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Monthly Archives: June 2013

It is also one of the only advantages an individual investor has over institutional investors.

You see, unlike professional money managers – whether they’re hedge funds or mutual funds – you don’t have to constantly be running in the relative performance derby and impressing your clients every minute of the day.  Not only can you take long term bets but you can wait and let them play out.

There are two posts worth checking out: (1) Your Last Remaining Edge on Wall Street by Morgan Housel and (2) Barry Ritholz’s post about that post.  So yeah, you will basically read three articles about the exact same thing but this is an important point so it’s worth repeating.

As Housel quotes Henry Blodget:

If you talk to a lot of investment managers, the practical reality is they’re thinking about the next week, possibly the next month or quarter. There isn’t a time horizon; it’s how are you doing now, relative to your competitors. You really only have ninety days to be right, and if you’re wrong within ninety days, your clients begin to fire you.

Housel goes on:

Holding stocks for less than a year amounts to little more than flipping a coin. You are almost as likely to lose as you are to win.

But the odds of success grow perfectly with time. If you hold for five, 10, 15 years or more, the odds of earning a positive return on stocks after inflation quickly approach 100%, historically.This chart shows the percentage of holding periods that generated positive returns:

The irony is that while Wall Street has more information than you, its short time horizon forces it to deal with more randomness than you have to. That’s your edge. And it’s why any bumpkin who buys an index fund and forgets about it will beat the vast majority of professional money managers over time.

Here’s another way to look at this. This chart shows the maximum and minimum annual returns someone would have earned between 1871 and 2012 based on different holding periods:

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There has got to be a better way to benchmark oil spot prices…

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Key to the strategy is a peculiar aspect of the spot market for oil, where traders buy and sell bargeloads for immediate delivery. Deals are negotiated in private, and buyers and sellers aren’t required to disclose prices to anyone. To come up with a benchmark price, Platts has to rely on information volunteered by traders—a far cry from the way stocks or even oil futures are priced by crunching comprehensive data from public exchanges.

Source: WSJ

Although he’s usually very open about his thoughts, its not often that you get to see a detailed investment analysis authored by Warren Buffett.  In fact, talking about the stock(s) he thinks are attractive is generally off limits when interviewing The Oracle of Omaha.  That’s why the write up below is such a gem – not only is this a pretty cool artifact of Berkshire Hathaway’s history (GEICO is one of their core businesses) – we get a detailed look at how Buffett thought about the business and why he invested.

Reading this assessment from 1951 about a company that is now an insurance powerhouse is a testament to Buffett’s strategy: find good businesses with a durable competitive advantage, good management, and buy them at a cheap price.

From Security Analysis, 1940 edition:

“Analysis is concerned primarily with values which are supported by the facts and not with those which depend largely upon expectations. In this respect the analyst’s approach is diametrically opposed to that of the speculator, meaning thereby one whose success turns upon his ability to forecast or to guess future developments. Needless to say, the analyst must take possible future changes into account, but his primary aim is not so much to profit from them as to guard against them. Broadly speaking, he views the business future as a hazard which his conclusions must encounter rather than as the source of his vindication.”Source: Value Investing World

Great Reuters article about an incredibly common practice in the world of PE (and VC) – funds sitting on assets for the sole purpose of collecting fees.

Generally these funds have a 5 year period to make investments, after that period comes to pass a fund generally switches into “harvesting” mode where the GPs work to realize (sell) the assets and return money to LPs (investors).  But because of the way GPs are compensated they actually have the perverse incentive NOT to return your money or realize many of the investments.

You see if the fund has a 10 year life and the GP is paid 2% per year on the dollar value of the investments then why give that up?  Sure it will piss off the LPs but the GPs will likely be on to their next fund before that happens.  Money for nothing and fees for free.

The article is more enjoyable if read while listening to this.

Reuters: More than $100 billion trapped in ‘zombie funds:’ industry data