Peter Lynch: Upsides of a Down Market

Peter LynchListen 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

Richard Pzena

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?"


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

Whitney TilsonWhitney 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

Jean-Marie EveillardVideo Link - Bloomberg Interview with Jean-Marie Eveillard.

Berkowitz Sees Volatility As An Opportunity

Bruce Berkowitz

"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

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 BerkowitzBruce 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

Francis Chou

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 Munger

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

Chris DavisMorningstar 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

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

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

Warren Buffett

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.

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Buffett's Words of Wisdom - 2007 Annual Letter

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

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Whitney Tilson's recent video clips , Feb. 2008

Whitney Tilson

Video Conference with Walter J. Schloss, CFA

Walter Schloss

“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 BerkowitzBruce 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.

Direct Link - A Portfolio Warren Buffett Would Love.

Mark Sellers: Take advantage when good companies come to market

Mark Sellers

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

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.

Direct Link - Good Teachers, Great Students.

Whitney Tilson on WealthTrack, 2-22-08

Whitney Tilson

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 WintersDavid 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

Warren Buffett

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.

Direct Link - Notes from Buffett Meeting, 2-15-2008.

Baupost 2007 year end letter excerpt

Seth Klarman

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.

Direct Link - Baupost 2007 year end letter excerpt. (PDF)

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

Whitney TilsonWhitney 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.

Direct Link - Investors will miss out if they confuse uncertainty with risk.

Seth Klarman's Talk at MIT

Seth Klarman

Baupost Group’s Seth Klarman is not only one of the most able practitioners of value investing, he is also one of the discipline’s most articulate advocates - as evidenced by this recent speech at M.I.T.

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Tom Russo on WealthTrack, 2-15-08

Tom Russo

As losses continue to mount at banks and other financial institutions in the U.S. and abroad, what is the outlook for the world's financial markets? What, if anything should individual investors be doing in response? Here to answer those questions and more will be global investor Tom Russo, Annaly Capital Management's Michael Farrell and veteran Wall Streeter Muriel Siebert, former Superintendent of Banking for New York State, now head of the discount brokerage firm that bears her name.

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..).

Wit and wisdom of Omaha's sage - Feb.07/2008

Warren Buffett

After an interview with the Financial Post, Warren Buffett, chairman of Berkshire Hathaway Inc., yesterday answered questions from some of Bay Street's top investor relations professionals. He shared more on his views on the markets, politics and the economy.

Q What are your views on the credit crunch?

A Credit has been repriced, but it has not become unavailable. There is repricing of risk and an unavailability of what I might call "dumb money," of which there was plenty around a year ago.

We first noted it big in the mortgage field. You had a situation a couple of years ago where virtually every American believed that house prices would do nothing but go up. If you've got every American believing that about any asset class, they're going to get more and more enthused about it, and borrow more and more money against it. And the lenders believed it, as well. And then you had Wall Street repackaging mortgages into unfathomable instruments that people bought to get a little bit extra yield, and now we are finding out what they own.


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Warren Buffett to CNBC - 02/12/2008

Warren BuffettIn a live telephone call to Squawk Box, Buffett offered to reinsure $800 billion in municipal bonds now insured by Ambac, MBIA and FGIC, effectively giving them a AAA credit rating.

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