Value Quest

Mauboussin on Strategy: The Failure of Arbitrage

2008-05-23T17:00:00.000+08:00

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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Markel Annual Meeting notes

2008-05-23T16:54:00.001+08:00

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

2008-05-23T16:42:00.002+08:00

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.

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

David Einhorn - Greenlight Capital 2008 Q1 Earnings Call Transcript

2008-05-23T16:35:00.001+08:00

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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.

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Direct Link - Greenlight Capital 2008 Q1 Earnings Call Transcript.

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

2008-05-23T16:32:00.001+08:00

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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.

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

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

2008-05-23T16:26:00.001+08:00

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

2008-05-23T16:21:00.002+08:00

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

2008-05-22T23:24:00.002+08:00

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

2008-05-22T23:08:00.003+08:00

CNN Interview with Bob Rodriguez

2008-05-22T22:00:00.002+08:00

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

2008-05-22T21:52:00.002+08:00

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

2008-04-30T17:53:00.002+08:00

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

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Looking Up to Warren Buffett - Interview with Mohnish Pabrai

2008-04-30T17:49:00.002+08:00

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

2008-04-30T17:25:00.003+08:00

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.

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David Einhorn on WealthTrack, 4-25-08

2008-04-30T17:22:00.002+08:00

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"

2008-04-30T17:19:00.001+08:00

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.
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Direct Link - The Money Kept Vanishing

Doubling Down in Financials - Interview with Richard Pzena

2008-04-30T17:16:00.002+08:00

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

2008-04-30T17:10:00.002+08:00

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

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Bill Miller 2008 Q1 Value Trust Commentary

2008-04-30T17:05:00.002+08:00

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

2008-04-30T17:02:00.001+08:00

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

2008-04-30T16:57:00.002+08:00

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

2008-04-18T18:34:00.002+08:00

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

2008-04-18T18:31:00.001+08:00

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

2008-04-18T18:28:00.001+08:00

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

2008-04-18T18:21:00.001+08:00

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

2008-04-18T18:16:00.001+08:00

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.

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

2008-04-18T18:13:00.001+08:00

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

2008-04-18T18:10:00.001+08:00

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

2008-04-18T17:19:00.001+08:00

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

2008-04-18T17:14:00.001+08:00

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

2008-04-18T17:03:00.002+08:00

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

Bruce Greenwald : "Value Investing Frameworks and Business Analytics"

2008-04-18T16:59:00.002+08:00

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 :

Buffett tips off MU crowd

2008-04-18T16:50:00.001+08:00

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

2008-03-31T18:51:00.000+08:00

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

2008-03-31T18:45:00.000+08:00

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

Richard Pzena - Surviving the Cycles of Investing

2008-03-31T18:38:00.001+08:00

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

2008-03-31T18:34:00.000+08:00

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

2008-03-31T18:31:00.000+08:00

Video Link - Bloomberg Interview with Jean-Marie Eveillard.

Berkowitz Sees Volatility As An Opportunity

2008-03-31T18:29:00.000+08:00

"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

2008-03-31T18:24:00.000+08:00

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

2008-03-31T18:22:00.001+08:00

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

2008-03-31T18:16:00.001+08:00

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

2008-03-31T17:57:00.001+08:00

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

2008-03-31T17:45:00.001+08:00

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

2008-03-04T18:13:00.002+08:00

These 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

2008-03-04T18:09:00.002+08:00

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 :

Buffett's Words of Wisdom - 2007 Annual Letter

2008-03-04T18:04:00.002+08:00

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

2008-03-04T17:58:00.001+08:00

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

2008-03-04T17:55:00.003+08:00

“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

2008-03-04T17:51:00.001+08:00

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.
...

Direct Link - A Portfolio Warren Buffett Would Love.

Mark Sellers: Take advantage when good companies come to market

2008-03-04T17:45:00.001+08:00

...
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

2008-03-04T17:41:00.001+08:00

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

2008-03-04T17:38:00.002+08:00

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

2008-03-04T17:35:00.002+08:00

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

2008-03-04T17:32:00.001+08:00

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

2008-03-04T17:28:00.002+08:00

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

2008-03-04T17:20:00.000+08:00

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.
...

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

Seth Klarman's Talk at MIT

2008-03-04T17:17:00.002+08:00

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.

Related Links :

Tom Russo on WealthTrack, 2-15-08

2008-03-04T17:11:00.003+08:00

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

2008-03-04T16:51:00.002+08:00

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.

...

Related Links :

Warren Buffett to CNBC - 02/12/2008

2008-03-04T16:43:00.003+08:00

In 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.

Related Links :

Buffett's Big Muni Bond Offer: CNBC Interview Transcript (Part 1)
Buffett Sees Stocks In "General Range of Fair Value": CNBC Interview Transcript (Part 2)
Buffett on Bond Insurers

Billionaire Warren Buffett, Berkshire Hathaway chairman/CEO has some plans to resurrect this industry.

Buffett on Bond Insurers 2

Business Wire Canada Opening Reception: A Conversation with Warren Buffett

2008-02-17T23:41:00.002+08:00

Title : Business Wire Canada Opening Reception: A Conversation with Warren Buffett
Date and Time : Wednesday, February 6, 2008 4:00 p.m. ET
Duration : 1 Hour 30 Minutes
Location : Toronto Board of Trade

Webcast Link - A Conversation with Warren Buffett.

Morningstar Interview with Curtis Jensen

2008-02-17T23:33:00.002+08:00

Part 1 - The Safe and Cheap Approach

Justin Fuller recently had the pleasure to sit down with Curtis Jensen, co-chief investment officer of Third Avenue Management, to discuss his firm's investment philosophy.

Part 2 - Third Avenue's Focus on the Balance Sheet

In part two of the chat, Curtis Jensen, Third Avenue Management's co-chief investment officer, talks the fund firm's focus on analyzing the balance sheet, as well as a couple of financial stocks that have recently been in the news.

Part 3 - Third Avenue's Global Focus

In part two of the chat, Curtis Jensen, Third Avenue Management's co-chief investment officer, talks the firm's global focus as well as a couple of contrarian picks.

Rich Pzena Presentation at Value Investing Congress

2008-02-17T23:30:00.002+08:00

In his presentation at last November's Value Investing Congress - and in a subsequent update - Pzena Investment's Rich Pzena described why he believed the market was overestimating the negative impact the subprime mortgage crisis would have on Freddie Mac. At $25.52 the day before the presentation, Freddie Mac shares closed yesterday at $27.14.

Bill Miller 2007 Q4 Value Trust Commentary

2008-02-17T23:22:00.002+08:00

This commentary will be short and to the point: We had a bad 2007, which followed a bad 2006.
...

We believe the values in the market today are as attractive as they have been in the past five years, and patient longterm investors should be well rewarded for putting money to work right in here.

Direct Link - Bill Miller 2007 Q4 Value Trust Commentary. (PDF)

Pzena Investment Management Fourth-Quarter Newsletter Commentary

2008-02-17T23:19:00.001+08:00

Value investing may be rewarding in the long term, but can be painful in the short term. Can that be avoided? And is now the wrong time for value?

These are the times that try value investors’ souls, to paraphrase Tom Paine. Our Value and Large Cap Value strategies were each off by more than 12% for the year and our global strategy was down nearly as much. In the second half alone, the declines in our U.S. portfolios exceeded more than 18%. Our newest clients have felt the biggest sting, but even longtime clients have felt the pinch. They know that value is cyclical – Figure 1 highlights the unpredictability of short-term returns – and they also know that over time, the return pattern can smooth out and value investing can be a very rewarding strategy (Figure 2). But the interim periods are no less painful for all that.

Direct Link - Pzena Investment Management Fourth-Quarter Newsletter Commentary.

Fairholme Funds 2007 Annual Report

2008-02-17T23:13:00.002+08:00

The unexpected happens more frequently and with more severity than most expect. Accordingly, cash remains a sizeable chunk of the portfolio. As demonstrated this year, cash helped the Fund to weather portfolio headwinds and allowed the Fund to buy without the need to sell already inexpensive securities on the cheap. Shareholders should not fear a temporary decline in the Fund’s NAV, as lower prices for sound investments usually indicate better bargains and higher future returns — particularly with cash hoarded for such chances. As a cagey old veteran of Wall Street once said, “You make your best money in a bear market; you just don't know it at the time….”

Direct Link - Fairholme Funds 2007 Annual Report. (PDF)

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

2008-01-31T23:54:00.000+08:00

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

2008-01-31T23:46:00.000+08:00

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

2008-01-31T23:44:00.000+08:00

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

2008-01-31T23:40:00.000+08:00

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

2008-01-31T23:37:00.000+08:00

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

2008-01-31T23:27:00.000+08:00

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

2008-01-31T23:18:00.000+08:00

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

2008-01-31T23:12:00.000+08:00

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?

2008-01-31T23:08:00.000+08:00

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

2008-01-31T23:01:00.000+08:00

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

2008-01-31T22:53:00.000+08:00

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

2008-01-31T22:46:00.000+08:00

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

2008-01-21T21:47:00.000+08:00

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

2008-01-21T21:44:00.000+08:00

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

2008-01-21T21:39:00.000+08:00

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

2008-01-21T21:35:00.000+08:00

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

2008-01-21T21:30:00.000+08:00

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

2008-01-21T21:26:00.000+08:00

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

2008-01-21T21:14:00.000+08:00

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

2008-01-21T19:38:00.000+08:00

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

2008-01-21T19:36:00.000+08:00

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

2008-01-21T19:23:00.000+08:00

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

2008-01-21T19:19:00.000+08:00

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 :

Buffett's Bond Venture

2008-01-21T19:09:00.000+08:00

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.

Jean-Marie Eveillard on WealthTrack

2008-01-21T19:04:00.000+08:00

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..).

Jason Zweig - What Can We Learn from Neuroeconomics? How the Investing Brain Predicts the Future

2007-12-28T07:33:00.000+08:00

This webcast is from CFA Institute. In this webcast, Jason Zweig discusses the following:

The prediction addiction: Why do you think they call it "dopamine?"
What happens in your brain when your expectations are confirmed — or shattered by surprise

This webcast comprises a 51-minute presentation and an 11-minute question-and-answer session.

Webcast Link.

Related Links :

Conversation with a Money Master - Bill Miller

2007-12-28T07:31:00.000+08:00

"Conversation with a Money Master" - Bill Miller , CFA with Fred H. Speece Jr., CFA from Global Perspectives on Investment Management 2006.

John Neff - On Value Investing

2007-12-28T07:30:00.000+08:00

"On Value Investing" John B. Neff, CFA with Fred H. Speece, Jr., CFA from From the 2006 Financial Analysts Seminar.

Michael Mauboussin - The Prime Directive, Sharks, and the Wisdom and Whims of the Collective

2007-12-28T07:24:00.000+08:00

This webcast link is from CFA Institute. In this webcast, Michael J. Mauboussin discusses the following:

The metrics of market efficiency: mean–variance efficiency and arbitrage opportunities.
Necessary conditions for an efficient market: diversity, incentives, and mechanisms for aggregations.
Diversity breakdowns and other market malfunctions.

This webcast comprises a 51-minute presentation and a 9-minute question-and-answer session.

Webcast Link

James Grant - Liquidity, Leverage, and Risks to Financial Markets (Podcast)

2007-12-28T07:18:00.000+08:00

This podcast link is from CFA Institute. In this podcast, James Grant discusses the following:

The effect of unprecedented leverage and easy credit on global financial markets and investor behavior
The rise of high-rated structured products and re-leveraging of corporate balance sheets
The ability of portfolios to weather potential financial storms

Audiocast Link.

2007 Thought Leader Forum

2007-12-25T21:28:00.000+08:00

2007 Thought Leader Forum on Sep. 26-27, 2007 :

Steven Crist
Publisher and Columnist, Daily Racing Form

Michael Mauboussin
"Welcome"

Clayton M. Christensen
Professor, Harvard Business School

Antonio M. Perez
Chairman and Chief Executive Officer, Eastman Kodak Company

Matthew Szulik
Chairman, Chief Executive Officer and President, Red Hat

Dave Mandelkern
Chief Executive Officer, QuickHealth, Inc.

John Donahoe
President, eBay Marketplaces

Bill Miller, CFA and Michael Mauboussin
"Thought Leader Forum Wrap-Up"

Direct Link - 2007 Thought Leader Forum Agenda.

Whitney Tilson on housing (Fox Biz News)

2007-12-25T21:23:00.000+08:00

Whitney Tilson on housing, Fox Biz News, 12/18/07.

Video Link - Whitney Tilson on housing or watch directly below.

David Dreman : Seize The Day

2007-12-25T21:19:00.000+08:00

Thomas Jefferson once said that banks are more dangerous than standing armies. Certainly with Chairman Alan Greenspan at the helm of the Federal Reserve this was the case. Under his leadership the Fed was instrumental in creating two bubbles. The dot-com bubble of 1995--99 was followed by a grand loosening of credit that resulted in a second bubble, the housing mania of 2001--05. Still, when a bubble implodes there are always good opportunities for folks who have the courage to take risks.
...
For all my recommendations in this column, I advise acquiring positions gradually. Who knows how close we are to the bottom of this very jumpy market? Still, those who buy bank stocks should be well rewarded over the next couple of years.

Direct Link - David Dreman : Seize The Day.