Transcript: Mohnish Pabrai (Trades, Portfolio) 04/12/2010
B. On focus on the best ideas
"..It's the history of success. When you want to look at the Fortune 400 or
those who’ve really succeeded well, they have focused on few activities. One could
say, well, they were running those activities, but I think we focused on companies that the managers could do a better job than I could. And that’s the reason. So the point being, why would you possibly want to buy your tenth best idea if you can buy more of your best idea?
"So I understand if you're not confident or you feel ignorant about what you're doing,
I could understand the need to have a lot of positions. But if you believe you've focused
and you understand, and the facts are telling you that you're right, then I don’t believe
there's a need for more than ten, and you could have a handful of significant positions
and do quite well in this world. You only need a few ideas and a lifetime to do unbelievably well. And that's what we’re trying to achieve. That's what we’ve promised. We’ve kept our word and we’ve stayed the course. And no matter how shareholders may feel, after a decline, we’re going to keep to what we said we would do..."
From "Bruce Berkowitz wealth track 12.10.2012"
"I don't understand this argument about diversification upon diversification upon diversification.Its just going to lead to average performance , and I want to give people above average performance – and the price you are going to pay for above average performance is short term volatility, because when people think I'm wrong I'm going to look really wrong . And when they eventually agree with me we get a nice pop in price . This is what I do with my family money. This is what I do every day: I put myself in the shoes of the shareholder and do what I say I'm going to do, and I stick to it without consequence of what people may say or what the optics may look like. That's my job. That's what I get paid for. And that's what I'm going to keep doing."
From "CNBC's David Faber interview with Bruce Berkowitz (Trades, Portfolio), september 4, 2013.
"Our investment style has been given a name – focus investing – which implies ten holdings, not 100 or 400. The idea is that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It's been good for us."
From Charles Thomas Munger – Poor Charlie Almanack
C. On the importance and willingness to hold cash
“In hindsight, I think the correct lesson to learn from 2008-2009 was to hold cash. And I didn’t have cash at the time….I have now gone back to the 10% allocations that I had done for most of my investing career, with the caveat that I always want – except in times of extremely severe distress – to [not] be fully invested.
And so for example, as I talk to you today, I’m sitting on plenty of cash….It is an interesting market right now. There are very few bargains around, but the bargains we have been able to find are wildly undervalued, so it actually lends itself very well to be a concentrated investor. I could not today come up with 20 stocks that I thought were undervalued, but I could easily come up with five or six …I think the game is just perfect for me to play with a concentrated portfolio and holding cash.
So that’s where we are, and I think it’s the way to go. I think Munger always says that a well diversified portfolio just needs four stocks.”
From: Mohnish Pabrai (Trades, Portfolio) – UC Davis class discussion
"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." FROM Charles Thomas Munger – Poor Charlie Almanack
D. On being willing to ignore the crowd and stay the course
"CONSUELO MACK: So it's interesting. Since inception, there's no question, and also in
the last five years, since inception especially, in the last ten years you've beaten the market
handily, no question about it. The last three years, again, for the most recent investors,
you've actually trailed the market. So let me just put it this way: from a recent experience,
shareholders have not benefited by being investors in the Fairholme Fund (Trades, Portfolio). So what do you say,
basically, to them?
BRUCE BERKOWITZ: I say to them that we invest for the long-term. We talk about a five-year
horizon. We ask you to look back at our firm, at the Fairholme Fund (Trades, Portfolio), and look at any five-year
horizon you'd like, any 60-month period. And we’ve crushed the S&P on the worst five
60 months, on the best 60 months; our best 60 months is 160% up. Multiples of the S&P.
We ask you to look since inception, five years or longer, any five years. We had a very difficult
2011, so you have to understand the facts. The facts are we bought companies after they
turned. Their values, their book values, liquidation values, bad debt ratios, ROEs, RIAs, whatever
you want to look at, we’re improving.
CONSUELO MACK: Right, and you're talking about the fundamentals of the companies themselves.
BRUCE BERKOWITZ: The fundamentals, the facts. "
FROM: BRUCE BERKOWITZ - WEALTHTRACK Episode 916; October 12, 2012
"...Successful investors tend to be unemotional, allowing the greed and fear of others to play into their hands. By having confidence in their own analysis and judgement, they respond to market forces not with blind emotion but with calculated reason. Successful investors, for example, demonstrate caution in frothy markets and steadfast conviction in panicky ones. Indeed, the very way an investor views the market and it’s price fluctuations is a key factor in his or her ultimate investment success or failure...." Seth Klarman (Trades, Portfolio)
E. On long term ownership and compounding
"So I usually ask my friends this question: Which would you rather have, $750,000 today or the outcome of doubling a penny a day for 30 days. What do I hear? Penny. So that’s the question. Compounding our capital is what we’re after, that’s what makes it a great investment for us. What’s the value of compounding? Well the answer in this case is simply astounding. Doubling a penny a day for 30 days gets you, who knows, $10 million, $737,000 change."
FROM: Chuck Akre (Trades, Portfolio)'s talk from 8th Annual Value Investor Conference in May 2011, Omaha
"...Each decade up to this one--there hasn't been time to work it out for the Eighties--I have found a very small number of stocks, 14 in all, starting with 2 in the Thirties, that over a period of years made a profit for me of a minimum seven times the funds I put in and a maximum of many thousands of times my investment.
Now I have gone into about three to four times as many additional securities in which I've made more money than I've lost. I've had losses, in two cases as high as 50%. There also have been a number where I have made or lost 10%. That's almost the cost of being in business. But there are lots of cases where a stock has gone down moderately, and I've bought more, and it's paid off for me enormously.
These efforts were necessary to weed out the 14 where I have made the real gains. I've held those 14 from a minimum of 8 or 9 years to a maximum of 30 years. I don't want to spend my time trying to earn a lot of little profits. I want very, very big profits that I'm ready to wait for..."
FROM: what we can earn from Phil Fisher – Forbes Oct. 19, 1987
F. on how have they started
" What was starting your own business like in the beginning?
I shared an office. I had a laptop, and that was my operating cost. I was the CEO, CAO and secretary. When someone called, I used a different voice. When asked for a prospectus, I would put on my hat and deliver it. Entrepreneurship is all about uncertainty. You could be right on certain things, but wrong on timing. You could run the risk of failure, which is extraordinary. You need to give yourself enough margin for error. Always cut your costs, don't spend and always assume the worst so you can still function. Even in the best of times you want to prepare for the worst of times..."
FROM: Highlights of “A Conversation with Li Lu”
The CBSAC/NY Business Owners committee shares excerpts, paraphrased and edited for clarity and brevity, from an engaging conversation with a distinguished alumnus who has lived an extraordinary life.
"...Francis Chou (Trades, Portfolio) was a 25-year-old telephone repairman in Canada when he pooled 51,000 Canadian dollars from himself and six co-workers to start an investment club.
Thirty-one years later, Mr. Chou manages more than $650 million for investors at his firm, Chou Associates Management Inc., and runs the best-performing bond fund in North America.
"It wasn't a big sum," Mr. Chou says of his stock-investment club. "But it did quite well."
Indeed. The Bell Canada co-workers – and some of their parents and friends who also invested early on with Mr. Chou – now are each worth more than $2 million..."
FROM: How the Chou Income Fund Got Its Mojo – WSJ
"...By 1987 he had a core group of 200 wealthy clients, and Lehman Brothers recruited him to start its new high-net-worth office in London. He moved back to the U.S. with Lehman in 1989, then was recruited to Salomon Smith Barney in 1993 – always retaining his core group of clients.
He began to chafe, however, at the oversight of working inside big firms. His bosses criticized him for running highly concentrated portfolios, even though, Berkowitz says, his returns regularly trounced the market. In 1994, for instance, he owned only two stocks: Berkshire Hathaway and the Fireman’s Fund Insurance Co. “I was bumping up against constraints,” he says. He also liked the idea of having a public record of his stock picking. So in 1997 he departed with all 200 of his original clients and about $400 million in separate accounts, and opened his own firm. He recruited two stock pickers – a star Paine Webber broker named Larry Pitkowsky and a value investor named Keith Trauner – to help generate ideas. Fairholme, named for the street where Berkowitz lived in London, launched in December 1999..."
FROM: Bruce Berkowitz (Trades, Portfolio): The megamind of Miami Dec. 10, 2010 - Fortune
"...Mecham's Wasatch bosses say they remember him as a good, but not unusually good, employee who made one memorably successful stock pick, recommending that the firm buy a health-services company that did quite well. Still, it was only about a year before Mecham decided he could run money himself. He raised seed capital – less than $200,000, he says – from a handful of local investors led by Robert Raybould, a former real estate developer who is the father of Mecham's childhood friend Ben Raybould. And in 1999, Mecham launched his fund – at the well-seasoned age of 22.
Since then, word of mouth has drawn more assets to Arlington, with Ben Raybould acting as Mecham's partner and the fund's main salesperson; regulatory filings show that the firm has about 120 investors, with more than 75 percent of them identified as "high-net-worth individuals." According to Raybould, of the $80 million in the fund, about half is investors' principal, and the rest, profit. But Mecham says his habits today are roughly the same as they were back when he had $200,000 to invest. He sits in that armchair by the window, carefully reading company filings and other records from atop a giant pile of material that he prints out each day. (Mecham prefers to read only on paper, not online – old school.)"
From Allan Mecham – The 400% Man – Market Watch Feb. 13, 2012.
I think any of these article/interview/book is definitly worth reading – I suggest you find and carefully read/watch the original full version of any mentioned – I think it could help improving and building the focused (not diversify), capital growth-oriented (not dividend oriented), long-term horizon (not short-term trader) and opportunist (not regular investing, no dollar averaging, etc.) investor.
As usual there is more than one way to invest successfully and profitably... I simply follow one that I like, I think is sound, fits well my temperament and personality and is working well for me.
Snowballbuilder
