These are the summaries and links to the shareholder letters of our Gurus. Most of them had miserable performances, and value investing seems "dead". While, when was the last time when value investing was "dead" and Warren Buffett lost his touch? Year 1999.
Mason Hawkins: Sentiment has recently reached levels of fear that we haven’t seen in over a decade.
The on-deck list has become longer, broader, and more compelling since late June. Whereas earlier in the year most new opportunities emerged from a handful of areas — financials, real estate related companies, and retail — today’s list expands well beyond those segments. The higher quality opportunities make incoming cash flows all the more important to the Fund’s foundation as they enable us to purchase new opportunities without sacrificing returns from what we own.We continue to add to the Fund and encourage our partners as well as new shareholders to do the same. As one of our clients recently said, “If you liked the Partners Fund portfolio at a $33 NAV, then you ought to love it under $30.” The long-term investment case is as compelling as we wrote in the first quarter:
• “A P/V that is in the high-50%s, substantially lower than where it has traded in the last five years;
• Businesses that are growing value through substantial cash flow generation from, in a number of cases, top line growth and margin improvement, in spite of a slower economy;
• Corporate partners who are meaningfully adding to value per share by aggressively buying in stock at steep discounts.”
Sentiment has recently reached levels of fear that we haven’t seen in over a decade. We do not know when sentiment will change, but we are grateful that the angst persists. The consternation is allowing us to own more uniquely competitive businesses managed by talented partners at very discounted prices.
Robert Olstein: don’t try to buy at the bottom and sell at the top. It cannot be done except by liars
The credit crisis will eventually end, housing prices will reach a trough and oil prices cannot continue to climb at the current rate. It is our opinion that oil is in the process of topping for many years to come, housing should bottom within the next six months (but take a few years to turn up again), the financial crisis is in the final innings and the credit markets will return to normal within the foreseeable future. Under these conditions, the American consumer should start spending again. As we go to press, courtesy of a slowdown in the developing economies, oil and other commodity prices have begun to recede, oil and commodity stocks have had major corrections and early cyclical (consumer discretionary stocks) and financials have rotated to a position of market leadership on up days. In past recessions, financials and consumer discretionary stocks have moved into positions of market leadership up to one year prior to the economy actually turning.
The prices of many stocks in the Fund’s portfolio such as Citigroup, Microsoft and American Express are being priced as if they will never prosper again. We do not agree with this assessment. We believe the stage has been set for a sustainable rally in many of the Fund’s holdings because the current prices and valuations of a vast majority of stocks appear to have overreacted to recessionary conditions. Many stocks are being priced today as if the clouds will never lift and positive investment returns are a phenomena of the past. In particular, we believe a majority of stocks in sectors such as financials, health care, consumer discretionary and technology are selling at prices way below their ability to generate future free cash flow. To quote Bernard Baruch, the famous stock investor who made a fortune after the 1929 crash — “don’t try to buy at the bottom and sell at the top. It cannot be done except by liars.”
Ron Baron: America will get a new President and a brighter outlook in only a few more months.
The Dow Jones Industrial Average remained between 600 and 1000 during the Nixon-Ford-Carter Administrations of the 1970s. Today, after a year long bear market, the Dow remains above 11,000! This is after falling more than 20% since last October. The Dow Industrial’s current level, ten to fifteen times higher than the level achieved during the 1970s, is the result, we believe, of the more successful Presidencies of Ronald Reagan and Bill Clinton in the 1980s and 1990s.
The lesson, of course, is that unpopular or, worse, incompetent administrations don’t last forever. America will get a new President and a brighter outlook in only a few more months. A few more months! Is it time to invest when the stock market is at the same level it first reached in 1999? With many businesses now significantly larger than ten years ago; with significantly higher earnings power and significantly more expensive assets to replace, it seems to us unusual that their stock prices are unchanged. Accordingly, we think on a fundamental basis the answer in many instances is “yes.”
Dodg & Cox: the best opportunities for long-term investors
In our experience, the best opportunities for long-term investors can often be found when short-term uncertainty is the greatest and long-term outcomes are unclear. We believe that now is such an opportunity for the long-term investor.
Martin Whitman: Distress securities seem to be trading at ultra attractive prices.
A key dynamic during the quarter revolved around the redemption by shareholders of 9,946,559 shares of TAVF Common... During the recent meltdown in the price of TAVF shares, I purchased an additional $1,500,000 of TAVF shares, and Ian Lapey, my Senior Analyst who helps me manage Third Avenue Value Fund, purchased another $200,000 of Fund shares. My wife and I, and accounts in which we have beneficial interests, own over 1,500,000 shares of TAVF. You may lose money on your Third Avenue Value Fund investment from here on out; but, if so, it will be because Ian and I are stupid. It won’t be because we don’t maintain the strongest possible communities of interest with our fellow Fund shareholders.
Distress securities seem to be trading at ultra attractive prices. Discounts have widened appreciably for the common stocks of very well-capitalized companies where the common stocks trade at meaningful discounts from readily ascertainable net asset values (“NAVs”); and where the prospects appear good that over the next five years, such NAVs will increase by not less than 10% per annum compounded. Admittedly, near-term outlooks are generally poor. But, TAVF focuses not on the near-term outlook, but on buying what is “safe and cheap”” . I have the unique perspective of being a distressed investor for many decades, and safe and cheap on a long-term basis seems to be about as attractive as it was in the 1970s.
Richard Pzena: Fear trumps fact in the short run
Fear trumps fact in the short run. To discount the financial sector as much as it has been means you have to assume the industry is permanently impaired. It’s not. Valuations for leading financial firms are no longer rational, as investors have lost sight of the earnings power of these businesses. A risk to equity holders of dilution does exist—but the risk of bankruptcy or a dramatic decline in earnings power is being vastly overstated by the markets. We believe this provides an exceptional opportunity to buy the leading firms at distressed prices. Specifically, we believe the following three points will prove to have been obvious once we look back on this environment: Contrary to prior financial cycles, accounting rules are front-loading losses and potentially leading to overstating them. The risk of failure is not significant for most leading financial companies. The future earnings power of many financial firms is not materially impaired despite the possibility of deleveraging.
Bill Miller: we have plenty enough bargains already, and may not be able to handle that many more.
He (Warren Buffett) then made the perfectly sensible point that as we are all net savers, we should be happy if stock prices declined a lot more, so we could buy even better bargains. That is a point Charlie Ellis elaborated on in his fine book, Investment Policy, a few years back. As a matter of logic, it is irrefragable. As a matter of psychology, I think most of us value investors think we have plenty enough bargains already, and may not be able to handle that many more.
The best time to buy our funds or to open an account with us has always been when we’ve had dismal performance, and the worst time has always been after a long run of excess returns. Yet we (and everyone else) get the most inflows and the most interest AFTER we’ve done well, and the most redemptions and client terminations AFTER we’ve done poorly. It will always be so, because that is the way people behave.
I do think some things are obvious: it is obvious the credit crisis will end, and it is obvious the housing crisis will end, and that credit markets will function satisfactorily and house prices will stop going down and then start moving higher. It is obvious that the American consumer will spend sufficiently to keep the economy moving forward long term. It is obvious that the U.S. economy, already the most productive in the world, will get even more productive and will adapt and grow. It is obvious stock prices will be higher in the future than they are now. Sir John Templeton died a few weeks ago, full of riches and honors, as he so deserved to be. The legendary value investor got his grubstake by famously buying shares of 104 companies selling for $1 a share or less when war began in 1939. He didn’t know then that the war in Europe would spread to engulf the world, nor how long it would last, nor how low prices would ultimately go. He always said he tried to buy at the point of maximum pessimism, but he never knew when that was. He was, though, a long-term optimist, as is Mr. Buffett, as am I.
Bruce Berkowitz: We are buying great businesses at better than reasonable prices
Over the last six months, the stock market has been racked with fears about the credit crunch, slowing growth, and soaring energy and food prices. Fears that the economy may enter a bout of 1970s-style stagflation took the Standard & Poor’s 500 down 11.91% on a total return basis. That’s the worst first half for the S&P 500 since 2002. During this difficult period, the Fund’s Net Asset Value declined as well, down 5.90%.
That said, we have been proactive during this trying period, reducing some exposures for investments in other securities we feel have been unjustly punished. Over the eight and a half years since the Fund’s inception, we have lived by the belief that you should be fearful where others are greedy and to be greedy where others are fearful. We continue to ignore the crowd.
Today, shareholders are facing scary headlines while we believe the Fund is buying great businesses at better than reasonable prices, a practice that in the past has produced an outstanding record.
Other links:
Chuck Akre
Wally Weitz
Mason Hawkins
Robert Olstein
Dodg & Cox
Ron Baron
Martin Whitman
Richard Pzena
Bill Miller
Ron Muhlenkamp
Mason Hawkins: Sentiment has recently reached levels of fear that we haven’t seen in over a decade.
The on-deck list has become longer, broader, and more compelling since late June. Whereas earlier in the year most new opportunities emerged from a handful of areas — financials, real estate related companies, and retail — today’s list expands well beyond those segments. The higher quality opportunities make incoming cash flows all the more important to the Fund’s foundation as they enable us to purchase new opportunities without sacrificing returns from what we own.We continue to add to the Fund and encourage our partners as well as new shareholders to do the same. As one of our clients recently said, “If you liked the Partners Fund portfolio at a $33 NAV, then you ought to love it under $30.” The long-term investment case is as compelling as we wrote in the first quarter:
• “A P/V that is in the high-50%s, substantially lower than where it has traded in the last five years;
• Businesses that are growing value through substantial cash flow generation from, in a number of cases, top line growth and margin improvement, in spite of a slower economy;
• Corporate partners who are meaningfully adding to value per share by aggressively buying in stock at steep discounts.”
Sentiment has recently reached levels of fear that we haven’t seen in over a decade. We do not know when sentiment will change, but we are grateful that the angst persists. The consternation is allowing us to own more uniquely competitive businesses managed by talented partners at very discounted prices.
Robert Olstein: don’t try to buy at the bottom and sell at the top. It cannot be done except by liars
The credit crisis will eventually end, housing prices will reach a trough and oil prices cannot continue to climb at the current rate. It is our opinion that oil is in the process of topping for many years to come, housing should bottom within the next six months (but take a few years to turn up again), the financial crisis is in the final innings and the credit markets will return to normal within the foreseeable future. Under these conditions, the American consumer should start spending again. As we go to press, courtesy of a slowdown in the developing economies, oil and other commodity prices have begun to recede, oil and commodity stocks have had major corrections and early cyclical (consumer discretionary stocks) and financials have rotated to a position of market leadership on up days. In past recessions, financials and consumer discretionary stocks have moved into positions of market leadership up to one year prior to the economy actually turning.
The prices of many stocks in the Fund’s portfolio such as Citigroup, Microsoft and American Express are being priced as if they will never prosper again. We do not agree with this assessment. We believe the stage has been set for a sustainable rally in many of the Fund’s holdings because the current prices and valuations of a vast majority of stocks appear to have overreacted to recessionary conditions. Many stocks are being priced today as if the clouds will never lift and positive investment returns are a phenomena of the past. In particular, we believe a majority of stocks in sectors such as financials, health care, consumer discretionary and technology are selling at prices way below their ability to generate future free cash flow. To quote Bernard Baruch, the famous stock investor who made a fortune after the 1929 crash — “don’t try to buy at the bottom and sell at the top. It cannot be done except by liars.”
Ron Baron: America will get a new President and a brighter outlook in only a few more months.
The Dow Jones Industrial Average remained between 600 and 1000 during the Nixon-Ford-Carter Administrations of the 1970s. Today, after a year long bear market, the Dow remains above 11,000! This is after falling more than 20% since last October. The Dow Industrial’s current level, ten to fifteen times higher than the level achieved during the 1970s, is the result, we believe, of the more successful Presidencies of Ronald Reagan and Bill Clinton in the 1980s and 1990s.
The lesson, of course, is that unpopular or, worse, incompetent administrations don’t last forever. America will get a new President and a brighter outlook in only a few more months. A few more months! Is it time to invest when the stock market is at the same level it first reached in 1999? With many businesses now significantly larger than ten years ago; with significantly higher earnings power and significantly more expensive assets to replace, it seems to us unusual that their stock prices are unchanged. Accordingly, we think on a fundamental basis the answer in many instances is “yes.”
Dodg & Cox: the best opportunities for long-term investors
In our experience, the best opportunities for long-term investors can often be found when short-term uncertainty is the greatest and long-term outcomes are unclear. We believe that now is such an opportunity for the long-term investor.
Martin Whitman: Distress securities seem to be trading at ultra attractive prices.
A key dynamic during the quarter revolved around the redemption by shareholders of 9,946,559 shares of TAVF Common... During the recent meltdown in the price of TAVF shares, I purchased an additional $1,500,000 of TAVF shares, and Ian Lapey, my Senior Analyst who helps me manage Third Avenue Value Fund, purchased another $200,000 of Fund shares. My wife and I, and accounts in which we have beneficial interests, own over 1,500,000 shares of TAVF. You may lose money on your Third Avenue Value Fund investment from here on out; but, if so, it will be because Ian and I are stupid. It won’t be because we don’t maintain the strongest possible communities of interest with our fellow Fund shareholders.
Distress securities seem to be trading at ultra attractive prices. Discounts have widened appreciably for the common stocks of very well-capitalized companies where the common stocks trade at meaningful discounts from readily ascertainable net asset values (“NAVs”); and where the prospects appear good that over the next five years, such NAVs will increase by not less than 10% per annum compounded. Admittedly, near-term outlooks are generally poor. But, TAVF focuses not on the near-term outlook, but on buying what is “safe and cheap”” . I have the unique perspective of being a distressed investor for many decades, and safe and cheap on a long-term basis seems to be about as attractive as it was in the 1970s.
Richard Pzena: Fear trumps fact in the short run
Fear trumps fact in the short run. To discount the financial sector as much as it has been means you have to assume the industry is permanently impaired. It’s not. Valuations for leading financial firms are no longer rational, as investors have lost sight of the earnings power of these businesses. A risk to equity holders of dilution does exist—but the risk of bankruptcy or a dramatic decline in earnings power is being vastly overstated by the markets. We believe this provides an exceptional opportunity to buy the leading firms at distressed prices. Specifically, we believe the following three points will prove to have been obvious once we look back on this environment: Contrary to prior financial cycles, accounting rules are front-loading losses and potentially leading to overstating them. The risk of failure is not significant for most leading financial companies. The future earnings power of many financial firms is not materially impaired despite the possibility of deleveraging.
Bill Miller: we have plenty enough bargains already, and may not be able to handle that many more.
He (Warren Buffett) then made the perfectly sensible point that as we are all net savers, we should be happy if stock prices declined a lot more, so we could buy even better bargains. That is a point Charlie Ellis elaborated on in his fine book, Investment Policy, a few years back. As a matter of logic, it is irrefragable. As a matter of psychology, I think most of us value investors think we have plenty enough bargains already, and may not be able to handle that many more.
The best time to buy our funds or to open an account with us has always been when we’ve had dismal performance, and the worst time has always been after a long run of excess returns. Yet we (and everyone else) get the most inflows and the most interest AFTER we’ve done well, and the most redemptions and client terminations AFTER we’ve done poorly. It will always be so, because that is the way people behave.
I do think some things are obvious: it is obvious the credit crisis will end, and it is obvious the housing crisis will end, and that credit markets will function satisfactorily and house prices will stop going down and then start moving higher. It is obvious that the American consumer will spend sufficiently to keep the economy moving forward long term. It is obvious that the U.S. economy, already the most productive in the world, will get even more productive and will adapt and grow. It is obvious stock prices will be higher in the future than they are now. Sir John Templeton died a few weeks ago, full of riches and honors, as he so deserved to be. The legendary value investor got his grubstake by famously buying shares of 104 companies selling for $1 a share or less when war began in 1939. He didn’t know then that the war in Europe would spread to engulf the world, nor how long it would last, nor how low prices would ultimately go. He always said he tried to buy at the point of maximum pessimism, but he never knew when that was. He was, though, a long-term optimist, as is Mr. Buffett, as am I.
Bruce Berkowitz: We are buying great businesses at better than reasonable prices
Over the last six months, the stock market has been racked with fears about the credit crunch, slowing growth, and soaring energy and food prices. Fears that the economy may enter a bout of 1970s-style stagflation took the Standard & Poor’s 500 down 11.91% on a total return basis. That’s the worst first half for the S&P 500 since 2002. During this difficult period, the Fund’s Net Asset Value declined as well, down 5.90%.
That said, we have been proactive during this trying period, reducing some exposures for investments in other securities we feel have been unjustly punished. Over the eight and a half years since the Fund’s inception, we have lived by the belief that you should be fearful where others are greedy and to be greedy where others are fearful. We continue to ignore the crowd.
Today, shareholders are facing scary headlines while we believe the Fund is buying great businesses at better than reasonable prices, a practice that in the past has produced an outstanding record.
Other links:
Chuck Akre
Wally Weitz
Mason Hawkins
Robert Olstein
Dodg & Cox
Ron Baron
Martin Whitman
Richard Pzena
Bill Miller
Ron Muhlenkamp
