"The Education of a Value Investor"
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
"The Education of a Value Investor"
There was a new book released this week entitled, "The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment," by Guy Spier. It looks interesting. Has anybody read it? If so, thoughts?
Re: "The Education of a Value Investor"
.
I have not read the book, but have been interested in the investment approach and performance of both Guy Spier's Aquamarine Fund, and Monish Pabrai's funds. They both advocate a 'Buffet' approach, and its seems have tried to mimic the earlier Buffet partnership. They seem to like Buffet, and jointly paid over $600k to have lunch with him...
In looking at the performance of the Aquamarine fund, I am not sure that it has added much alpha beyond factor exposure. I compared it to my indexed 75:25 stock:bond global small cap value tilted portfolio. If I had used the Aquamarine fund as my only stock holding (a global value fund), and added 25% intermediate treasuries, the annualized returns from 2003-2013 would have been 11.4% with a 2008 loss of -31.8%, compared to my actual annualized return of 11.0% with a 2008 loss of -28.7% - so a portfolio with the Aquamarine fund would have given slightly higher return, but with slightly higher risk (2008 loss) - doesn't suggest much additional alpha over this period.
I read Pabrai's book The Dandho Investor, and found in fairly interesting, will probably read Speir's book too.
Robert
.
I have not read the book, but have been interested in the investment approach and performance of both Guy Spier's Aquamarine Fund, and Monish Pabrai's funds. They both advocate a 'Buffet' approach, and its seems have tried to mimic the earlier Buffet partnership. They seem to like Buffet, and jointly paid over $600k to have lunch with him...
In looking at the performance of the Aquamarine fund, I am not sure that it has added much alpha beyond factor exposure. I compared it to my indexed 75:25 stock:bond global small cap value tilted portfolio. If I had used the Aquamarine fund as my only stock holding (a global value fund), and added 25% intermediate treasuries, the annualized returns from 2003-2013 would have been 11.4% with a 2008 loss of -31.8%, compared to my actual annualized return of 11.0% with a 2008 loss of -28.7% - so a portfolio with the Aquamarine fund would have given slightly higher return, but with slightly higher risk (2008 loss) - doesn't suggest much additional alpha over this period.
I read Pabrai's book The Dandho Investor, and found in fairly interesting, will probably read Speir's book too.
Robert
.
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
Thank you, Robert. That's very helpful.Robert T wrote:.
I have not read the book, but have been interested in the investment approach and performance of both Guy Spier's Aquamarine Fund, and Monish Pabrai's funds. They both advocate a 'Buffet' approach, and its seems have tried to mimic the earlier Buffet partnership. They seem to like Buffet, and jointly paid over $600k to have lunch with him...
In looking at the performance of the Aquamarine fund, I am not sure that it has added much alpha beyond factor exposure. I compared it to my indexed 75:25 stock:bond global small cap value tilted portfolio. If I had used the Aquamarine fund as my only stock holding (a global value fund), and added 25% intermediate treasuries, the annualized returns from 2003-2013 would have been 11.4% with a 2008 loss of -31.8%, compared to my actual annualized return of 11.0% with a 2008 loss of -28.7% - so a portfolio with the Aquamarine fund would have given slightly higher return, but with slightly higher risk (2008 loss) - doesn't suggest much additional alpha over this period.
I read Pabrai's book The Dandho Investor, and found in fairly interesting, will probably read Speir's book too.
Robert
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
With regard to his fund's performance, here is a quote from the Introduction:
"As I write this, I've had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P500."
"As I write this, I've had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P500."
Re: "The Education of a Value Investor"
A "global" and value fund reflects *past* performance of global assets.... not the S&P 500. Are we EVER going to recognize that past data can be framed any which way we want?Howard Donnelly wrote:With regard to his fund's performance, here is a quote from the Introduction:
"As I write this, I've had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P500."
Hope you don't mind and I will gladly edit and delete. I take this opportunity to send my thoughts and prayers to all families of September 11, 2001 victims. There, is the kind of history that we shouldn't forget!
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: "The Education of a Value Investor"
Were there any significant differences in the return of global stocks and U.S. Stocks during this roughly 17 year period?YDNAL wrote: A "global" fund reflects *past* performance of global assets.... not the S&P 500. Are we EVER going to recognize that past data can be framed any which way we want?
Re: "The Education of a Value Investor"
I'm not familiar with the fund in question (Aquamarine).dkturner wrote:Were there any significant differences in the return of global stocks and U.S. Stocks during this roughly 17 year period?YDNAL wrote:A "global" fund reflects *past* performance of global assets.... not the S&P 500. Are we EVER going to recognize that past data can be framed any which way we want?
"Since 1997," we know what transpired with Growth stocks included in the S&P 500. We also know what transpired in Emerging Markets since that time. Other than analyzing that data (no interest), I would think there is notable difference just from the 2 examples I just mentioned. Regardless, my main point is that we should always be aware of NON apples to apples comparisons, including the time period being framed (yes, I know, Aquamarine inception was said to be 1997).Howard Donnelly wrote:With regard to his fund's performance, here is a quote from the Introduction:
"As I write this, I've had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P500."
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: "The Education of a Value Investor"
In other words it's looks a lot like the Aquamarine Fund delivered much better returns than either foreign or domestic stocks from 1997 to the present, which is the point the OP was making.YDNAL wrote:I'm not familiar with the fund in question (Aquamarine).dkturner wrote:Were there any significant differences in the return of global stocks and U.S. Stocks during this roughly 17 year period?YDNAL wrote:A "global" fund reflects *past* performance of global assets.... not the S&P 500. Are we EVER going to recognize that past data can be framed any which way we want?"Since 1997," we know what transpired with Growth stocks included in the S&P 500. We also know what transpired in Emerging Markets since that time. Other than analyzing that data (no interest), I would think there is notable difference just from the 2 examples I just mentioned. Regardless, my main point is that we should always be aware of NON apples to apples comparisons.Howard Donnelly wrote:With regard to his fund's performance, here is a quote from the Introduction:
"As I write this, I've had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P500."
Re: "The Education of a Value Investor"
According to Yahoo, Vanguard TISM grew by 244% from Sept 15, 1997 to present, while TSM grew by 309% (VG Index 500 grew by 292% for the same period). I could not verify the Aquamarine return with a quick Google search. Even if the reported numbers are true, I would not invest based on a single time period. I also have no information on the variability of the fund's returns, in order to assess the risk-adjusted return.
Last edited by rkhusky on Thu Sep 11, 2014 7:49 am, edited 1 time in total.
Re: "The Education of a Value Investor"
OP quoted what the author of the new book included in the book.dkturner wrote:In other words it's looks a lot like the Aquamarine Fund delivered much better returns than either foreign or domestic stocks from 1997 to the present, which is the point the OP was making.YDNAL wrote:...."Since 1997," we know what transpired with Growth stocks included in the S&P 500. We also know what transpired in Emerging Markets since that time. Other than analyzing that data (no interest), I would think there is notable difference just from the 2 examples I just mentioned. Regardless, my main point is that we should always be aware of NON apples to apples comparisons.
That said, regardless if coming from OP, yourself, Mr. Guy Spier, a global fund that includes Emerging Markets and non-US Developed Markets should not be *casually* compared to something like S&P 500. As I said (twice), we should be aware that:Howard Donnelly [OP] wrote:With regard to his fund's performance, here is a quote from the Introduction:
"As I write this, I've had a cumulative return of 463 percent since founding the Aquamarine Fund in 1997, versus 167 percent for the S&P 500 index. In other words, $1 million invested in the fund would now be worth $5.63 million, versus $2.7 million if it had been invested in the S&P500."
- 1. Historical data is what it is.
2. Can be framed any which way.
3. As investors we should always be aware of NON apples to apples comparisons - especially when someone is selling something.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
- nisiprius
- Advisory Board
- Posts: 52107
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: "The Education of a Value Investor"
Doesn't it bother you that so many professional investors claim to be using a "Warren Buffett approach?"
Buffett, as far as I know, has never taught or written or codified his approach, and has never suggested he had a methodology that could be used by anyone else but him. Of course his mentor, Benjamin Graham, did teach and write and codify his approach, but he also said in 1973 that it wasn't usable any more! "This was a rewarding activity, say, 40 years ago, when our textbook 'Graham and Dodd' was first published; but the situation has changed a great deal since then."
Can you imagine anyone doing this in any other field? Can you imagine anyone with the arrogance to say "I play golf the same way Tiger Woods does" or "I play fiddle using Itzhak Perlman's system" or "I am a Stephen King-like writer?"
How many people who write like Stephen King are going to get Stephen King's results?
Buffett, as far as I know, has never taught or written or codified his approach, and has never suggested he had a methodology that could be used by anyone else but him. Of course his mentor, Benjamin Graham, did teach and write and codify his approach, but he also said in 1973 that it wasn't usable any more! "This was a rewarding activity, say, 40 years ago, when our textbook 'Graham and Dodd' was first published; but the situation has changed a great deal since then."
Can you imagine anyone doing this in any other field? Can you imagine anyone with the arrogance to say "I play golf the same way Tiger Woods does" or "I play fiddle using Itzhak Perlman's system" or "I am a Stephen King-like writer?"
How many people who write like Stephen King are going to get Stephen King's results?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
- nisiprius
- Advisory Board
- Posts: 52107
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: "The Education of a Value Investor"
P.S. I am often intrigued by the distinction between "value investor" and "passive investor with a tilt toward the value factor..."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
Here is another quote from the book:nisiprius wrote:Doesn't it bother you that so many professional investors claim to be using a "Warren Buffett approach?"
Buffett, as far as I know, has never taught or written or codified his approach, and has never suggested he had a methodology that could be used by anyone else but him. Of course his mentor, Benjamin Graham, did teach and write and codify his approach, but he also said in 1973 that it wasn't usable any more! "This was a rewarding activity, say, 40 years ago, when our textbook 'Graham and Dodd' was first published; but the situation has changed a great deal since then."
Can you imagine anyone doing this in any other field? Can you imagine anyone with the arrogance to say "I play golf the same way Tiger Woods does" or "I play fiddle using Itzhak Perlman's system" or "I am a Stephen King-like writer?"
How many people who write like Stephen King are going to get Stephen King's results?
"Seeing him (Warren Buffett) in person that day, I was left with no doubt at all that I could never hope to match him. This could have been dispiriting, but I found it weirdly liberating. For me, the lesson was clear. Instead of trying to compete with Buffett, I should focus on the real opportunity, which is to become the best version of Guy Spier that I can be. It reminded me of an old joke that Warren likes to tell: 'How do you beat Bobby Fisher?' Answer: 'Play him at anything other than chess.'"
I'm enjoying the book.
-
- Posts: 48955
- Joined: Fri May 11, 2007 11:07 am
Re: "The Education of a Value Investor"
Warren Buffett adapted the Graham and Dodd approach.nisiprius wrote:Doesn't it bother you that so many professional investors claim to be using a "Warren Buffett approach?"
Buffett, as far as I know, has never taught or written or codified his approach, and has never suggested he had a methodology that could be used by anyone else but him. Of course his mentor, Benjamin Graham, did teach and write and codify his approach, but he also said in 1973 that it wasn't usable any more! "This was a rewarding activity, say, 40 years ago, when our textbook 'Graham and Dodd' was first published; but the situation has changed a great deal since then."
Can you imagine anyone doing this in any other field? Can you imagine anyone with the arrogance to say "I play golf the same way Tiger Woods does" or "I play fiddle using Itzhak Perlman's system" or "I am a Stephen King-like writer?"
How many people who write like Stephen King are going to get Stephen King's results?
In G&D's day you could buy companies with market cap less than their working capital. Nowadays with financial information widely available on the internet, it's much harder. There was no DFA scarfing up small value stocks in Ben Graham's time.
WB added the concept of the 'defencible moat' ie the business franchise that creates and holds superior margins. Notice he has never made a tech investment (other than IBM) despite being bridge partner and close friend of Bill Gates. The product cycles and underlying trends are too strong-- hence the sale of the Washington Post newspaper.
There are other parts of WB that are difficult/ hard to duplicate/ poorly understood:
- low financing cost. He is basically arbitraging GEICO and his other insurance interests. They provide the 'float' of cheap capital that he invests in businesses that make a higher return. That spread in cost of capital is profit to BH. Hence his investment in utility businesses like electricity and railways-- they consume a lot of capital and returns on that capital are fairly predictable
- governance. Buffett and Munger are the past masters of efficient allocation of capital between diverse businesses. There is quite a lot about executive incentivization there-- he has no stock options or high salaries, perks, that would divide his interests from those of shareholders in general (see Jack Welch's departure package)
- position as a strategic investor. BH is increasingly a private equity firm in function but again without the fees and carried interest arrangements that enrich PE execs at the cost of PE investors
The fact that Buffett has a longer track record of outperformance than anyone else for whom we have data, confirms the truth. Buffett was unique, is unique. There is no readily duplicable strategy there: it's not like you could beat Buffett as you might have beaten John U Neff at Windsor by investing in a small cap value index for 30 years.
To duplicate Buffett and BH you have to *be* Buffett and BH (and let's not forget Charlie Munger in this-- Warren Buffett never does).
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
In his book, here is what Guy had to say about Wall Street:
"I saw up close the willingness to distort the truth in order to further one's own narrow self-interest - the tendency to treat clients as marks to be exploited, not served. At their worst, elite investment banks like Goldman Sachs and J.P. Morgan are not all that different. But the shafting of clients happens with a much greater veneer of respectability."
"I saw up close the willingness to distort the truth in order to further one's own narrow self-interest - the tendency to treat clients as marks to be exploited, not served. At their worst, elite investment banks like Goldman Sachs and J.P. Morgan are not all that different. But the shafting of clients happens with a much greater veneer of respectability."
Re: "The Education of a Value Investor"
.
I enjoyed the book, which I have now read. Its not so much about investing as it is about Guy Speir’s honest, pro-active journey of personal awareness and development. The book may not be for everyone, but I found it interesting, some parts resonated with me, and I learned some things which is always good.
Here are some extracts:
I enjoyed the book, which I have now read. Its not so much about investing as it is about Guy Speir’s honest, pro-active journey of personal awareness and development. The book may not be for everyone, but I found it interesting, some parts resonated with me, and I learned some things which is always good.
Here are some extracts:
- “…there is no more important aspect of education as investors, businesspeople, and human beings than to find these exceptional role models who can guide us on our own journey.”
“..the best way to learn is to surround yourself with the right people.” …”Hang out with people better than you, and you cannot help but improve”.
Quoting Warrant Buffet: “If you’re even a slightly above average investor who spends less they you earn, over a lifetime you cannot help but get very wealthy-if you’re patient”
“There’s a joke on Wall Street that a hedge fund is really just a fee structure in search of an investor to fleece.”
“According to Warren, temperament is more important than IQ when it comes to investing”
“Envy is crazy,” remarks Munger. “It’s 100 percent destructive … If you get those things out of your life early, life works out a lot better.” In financial markets envy is a silent killer.”
“One of the key financial decisions I had made as an adult was that I would never live beyond my means or fall into debt.”
“The truth is, all of us have mental shortcomings, though yours may be dramatically different from mine. With this in mind, I began to realize just how critical it is for investors to structure their environment to counter their mental weaknesses, idiosyncrasies, and irrational tendencies.”
“Check stock prices as infrequently as possible.”
“If the seller has a self-interest in me buying, I ain’t buying.”
“I’d argue that most individual investors would benefit from keeping quiet about their current investments since this talk only makes it harder to operate in a rational way. It’s so much easier when you don’t have to worry how other people may judge you.”
“The goal of creating a checklist is to avoid obvious and predictable errors. Before I make the final decision to buy any stock, I turn to my checklist in a last-ditch effort to prevent my unreliable brain from overlooking any potential warning signs that I might have missed.”
“… the intoxicating prospect of making money can arouse the same reward circuits in the brain that are stimulated by drugs, making the rational mind ignore supposedly extraneous details that are actually very relevant.”
Quoting Buffet “When a management team with a reputation of brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that remains in tact.”
“Ignorance is not bliss when it comes to investing because the financial markets are mercilessly effective at exposing these emotional weaknesses.”
“The stock market has an uncanny way of finding us out, of exposing weaknesses as diverse as arrogance, jealousy, fear, anger, self-doubt, greed, dishonesty, and the need for social approval. To achieve sustainable success, we need to confront our vulnerabilities, whatever they may be. Otherwise we are building our success on a fragile structure that is ultimately liable to fall down.”
“I used to think that I could overcome my fear of financial loss, thereby freeing myself to take more risk and achieve higher returns. But I’ve gradually come to accept that this is just part of who I am. “ …” I need to . make investments that I can handle emotionally, based on this self-knowledge.”
“If we take responsibility for our mistakes and failures, they offer priceless opportunities to learn about ourselves and how we need to improve. “ … “The only trouble is that it takes a long time to live through our mistakes and then learn from them, and it’s a painful process.”
“This became my own goal: not to be Warren Buffet, but to become a more authentic version of myself. As he had taught me, the path to true strength is through authenticity.”
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
I finished reading it too. Here are two additional quotes from the book:Robert T wrote:.
I enjoyed the book, which I have now read. Its not so much about investing as it is about Guy Speir’s honest, pro-active journey of personal awareness and development. The book may not be for everyone, but I found it interesting, some parts resonated with me, and I learned some things which is always good.
Here are some extracts:
- “…there is no more important aspect of education as investors, businesspeople, and human beings than to find these exceptional role models who can guide us on our own journey.”
“..the best way to learn is to surround yourself with the right people.” …”Hang out with people better than you, and you cannot help but improve”.
Quoting Warrant Buffet: “If you’re even a slightly above average investor who spends less they you earn, over a lifetime you cannot help but get very wealthy-if you’re patient”
“There’s a joke on Wall Street that a hedge fund is really just a fee structure in search of an investor to fleece.”
“According to Warren, temperament is more important than IQ when it comes to investing”
“Envy is crazy,” remarks Munger. “It’s 100 percent destructive … If you get those things out of your life early, life works out a lot better.” In financial markets envy is a silent killer.”
“One of the key financial decisions I had made as an adult was that I would never live beyond my means or fall into debt.”
“The truth is, all of us have mental shortcomings, though yours may be dramatically different from mine. With this in mind, I began to realize just how critical it is for investors to structure their environment to counter their mental weaknesses, idiosyncrasies, and irrational tendencies.”
“Check stock prices as infrequently as possible.”
“If the seller has a self-interest in me buying, I ain’t buying.”
“I’d argue that most individual investors would benefit from keeping quiet about their current investments since this talk only makes it harder to operate in a rational way. It’s so much easier when you don’t have to worry how other people may judge you.”
“The goal of creating a checklist is to avoid obvious and predictable errors. Before I make the final decision to buy any stock, I turn to my checklist in a last-ditch effort to prevent my unreliable brain from overlooking any potential warning signs that I might have missed.”
“… the intoxicating prospect of making money can arouse the same reward circuits in the brain that are stimulated by drugs, making the rational mind ignore supposedly extraneous details that are actually very relevant.”
Quoting Buffet “When a management team with a reputation of brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that remains in tact.”
“Ignorance is not bliss when it comes to investing because the financial markets are mercilessly effective at exposing these emotional weaknesses.”
“The stock market has an uncanny way of finding us out, of exposing weaknesses as diverse as arrogance, jealousy, fear, anger, self-doubt, greed, dishonesty, and the need for social approval. To achieve sustainable success, we need to confront our vulnerabilities, whatever they may be. Otherwise we are building our success on a fragile structure that is ultimately liable to fall down.”
“I used to think that I could overcome my fear of financial loss, thereby freeing myself to take more risk and achieve higher returns. But I’ve gradually come to accept that this is just part of who I am. “ …” I need to . make investments that I can handle emotionally, based on this self-knowledge.”
“If we take responsibility for our mistakes and failures, they offer priceless opportunities to learn about ourselves and how we need to improve. “ … “The only trouble is that it takes a long time to live through our mistakes and then learn from them, and it’s a painful process.”
“This became my own goal: not to be Warren Buffet, but to become a more authentic version of myself. As he had taught me, the path to true strength is through authenticity.”
"I hope that I'm making this sufficiently clear because it's almost certainly the most important point in this book - even though it may seem blindingly obvious to you. Nothing, nothing at all, matters as much as bringing the right people into your life. They will teach you everything you need to know."
"What I'm about to tell you may be the single most important secret I've discovered in all my decades of studying and stumbling. If you truly apply this lesson, I'm certain that you will have a much better life, even if you ignore everything else I write. What I stumbled on was this. Desperate to figure out how to lead a life that was more like his (Warren Buffett's), I began to constantly ask myself one simple question: "What would Warren Buffett do if he were in my shoes?"
Re: "The Education of a Value Investor"
.
FWIW – I also looked at the performance of his Aquamarine Fund. Here are the factor loads of the Fund, using monthly data from 1998 to 2013 (the full calendars years of the fund)
The close to zero (not significantly different from zero) alpha implies no significant excess return beyond fees and factor exposure over this period. However the factor exposure achieved is fairly difficult to mimic with passive/index funds (as per below). The 0.85 beta suggests either an average 15% cash holding in the fund (perhaps a contingency to manage redemptions, or more likely to have some ready cash for new opportunities, including to buy at cheaper prices during market corrections), or that there are some higher dividend paying stockholdings. The portfolio had (i) quite a strong value tilt (0.6 value load of the overall portfolio, or 0.71 value load for the actual stocks held [0.6/0.85]); (ii) a midcap tilt with a 0.16 size load (similar range to some of the midcap indexes); (iii) a quality tilt (according to the Asness/Frazzini QmJ factor), and (iv) negative momentum exposure which typically seems to be larger, the larger the value tilt of a fund. The overall direction of tilts – lower than 1 beta, with a value and quality tilt is similar to the direction of the Sequoia fund tilt mentioned in the book, and Berkshire Hathaway (according to Frazzini et al – http://www.econ.yale.edu/~af227/pdf/Buf ... dersen.pdf), which is consistent with Spier’s trying to emulate their overall approach. Just to note the Aquamarine fund has a stronger value tilt (value load) than Sequoia or Berkshire Hathaway.
Here’s a brief description from the book on some of the selection criteria for stocks in the Aquamarine fund portfolio:
On the comparison of the Aquamarine fund with the S&P 500, Spier's indicated the following in the 2013 letter to shareholders (thanks to my research assistant google) - "Over the last year, I have received a number of questions asking why I compare my performance to the S&P in these reports rather than the MSCI World Index which covers a more global basket of stocks. The short answer is that I do not want to "index shop" or even go anywhere near that slippery slope." He then goes on to show that over the period of comparison (since fund inception) the MSCI World underperformed the S&P500.
What continues to amaze me is the power of an index approach (across any market segment). Guy Spier outlines the rigor of his investment process, which is significant, involving talking with some of the best investors in the world about investment ideas, checklists, behavioral work arounds etc. Its a thorough process, and as he says – a very serious business. No individual can hope to replicate this process. Yet, using index funds to achieve a global small cap and value tilt, since inception at the start of 2003, I was able to match fairly closely the annualized returns (of my stock holding) with the Aquamarine fund. This, to me, is a gift for individual investors.
Robert
.
FWIW – I also looked at the performance of his Aquamarine Fund. Here are the factor loads of the Fund, using monthly data from 1998 to 2013 (the full calendars years of the fund)
- Alpha = 0.06
Mkt = 0.85
Size = 0.16
Value = 0.60
Momentum = -0.15
Quality = 0.33
The close to zero (not significantly different from zero) alpha implies no significant excess return beyond fees and factor exposure over this period. However the factor exposure achieved is fairly difficult to mimic with passive/index funds (as per below). The 0.85 beta suggests either an average 15% cash holding in the fund (perhaps a contingency to manage redemptions, or more likely to have some ready cash for new opportunities, including to buy at cheaper prices during market corrections), or that there are some higher dividend paying stockholdings. The portfolio had (i) quite a strong value tilt (0.6 value load of the overall portfolio, or 0.71 value load for the actual stocks held [0.6/0.85]); (ii) a midcap tilt with a 0.16 size load (similar range to some of the midcap indexes); (iii) a quality tilt (according to the Asness/Frazzini QmJ factor), and (iv) negative momentum exposure which typically seems to be larger, the larger the value tilt of a fund. The overall direction of tilts – lower than 1 beta, with a value and quality tilt is similar to the direction of the Sequoia fund tilt mentioned in the book, and Berkshire Hathaway (according to Frazzini et al – http://www.econ.yale.edu/~af227/pdf/Buf ... dersen.pdf), which is consistent with Spier’s trying to emulate their overall approach. Just to note the Aquamarine fund has a stronger value tilt (value load) than Sequoia or Berkshire Hathaway.
Here’s a brief description from the book on some of the selection criteria for stocks in the Aquamarine fund portfolio:
- “…companies that sold for significantly less than their intrinsic value. All of them had high-quality moats, and they were all prodigious cash generators. None were highly leveraged or needed regular access to capital markets.”
On the comparison of the Aquamarine fund with the S&P 500, Spier's indicated the following in the 2013 letter to shareholders (thanks to my research assistant google) - "Over the last year, I have received a number of questions asking why I compare my performance to the S&P in these reports rather than the MSCI World Index which covers a more global basket of stocks. The short answer is that I do not want to "index shop" or even go anywhere near that slippery slope." He then goes on to show that over the period of comparison (since fund inception) the MSCI World underperformed the S&P500.
What continues to amaze me is the power of an index approach (across any market segment). Guy Spier outlines the rigor of his investment process, which is significant, involving talking with some of the best investors in the world about investment ideas, checklists, behavioral work arounds etc. Its a thorough process, and as he says – a very serious business. No individual can hope to replicate this process. Yet, using index funds to achieve a global small cap and value tilt, since inception at the start of 2003, I was able to match fairly closely the annualized returns (of my stock holding) with the Aquamarine fund. This, to me, is a gift for individual investors.
Robert
.
Last edited by Robert T on Sat Sep 13, 2014 3:04 pm, edited 1 time in total.
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
Thank you, Robert. Terrific post.Robert T wrote:.
FWIW – I also looked at the performance of his Aquamarine Fund. Here are the factor loads of the Fund, using monthly data from 1998 to 2013 (the full calendars years of the fund)
Analysis done using the global factors from Frazzini’s data library http://www.econ.yale.edu/~af227/data_library.htm
- Alpha = 0.06
Mkt = 0.85
Size = 0.16
Value = 0.60
Momentum = -0.15
Quality = 0.33
The close to zero (not significantly different from zero) alpha implies no significant excess return beyond fees and factor exposure over this period. However the factor exposure achieved is fairly difficult to mimic with passive/index funds (as per below). The 0.85 beta suggests either an average 15% cash holding in the fund (perhaps a contingency to manage redemptions, or more likely to have some ready cash for new opportunities, including to buy at cheaper prices during market corrections), or that there are some higher dividend paying stockholdings. The portfolio had (i) quite a strong value tilt (0.6 value load of the overall portfolio, or 0.71 value load for the actual stocks held [0.6/0.85]); (ii) a midcap tilt with a 0.16 size load (similar range to some of the midcap indexes); (iii) a quality tilt (according to the Asness/Frazzini QmJ factor), and (iv) negative momentum exposure which typically seems to be larger, the larger the value tilt of a fund. The overall direction of tilts – lower than 1 beta, with a value and quality tilt is similar to the direction of the Sequoia fund tilt mentioned in the book, and Berkshire Hathaway (according to Frazzini et al – http://www.econ.yale.edu/~af227/pdf/Buf ... dersen.pdf), which is consistent with Spier’s trying to emulate their overall approach. Just to note the Aquamarine fund has a stronger value tilt (value load) than Sequoia or Berkshire Hathaway.
Here’s a brief description from the book on some of the selection criteria for stocks in the Aquamarine fund portfolio:
Its not so easy to emulate (benchmark) this factor exposure with index funds, and not many indexes combine value and quality in their stocks sorts as explicitly (to get as high loads on both). Northern Trust has some interesting literature on this (https://www.northerntrust.com/documents ... c=23457600 ), and does have a quality dividend index tracked by a Flexshares ETF (QDF), but it seems this fund has about a 0.22 value load, but higher quality load ( https://www.northerntrust.com/documents ... c=23500800 ). The RAFI pure small value series had both a significant value load (0.78) and significant quality load (0.25) over the same period, although has a higher size load. I am also not yet sure how to interpret the estimated ’quality load’ coefficient on the RAFI series, as Asness thinks the RAFI funds are more neutral on quality, if anything ‘perhaps somewhat’ lower quality https://www.researchaffiliates.com/Our% ... ality.aspx . In any event, it will be interesting to see how combined quality and value funds (as per the Aquamarine and Sequoia funds) perform, including DFA’s recent addition of ‘quality/profitability’ screens.
- “…companies that sold for significantly less than their intrinsic value. All of them had high-quality moats, and they were all prodigious cash generators. None were highly leveraged or needed regular access to capital markets.”
On the comparison of the Aquamarine fund with the S&P 500, Spier's indicated the following in the 2012 letter to shareholders (thanks to my research assistance google) - "Over the last year, I have received a number of questions asking why I compare my performance to the S&P in these reports rather than the MSCI World Index which covers a more global basket of stocks. The short answer is that I do not want to "index shop" or even go anywhere near that slippery slope." He then goes on to show that over the period of comparison (since fund inception) the MSCI World underperformed the S&P500.
What continues to amaze me is the power of an index approach (across any market segment). Guy Spier outlines the rigor of his investment process, which is significant, involving talking with some of the best investors in the world about investment ideas, checklists, behavioral work arounds etc. Its a thorough process, and as he says – a very serious business. No individual can hope to replicate this process. Yet with index funds, to achieve a global small cap and value tilt, since inception at start of 2003, I was able to match fairly closely the annualized returns (of my stock holding) with the Aquamarine fund. This, to me, is a gift for individual investors.
Robert
.
-
- Posts: 80
- Joined: Fri Aug 22, 2014 11:50 pm
Re: "The Education of a Value Investor"
There are still a decent number of US companies(437) with a P/B less than 0.9. The only problem is that most of those(340) have a market cap of less than 300 million. They might be too thinly for even DFA to scarf up without distorting the price.Valuethinker wrote: Warren Buffett adapted the Graham and Dodd approach.
In G&D's day you could buy companies with market cap less than their working capital. Nowadays with financial information widely available on the internet, it's much harder. There was no DFA scarfing up small value stocks in Ben Graham's time.
Re: "The Education of a Value Investor"
.
Mohnish Pabrai is mentioned a lot in the book. I had earlier listened to an interview of him with Steve Forbes http://www.youtube.com/watch?v=oaL2v1nVokw , and a presentation he made at Colombia Business School (I can not longer find the long, elaborate, and informative youtube video of the presentation that I watched).
Anyway, according to my research assistant (google), he is targeting a 26% annualized return over 30 years 1995-2025 as I recall (which would double investments every 3 years)- and says he's currently achieved just under that at 25.7% annualized. With such a high return, I wondered what he was doing. His fund/s for external investors only started in 1999, so the 1995-1998 was personal investment. As I understand for the 15 year period 7/1/99 to 6/30/14 his fund had an after fee annualized return of 17.3%, so way short of 26%, but nevertheless fairly high. And from 2003-2013 the returns were 16.1% annualized (for the PIF3 fund which has calendar year, rather than June-to-June posted returns). Return volatility has been high - increases of 96.5% and 125% in 2003 and 2009 respectively, and losses of 64% in 2007-2008 - perhaps a reflection of his highly concentrated portfolio in just a few stocks (currently 6 as I understand). His approach is outlined in his book The Dandho Investor, which is an interesting read. Will be interesting to see his performance over next 11 years.
Robert
PS. I see that Bill Ackman (Pershing Square) has achieve above 26% annualized returns over the last 10.5 years, but only for gross returns (27.7%), net returns were 21% annualized (1/1/2004-6/30/2014), even with an average cash holding of 14% over this period, fairly exceptional (2008 return = -13% as I understand).
.
Mohnish Pabrai is mentioned a lot in the book. I had earlier listened to an interview of him with Steve Forbes http://www.youtube.com/watch?v=oaL2v1nVokw , and a presentation he made at Colombia Business School (I can not longer find the long, elaborate, and informative youtube video of the presentation that I watched).
Anyway, according to my research assistant (google), he is targeting a 26% annualized return over 30 years 1995-2025 as I recall (which would double investments every 3 years)- and says he's currently achieved just under that at 25.7% annualized. With such a high return, I wondered what he was doing. His fund/s for external investors only started in 1999, so the 1995-1998 was personal investment. As I understand for the 15 year period 7/1/99 to 6/30/14 his fund had an after fee annualized return of 17.3%, so way short of 26%, but nevertheless fairly high. And from 2003-2013 the returns were 16.1% annualized (for the PIF3 fund which has calendar year, rather than June-to-June posted returns). Return volatility has been high - increases of 96.5% and 125% in 2003 and 2009 respectively, and losses of 64% in 2007-2008 - perhaps a reflection of his highly concentrated portfolio in just a few stocks (currently 6 as I understand). His approach is outlined in his book The Dandho Investor, which is an interesting read. Will be interesting to see his performance over next 11 years.
Robert
PS. I see that Bill Ackman (Pershing Square) has achieve above 26% annualized returns over the last 10.5 years, but only for gross returns (27.7%), net returns were 21% annualized (1/1/2004-6/30/2014), even with an average cash holding of 14% over this period, fairly exceptional (2008 return = -13% as I understand).
.
-
- Posts: 1
- Joined: Fri Apr 19, 2013 8:22 am
Re: "The Education of a Value Investor"
Robert,
How are you able to calculate the different factor loads from the monthly returns?
Also, if you're curious as to the holdings of Mohnish Pabrai's fund, you can find them here (based on 13F filings) http://www.dataroma.com/m/holdings.php?m=PI
Thanks
How are you able to calculate the different factor loads from the monthly returns?
Also, if you're curious as to the holdings of Mohnish Pabrai's fund, you can find them here (based on 13F filings) http://www.dataroma.com/m/holdings.php?m=PI
Thanks
Re: "The Education of a Value Investor"
NomadicRiley,NomadicRiley wrote:Robert,
How are you able to calculate the different factor loads from the monthly returns?
Also, if you're curious as to the holdings of Mohnish Pabrai's fund, you can find them here (based on 13F filings) http://www.dataroma.com/m/holdings.php?m=PI
Here's how to estimate the factor loads http://www.efficientfrontier.com/ef/101/roll101.htm
Thanks for the 13F, I do follow Pabrai's 13F filings, together with Ackman, Ian Cumming , and Lampert - all have most of their holdings in just a few stocks. Educating myself.
Robert
.
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
Robert: Here is an article about Mohnish that just came out today:Robert T wrote:.
Mohnish Pabrai is mentioned a lot in the book. I had earlier listened to an interview of him with Steve Forbes http://www.youtube.com/watch?v=oaL2v1nVokw , and a presentation he made at Colombia Business School (I can not longer find the long, elaborate, and informative youtube video of the presentation that I watched).
Anyway, according to my research assistant (google), he is targeting a 26% annualized return over 30 years 1995-2025 as I recall (which would double investments every 3 years)- and says he's currently achieved just under that at 25.7% annualized. With such a high return, I wondered what he was doing. His fund/s for external investors only started in 1999, so the 1995-1998 was personal investment. As I understand for the 15 year period 7/1/99 to 6/30/14 his fund had an after fee annualized return of 17.3%, so way short of 26%, but nevertheless fairly high. And from 2003-2013 the returns were 16.1% annualized (for the PIF3 fund which has calendar year, rather than June-to-June posted returns). Return volatility has been high - increases of 96.5% and 125% in 2003 and 2009 respectively, and losses of 64% in 2007-2008 - perhaps a reflection of his highly concentrated portfolio in just a few stocks (currently 6 as I understand). His approach is outlined in his book The Dandho Investor, which is an interesting read. Will be interesting to see his performance over next 11 years.
Robert
PS. I see that Bill Ackman (Pershing Square) has achieve above 26% annualized returns over the last 10.5 years, but only for gross returns (27.7%), net returns were 21% annualized (1/1/2004-6/30/2014), even with an average cash holding of 14% over this period, fairly exceptional (2008 return = -13% as I understand).
.
"Lessons from the master investor who has outperformed Warren Buffett since 2000"
http://www.fool.com.au/2014/09/15/lesso ... ince-2000/
Best,
Howard
Re: "The Education of a Value Investor"
Robert,
How easy is the efficient frontier data to use? I have some private fund data I would like to run through this analysis. Will the analysis work with yearly or quarterly data or only monthly?
If you are interested in Pabrai, he has purchased an insurance company from which he plans to invest the float (sound familiar)? He plans on an IPO next year.
Of his current holdings, I like and hold both Fiat and the GM warrants.
Packer
How easy is the efficient frontier data to use? I have some private fund data I would like to run through this analysis. Will the analysis work with yearly or quarterly data or only monthly?
If you are interested in Pabrai, he has purchased an insurance company from which he plans to invest the float (sound familiar)? He plans on an IPO next year.
Of his current holdings, I like and hold both Fiat and the GM warrants.
Packer
Buy cheap and something good might happen
Re: "The Education of a Value Investor"
Ken French library has daily prices for the base portfolios (http://mba.tuck.dartmouth.edu/pages/fac ... brary.html). You can compute weekly, monthly, quarterly, or yearly returns.
-
- Posts: 48955
- Joined: Fri May 11, 2007 11:07 am
Re: "The Education of a Value Investor"
Take a look at Prem Wasa and Fairfax Financial (Canadian listed stock-- TSX).packer16 wrote:Robert,
How easy is the efficient frontier data to use? I have some private fund data I would like to run through this analysis. Will the analysis work with yearly or quarterly data or only monthly?
If you are interested in Pabrai, he has purchased an insurance company from which he plans to invest the float (sound familiar)? He plans on an IPO next year.
Of his current holdings, I like and hold both Fiat and the GM warrants.
Packer
Re: "The Education of a Value Investor"
I just read this over the course of a couple of days on vacation. I was hopeful I would find some good discussion on BH and I was not disappointed. Although I generally enjoyed the book a few other things stuck out to me and left me unsatisfied.Robert T wrote:.
What continues to amaze me is the power of an index approach (across any market segment). Guy Spier outlines the rigor of his investment process, which is significant, involving talking with some of the best investors in the world about investment ideas, checklists, behavioral work arounds etc. Its a thorough process, and as he says – a very serious business. No individual can hope to replicate this process. Yet, using index funds to achieve a global small cap and value tilt, since inception at the start of 2003, I was able to match fairly closely the annualized returns (of my stock holding) with the Aquamarine fund. This, to me, is a gift for individual investors.
Robert
.
My initial catty comment is that it should be renamed "My Man Crush on Mohnish Pabrai and Warren Buffett." The rest of my commentary is from memory of what I just read over the past couple of days.
The book has somewhat of a preachy tone regarding self interest, sales in general, and wall street. It seems to me that if one is going to get all preachy about that then one should address the amazing returns of passive investing. He just dismisses the EMH as ivory tower BS that doesn't much apply in the real world and I don't think he addresses anything about passive/factor investing.
Buffet has his Geico and Spier has his father and his father's friends. There is no doubt he is a very smart man and has a real introspective bent which is wonderful. It just struck me that (late 1997) he was able to start his fund after only about 18 months of professional experience as an investment banker (not a fund manager or analyst) with the help of a couple million from his father and who knows what from his father's friends. Even as late as 2008 he said his father was far and away the largest single investor in the fund. I don't begrudge Spier for this but I do think it is a large advantage for someone running money to have a greater degree of bonding/control over the largest chunks of money in the fund. Assuming he was like Buffett and sidestepped the dot com stuff then he likely way, way underperformed the S&P500 for his first 2-3 years. Having the family be most of the fund must have really allowed this.
As Robert T. posted above, Spier also has access to and friendships with the very elite level of investors in this world who don't use a quant-type process. These guys appear to often help each other vet ideas, etc. These are the 1% of winners who they write books about as Fama has said. In this case Spier is writing it about himself. I enjoyed the more important lessons/thoughts about interacting with others and what is important in life but the cynic in me can't help but feel that in his group they are just substituting other things as markers for accomplishments. Things like books, and networking, and high profile charity. To be sure, those things are noble compared to yachts though!
Ultimately, I think the "Random Walk Though His Library" may be the best part of the book because it leads to many other interesting books.
Robert T., I await your memoir about how you matched Spier by doing very little and charging no one anything!
A man is rich in proportion to the number of things he can afford to let alone.
Re: "The Education of a Value Investor"
For those interested in Spier and Pabrai, I just came across a very good website called 5 Good Questions that has lengthy interviews with finance pros. http://fivegoodquestions.co/about
Here are the links to a dual interview with them:
http://fivegoodquestions.co/season-1/s1e8
http://fivegoodquestions.co/season-1/s1e9
Here are the links to a dual interview with them:
http://fivegoodquestions.co/season-1/s1e8
http://fivegoodquestions.co/season-1/s1e9
A man is rich in proportion to the number of things he can afford to let alone.
-
- Posts: 198
- Joined: Sun Mar 03, 2013 4:40 pm
Re: "The Education of a Value Investor"
Interesting book but not a keeper. It is more about his experience in the NY hedge run rat race, and his realignment of values when he gave up on being a baller like Ackman, Loeb, etc.
I did find it odd that he used the SP500 as his benchmark even though he was a small to mid=cap value investor.
I did find it odd that he used the SP500 as his benchmark even though he was a small to mid=cap value investor.
Re: "The Education of a Value Investor"
.
For those interested: 2014 Aquamarine Fund Annual Report http://go.aquamarinefund.com/rs/251-BLS ... 202014.pdf
Interesting set of investing principles.
Robert
.
For those interested: 2014 Aquamarine Fund Annual Report http://go.aquamarinefund.com/rs/251-BLS ... 202014.pdf
Interesting set of investing principles.
Robert
.
Re: "The Education of a Value Investor"
Thanks for the interesting report Robert T. Good stuff. Out of curiosity I took a gander at his first few years which went as well as I had expected above. His overall performance has been excellent (relative to the S&P500) as listed in the report on page 2. Good for him for having the right type of "partners" that allowed him to survive. Third column is performance relative to the S&P.matjen wrote: Buffet has his Geico and Spier has his father and his father's friends. There is no doubt he is a very smart man and has a real introspective bent which is wonderful. It just struck me that (late 1997) he was able to start his fund after only about 18 months of professional experience as an investment banker (not a fund manager or analyst) with the help of a couple million from his father and who knows what from his father's friends. Even as late as 2008 he said his father was far and away the largest single investor in the fund. I don't begrudge Spier for this but I do think it is a large advantage for someone running money to have a greater degree of bonding/control over the largest chunks of money in the fund. Assuming he was like Buffett and sidestepped the dot com stuff then he likely way, way underperformed the S&P500 for his first 2-3 years. Having the family be most of the fund must have really allowed this.
A man is rich in proportion to the number of things he can afford to let alone.
Re: "The Education of a Value Investor"
Yes, when 1997 inception to end 1999 annualized return = 8.5% relative S&P500 = 24.2%, the type of investor matters a lot/critical for fund survival, to stay the course.matjen wrote:[Good for him for having the right type of "partners" that allowed him to survive.
From the annual report: "On reason why investors do so badly over the long term is that it requires psychological discipline to stick with the program." For fund managers it also requires investors in the fund to stay in the fund.
Investors need wide psychological moats (an analogy he uses) to stay the course. Ways I try to widen my moat: having a clear framework for making decisions (Fama-French factor framework) [a mini "checklist" of factor exposure and expense]; knowledge & experience of history; and broader 'investment' education.
Robert
.
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: "The Education of a Value Investor"
Here is a recent article about Guy Spier and his lunch with Warren Buffett:
"Lessons from lunch with Warren Buffett"
http://www.businessinsider.com/lessons- ... ett-2015-6
"Lessons from lunch with Warren Buffett"
http://www.businessinsider.com/lessons- ... ett-2015-6
-
- Posts: 25617
- Joined: Thu Apr 05, 2007 8:20 pm
- Location: New York
Re: "The Education of a Value Investor"
It's one thing to have a strong conviction but when you look at his annual report, you can see nearly 50% of the fund is concentrated in just three singular investments - BofA, Berkshire Hathaway and American Express. More notably, is the overweigh in both BofA and Amex. One may question my statement and say, what overweigh are you seeing that I am not? The overweighing occurs because Berkshire Hathaway has a major (5% or more) of the total outstanding equity ownership position via warrants and common stock in both BofA and Amex. While his annual report seemingly remains obscure as to the actual holdings, one can assume with reasonable certainty what those other holdings are - wide moat companies, high profitability, high quality. A 6% threshold before claiming a slice of the profits is not low, nor is it high especially for companies that are either #1 or #2 in their respective industries. He will make money from this endeavor. It's likely the fund will do well over time, but as noted above having the "right partners" that happens to include family/friends is important in letting your strategy play out.matjen wrote:Thanks for the interesting report Robert T. Good stuff. Out of curiosity I took a gander at his first few years which went as well as I had expected above. His overall performance has been excellent (relative to the S&P500) as listed in the report on page 2. Good for him for having the right type of "partners" that allowed him to survive. Third column is performance relative to the S&P.matjen wrote: Buffet has his Geico and Spier has his father and his father's friends. There is no doubt he is a very smart man and has a real introspective bent which is wonderful. It just struck me that (late 1997) he was able to start his fund after only about 18 months of professional experience as an investment banker (not a fund manager or analyst) with the help of a couple million from his father and who knows what from his father's friends. Even as late as 2008 he said his father was far and away the largest single investor in the fund. I don't begrudge Spier for this but I do think it is a large advantage for someone running money to have a greater degree of bonding/control over the largest chunks of money in the fund. Assuming he was like Buffett and sidestepped the dot com stuff then he likely way, way underperformed the S&P500 for his first 2-3 years. Having the family be most of the fund must have really allowed this.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: "The Education of a Value Investor"
.
Annualized returns over last 10 years: 2005-2014
Pabrai Fund (PIF3) = 8.8%
Index portfolio = 8.4%
iShares Russell MidCap Value = 9.3%
Index portfolio = the one he mentioned in the interview with Steve Forbes linked above, about 16 minute mark - a third each in S&P500, Russell2000, Emerging Markets. He mentions Vanguard favorably.
Best,
Robert
.
Stock picking is not easy to do consistently well - even among highly respected investors such as Mohnish Pabrai.Robert T wrote:.Mohnish Pabrai is mentioned a lot in the book. I had earlier listened to an interview of him with Steve Forbes http://www.youtube.com/watch?v=oaL2v1nVokw , and a presentation he made at Colombia Business School (I can not longer find the long, elaborate, and informative youtube video of the presentation that I watched).
Annualized returns over last 10 years: 2005-2014
Pabrai Fund (PIF3) = 8.8%
Index portfolio = 8.4%
iShares Russell MidCap Value = 9.3%
Index portfolio = the one he mentioned in the interview with Steve Forbes linked above, about 16 minute mark - a third each in S&P500, Russell2000, Emerging Markets. He mentions Vanguard favorably.
Best,
Robert
.
Re: "The Education of a Value Investor"
.
Just read the 2018 annual report of the Aquamarine Fund written by Guy Spiers. It is well written, honest, and informative. One of the better things I have recently read.
For example – here’s an extract:
However, index funds do exit, and it is very difficult to generate alpha beyond factor exposure, and a factor matched low-cost (including taxes) index fund portfolio is very tough to beat.
2003-2018
Annualized return (%) / SD / 2008 return
Just read the 2018 annual report of the Aquamarine Fund written by Guy Spiers. It is well written, honest, and informative. One of the better things I have recently read.
For example – here’s an extract:
If there was no such thing as index funds, I would consider investing with him as his value and size tilts, and global orientation are not far off my long-term targets. His performance over the past 16 years has been very similar to mine, with moderate outperformance over other actively managed funds such as Dodge and Cox.“it turns out to be even harder to beat low-cost index funds than I ever realized as a young fund manager. The market is increasingly efficient, and we are competing against a lot of highly intelligent and highly motivated people. Over the last 21 years, I’ve seen many of them close their funds after years of underperformance.
Some got unlucky. Some took too much risk and blew up disastrously. It’s humbling to see how many talented stockpickers have fallen by the wayside since I started and how few have built funds that have survived for two decades.
I’m also writing this shortly after watching Charlie Munger speak at the Daily Journal’s annual meeting, where he emphasized just how difficult it is to earn outsized returns and pointed out the importance of having realistic expectations. As Charlie put it, investors should be “cheerful” if they earn, say, six percent a year over a lifetime.”
However, index funds do exit, and it is very difficult to generate alpha beyond factor exposure, and a factor matched low-cost (including taxes) index fund portfolio is very tough to beat.
2003-2018
Annualized return (%) / SD / 2008 return
- 8.7 / 15.7 / -28.7 = Personal performance (75:25 bonds –‘index fund portfolio’)
8.6 / 17.0 / -31.7 = 75% Aquamarine fund:25% (Vgd Intermediate Treasuries)
8.3 / 15.9 / -30.4 = 37.5% D&C Stock:37.5% D&C Intl.: 25% Vgd. Intrm. Treasuries
8.7 / 15.5 / -29.1 = 75% DFA Balanced Equity:25% DFA Balanced Fixed Income
7.2 / 14.1 / -30.3 = “Market Portfolio (75% MSCI ACWI [Global stock]: 25% US Agg. Bond)
Re: "The Education of a Value Investor"
Similar to this - viewtopic.php?t=184501
My long-term factor load targets have not changed in 16 years, no plans to change them anytime soon. While there are likely many portfolios "better" than mine (and an almost immeasurable number of different factor combinations), it is one I have been able to stick with.
Obviously no guarantees.
.
Re: "The Education of a Value Investor"
I am less convinced about momentum and minimum/low volatility (given lack of risk-based stories), than I am about equity, size, value, and term exposure. Momentum also has more restrictive capacity constraints. But realize people have different views and that’s okay.
Looking back: Historical simulations of adding MSCI ACWI momentum and MSCI ACWI minimum volatility to my portfolio showed no value added. Extending back to 1995 (earliest data from MSCI ACWI momentum). 1/3 Global Value/Small Cap: 1/3 MSCI ACWI momentum: 1/3 MSCI ACWI minimum volatility + 5 T-notes to match the historical return simulations of my portfolio yielded greater 2008 downside, higher volatility, and a lower Sharpe Ratio.
Looking forward: FWIW - if you look at the RAFI expected return tool (which takes into account relative valuations) – it doesn’t paint a very good outlook for minimum volatility, low volatility, and momentum strategies relative to value (and small cap value).
Having said that I have some explicit momentum exposure to try to offset some of the long-term negative momentum of value funds (to try to get net exposure closer to zero), and reduce portfolio tracking error in periods such as past few years and late 1990s.
Obviously no guarantees.
Robert
.