tag:blogger.com,1999:blog-4815867514277794362.post7128001785489075265..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Comments on investment philosophy - part one of hopefully a few...John Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger60125tag:blogger.com,1999:blog-4815867514277794362.post-2408356255685483062017-05-03T18:39:00.048+10:002017-05-03T18:39:00.048+10:00The Indian equity benchmarks hit record highs in F...The Indian equity benchmarks hit record highs in FY17. The earnings growth was good and demonetisation will hopefully bring in better times going forward. A slew of new reforms is on the anvil; GST being one of them. <a href="https://www.ways2capital.com/equity-tips.php" rel="nofollow">Equity tips</a><br /><br />Anonymoushttps://www.blogger.com/profile/13988253962294260381noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10376234419401079092017-03-16T17:19:43.586+11:002017-03-16T17:19:43.586+11:00A fascinating article. Thank you! And I think you’...A fascinating article. Thank you! And I think you’re right. <br /><br />But not sure about 20 stocks for a lifetime. For a start you need experience and experience comes at a price. You need to make mistakes, sometimes many, before you learn what works and what doesn’t.<br /><br />I hope this is not too presumptuous. But I too have been grappling with the idea of holding 10 large positions versus holding 40 smaller positions. My recent conclusion was that it’s probably safer to hold a diversity of 40 companies. <br /><br />However, in a tricky market such as the one we are in, timing is everything.<br />That means valuations need to be confirmed with some sort of technical analysis and patience is a virtue. <br /><br />Though it can be painful - the waiting. Meanwhile holding some bear stocks may provide a cushion if the market corrects sharply which it may do soon.<br />Saranoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-9446870153103575182016-12-14T12:15:16.682+11:002016-12-14T12:15:16.682+11:00Mr. Hempton,
Excellent article. It is extremely i...Mr. Hempton,<br /><br />Excellent article. It is extremely informative to obtain insight into the methodologies and investment philosophies of fund managers.<br /><br />You are right that the 20 Punch Card Test is more conducive to private investments than to professional investment management. I am in no way a Warren Buffett expert, but I note that over the bulk of his investing career, not even Warrant Buffett would have met the requirements of the 20 Punch Card Test. I cite as one example his 1961 Buffett Partnership Ltd. letter in which he acknowledges the Partnerships' ownership of "probably 40 or so securities". In this regard, perhaps we may all take comfort that we are in good company.<br /><br />In your experience, how does the portfolio management described in the 1961 letter work today in avoiding 100% market correlation and delivering Alpha? Namely, 50% of the cigar-butt value stocks (5-10 positions), with the remainder comprised of special situation work outs (5-10 positions), and if the fund is large enough, activist-oriented control positions? The market correlation of the work-outs, when paired with a modest short-book, may serve the purpose.<br /><br />I expect these hypotheses are only fascinating until one is managing money for others. ;)<br /><br />Best Regards,<br /><br />Mike<br /><br /><br /><br />Anonymoushttps://www.blogger.com/profile/05008600905390763739noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-85699353818941275132016-11-01T04:20:25.931+11:002016-11-01T04:20:25.931+11:00ok for disclosure i run just one of these concentr...ok for disclosure i run just one of these concentrated investment partnerships you would describe as phoney, and i used to work at a long/short fund but found myself temperamentally unsuited for shorting. i appreciate this post as there is a lot of good food for thought even though i would disagree with quite a few points in it.<br /><br />but here is my real question, what you said about long/short sounds great that it provides cash in declining markets to cycle into cheaper longs. but how many long/short managers really do that, and wouldn't anyone who tried this have a similar client problem to the inactive long only? in other words when the market is down and they are panicking and so happy to have their short exposure and then they call you up and you say actually our short exposure is declining as we aren't adding any new ones and are increasing our long exposure. and also as you add longs you are exposing yourself to a sharp snapback as many of those low quality companies you are short are likely to rally by more than your longs in a market recovery. i just don't see clients accepting that you usually run with say 80/50 long vs short but here right when they are worried your short exposure falls to 25? i personally know quite a few long/short managers who got whipsawed in 2009 in just this manner, and they felt they just had to be short something due to client pressures.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-22477122539133301142016-10-14T00:41:42.024+11:002016-10-14T00:41:42.024+11:00I speculate in a very unique type of real estate. ...I speculate in a very unique type of real estate. If I am patient Im usually able to cover the entire purchase price and any/all applicable taxes ( state/fed) from an unrealized ( or undervalued) asset present. <br />How many of these do I get a year: If Im very lucky - 2. <br />However the wait is worth it. The last one I did generated a six figure return ( pre tax) .Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-22746525812974385282016-10-14T00:35:43.476+11:002016-10-14T00:35:43.476+11:00Robert Mercer is another enigmatic - yet very, ver...Robert Mercer is another enigmatic - yet very, very successful investorAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1168038404646483342016-10-04T11:04:16.598+11:002016-10-04T11:04:16.598+11:00FYI, blog post is referenced heavily in this Morni...FYI, blog post is referenced heavily in this Morningstar piece: http://news.morningstar.com/articlenet/article.aspx?id=771949Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68179913787713664152016-10-03T23:03:34.785+11:002016-10-03T23:03:34.785+11:00The Zeroth Rule of Investing
If a beginning inves...The Zeroth Rule of Investing<br /><br />If a beginning investor literally followed the 20 punch limit it would very likely end in failure. Very likely.<br /><br />It's impossible to achieve mastery without study <b>and</b> practice. And if you don't have mastery you will keep buying crap (as well as some good stuff) and not even know it at the time.<br /><br />It's like carpentry. You buy cheap wood while you learn and make a lot of mistakes. After a while you start to get cocky and think the next cabinet you make is going to be perfect, with no wasted materials. It isn't. You are pissed off at ruining the expensive oak you used. Round and round you go, gradually improving.<br /><br />A beginner needs to buy many cheap (as in sum invested) holdings to practice on. His skill will rise much more rapidly and more importantly so will his awareness of his skill level. After 10 or 20 years he may be ready for serious concentration.<br /><br />Buffett was a very fast learner. He was unique.<br /><br />Perhaps it's time for the Zeroth Rule of Investing, to preface Buffett's First and Second rules:<br />Zeroth Rule of Investing: You are not Buffett.MrContrarianhttps://www.blogger.com/profile/05265474275564866062noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-70441302499331891432016-10-03T20:46:47.612+11:002016-10-03T20:46:47.612+11:00Hi John,
amongst the investors who follow a "...Hi John,<br /><br />amongst the investors who follow a "punchcard" investing philosophy and actually stick to that, you should be aware of Andy Brown, who runs Cedar Rock capital. Sticks to a few industries he knows, does not trade and has a stellar track record.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-47127017849026271962016-09-30T20:16:32.954+10:002016-09-30T20:16:32.954+10:00One needs to be able to withstand the psychologica...One needs to be able to withstand the psychological impact of taking huge concentrated bets<br /><br />1. Source of capital should match you investment strategy. If your investors bug you every year or every 6 month, just be honest with yourself and figure out that works for you <br />2. Ability to filter out news. IMHO, no one is good at that. Its like being kid in a room with cake and being asked to not eat it. Best way is to just not look at it. <br />3. Confidence and ability to not listen to people or market and just stick to your plan. This means all work has to be done upfront and need to have ultra confidence in your ability.<br />Even Buffet won't style wont perfectly match up to what he preaches.<br /><br />John, but you are not even close. <br />1. I remember you that you once wrote "position went much against us and we had to cut down". Look, Buffet won't do it even it years. You did it in a matter of months. <br />2. You are validating your ideas on a blog, common man ! :) <br />You are a trader and you are doing good. Just stick to it. You don't have to be a legend. James Simons, Steve Cohen .. guys have done well in their own way. <br />* I know everyone will say the Steve Cohen traded on insider information and blah blah, but he was done really well over a long period of time and even now with his family office so you have to give it to that guy that he's got some substance.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-17169818327860583052016-09-30T18:17:17.738+10:002016-09-30T18:17:17.738+10:00Great post! Over the last week I was distilling my...Great post! Over the last week I was distilling my thoughts on what value does short-selling brings to portfolio besides occasionally making money (need to make presentation for students in my alma mater). Fully agree with you that being occupied on the short-side (instead of doing something dumb with the long side of the portfolio) and getting cash on market pull-backs are the most important things why it is worthwhile keeping at least a small short position.Special Situations Investmentshttp://www.specialsituationsinvestments.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-13616542319694340072016-09-29T14:03:09.222+10:002016-09-29T14:03:09.222+10:002016 has taught me plenty, and I thank you for hav...2016 has taught me plenty, and I thank you for having some of those points to remind me. In particular, let go of all the notion of being in a specific category and focus on logical intelligent investing. Value, Events, Long term or Short term, GARP classifications only serve to hamper returns. One must be optimistic yet pessimistic, humble yet confident with the flexibility to adapt. Its important to find a style that suits one's personality and temperament.<br /><br />In terms of approach, I find the punch card approach logical yet challenging in practice. It takes time to experiment and shift into that mode. No normal man can sit still and do nothing 9waiting for a potential jugular) while getting tempted daily by the market's siren songs or losing consistently in the short term. Its what I term mega-delayed, non-certain gratification.<br /><br />It is by no coincidence that most institutional investors are the mainstream, and eschew this non-mainstream approach. Tepper has has done incredibly well with consistently huge swings in volatility. He questions the basics and bets the farm on ideas he has confirmed. This is something most institutional investors would have cringed at, but logically makes the most sense. Hence most of his assets are largely employee owned or close friends/family including ex colleagues. One would have ended up on the streets if he or she used this approach and relied on mainstream capital.<br /><br />Lastly, there was an evolution in WEB's strategies through the years. Earlier on, while he was concentrated, he was intensely into event-driven stuff and did not mind holding them for short term gains. There were clearer opportunities and less land mines unlike today. With the advent of the internet, technology and a lot more institutions, investors need to work harder to find stuff. Not impossible, just harder..and different. MTH Investmentshttps://www.blogger.com/profile/00523146218701602591noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-67120751372715234992016-09-29T13:44:29.731+10:002016-09-29T13:44:29.731+10:00Bronte has -1.2% performance over the last 12 mont...Bronte has -1.2% performance over the last 12 months.<br />What is your expected returns going forward?<br />Are you focused on your business?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-51682362228517459172016-09-29T07:25:51.926+10:002016-09-29T07:25:51.926+10:00Fantastic post John, thank you so much for your th...Fantastic post John, thank you so much for your thoughts and openness. <br /><br />I've always felt the Buffett adulation is warranted but there's a fair amount below the surface that Buffett haters mostly miss, even those on Wall Street. First, he was building the base on which to compound very early on without the same competition as we have now. Then as Sandymount mentions, factoring in leverage vs the S&P it's a much smaller outperformance gap. I've seen studies that attribute most PE firm excess returns to leverage; there's a reason Steve Schwarzman once said Buffett has the best capital structure. And lastly, there's no doubt he's been one of the single biggest beneficiaries of the structural fall in interest rates and increase in asset prices since the early 80s. That capital base came from the partnership years, sitting in cash in the GoGo early 70s, and then punching one of his 20 punches in the huge 73-74 bear market. <br /><br />But ultimately, you can't argue with uninterrupted compounding for 50 years at 20%. And that's uninterrupted compounding using higher leverage than the S&P through thick and thin. And he is a wonderful teacher who, along with Munger, cultivates a system of thought and shares it. What bigger meeting of the minds was there in the 20th century than Buffett and Munger at the Omaha Club in 1959? Churchill and Roosevelt? Jobs and Wozniak? Lenin and Stalin?<br /><br />It's heartening to hear some here are at a similar juncture in their investment outlook. As someone who tries to incorporate the best of many different investor styles/philosophies, I too have seen very little since 2012-13 that has made me feel like this could be one of the 20. Try as central banks might, cycles haven't been eliminated and keep the faith that like Buffett in 1973-74, Tepper in 2009, or most P/E heads in the early 90s, the big money will be made in bear markets. Trader Joehttps://www.blogger.com/profile/03122755936413138015noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-63218347907008984082016-09-29T04:01:53.964+10:002016-09-29T04:01:53.964+10:00He probably meant 20 BIG TIME punches dancing arou...He probably meant 20 BIG TIME punches dancing around a bunch of small experimental positions and special situations. But willing to sell any of those for a big fish. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71062756317059492642016-09-29T02:16:12.723+10:002016-09-29T02:16:12.723+10:00...not only is Buffett the greatest investor ever,......not only is Buffett the greatest investor ever, he's also proven himself to be a great business executive. How many other insurance executives are you aware of who have managed to gather tens of billions of float, yet show an underwriting profit over many decades? The answer is zero. People act like, Well hey he's done great b/c he's had free leverage - well, if it's so easy to obtain such leverage, why can't anyone else seem to do it? When I look at other insurance companies, they all seem to have pretty consistent underwriting losses.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-35599207197623250812016-09-29T02:10:48.601+10:002016-09-29T02:10:48.601+10:00"Unlevered his investment record has been abo..."Unlevered his investment record has been about 12% versus 9% for the S+P. BRK compounded at 20%, i.e. another 8% due to structural set up/ 'free' leverage of the float... and he charged effectively no fees."<br /><br />He made 30% (vs 10% for the Dow) when he was running his partnership over 12 years, with basically no benefit from float (didn't buy National Indemnity until 1967). So he did way better than BRK has done. Anyone who says Buffett isn't the greatest of all time by a wide margin is utterly delusional.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-38920456996506956862016-09-27T23:20:53.342+10:002016-09-27T23:20:53.342+10:00Interesting post, John. Thanks.
I agree with Jaso...Interesting post, John. Thanks.<br /><br />I agree with Jason K. The 20 punch card test wasn't meant to be taken literally. Buffett has failed this test himself many times over. Many investors do silly things out of boredom or lack of patience.<br /><br />I think the more egregious error made by the Buffett acolytes is running a concentrated portfolio of mediocre businesses, specifically concentrated investments in the retail industry which Buffett has warned us about for decades. I agree with Klarman and others that every business despite its quality has a price at which is becomes attractive. However, retailing is so fickle that it is hard to determine fair value and have any confidence in such an investment. Certainly not enough confidence to make a 20% position in a JCP or Sears.Jake M.noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-8209125980617915692016-09-27T18:43:16.854+10:002016-09-27T18:43:16.854+10:00Dear John,
I do not understand your Tepper commen...Dear John,<br /><br />I do not understand your Tepper comment.<br />Maybe it came consequentally to your own lack of understanding in explanation, or maybe it's really a mistake in judgement.<br /><br />Highly competitive, capital intensive industries ARE "meh". It's hardly just your personal allergy. <br />Is there any systemic indicators to when they perform well, which you think Tepper get and you didn't?<br />Or it's a hindsight regret over "not knowing the ante" despite the play being strategically correct?Dmitryhttps://www.blogger.com/profile/00216625793266509034noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-2948269004758848282016-09-27T13:39:25.077+10:002016-09-27T13:39:25.077+10:00Buffet is a great Investor - Every one knows that....Buffet is a great Investor - Every one knows that. Buffet is an acolyte of Ben Graham, but he deviated a lot from Ben graham's approach to investing ( though he followed those principles, and started with that approach) over the years. Buffet often said that his approach is 85% Graham & 15% fisher, but over the years it's moved more towards fisher and less of Graham. ( Jeff Matthews book & blog have detailed & very good description of this, and also about buffet's post rationalization & do as i say not as I do ethos.) Even the 20 punch card approach to investing is more of Fisher's than Graham's. Only a few like Walter Schloss & Irving Kahn stuck to Grahams approach. Max Heine created a path of his own, while still following Grahams Principles.<br /><br /> Just being an acolyte does not mean that you have follow the same approach. As you've clearly described with Kerr Nielsen, being well versed with an approach does not mean that they anyone can do it as well and expect the same results. As Graham detailed, temperament ( what many call Psychology & emotional intelligence now a days) is an essential aspect of investing.Most investors alter an approach to some extent to suit their temperaments.<br /><br />While there are many phoneys who the buzzwords for marketing and promotional purposes, many fund managers have tailored their approach while adhering to the principles as best as they can given the circumstances while still being acolytes of Buffet. You've described that very well as to why fund managers can't sit idly by waiting for the fat pitch every few years.<br /><br />Bill Gross has a great write up on Epoch's and how it affects investing, and his own investing record. By 1970's even Ben Graham believed that his approach may not be as effective as it used to be when he outlined it 3-4 decades ago, Walter Schloss closed his fund citing that as a reason. One approach may work for while & under certain circumstances may not work as well with different time, country & circumstances.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1633509333729018112016-09-27T09:58:26.291+10:002016-09-27T09:58:26.291+10:00Warren has so much buying power , that back in 200...Warren has so much buying power , that back in 2008 he bought Citycorp below market value. not too many money managers can pull this off.<br /><br />thanks for the great post, very humbling , as it is not easy to stay ahead.<br />LeTraderhttps://www.blogger.com/profile/15826632943069300669noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-59488392569817263552016-09-27T09:40:36.809+10:002016-09-27T09:40:36.809+10:00Trying to emulate WEB without permanent capital is...Trying to emulate WEB without permanent capital is like trying to farm corn in the Sahara. It might be theoretically feasible but you might be better off moving to Indiana.MLee Hypotenuse Capnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-65204214527607901212016-09-27T07:51:04.215+10:002016-09-27T07:51:04.215+10:00This article really got me thinking, John. On a p...This article really got me thinking, John. On a personal level, I've had equivalent thoughts about using a 20 punch card approach with clients. When I look at my numbers, 70% of my business comes from a smaller population of clients. The "less is more" mindset can work in law, in my opinion. There's a lot to be said for cutting out the 80% that suck out time, energy and ego. <br /><br />Regarding Buffet, here's the theory that came to my mind: He's unique because he was forged in a different era. He had already earned respect long before the 24/7 news cycle. He's always been "above the fray" where other managers need to be seen on TV espousing deep thoughts on interesting stuff to keep their investors interested. I remember Buffet wrote in one of his letters, something like "If I own a piece of property, and somebody was on my fence yelling at me everyday about my property's value, I might be more inclined to sell it." He was referring to the constantly-on financial news that puts pressure on analysts to pay attention and make decisions. I think there's more pressure on managers like yourself to constantly stay ahead of the curve to provide your investors some action. And investors are also drinking the kool-aid, watching CNBC and expecting managers to work miracles. <br /><br />It's a different era today. Personally, I subscribe to the Billy Beane approach to a lot of things....I'm not looking for home runs, I'm just looking to get on base as much as possible. Investors these days....they want home runs, and that leads them down dark paths. <br /><br />Thanks for sharing a very open and candid article. Anonymoushttps://www.blogger.com/profile/18226609604091094429noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-8219224815172077902016-09-27T07:13:54.404+10:002016-09-27T07:13:54.404+10:00It's a great post John. I made some additional...It's a great post John. I made some additional comments in a follow up piece on my site here: http://basehitinvesting.com/practicing-a-punch-card-approach-to-investing/ <br /><br />My main question: it seems that you imply that the punch card approach is best. But yet you don't practice it. As I said in my post, I think most of the battle is recognizing the bias we have toward activity (and the built-in constraints we have toward inactivity). But most people don't consciously think about this, so they have no chance to guard against the bias. You are fully aware of it, as you articulated here very well. So I'm wondering why not try to implement the approach? Is it that you don't think you could grow your business effectively this way? Or maybe I'm misreading it and you don't think it is in fact the best approach?John Huberhttps://www.blogger.com/profile/16725576320616282484noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45571431380685193542016-09-27T06:37:07.658+10:002016-09-27T06:37:07.658+10:00We mortals cannot emulate Buffet. Because he has a...We mortals cannot emulate Buffet. Because he has a huge information advantage. He get to do due dilligence and a deep dive into the books (customer lists etc) before he buys a company. You can never do that as an institutional investor. Furthermore, the BAC convertible deal during the GFC was not available for ordinary investors. <br />His market timing sucked, as he was writing naked puts on major stock markets months before the 2008/9 crash.Gloeschihttps://www.blogger.com/profile/10705125909506053628noreply@blogger.com