Mauboussin on Strategy: The Failure of Arbitrage

Michael Mauboussin's latest article about "The Failure of Arbitrage - Leverage, Liquidity, and the Persistence of Inefficiency".

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There is solid literature on the limits of arbitrage under normal conditions, when arbitrage opportunities tend to be steady and small. 15 Our emphasis here is on the failure of arbitrage in periods of financial crisis, where price-to-value gaps are wide and investors can put substantial capital to work at attractive returns. In financial stress, we see:
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Related Links :

• The Failure of Arbitrage (PDF)
• Podcast (MP3)
  

Markel Annual Meeting notes

Key Takeaways:

• (1) Chief Investment Officer Thomas Gayner called the current environment the best he's seen in his 18 years at Markel for buying best-of-breed companies at a discount. Pretty strong words from him there.
• (2) Steve Markel thinks Markel should be valued at 2x Book Value. At the current book value (as of 3/31) of $263 Book value, that puts shares at $526.
• (3) The culture at Markel is extremely strong. The employee owners (we call them that because they actually buy shares on the open market) are bought in to what Markel is doing. That is an incredible advantage for an insurer, or any business.
• (4) Thomas Gayner thanked the underwriting side of the business when he first got up, saying he understands how hard it is to have such discipline and generate the money (float) that his team gets to invest. Their top investing priority is not to lose it.
• (5) Thomas Gayner also said that bad times will always come and go. There have been many times in the past when people have predicted the worst (food and energy crises, runaway inflation, economic depression). It usually doesn't happen. :-)

Direct Link - Markel Annual Meeting notes.

Whitney Tilson and John Heins : Fixes for Bad Timing

If you're able to look beyond near-term trouble, you have an advantage over many professional investors.

Investing too early is one of the more common sins of value investors. Watching as that well-researched idea you loved a few months ago falls 20% to 30% can be painful and nerve-racking. Bruce Berkowitz, of the highly successful Fairholme fund, calls it "premature accumulation."

Getting your timing wrong is inevitable -- especially in today's market, in which stock prices continue to plumb new depths in a wide variety of industries. Value investors like us can be particularly susceptible to bad timing because we often buy on bad news or bet on turnarounds -- both of which have the unfortunate habit of dragging on much longer than expected, often causing share prices to continue to decline.

...

Direct Link - Whitney Tilson and John Heins : Fixes for Bad Timing.

David Einhorn - Greenlight Capital 2008 Q1 Earnings Call Transcript

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David Einhorn : Yes, certainly. Metals are interesting in the sense that a lot of people view them as stores of value so as to replace – they fight the weaknesses in things like paper currencies, and view these things as stores of value and own them for diversification or because they think that they will do well as a result. My own personal bias on the matter is that gold, like anything else, does not have an intrinsic value that is any different really from paper money other than the sense that you could use it in jewelry or electronics, and so forth. And as a result of that, it’s like the paper currencies, is also worth whatever everybody agrees that it is worth.

So it’s very hard to understand sort of a non-speculative case for why somebody needs to invest in gold or precious metals as a diversification away from currency that has its own issues and problems. I know that’s probably not a popular majority opinion. I don't think it particularly harms us in the sense that on the worst day it’s a missed opportunity for us, and it does not play particularly well into our basic skill set. As it also turns out though, incidentally, we did happen to have a short position in a precious metals company in Ecuador that had some unfortunate developments that actually helped out our results in April based upon some of the nationalization efforts that are going on in that country.

...

Direct Link - Greenlight Capital 2008 Q1 Earnings Call Transcript.

Charlie Munger - Berkshire's No. 2 man helps from the background

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Munger answers questions alongside Buffett for hours each May at the Berkshire shareholders meeting in Omaha, Neb., and again on his own at the annual meeting in California of Wesco Financial Corp., a Berkshire subsidiary that he leads.

Buffett sometimes relies on Munger to repeat questions because his hearing is better. After one shareholder asked a lengthy question this year about how Buffett got started investing and what mindset an investor should have, Buffett turned to Munger for help.

So Munger summed it up: "He wants you to instruct him how to become less like a lemming."

When Munger does weigh in, he often cuts through Buffett's longer answer to its heart. And sometimes he critiques Buffett's response.

"Well, that was real useful advice," Munger said this year after Buffett answered a question about choosing good managers by saying Berkshire buys businesses with strong management teams in place. Then he compared that to saying the best way to get through lean times is to keep a couple million dollars lying around.

...

Direct Link - Berkshire's No. 2 man helps from the background.

Leveraged Loans: Ready for Lift-Off Says Steve Tananbaum of GoldenTree Asset

Barron's recently caught up with Tananbaum, 42, at his midtown office, which houses a portion of his art collection, including the spacesuits by artist Tom Sachs shown in the photo at right.

Barron's: What is happening in the credit markets, where conditions since August have been very tough?

Tananbaum: The credit problems that started last year, and which were perceived to be isolated, really spread throughout the system. In different pockets of credit, things were mispriced. Right now you're seeing a repricing of credit. Whereas last year you were being underpaid to own credit, now you are being overpaid.

You mean, in terms of much wider spreads?

That's right. Against that backdrop, the investment banks have been damaged. Normally they provide credit to the financial system. But things aren't working the way they normally do. You're seeing the banks' inability to provide credit to a lot of their corporate customers.

Direct Link - Leveraged Loans: Ready for Lift-Off Says Steve Tananbaum of GoldenTree Asset.

Jean-Marie Eveillard - First Eagle Funds Conference Call, May 6, 2008

Now, let me move to an update to the current investment scene as we see it. I think investing is a matter of trying to balance what I would call circumstances and prices. In terms of circumstances, we have been, for a while, in a financial crisis, probably the worst since the end of World War II, which is a polite way of saying that it’s the worst since the Great Depression. This financial crisis is, to a large extent, I believe, a result, a consequence of the previous 25-year credit boom that was briefly interrupted in 1990. That credit boom, because it went on so long, in the last few years of the boom, the acrobatics by financial types, not us mind you, were extraordinary. Then the credit cycle turned in August of last year, with the sub prime housing crisis, and it has been painful ever since.

Now, I’m sure, of course, that the crisis will find its resolution; all crises do eventually. The key question, I believe, is, “How long and how painful the transition will be towards the resolution of the crisis.”

We are just beginning to see the economic consequences of the crisis. In other words, the economic slow down. We also have to worry, I believe, about the unintended consequences of the very unusual steps taken by the Federal Reserve to prevent the crisis from degenerating. Among those unintended consequences, of course, is the status of the dollar as the world’s reserve currency and the possibility that domestic inflation will accelerate.

Direct Link - First Eagle Funds Conference Call, May 6, 2008.

Interview with Bill Ackman and David Einhorn

Activist investors face challenges convincing regulators to face the facts, with William Ackman, Pershing Square Capital Management and David Einhorn, Greenlight Capital Management.

Related Links :

• Whistle-Blowing - Interview with Bill Ackman and David Einhorn Part 1
• Whistle-Blowing - Interview with Bill Ackman and David Einhorn Part 2
• Hedge Fund Poker Match
• Secret strategies of the game, with Neil Chriss, Hutchin Hill Capital; David Einhorn, Greenlight Capital Management and CNBC's Becky Quick
• Wall Street at Its Worst
• Insight on a six-year investigation of fraud, scandal and deceit on Wall St., with David Einhorn, Greenlight Capital president and CNBC's Steve Liesman
• Hedging Your Bets
• Discussing fraud on Wall St., with David Einhorn, Greenlight Capital Management president
• The Short & Short of It
• Short selling can be good for the markets, with Owen Lamont, DKR Fusion, David Einhorn, Greenlight Capital and CNBC's Steve Liesman

VIC West 2008 Links

• VIC West 2008-An Advanced Seminar on Value Investing(Part 1)
• VIC West 2008-An Advanced Seminar on Value Investing(Part 2)
• VIC West Day 1: Part 1 Sellers and Fasciani; Jeff Bronchick
• VIC West Day 1: Part 2 Vitaly Katsenelson; Atticus Lowe and Lance Helfert
• VIC West Day 1: Part 3 Zeke Ashton; Randall Abramson
• VIC West Day 1: Part 4- Ken Shubin Stein; Robert Hagstrom; Carlo Cannell
• VIC West Day 2: Part 1- Whitney Tilson and Glenn Tongue ; Aaron Edelheit
• VIC West Day 2: Part 2- Mohnish Pabrai; Steven Romick

CNN Interview with Bob Rodriguez

Robert Rodriguez has accomplished the unheard-of-feat: driving staggering returns in both a stock and a bond fund for more than two decades.

Our vote goes to Robert L. Rodriguez of the FPA Capital and FPA New Income funds. Ever since mid-1984, Rodriguez, now 59, has led these two funds to the front of the pack, the investing equivalent of running two marathons at the same time. Overseeing both a stock and a bond fund is so hard that well over 99% of all fund managers lack the guts to even try it - and nobody has ever done both better than Rodriguez.

At FPA Capital (FPPTX), a fund specializing in smaller U.S. stocks, Rodriguez has outperformed Standard & Poor's 500- stock index by an annualized average of 3.9 percentage points; he has beaten the Russell 2000 small-stock index by six points annually. And at FPA New Income (FPNIX), Rodriguez has never lost money in a calendar year; he has outlegged the Lehman Brothers aggregate bond index by 0.2 percentage points annually since 1984. In bond investing, a game of inches, that's a country mile.

• Video - Legendary investor shuns stocks.
• First Pacific Advisors CEO Bob Rodriguez explains why he's had a buy-halt on equities and high yields since December.
• The best fund manager of our time.

Buffett's Q＆A at Wharton

In a presentation he made to students at the Wharton School earlier this month and a subsequent interview with Fortune, Warren Buffett shared his thoughts on everything from the economy to the credit crisis and the Bear Stearns bailout.

In this Web exclusive, we present further excerpts from his talk with the students, in which the megabillionaire offers his insights on judging managers, buying businesses, what metrics - if any - he relies upon, and why he views his job as similar to painting the Sistine Chapel.

Direct Link - Buffett goes to Wharton.

Warren Buffett Finances Mars-Wrigley Deal

Warren Buffett spoke live this morning (Monday) with CNBC's Squawk Box about his role in today's $23 billion Mars acquisition of Wrigley.

Related Links :

• Warren Buffett Finances Mars-Wrigley Deal: The Complete CNBC Interview
• Mars, Buffett Team Up in Wrigley Bid
• Mars and Berkshire near pact to acquire Wrigley

Looking Up to Warren Buffett - Interview with Mohnish Pabrai

It often seems like every hedge-fund manager is reading from the same playbook about how to look, work and behave. Neatly pressed khakis; thumbs glued to a BlackBerry; slick digs in Greenwich or Manhattan staffed by number-crunching research drones. But apparently, Mohnish Pabrai never got his copy. He wears shorts to his Southern California office, keeps e-mail to a minimum and almost never misses his 4 p.m. nap. And forget goosing returns with fancy computer models or using complex derivatives: Pabrai doesn't even sell stocks short.

Direct Link - Looking Up to Warren Buffett

Buffett Trip - Visit with Warren Buffett

On March 31, 2008 students from Dr. Athanassakos' Value Investing class travelled to Omaha, Nebraska to meet with Mr. Warren Buffet, the world's best known investor and the richest person in the world.

Related Links :

• Buffett Trip
• Read one student’s blog detailing the experience of the visit and the days leading upto the trip
• Read major takeaways from the meeting with Mr. Buffett from notes made by the Value Investing MBA students.

David Einhorn on WealthTrack, 4-25-08

How effective has the Federal Reserve been in heading off a financial and economic crisis? What’s left in its arsenal? We’ll ask NYU economist Mark Gertler, a close friend and collaborator of Federal Reserve Chairman Ben Bernanke. What role have the regulators played and what can investors do to protect their assets? We’ll consult successful hedge fund manager David Einhorn, CEO of Greenlight Capital and Peter Stamos, CEO of Sterling, Stamos Capital Management, a private investment firm that follows the endowment model pioneered by Yale and Harvard.

Here is video link and transcript. (Only available for 2 weeks)
Or you can download the video (MP4 Format) here (Right Click and Save as..).

The Money Kept Vanishing - David Einhorn's New Book "Fooling Some of the People All of the Time"

Fooling Some of the People All of the Time
By David Einhorn
(Wiley, 379 pages, $29.95)

Most of David Einhorn's ideas work out brilliantly. He is a 39-year-old hedge-fund manager in Manhattan who oversees $6 billion. Bull markets? Bear markets? It hardly matters. His stock portfolio has averaged 25% annual returns since 1996, when he opened Greenlight Capital.

Now Mr. Einhorn has written a book. But instead of packaging the real or contrived "secrets" to his success – as cliché would have it – he has tried to do something less triumphant and far gutsier. In "Fooling Some of the People All of the Time," he turns the spotlight on a single, stubborn investment play that never made much money for him but created six years of headaches.

...

Direct Link - The Money Kept Vanishing

Doubling Down in Financials - Interview with Richard Pzena

When it comes to value investing or buying out-of-favor stocks, patience is a virtue. These days few are more virtuous than Richard Pzena, Chairman of Pzena Investment Management, a $20 billion assets money management company whose New York Stock Exchange listed shares are down more than 38% in the last 12 months.

Direct Link - Doubling Down in Financials

Pzena Investment Management 2008Q1 Commentary

Investors fear a massive unwinding of debt will undermine the world’s economies. But the data indicates deleveraging doesn’t equal disaster.

Related Links :

• Pzena Investment Management 2008Q1 Commentary (PDF)
• Pzena Investment Management 2008Q1 Earnings Call Transcript

Bill Miller 2008 Q1 Value Trust Commentary

I am often asked, how long do we have to wait before the fund starts to do better? The real answer here is the same as it is about most such forecasts: no one knows. I am reminded of the story Nobel Prize winner Ken Arrow tells about his experience trying to make long-range weather forecasts for the military during World War II. He told his superiors that his forecasts were so unreliable as to be useless. The word came back that the General knew his forecasts were useless, but needed them anyway for planning purposes.

Related Links :

• Legg Mason Value Trust 2008Q1 Investment Commentary (PDF)
  
• Miller Says Bear Stearns Sale Signaled End of Panic
• ''Credit spreads are already much improved since then,'' Miller wrote in a letter to fund shareholders released by Baltimore-based Legg Mason today. Financial companies may ``even have some write-ups in the second half instead of writedowns,'' he wrote.

The Financial Crisis: An Interview with George Soros

The following is an edited and expanded version of an interview with George Soros, Chairman, Soros Fund Management, by Judy Woodruff on Bloomberg TV on April 4.

Judy Woodruff: You write in your new book, The New Paradigm for Financial Markets,^[1] that "we are in the midst of a financial crisis the likes of which we haven't seen since the Great Depression." Was this crisis avoidable?

George Soros: I think it was, but it would have required recognition that the system, as it currently operates, is built on false premises. Unfortunately, we have an idea of market fundamentalism, which is now the dominant ideology, holding that markets are self-correcting; and this is false because it's generally the intervention of the authorities that saves the markets when they get into trouble. Since 1980, we have had about five or six crises: the international banking crisis in 1982, the bankruptcy of Continental Illinois in 1984, and the failure of Long-Term Capital Management in 1998, to name only three.

Direct Link - The Financial Crisis: An Interview with George Soros

Whitney Tilson's recent video clips , April. 2008

• Tilson Sees Buffett Focus on Europe `Dynastic' Companies
  
• Whitney Tilson on Bloomberg TV, 4/21/08
  • Whitney Tilson, managing director and founder of T2 Partners LLC, talks with Bloomberg's Monica Bertran in New York about the outlook for financial stocks, Bank of America's first-quarter earnings report and plan to buy Countrywide Financial Corp., and Tilson's assessment of Berkshire Hathaway Inc. and Fairfax Financial Holdings Ltd. Hedge fund manager T2 Partners oversees $100 million in assets.

What Warren thinks

With Wall Street in chaos, Fortune naturally went to Omaha looking for wisdom. Warren Buffett talks about the economy, the credit crisis, Bear Stearns, and more.

If Berkshire Hathaway's annual meeting, scheduled for May 3 this year, is known as the Woodstock of Capitalism, then perhaps this is the equivalent of Bob Dylan playing a private show in his own house: Some 15 times a year Berkshire CEO Warren Buffett invites a group of business students for an intensive day of learning. The students tour one or two of the company's businesses and then proceed to Berkshire (BRKA, Fortune 500) headquarters in downtown Omaha, where Buffett opens the floor to two hours of questions and answers. Later everyone repairs to one of his favorite restaurants, where he treats them to lunch and root beer floats. Finally, each student gets the chance to pose for a photo with Buffett.

Direct Link - What Warren thinks

5th Annual Whitman Day: Breakfast Panel with Martin Whitman and Richard Haydon

Collectively, Martin J. Whitman ’49 BS and Richard Haydon ’66 BA (A&S) have a century of Wall Street experience—and that fact is evident in the wisdom and insight revealed in this wide-ranging panel discussion. Whitman, founder and co-chief investment officer of Third Avenue Management, and Haydon, a managing director with Neuberger Berman, treat members of the Central New York financial community to a no-holds-barred conversation on investing and current economic developments, including the housing/mortgage crisis, the concerted raid on Bear Stearns, and green investments. The discussion was moderated by J. Daniel Pluff, host of WCNY’s “Financial Fitness." The breakfast panel was part of the 5th annual Whitman Day celebration in the Whitman School of Management.

Direct Link - 5th Annual Whitman Day: Breakfast Panel with Martin J. Whitman and Richard Haydon

David Dreman : Looking Beyond the Bailout

Frightening as the markets look today, there will come a time when the liquidity crisis ends and today's prices for bank stocks look, in retrospect, like bargains.

Direct Link - Looking Beyond the Bailout

David Dreman on WealthTrack, 4-11-08

WealthTrack scans the globe for investment opportunities with OppenheimerFunds' Global Fund manager Rajeev Bhaman. He'll be joined by one of the deans of value investing, David Dreman and insurance expert Kim Lankford of Kiplinger's Personal Finance magazine.

Here is video link and transcript. (Only available for 2 weeks)
Or you can download the video (MP4 Format) here (Right Click and Save as..).

Robert Rodriguez's Links

For the 12-month period ended on Feb. 29, 2008 , Robert Rodriguez's fund lost 5.2%, while the S&P500 lost 3.6%. For the 5-year period, his fund average 15.73% annually, and S&P gained 11.64%; over the last 20 years, the fund averaged 15.53, beating S&P500 by more than 5.5% per year.

How did Robert Rodriguez sensed the bubble in financial sector? We looked into his shareholder letters over the past years, here we like to review these letters and hopefully all of us can learn something from it and can avoid future bubbles.

• Review of Robert Rodriguez’s Commentaries and Speeches
• Bob Rodriquez's Gloomy View
• Robert Rodriguez : Crossing the Rubicon
• FPA's Rodriguez Keeps His Powder Dry And Outperforms In Sell-Off
• How Fund Manager Didn't Lose a Bundle

Light-Years Ahead of the Crowd: Interview With Jim Rogers

Jim Rogers has a severe case of wanderlust. The longtime investor and author, whose books include Investment Biker and Adventure Capitalist, also has a new address: Singapore. Rogers recently moved his family to the island state from New York because he wants his young daughters to learn to speak fluent Chinese, which will be crucial in this century, he says.

Direct Link - Light-Years Ahead of the Crowd: Interview With James B. Rogers, Private Investor.

Whitney Tilson: Let the herd stampede first before making your move

Whitney Tilson's latest article on FT's Inside Curve column.

Without doubt, timely and democratic access to financial and market information contributes to smoothly functioning financial markets. But it’s worth asking whether the ubiquity of such information today is a friend or foe of sound investment decision-making. For all but the most active professional traders, the answer is often “no”.

Direct Link - Let the herd stampede first before making your move

Mark Sellers : Take financial talking-heads with a grain of salt

Mark Sellers's latest article on FT's Inside Curve column.

Everyone acts in his or her self-interest. This is a key facet of humanity, and keeps our society moving forward. Think about that the next time you make an investment decision. As an investor, it is in your interest for your portfolio to do as well as possible with the least risk possible. Unfortunately, this is not the goal of most of the people you may rely on for news and advice.

Direct Link - Take financial talking-heads with a grain of salt

Leon Cooperman - Chasing Opportunities

Despite recent concerns facing Wall Street, some investors are saying opportunity remains, with Leon Cooperman, Omega Advisors Chmn. & CEO and CNBC's Maria Bartiromo.

Video Link - Chasing Opportunities.

Whitney Tilson's Presentation on the Housing Crisis

Here is video link or you can watch directly below. (About 100 minutes)

Bruce Greenwald : "Value Investing Frameworks and Business Analytics"

The talk, titled, "Value Investing Frameworks and Business Analytics" was delivered by Prof. Greenwald to an audience of 220 guests from the Indian investment community at Hotel Taj President in Mumbai On January 8.

Related Links :

• Bruce Greenwald's Talk on Value Investing
• Value Investing Frameworks and Business Analytics. (PDF)

Buffett tips off MU crowd

Billionaire investor Warren Buffett takes part in a question-and-answer session with business college students during the “Emerging Issues and Trends in Real Estate” forum and educational conference yesterday at the Trulaske College of Business at the University of Missouri. Buffett called the Federal Reserve bailout of the nation’s fifth-largest investment bank a wise move that prevented a potential economic disaster, but he counseled caution in government efforts to stimulate the economy.

Article Link - Buffett tips off MU crowd.

Peter Lynch: Upsides of a Down Market

Listen to interviews with Fidelity mutual fund portfolio managers as they share investment strategies, expectations and market analysis.

Video Link - Peter Lynch: Upsides of a Down Market.

Take the Leap: Overcoming Uncertainty with the Principles of Persuasion

"I think there is a clear sense of uncertainty prevailing these days," observes Robert Cialdini, a professor of marketing and psychology at Arizona State University. "It's 50-50 right now as to whether we're going to end up in a recession or not. Some say we will, some say we won't. And for those who do think there will be one, there's uncertainty as to how long it will last -- whether it will be shallow or deep."
...

Direct Link - Take the Leap: Overcoming Uncertainty with the Principles of Persuasion.

Richard Pzena - Surviving the Cycles of Investing

Pzena says there were only eight years in the last 40 when you would've been down 20% using a simple value approach. (For purposes of his discussion, he used a simple value strategy of buying stocks only in the lowest quartile of the market ranked by price to book. But the point applies to all us cost-conscious investors.) We just suffered through one of them - with the S&P 500 and Dow Jones industrial average dropping 20% from top to trough.

One obvious conclusion from looking at the data, if you are a value-minded sort like me, is to shrug off the bad times and say, "Who cares?" It's no accident that most people can name the big bottoms (1974, 1982, 1990...). It's because they are relatively infrequent. Plus, the long-term return on value stocks over the full 40 years more than made up for them.

"The problem is," as Pzena says, "when you're losing 20%, it doesn't feel very good." You start to question what you're doing. You start to wonder, Can I avoid those 20% down periods? Should I avoid them?"

...

• Richard Pzena - Surviving the Cycles of Investing (PDF)
• Chris Mayer : Are We in a Recession Now?
  

Whitney Tilson: The worst is yet to come – time to flee to quality

Whitney Tilson's latest article on FT's Inside Curve column.

Recent announcements on manufacturing activity, household income and employment have made it painfully clear that the US economy is struggling. For investors, however, the relatively arcane debate over whether we are in a recession or not is largely irrelevant. Today’s stock prices discount future expectations, and it is the extent to which reality ends up exceeding or falling short of those expectations that drives future stock performance.

In tackling the more relevant question – “where does the economy go from here?” – I should point out that I don’t usually spend much time on macroeconomic forecasting. It is difficult to get right and generally my time is more productively spent focusing on a bottom-up analysis of individual companies’ prospects. If one takes the long-term view that the US economy is resilient and will continue to grow over time – as I do – it is the company-by-company calls that will determine investing success or failure.

From time to time, however, some macroeconomic trends – especially when they seem to be underappreciated by the market – are too important not to factor into our investing strategy.

...

Direct Link - The worst is yet to come – time to flee to quality.

Bloomberg Interview with Jean-Marie Eveillard

Video Link - Bloomberg Interview with Jean-Marie Eveillard.

Berkowitz Sees Volatility As An Opportunity

"Volatility equates to opportunity and not risk," said Bruce Berkowitz, one of the fund's FAIRX three managers. "Risk is the chance for a permanent loss. This is the kind of environment that Warren Buffett has been patiently awaiting for many years."

Direct Link - Berkowitz Sees Volatility As An Opportunity.

Betting Big, Winning Big: Interview With Bruce Berkowitz

Barron's: You run a very concentrated portfolio, with the top 10 holdings of the Fairholme Fund accounting for roughly 70% of the assets. Why is that?

Berkowitz: If you can buy more of your best idea, why put [the money] into your 10th-best idea or your 20th-best idea? If we're confident in what we do, then that's the way we should do it. The only reason not to is a fear of being wrong. The more positions you have, the more average you are.

How do you go about mitigating risk in such a concentrated portfolio?

We consider risk to be the chance of permanent loss, as opposed to volatility. Volatility is more of an opportunity. There's nothing better than a one-time event that allows you to buy a reasonable company at a great price. So we are looking at the chance -- in terms of risk -- of a permanent loss, based upon our own security research.

Direct Link - Betting Big, Winning Big.

Fairholme's Bruce Berkowitz discusses WellCare and Sears

Bruce explains his case for owning SHLD, a FAIRX core holding. Bruce follows Buffett’s mantra of “be greedy when others are fearful”.

Video Link - Fairholme's Bruce Berkowitz discusses WellCare and Sears.

How value investor Chou wins with bonds

Mr. Francis Chou’s method can be boiled down to a few principles. As he wrote in his 2007 report to unitholders, “the cardinal principle of investing is to think first about preserving capital before thinking about making money. The greater the probability of permanent loss of capital, the greater the spread should be between a particular debt instrument and risk-free treasuries.”

Direct Link - How value investor Chou wins with bonds.

Notes From A Conversation with Munger at Caltech in Pasadena

Charlie : I love Occum's Razor (Wikipedia). Einstein once said make everything as simple as possible, but not simpler. In the field of messy social sciences, use a variety of disciplines and look for a confluence of factors when dealing with "lollapaloozas". (significant and strange events, black swans)

For example, I was fascinated about what made people join Moonies, a cult-like group. It didn't make sense until I ran into Pavlov, who experimented on dogs by pushing them to nervous breakdowns (He did this by locking them in cages and then raising the water level up to mouth height, making them think they were about to drown) . Afterwards, they would act in the complete opposite fashion. This was very similar to one of the Moonies conversion methods: "causing the target to snap".

Direct Link - Notes From A Conversation with Munger.

Interview with Chris Davis and Ken Feinberg of The Davis Funds

Morningstar chats with Chris Davis and Ken Feinberg of The Davis Funds.

• Buffett Practitioners at Work
• In part one , they talk some of the tenets of their investment philosophy as well as how they think about assessing management teams.
  
• Stock Picks from the Davis Funds
• In part two of my chat, we discuss their ideal time horizon as well as one of the stocks in my portfolio, and one on my watch list.
• Talk Insurance Stocks with the Davis Funds
• In part three of my chat with Chris Davis and Ken Feinberg of The Davis Funds, we discuss their thoughts on some elements of the current credit crunch, as well as their take on a couple of insurance stocks I've had on my watch list. Both AIG (the top stock on my watch list) and Progressive have delivered great returns for their shareholders over the last few decades, and now both have somewhat attractive valuations.
• The Davis Funds Team on the Credit Markets
• In part four, the final segment of my chat with Chris Davis and Ken Feinberg of The Davis Funds, we discuss their take on the credit markets, given their portfolio's large weighting in the financial-services sector. In addition, we also touch on two other investments: Sprint Nextel (S) and Canadian Natural Resources (CNQ).
  

Warren Buffett Answers Your Emails on Squawk Box: Transcripts

These are transcripts of Warren Buffett's series of live appearances this morning (Monday, March 3) on CNBC's Squawk Box.

• Full Transcript (PDF)
  
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 1)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 2)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 3)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 4)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 5)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 6)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 7)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 8)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 9)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 10)
• Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 11 and Final)

Warren Buffett on CNBC's Squawk Box, 3-3-08

This is a live blog of Warren Buffett's appearance on CNBC's squawk box during the 6am et hour. Buffett is live at the Nebraska Furniture Mart (a Berkshire Hathaway subsidiary) in Omaha with our Becky quick to answer your email questions.

Related Links :

• LIVE BLOG: Warren Buffett on CNBC's Squawk Box - 6am ET Hour
• LIVE BLOG: Warren Buffett on CNBC's Squawk Box - 7am ET Hour
• LIVE BLOG: Warren Buffett on CNBC's Squawk Box - 8am ET Hour
• Warren Buffett to CNBC: U.S. Economy in Recession By "Common Sense Definition"

Buffett's Words of Wisdom - 2007 Annual Letter

Warren Buffett's 2007 annual letter to Berkshire Hathaway shareholders comes out.

Related Links :

• 2007 Annual Letter (PDF)
  
• Whitney Tilson on Buffett's annual letter
• Andrew Kilpatrick, a Warren Buffett biographer, and Robert Miles, author of "The Warren Buffett CEO," discuss the Sage of Omaha.
  
• Buffett's Bets - Mohnish Pabrai
• A take on Warren Buffett's famed investor letter, with Mark Hake, Hake Capital Mgmt.; Mohnish Pabrai, Pabrai Investment Funds; and CNBC's Maria Bartiromo.

Whitney Tilson's recent video clips , Feb. 2008

• Whitney Tilson on Fox Biz News, 2-22-08
• Whitney Tilson onTarget, Sears Holdings and Merrill's downgrade of Fannie Mae and Freddie Mac.
  
• Bottom Fishing for Retail Stocks
• Opportunities in retail, with Whitney Tilson, T2 Partners & Michael Farr, Farr, Miller & Washington.
  
• Whitney Tilson on 13-F filings, 2-13-08
• The Fast Money traders, along with Whitney Tilson, of T2 Capital Partners, look ahead to 13-F season.
  
• Whitney Tilson on retailers, Sears Holdings, 2-8-08
  

Video Conference with Walter J. Schloss, CFA

“Mr. Schloss started on Wall Street in 1934, at the age of 18, in the midst of the depression (working for Loeb Roades, then called Carl M. Loeb & Co). During the late 1930’s, Schloss took courses from Benjamin Graham at the New York Stock Exchange Institute. He was in good company. His fellow students included Gus Levy, head of the arbitrage department of Goldman Sachs; Cy Winters of Abraham, at one time president of the New York Society of Security Analysts; and other Wall Street heavyweights.

At the time Schloss was working at Carl M. Loeb and Company, Graham’s brother Leon was a customer’s man at the firm and Graham kept his account there, allowing Schloss to confirm that Graham did indeed practice what he preached in class. Graham hired Schloss in 1946 as soon as Walter was discharged from the service” (from “Value Investing” by Greenwald, Kahn, Sonkin and van Biema, 2001, p. 265). The rest is history.

Mr. Schloss started his limited partnership in the middle of 1955. In 1963, he earned the Chartered Financial Analyst designation. Waller’s son Edwin joined the partnership in 1973 and the fund changed its name to Walter & Edwin Schloss Associates. Over the period 1956 to 2000, Mr. Schloss and his son Edwin provided investors a compounded return of 15.3% compared with the S&P 500’s annual compounded return on 11.5%.

Video Link - Video Conference with Walter J. Schloss, CFA.

A Portfolio Warren Buffett Would Love - Interview with Bruce Berkowitz

Bruce Berkowitz recently spoke with U.S. News about why diversification is overrated, how volatility is opportunity, and whether Sears Holdings can be the next Berkshire Hathaway. Excerpts:

How does this investment approach differ from others?

In business school, you're taught that diversification is very important. But really, when you think about it, diversification has to do more with ignorance. If you are highly confident in your top five positions, why should you put more in your 10th position if you could put more in your best idea? Secondly, business schools teach that risk is volatility. We think volatility is opportunity. For example, if you follow the business school formula, when something goes down 50 percent in price, it's considered riskier. Personally, I would say it's considered safer—you're paying half.
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Direct Link - A Portfolio Warren Buffett Would Love.

Mark Sellers: Take advantage when good companies come to market

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A future IPO that I’m excited about is Visa, which plans to go public this year and is certainly a wide-moat company (even more so than Mastercard) and has oodles of operating leverage. It remains to be seen whether analysts will underestimate its potential or not. I will be sure to comment on this in future columns, when the IPO date is announced.

Direct Link - Take advantage when good companies come to market.

Good Teachers, Great Students - Interview With David Winters

Barron's: The markets are off to a lousy start in 2008. The Standard & Poor's 500 is down about 8%, and bond spreads have widened considerably. Is this any way to greet a new year?

Winters: We view this as a gigantic after-Christmas sale. There has been a lot of indiscriminate selling at any price. Certainly, some securities and companies have been adversely affected by what has been going on, and these are securities to avoid. But almost everything has been tarred with the same brush. We continue to be very careful about what we are buying. We want to buy companies that generate a lot of free cash flow that's growing; have even more attractive prices these days, and are run by people who are motivated to do the right things for all shareholders. So we view this recent period in a very constructive manner. To have markets just go up all the time doesn't help a long-term investor.
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Direct Link - Good Teachers, Great Students.

Whitney Tilson on WealthTrack, 2-22-08

What are some of the most expensive mistakes that investors can make in the current market? On hand to dispense advice to WealthTrack viewers will be Barron's Online Editor Randall Forsyth, value investor Whitney Tilson and Consumer Reports Personal Finance Columnist Amanda Walker.

Here is video link and transcript. (Only available for 2 weeks)
Or you can download the video (MP4 Format) here (Right Click and Save as..).

David Winters: It is a great time to buy cheap, 1-21-2008

David Winters appears on Bloomberg TV. He thinks it is great time to buy. David Winters also discussed tabacco stocks.

Video Link - David Winters: It is a great time to buy cheap.

Notes from Buffett Meeting, 2-15-2008

Students from Emory's Goizueta Business School and McCombs School of Business at UT Austin were invited to come visit Mr. Buffett for a Q&A session. These notes were reproduced to the best of my ability as I heard and as I could recall them from a collection of mine and other students' notes. There is no guarantee that this was exactly what was said, but the intent was to preserve the spirit of the message. Enjoy.

Emory: With the popularity of "Fortune's Formula" and the Kelly Criterion, there seems to be a lot of debate in the value community regarding diversification vs. concentration. I know where you side in that discussion, but was curious if you could tell us more about your process for position sizing or averaging down.

Buffett: I have 2 views on diversification. If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb.
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Direct Link - Notes from Buffett Meeting, 2-15-2008.

Baupost 2007 year end letter excerpt

Financial Market Cycles: When Virtuous Circles Become Vicious.

The capital markets, the economy, and Wall Street firms all experience cycles. For capital markets, the cycles consist of bull and bear markets; for the economy, boom and bust. For Wall Street firms, the cycles are of financial innovation, risk-taking, limit-pushing, and hefty compensation, followed by retrenchment, revulsion, write-offs, and layoffs.
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Direct Link - Baupost 2007 year end letter excerpt. (PDF)

Whitney Tilson: Investors will miss out if they confuse uncertainty with risk

Whitney Tilson's latest article on FT's Inside Curve column.

Dealing with uncertainty is always a key challenge for investors. But dealing with uncertainty doesn’t mean avoiding it – on the contrary, it is often fuzziness about a company’s future that creates the type of opportunity bargain-hunting investors cherish.
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Direct Link - Investors will miss out if they confuse uncertainty with risk.