Robert Olstein - Conversation with a Money Master: Free Cash Flow and Quality of Earnings

This webcast link is from CFA Institute.

In this webcast, Robert A. Olstein discusses the following:

• Valuation and inferential financial statement analysis
• Free cash flow
• Quality of earnings

Direct Webcast Link.

Wally Weitz letter

It is no wonder that investors are confused and frightened. Huge, well-known financial institutions have faced embarrassing losses (or worse) and the viability of whole industries (e.g. mortgage insurance and bond insurance) has been questioned. Everyone—lenders, borrowers, investors, speculators, regulators and rating agencies—played a part in creating the financial crisis. Every corner of the financial world is affected, yet the dimensions of the future losses are not yet measurable. Lenders and borrowers are hesitant to do business with each other, and the financial markets are not functioning normally.

In this environment, the stocks of companies with real problems have been punished severely. Unfortunately, the stocks of many other companies that have been impacted in minor or temporary ways have also been subject to heavy selling pressure. The potential rewards for successfully navigating this kind of market are great. However, to earn these rewards, investors must have the courage of their convictions so they can stick with their investments during extended periods of uncertainty. This can be painful.

Some people do not have the temperament for investing in markets like this, and they would probably be better off owning Treasury Bills or a government securities money market fund (we offer one). There is no shame in staying on the sidelines if that allows one to sleep well. Peace of mind is important.

For those with the courage and patience to buy good assets when nobody else wants them or can afford to buy them, we think this is a very good time for investing. Terrific assets and companies with strong franchises are available at very attractive prices. We believe that it takes very little imagination to envision the possibility of 50% appreciation in most of our stocks over the next 2-3 years.

Direct Link - Portfolio Manager Letter–Value, Hickory, Partners Value, Partners III Opportunity.

Jean-Marie Eveillard on WealthTrack

Has the Fed staunched the bleeding of the wounded financial markets with its historic three-quarters of a percent interest rate cut? And how should individual investors react to the falling markets this month? On hand to guide us will be legendary global value investor Jean Marie Eveillard of First Eagle Funds, Pimco's bond guru Paul McCulley and Merrill Lynch's top investment strategist, Richard Bernstein.

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 Dreman Expects 'Major Losses' for Bond Insurers

David Dreman, the 71-year-old value investor, said he bought more shares of financial institutions after the industry's worst annual performance since 1990 created a ``major opportunity.''

The investor said he increased his stakes in Bank of America Corp. and Wachovia Corp. near the end of 2007. The Standard & Poor's 500 Financials Index tumbled 15 percent in the fourth quarter, giving it a 21 percent loss for the year. Bank of America fell 18 percent and Wachovia lost 24 percent in the final three months of 2007.

``There was panic in the market towards the end of the year and a lot of them went down far too much,'' Dreman, who oversees $20 billion at Dreman Value Management LLC, said during an interview with Bloomberg Television. ``There will be a turn, and this is probably a major opportunity in financials, probably one of the best in the last 15 years.''

• Article Link - David Dreman Expects 'Major Losses' for Bond Insurers.
• Video Link.

David Dreman : Tug of War

Last year I got the overall market call nearly dead-on. I forecast an S&P 500 total return of 5% (it did 5.5%) and a 10% correction along the way (the index was down 9.9% between Oct. 9 and Nov. 26). I predicted that large stocks would outperform their small- and midcapitalization brethren for the first time in seven years; the Russell 2000 index of smaller stocks underperformed the big-company S&P by 7.1 percentage points.

I didn't do well with my stock picks, which included a heavy dose of financial stocks. My 24 picks, including 7 held over from 2006, fell an average 7.5%, after hypothetical trading costs; had you put the same amounts on the same dates in the S&P (without costs), you would have had a gain of 1.2%. It was the end of a good streak for me. Over the preceding six years (through the end of 2006), my recommendations increased an average 7% annually, triple what shadow investments in the S&P 500 would have done. Put back dividends--these aren't included in the forbes computations--and I would have scored significantly better.

Article Link - Tug of War.

Experience - Walter Schloss

At 91, the man Warren Buffett famously dubbed a "superinvestor" is still picking unloved stocks.

Walter Schloss has lived through 17 recessions, starting with one when Woodrow Wilson was President. This old-school value investor has made money through many of them. What's ahead for the economy? He doesn't worry about it.

A onetime employee of the grand panjandrum of value, Benjamin Graham, and a man his pal Warren Buffett calls a "superinvestor," Schloss at 91 would rather talk about individual bargains he has spotted. Like the struggling car-wheel maker or the moneylosing furniture supplier.
...

"Well, look at that," he says brightly, while scanning the paper. "A list of worst- performing stocks."

Article Link - Experience.

Mark Sellers : Bearish signals could be good news for stocks

They say you make your money in a bear market, you just don’t know it at the time. If that’s true – and I believe it is – then the current market turmoil is pretty important to investors. We’re getting a chance here to do something smart while others are panicking. The problem is, two of my preferred indicators for guessing the direction of the market are giving opposing signals right now.
...

• First, the bullish argument.
• The second contrary indicator I use is my clients.
• The third and final contrary indicator I use is Yahoo Finance.
  

Article Link - Bearish signals could be good news for stocks.

George Soros : The worst market crisis in 60 years

The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.

However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.

Article Link - The worst market crisis in 60 years.

Related Links :

• George Soros - The World Economic Forum
• Discussing the economic issues of 2008 in Davos, Switzerland, with George Soros, Soros Fund Management; Larry Summers, former Treasury Secretary & CNBC's Maria Bartiromo.
• Soros calls for global markets oversight
• View from the Top, George Soros
  

Barron's 2008 Roundtable Part 3 - What Now?

YES, OUR ROUNDTABLE MEMBERS EXPECTED the stock market to struggle in this year's first half. But nearly collapse in its first month? That wasn't in anyone's playbook when we gathered on Jan. 7 for our annual gabfest about all things investment-related. And yet, the Dow industrials have plummeted 8% since the start of 2008, the Nasdaq Composite, 12%. Fearing a recession, the Federal Reserve has lopped a fat three-fourths of a percentage point off its short-term interest-rate target, while Washington has cooked up a "stimulus" package to put cash in consumers' pockets. And overseas marts, from Brazil to Germany to India, have tanked by double digits. So much for the hope that the rest of the globe had "decoupled" from America's problems -- a notion, you might recall, that our experts scoffed at in these pages two weeks ago.

Given last week's carnage, we thought it wise to check in again with the five investment pros whose picks and pans for the new year are featured in this final Roundtable installment. What, we wondered, do Felix Zulauf, Abby Joseph Cohen, Marc Faber, Archie MacAllaster and Scott Black make of the mighty downdraft in shares, and what might it portend?

Direct Link - What Now?

Barron's 2008 Roundtable Part 2 - Getting Defensive

NO WIMPS ALLOWED IS THE UNSPOKEN rule at our annual Roundtable. That's because the leading investment lights we assemble each January must make the case for their picks, pans and predictions not only to the editors of Barron's but each other, a legendary tough crowd. This year; especially, few assumptions were left unchallenged, perhaps because spot-on stock-picking will have to do the heavy lifting if the group's gloomy economic and market forecasts prove prescient. Alas, since we met in Manhattan Jan. 7, they have.

Art Samberg, founder and chief of everything at Pequot Capital Management in Westport, Conn., is first up in this week's Roundtable installment, the second of three. Art made his name in tech, but makes his clients money wherever he finds value, which currently includes Turkey and Brazil. His '07 picks, in the main, were something to e-mail home about, and the savvy analysis that informs his latest recommendations -- in energy, technology and media -- helps explains why.

Fred Hickey, who pens the High-Tech Strategist newsletter in Nashua, N.H., is a belt-and-suspenders investor these days, with a particular fondness for gold. He probably should have worn a helmet, too, when he was forced to defend a pair of tech shorts, since similar recommendations made last year haven't worked out -- yet. Then again, Fred has been there before, loudly warning investors away from "can't miss" stocks that later missed.

The U.S. housing market is in a bit of a pickle; new-home construction plunged last year to a near-three-decade low. Not that that stopped Meryl Witmer, a partner in New York's Eagle Capital Partners, from heaping praise on a pair of housing-related concerns at our latest confab. With her knack for research and nose for numbers, Meryl time and again looks beyond the obvious, which has made her one of today's most successful -- and admired -- investors.

Mario Gabelli, head of Gamco Investors in Rye, N.Y., is the closer this week, with nine picks on both sides of the Atlantic and an 18-year-old bottle of Scotch, another of his annual Roundtable props. His investment ideas, which range from auto parts to satellites to food and drink, need no propping up, however, given Mario's expertise in both deals and steals.

The Roundtable's other members chimed in early and often as these four went to work. If two opinions make a market, 11 make for energetic and entertaining debate.

Direct Link - Getting Defensive.

Michael Mauboussin : ROIC Patterns and Shareholder Returns

Michael Mauboussin's latest article about "ROIC Patterns and Shareholder Returns : Sorting Fundamentals and Expectations".

From Modeling to Making Money

Our recent piece, “Death, Taxes, and Reversion to the Mean” 2, aimed to provide
context for analysts building financial models by documenting return on invested capital (ROIC) patterns for a large sample of companies. But the report was silent on the question most relevant for investors: Does an understanding of ROIC patterns help with stock picking? This piece addresses that question.

Three main points emerged from the analysis of ROIC patterns. First, analysts need to consider the lessons of history when modeling rather than approaching each model as unique. Analysts should view the experience of a large sample of companies as a rich reference class. Second, the empirical evidence shows ROICs tend to revert to the mean, a level similar to the cost of capital. Randomness plays an important role in the mean-reversion process. Finally, some companies do deliver persistently high or low results beyond what chance would dictate. Unfortunately, pinpointing the causes of persistence is a challenge.

In an efficient market, stock prices are an unbiased estimate of value. Market efficiency does not say that stock prices are always right; it only asserts that prices are not wrong in a systematic way. For this analysis, we combined our data on ROIC patterns with total shareholder returns to see whether there is a consistent way to generate excess returns.

Direct Link - ROIC Patterns and Shareholder Returns : Sorting Fundamentals and Expectations. (PDF)

Chris Davis on WealthTrack

A WealthTrack television exclusive this week. Wall Street's third generation value investor Christopher Davis will join us along with Charles Maxwell, considered the dean of Wall Street energy analysts, and Martin Fridson, expert on the faltering high yield bond world. On the agenda will be such topics as the possibility of a U.S. recession and a growing number of corporate defaults, the price of oil and energy stocks, and where the real value is to be found in the market.

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..).

In Their Own Worlds - Morningstar Conversation with Jean-Marie Eveillard and Marty Whitman

Morningstar Conversation: Jean-Marie Eveillard of First Eagle and Marty Whitman of Third Avenue (August 22, 2007) .

Jean-Marie Eveillard and Marty Whitman met in 1990 shortly after Whitman launched what would become his signature fund, Third Avenue Value TAVFX. They were two kindred spirits on a conference panel with a third portfolio manager, who was speaking about financial theories and hypotheses.

"He was talking in a language that was completely different from ours," Eveillard says. "Martin and I chatted afterwards about the fact that it was good that the other was there, because we simply didn't speak the same language as the third guy."

Links:

• Conversation: Jean-Marie Eveillard and Marty Whitman
  
• In Their Own Worlds (PDF)
• Video Link
• Not the Language We Speak
• Value Investor's Edge
• Our Shortcomings
• My Daughter, the Broadway Producer
• No Pain, No Gain
• Handling the Redemption Period
• A Lesson on Limited Partnerships
  

Whitney Tilson: Strong stomach? Concentrate that portfolio

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

As in most subjects relating to money management, there’s a wide diversity of opinion on portfolio concentration versus diversification. Few, of course, would argue for the extremes: owning only one or two stocks invites potential disaster (ask those whose entire retirement portfolio consisted of Lucent or Enron stock), while owning hundreds makes it very difficult to outperform the market.

Direct Link - Strong stomach? Concentrate that portfolio.

James Altucher : Manage your anger and spot opportunities

It's easy to get angry at the markets. And the consequences of doing so can be just as painful. At present, the markets are down horribly on the year. I say "horribly" because the year has just started.

Direct Link - James Altucher : Manage your anger and spot opportunities.

Investor's HOTLINE Interview with Mark Sellers

Here is the interview that Joe Bradley, founder of Investor’s HOTLINE, conducted with Mark Sellers, managing member of Sellers Capital, LLC, and portfolio manager for the Sellers Capital Fund.

You can listen to Mark’s explanation of what traits make a great investor, how conviction and other emotions impact the investment process, and which strategies average investors should consider utilizing. He also discusses his own investment approach, names some of his favorite picks and issues cautions on some past favorites. Mark tells what he is not buying and why, and he warns listeners about a common pitfall for value investors that he must watch himself.

Direct Link - Investor's HOTLINE Interview with Mark Sellers

Barron's 2008 Roundtable - After the Deluge

DON'T LET THESE MOSTLY SMILING FACES fool you. We just as easily could have called the opening installment of the 2008 Roundtable "Before the Deluge"-that is, before the great unwinding of a quarter-century of excesses that our panelists, to a one, predict will set the investment tone for much of this year. Their forecasts for the U.S. economy are particularly sobering: a recession, or growth so tepid it will feel like one. Fortunately, their expectations for the U.S. stock market are considerably more upbeat, especially for the second half of the year.

This year's Roundtable met Jan. 7 in lower Manhattan, amid unseasonably balmy weather -- except for the blizzard of sell orders that morning, just down the Street. Drilled and grilled 'til well past dark by Barron's editors, our latest crew of 11 money managers and market seers shed copious light on subjects that ranged from inflation to interest rates to sovereign wealth funds and the price of breakfast in Paris. (Did we mention the Giants-Cowboys game?) One minute we were all in the 1960s, debating Kennedy-style tax cuts to help the middle class. Then it was on to the '70s; predictions of stagflation tend to do weird things like that. A year ago, you read nary a word about that eight-letter word "subprime." This year, you'll read lots about the nation's mortgage mess, and the folks who brought it to you.

Direct Link - After the Deluge.

Whitney Tilson's recent video clips

• Whitney Tilson on Citigroup's earnings release
• Whitney Tilson on Citigroup's earnings release, Fox Biz News, 1/15/08.
• Whitney Tilson on Berkshire, Fairfax & McDonald's
• Whitney Tilson on Berkshire Hathaway, Fairfax & mcdonald's, CNBC Fast Money, 1/16/08. (Funds managed by Whitney Tilson are long Berkshire Hathaway.
  

Morningstar Interview with Larry Pitkowsky of the Fairholme Fund

• Part-1 : Betting on the Jockey

• In late 2007, Morningstar interviewed Larry Pitkowsky of the Fairholme Fund (FAIRX). In part one, he discuss Fairholme's focus on "betting on the jockey" as well as the role that cash plays in their portfolio construction.
  
• Part-2 : Digging Deeper into a Large-Cap Fund Pick
• In part two of our discussion, we dig deeper into the Fairholme Fund's search strategy and portfolio construction, which has several similarities to my approach in managing the Morningstar Ultimate Stock-Picker's Portfolio. We also touch on two asset-rich companies that have recently migrated onto my watch list.

Whitman, Zucaro Sweat Out Drop by Mortgage Insurers

Marty Whitman and Al Zucaro, stock pickers with a knack for buying low, may be dripping in sweat after they snapped up U.S. mortgage insurers that shed more than 40 percent of their value in the past three months.
...

``While the near-term situation may seem dire, we are patient, long-term investors willing to ride out short-term volatility,'' Whitman's company said in a Dec. 28 filing. Financial insurance companies, including Radian, MGIC and bond insurer MBIA Inc., were less than 4 percent of holdings in the Third Avenue Value Fund as of Oct. 31. The fund had assets of more than $11 billion on Dec. 31. Whitman didn't respond to requests for comment.

Direct Link - Whitman, Zucaro Sweat Out Drop by Mortgage Insurers.

Bloomberg Interview with Jean-Marie Eveillard

Jean-Marie Eveillard, who helps oversee $35 billion as a portfolio manager at First Eagle Funds at Arnhold & S. Bleischroeder Advisers, talks with Bloomberg's Carol Massar in New York about his investment strategy and the outlook for financial stocks, the impact of Federal Reserve monetary policy on the economy, and his recommendation of Cintas Corp.

Here is video link or you can watch directly below.

David Winters and James Grant on WealthTrack

We greet the New Year with two top portfolio managers and a highly-respected observer of the financial scene. BlackRock’s Chief Investment Officer and three fund manager, Bob Doll will be back to share his usually prescient predictions and strategies for the New Year. The Wintergreen Fund’s David Winters will tell us why he continues to emphasize international investing. And Jim Grant, the Editor of Grant’s Interest Rate Observer will pull no punches about the outlook for the credit markets in 2008.

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..).

Opportunity Amid the Ruins - Barrons Interview with Richard Pzena

Richard Pzena, Founder, Co-Chief Investment Officer, Pzena Investment Management.

IT'S BEEN A DREADFUL YEAR FOR NOTED VALUE MANAGER Rich Pzena, whose funds lost money in 2007, while shares of his newly public management company (ticker: PZN) sank to 12 from more than 22. Blame it in part on the manager's fondness for financial stocks, which had an even more dismal year -- and which account for 40% of Pzena Investment Management's assets. Then there's a shareholder lawsuit, charging Pzena failed to disclose outflows from the John Hancock Classic Value Fund (PZFVX), which he also manages, when the firm went public. Pzena says the suit has no merit.

Article Links :

• Opportunity Amid the Ruins - Part 1
• Opportunity Amid the Ruins - Part 2
  

Buffett's Bond Venture

Warren Buffett's brand-new municipal bond insurer, Berkshire Hathaway Assurance Corporation, has sold its first coverage, backing a $10 million bond issued by New York City yesterday. Ajit Jain, who runs Berkshire's insurance businesses, tells the New York Times, "We're tip-toeing into the market, doing very small deals. We want to see if we can get the pricing that we find acceptable to us. Once we find this is real, we'll put in a lot more capital." He also describes how a call from a New York regulator played a key role.

Related Links:

• Warren Buffett's Muni Bond Insurer "Tip-Toes" Into Market With $10M NYC Bond
• Berkshire Hathaway's Jain Tells CNBC He's Talking "Right Now" With Bond Insurers About Possible Purchase or Partnership
• Buffett's Bond Venture Part 1 (Fox)
• Buffett's Bond Venture Part 2 (Fox)
• WSJ : Buffett to Start A Bond Insurer
  

Jean-Marie Eveillard on WealthTrack

In a rare appearance, two financial legends join Consuelo Mack to discuss investment philosophy and strategy. Jean-Marie Eveillard, who recently came out of retirement to retake the helm of First Eagle funds talks about his lessons learned as one of the world's best value investors. And, in a television exclusive, financial guru, risk expert and best selling author Peter Bernstein shares a secret of the modern money masters: the most important question an investor can ask to achieve financial success.

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..).