Whitney Tilson's 2007 Wesco Annual Meeting Notes

Whitney TilsonWhitney Tilson just released his 2007 Wesco Annual Meeting Notes. Enjoy it !

Direct Link - Whitney Tilson's 2007 Wesco Annual Meeting Notes (PDF).


*Related Link : Whitney Tilson's Notes from Berkshire Hathaway and Wesco Annual Meetings.

The Daily News spoke to Larry Coats

The Daily News spoke to Coats about his strategy and how investors should respond to the market's gyrations on Aug. 27, 2007.

  • Most people do a lot of due diligence before buying a car or investing in real estate. But investment decisions are often based on hunches at a cocktail party or what's read in a periodical.
  • Think logically, be rational.
  • If investors can have a long-term horizon, there are some great investment opportunities.
  • Yes, there is increased volatility in the short term. In the long term, the volatility tends to be more on the upside.
  • We waited and bought Oracle, eBay and Microsoft.
Direct Link - When stocks stagger, focus on the basics.

Mark Sellers: Irrational world of institutionalised money managers

Mark SellersMark Sellers has some interesting insights about institutionalised money managers at FT.com's column. The "institutionalised idea" comes from the movie The Shawshank Redemption (it's also one of my favorite films).

  • Institutionalized
    • “These prison walls are funny. First you hate ’em, then you get used to ’em. Enough time passes, you get so you depend on ‘em. That’s institutionalised.”
  • Institutionalised money managers
    • The average actively managed mutual fund in the US holds about 100 stocks. This means the managers can’t possibly be doing in-depth research on each company they hold.
    • The reason for holding so many stocks is that you feel you cannot understand any single company well enough to assess the risks, and so you are going to hold many stocks to minimise the risk of being wrong on any single one.
    • The most common way is for a manager to figure out what sectors they want to overweight or underweight and then have their analyst staff figure out which stocks to buy based on targeted sector weightings.
    • The optimal sector weightings change daily based on valuations and momentum and other factors, and so managers have to continually re-balance their portfolios.
    • For a manager, risk is defined as deviation from the index. For an investor, risk is defined as losing money.
Direct Link - Mark Sellers: Irrational world of institutionalised money managers.


Whitney Tilson on CNBC : Blue Chip Bargains

Whitney TilsonCNBC had a short interview with Whitney Tilson about blue chips bargains. The best value on Wall Street may be found in blue chips, with Keith Wirtz, Fifth Third Asset Mgmt. CIO; Whitney Tilson, Tilson Mutual Funds managing partner; and CNBC's Maria Bartiromo.

Here is video link or you can watch directly below.


Morningstar Interview with Markel's Tom Gayner

Tom GaynerMorningstar had an interview with Tom Gayner, Executive Vice President and CIO off Markel Corp, on Aug. 22, 2007. Markel's Tom Gayner reveals the firm's picks and process.

Here is video link - Stock Picks from a Berkshire-like Investor.
Or you can watch directly below. (About 10 minutes).

Businessweek Interview with Larry Coats

BusinessWeek's Karyn McCormack met with Larry Coats in New York on Aug. 14, and they talked about how he's navigating the market storm. Like Warren Buffett, Larry Coats of Oak Value Fund sticks with companies that are understood and valued.

I highlight some insights from this interview :

  • Risk always gets mispriced. It becomes mispriced on the positive side, and then somewhere along the way it gets mispriced on the negative side. And therein lies the opportunity for people who are willing to take a long-term view.
  • We sell for one of three reasons. Either a stock reaches our price target, we have a change in the fundamentals—which is a nice way of saying our investment thesis was wrong—or we have a better opportunity.
  • We're attempting to buy a stock at 65¢ or 70¢ on the dollar, so a 30% to 35% discount.
  • We use a discounted cash-flow model, using an 8% discount rate. The magic in that sauce is not around the discount rate, it's around the terminal multiple that you put in the valuation equation. Because at the end of year five, you have to assign something as the present value of the future cash flow.
  • 3 basic principles of Benjamin Graham
    • One is if you're going to own equities, you should own them as businesses, recognize that they're not pieces of paper, and understand the business.
    • Two, always require a margin of safety.
    • And know what the business is worth—the valuation discipline is important.
  • People are selling things because they don't know what they're worth. This is a great time to be able to say: I know what this business is worth. It makes it a lot easier to sleep at night.
  • Worry is a wonderful thing. One of the interesting challenges is people become so overwhelmed by the emotion, and by the fear (of what, they don't know).
  • It's one thing to know what you don't know, but it's another thing when you realize how much you don't know.

Direct Link - Riding Out the Storm with Quality Stocks.

*You can also watch "MarketWatch Interview with Larry Coats (Video)".

A Day In The Life of Anthony Bolton

Independent News had an interesting article about Anthony Bolton, managing director and senior portfolio manager of Fidelity International, on Aug. 17, 2007.

I highlight some Mr. Bolton's insightful ideas :

  • One thing I have learned in following the market is that it is cyclical and that it doesn't go up for ever or down for ever. When it has been going up steadily for four years, there will be setbacks.
  • When everyone is bullish, I like to be more cautious, and vice versa. I was expecting something to come along, and one never knows what the catalyst will be.
  • Anyone who runs a mainly long-only fund can't go up when everything is going down, but one can protect oneself [from going down too far].
  • My message to individual investors was: Don't panic but be prepared for volatile markets for a while.
  • You buy stocks you want on bad days and sell stocks you don't want on good days.
Article Direct Link - A Day In The Life Of: Leading fund manager Anthony Bolton.


Crisis Counsel with Warren Buffet, Bill Miller etc.

Warren BuffettWill the subprime lending meltdown and credit crunch send us into a financial free fall? Fortune asked the sharpest minds in business to share their reactions to the downturn, and their insights on the road ahead.

  • Warren Buffett
    • Many institutions are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth.
  • Wilbur Ross
  • Henry M. Paulson
  • John Mack
  • Bill Miller
    • These things flow through the system, and they're part of the system. They're normal. They happen usually every three to five years.
    • But these events represent opportunities. When markets get locked up like this, it's virtually always the case that you'll have opportunities if you have liquidity.
    • Instead of worrying how bad it's going to get, I think people should be thinking about where the opportunities might be.
    • The NYSE financial index is probably the best barometer of what's to come. So far it's telling you it's not over. It's still falling.
    • But just as financials lead on the downside, they will lead on the upside.
  • Robert Shiller
  • Jim Rogers
    • Market corrections are coming.
  • Jim Chanos
    • We don't know how bad this gets. The problem is we don't know how bad the hole is.
    • The areas of excess are going to get pulverized, and any overreactions will be areas for people to look for bargains ultimately.
    • But I don't think we're anywhere close to that yet.
  • Stephen S. Roach
  • Amy Brinkley
  • Laura Tyson
  • Jeremy Grantham
  • Ben Stein
Full Article Link - Crisis Counsel.

Whitney Tilson's : Be ready to act when market opens a door to opportunity

Whitney TilsonThis is Whitney Tilson's latest article on FT's Inside Curve column. I highlight some Tilson's points :

  • It’s human nature: for most investors, the pain of stocks going down is more tangible than the joy of when they go up. The common impulse is to do something – anything – to minimise the pain.
  • More volatility equals cheaper stocks, which equals higher returns.
  • Successful value investors work hard to position themselves and their portfolios to capitalise on just such turbulent times. In essence, they do their worrying well in advance of market turmoil, not after it starts to happen.
  • To begin our search, we asked ourselves: what’s the most despised sector in the stock market today? The clear answer: financial companies in general, especially those with exposure to structured finance and/or subprime.
  • Keep a close eye on stocks you like and be ready to act with conviction when Mr Market opens the door to opportunity – it may not stay open long.
Full Article Link - Whitney Tilson: Be ready to act when market opens a door to opportunity.

Bill Nygren's Message About Oakmark Select

Bill NygrenBill Nygren released a message for investors. I highlight some insightful points below:

  • In the short run, however, stock price performance is controlled by supply and demand, which is strongly influenced by investor emotion.
  • We buy businesses we believe are growing and well-managed, and we do so when we believe the company’s stock price does not reflect its real value. Then we wait.
  • The waiting part can be frustrating, especially at a time when our stock prices are moving in the wrong direction.
  • But there are only two ways we can fail – we can fail if our analysis is wrong, and we can fail if we run out of patience.
  • That frustration, however, will not cause us to abandon the discipline that has served us so well for so many years.
  • Prices and values will eventually converge, and we believe that convergence will be positive for our results.
Direct Link - A Message About Oakmark Select.


CNBC Interview with Warren Buffett

Warren BuffettWarren Buffett tells CNBC's Becky Quick in an exclusive interview that market chaos often creates opportunities due to mispricing.

I highlight Buffett's insightful ideas below:

  • We've had problems all along. If you look at the last century, we had that Great Depression and World War Two, we had the Cold War, we had the atomic bomb, but the country does well.
  • It will probably present more opportunity to us, because when dislocations occur, things get more mispriced and certain things.
  • But the lenders, if people lend money that they're not gonna get paid back, that's their problem, basically.
  • And people, when everything has been good for a while, they get careless and they assume that prices will keep going up and that will bail out anything that happens and every now and then there's a rude awakening.
  • The consumer is still spending a lot, but they're not quite spending at the rate they were six months ago, but we've had nothing in the way of a huge consumer pullback yet.
Here is video link and transcript - Warren Buffett Sees Potential for Opportunities: The Complete CNBC Exclusive Interview.

MarketWatch Interview with Larry Coats

MarketWatch had an interview with Oak Value Fund's manager Larry Coats on Aug. 14, 2007. Larry Coats says the recent market selloff underscores the importance of investing in companies with strong balance sheets. He also talks about three financial companies trading at a discount.

Here is video link - Oak Fund : Three Financial Value Plays.
Or you can watch directly below.


Bloomberg Interview with David Dreman

Bloomberg had an interview with David Dreman, CIO of Dreman Value Management LLC, on Aug. 13, 2007. The U.S. stock market is "pretty solid'' and offers "great opportunities,'' says value investor David Dreman.

I highlight some insightful points below:

  • The market is pretty solid and fundamentals are good. Earnings are good and it's not overpriced. The economy is picking up.
  • The major investment bankers are cheap. Will they go cheaper? I think so. If things turn around they could shoot up pretty quickly.
  • We've always liked crises, not for our clients, but because it gives you some great opportunities.
Here is video link or you can watch directly below.


Bill Nygren's Q&A at GuruFocus.com

Bill NygrenBill Nygren, portfolio manager of Oakmark Fund and Oakmark Select Fund, recently had a great Q&A session at GuruFocus.

I highlight some insightful points below:

  • Buy Criteria
    1. it sells it a large discount to our value estimate,
    2. we believe the value growth will be at least average, and
    3. we believe management will act like owners.
  • Sell Criteria
    • We sell when we lose any of those three supports.
    • Failures are when we lose confidence in management or the ability to grow.
    • Successes are sold when the value gap has become deminimis, or other stocks have fallen such that they are far more attractive than those we hold.
  • 4 exceptions of selling at 90% of estimated intrinsic value
    • We sell at less than 90% of value if we lose confidence in either the management or the ability of the business to grow. Effectively, those are sales of our mistakes.
    • We sell at less than 90% of value if the business needs to be owned by someone else to maximize value (generally meaning acquisition synergy) and there is no reason to believe such a change in ownership is imminent.
    • We will sell at less than 90% of value if non-owned stocks are available at less than 60% of value. The relative gap of 40-50% appreciation is what we are really trying to capture.
    • We will wait for a holding to go long term if it is selling at around 90%-110% of our value estimate. If it increases past that, we’ll accept the short term tax penalty to avoid the risk of holding a significantly overvalued security.
  • Important Traits
    • To me, the most important traits are a combination of passion and discipline.
      • Being able to stick to one’s investment philosophy through tough times is perhaps most important.
      • Indeed, if it is thought of as a “job” that already makes success difficult. Successful investors have a passion for the challenge of investing, and to them, it is their way of life, not just a job.
    • To be a value based consumer, and to have the confidence to rely on my own judgment even when the crowd came to a different conclusion.
  • Investment Mistakes & Lessons
    • Over the next twenty years, KM went bankrupt and Wal-Mart returned many times its cost. That mistake taught me a lot about sustainable competitive advantage, and the importance of corporate cultures. That was the start for me of realizing that qualitative analysis was as important as quantitative analysis.
    • Sometimes value investors buy a stock to capture a valuation gap, but don’t adjust their valuation targets based on information that comes out after they purchase it.
  • Investment Process
    • I believe the most critical part of value investing is following a disciplined buy and sell process. If that is a given, then yes, finding new ideas is the next most important thing.
    • We try to identify change that might make them qualify: for those that looked too expensive, we look for large stock price declines.
    • Second largest source is probably management change.
    • Statistical cheapness was a starting point, not an ending point.
  • Value Investing
    • To me, value investing is a way of making sense of the world, not just investing.
  • Outlook
    • We’ve seen small stocks outperform for about 7 years, and for 4 years we’ve seen commodity and cyclicals outperform stable growth, low quality outperform high quality, and International outperform US. Looking for values today, I would look away from those categories that have done well recently.
Full Q&A - Gurus On Board: Ask Bill Nygren - The Answers.


Biweekly Reading List (7/29-8/11)

I recap some good articles I read in the past two weeks :

Bill Miller's 2007 Q2 Commentary

Bill MillerBill Miller, Chairman and CIO of Legg Mason Capital Management Inc., released his commentary on July 30, 2007.

I highlight some interesting points below:

  • Housing Stocks
    • Usually, but not always, when you read about some industry or company having the worst time since some period of years, or even decades ago, you will find that buying that industry or company when it was going through those difficulties proved quite profitable if your time horizon wasn’t measured in days or months.
    • The headlines today are all about this being the worst housing market since the early 1990’s. Had you bought housing stocks during that previous period of duress, you would have made many times your money and handily outperformed the market over the subsequent decade.
    • If we did not own housing or housing-related stocks (such as Countrywide Financial), we would be buying them now, amid the panic selling currently underway.
  • Energy and energy-related stocks
    • It is said the only thing worse than being wrong is staying wrong.
    • We are at or near the high prices for oil that were reached last summer.
    • If oil retreats from these or modestly higher levels over the next six months, it is likely that we are nearing the end of a long cycle. If it breaks out to new highs and stays there, then the secular story may carry the day.
    • Speculative interest in oil futures on the commodities exchanges is at record levels, while oil companies and others in the industry are net short the commodity, believing the price will decline.
  • Market Outlook
    • I am constantly asked for my market outlook, so I will give one, not because I know but because I am asked.
    • In the intermediate or long run, stock returns depend on valuation relative to fundamentals such as growth rates and return on capital.
    • According to data compiled by Bloomberg, stocks are now the cheapest they have been in 16 years. The S&P 500 is valued at 15.4x estimated earnings, the lowest since January 1991. Again, a pretty good time to be a buyer of stocks!
Direct Link (PDF) - Bill Miller's 2007 Q2 Legg Mason Value Trust Investment Commentary.


Leon Cooperman's Article in Fortune magazine

Leon G. CoopermanLeon Cooperman is founder and chairman of Omega Advisors, a hedge fund with $6 billion in assets. Cooperman explains in Fortune magazine why stocks are on track for solid gains - despite the market's sudden selloff.

I highlight some insightful points below:

  • Outlook
    • I do not believe recent credit-market turmoil will derail the economy - I view this market drop as a long overdue correction rather than the end of the bull market.
    • I believe there's limited downside risk in the U.S. stock market from current levels, and returns over the coming year should be in the low double digits.
      • Economic growth for 2007 : 2% to 3%
      • Inflation for 2007 : 2%
      • Fed policy : No change
      • P/E ratio of the S&P 500 : 15
      • Job growth : 145,000 a month
  • The equity market is unlikely to fall sharply from current levels because :
    • First, bull markets do not die of old age, they die of excesses such as accelerating and above-trend economic growth, rapidly rising inflation, and interest-rate hikes from a hostile Federal Reserve. Those excesses are simply not with us today, nor do I expect their arrival anytime soon.
    • Second, the current bull market has experienced no price/earnings ratio expansion -- unlike every other bull market in the past five decades. In effect, this bull market is not characterized by speculation; rather, its expansion has been restrained compared with earnings growth and the trend of inflation and bond interest rates.
  • His Picks
    • Bank of America.
    • Atlas America.
Article Direct Link - Leon Cooperman: Why I'm a bull.

Disclosure : I don't have any of these equities listed above.

TheStreet.com TV Interview with Whitney Tilson

Whitney TilsonWhitney Tilson was in an Aug. 7 interview on TheStreet.com TV. Tilson, portfolio manager for the Tilson Focus fund, breaks down Berkshire Hathaway's earnings as well as Bill Ackman's activist play in Target. He conservatively places fair value for Berkshire around $150,000 a share.

Video Direct Link - Berkshire's Quarter Just Plain Beautiful.
Article Direct Link - Off Year for Berkshire Doesn't Cow Buffett Buff.

Disclosure : I don't have any of these equities listed above.

TMF Interview with Sardar Biglari

Emil Lee at The Motley Fool had an email interview with Sardar Biglari, chairman of Western Sizzlin and manager of The Lion Fund.

I highlight some points below:

  • I focus intensely on evaluating an array of situations, searching for pockets of opportunity that are within my sphere of competence.
  • Capital allocation is a matter of discovering where we can generate the highest return, adjusted for relevant risks.
  • Some firms will be growing, whereas others will not. However, the key is not growth but valuation.
  • GULP (Growth at an Unreasonably Low Price) investing could obtain truly outsized returns.
  • What is rather important, and is quantifiable, is the business's competitive advantage, which is computed by taking return on capital and subtracting cost of capital.
Article Direct Link - Sizzlin' With Sardar Biglari.


Bruce Berkowitz Talk at WealthTrack

Bruce BerkowitzBruce Berkowitz, founder and co-manager of Fairholme Fund, talked at Consuelo Mack WealthTrack on Aug. 3, 2007. Berkowitz discussed why a handful of stocks and a pocketful of cash has enabled his fund to far outdistance the market in all kinds of weather.

I highlight some interesting points below:

  • Q: What's your view on the US Stock Market ? Berkowitz: I have no idea !
  • The future is so unpredictable. We assume the worst. We assume bad things can happen do happen. We try consistently to be ready for that.
  • Cash as Strategic Asset.
  • Trying-to-kill-the-company approach.
  • “The One Investment…” - Canadian Natural Resources (CNQ)
You can watch the video at WealthTrack or download it from Google Video.

*You can also read Fairholme Fund 2007 Semi-Annual Report and watch CNBC Interview with Burce Berkowitz on June.

Bloomberg interview with Jim Rogers

Bloomberg interview with Jim Rogers, chairman of Beeland Interests Inc., on Aug. 3, 2007. Jim talked about his new book, the commodities, China market, and U.S. subprime-market etc.

Here is video link or you can watch directly below. (about 13 minutes)


Morningstart Interview with Mohnish Pabrai (Unabridged Video)

Mohnish PabraiMorningstar Justin Fuller chat with Dhandho Investor author Mohnish Pabrai on July 27 2007. This is a full version of the interview (about 34 minutes). You can also watch the shorter version (about 10 minutes) - Morningstart Interview with Mohnish Pabrai (Video).

Here is video link or you can watch directly below.

Value Investing Conference at The Ben Graham Centre (Videos)

The Ben Graham Centre for Value Investing released great videos of May 25th, 2007 Conference on Intelligent Investing.

The conference featured Mr. Prem Watsa, Chairman & CEO of Fairfax Financial as the keynote speaker. Other speakers included Dr. George Athanassakos of the Richard Ivey School of Business, Dr. John Bart, Founder of Canadian ShareOwner, Mr. Howard Atkinson, President of Horizons BetaPro ETFs and Mr. Rob Arnott, Chairman of Research Affiliates, LLC.

  • George Athanassakos - Value vs. Growth Stock Returns and the Value Premium in Canada between 1985 and 2002.
  • John Bart - Growth Investing – What to Buy? When to Sell? It is Easiest with Growth Stocks.
  • Prem Watsa - Ben Graham and Bubbles.
  • Howard Atkinson - Capitalization Weighted Indexing – A Performance Headwind?
Video Link.