Best Value Investors around the world
Benjamin Graham
Warren Edward Buffett
Charles Thomas Munger
Charles Brandes
Philip Arthur Fisher
Joel Greenblatt
Irving Kahn
Michael Larson
Mohnish Pabrai
William Ruane
Walter J. Schloss
Whitney Tilson
Thursday, May 1, 2008
Top Value Investors
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From Whitney Tilson July 17, 2001:
The right person
The right approach is necessary but not sufficient to long-term investment success. The other key ingredient is the right person. My observation reveals that most successful investors have the following characteristics:
They are businesspeople, and understand how industries work and companies compete. As Buffett said, "I am a better investor because I am a businessman, and a better businessman because I am an investor."
While this may sound elitist, they have a lot of intellectual horsepower. John Templeton, for example, graduated first in his class at Yale and was a Rhodes Scholar. I don't disagree with Buffett -- who noted that "investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ" -- but would point out that he didn't use the numbers 160 and 100.
They are good with numbers -- though advanced math is irrelevant -- and are able to seize on the most important nuggets of information in a sea of data.
They are simultaneously confident and humble. Almost all money managers have the former in abundance, while few are blessed with the latter. "Although humility is a trait I much admire," Munger once said, "I don't think I quite got my full share." Of course, Munger also said: "The game of investing is one of making better predictions about the future than other people. How are you going to do that? One way is to limit your tries to areas of competence. If you try to predict the future of everything, you attempt too much." In addition to what Munger is talking about -- understanding and staying within one's circle of competence -- there are many other areas of investing in which humility is critical, which I discussed in "The Perils of Investor Overconfidence."
They are independent, and neither take comfort in standing with the crowd nor derive pride from standing alone. (The latter is more common since, I argued last week, bargains are rarely found among the crowd. John Neff said he typically bought stocks that were "misunderstood and woebegone.")
They are patient. ("Long-term greedy," as Buffett once said.) Templeton noted that, "if you find shares that are low in price, they don't suddenly go up. Our average holding period is five years."
They make decisions based on analysis, not emotion. Miller wrote in his Q4 '98 letter to investors: "Most of the activity that makes active portfolio management active is wasted... [and is] often triggered by ineffective psychological responses such as overweighting recent data, anchoring on irrelevant criteria, and a whole host of other less than optimal decision procedures currently being investigated by cognitive psychologists."
They love what they do. Buffett has said at various times: "I'm the luckiest guy in the world in terms of what I do for a living" and "I wouldn't trade my job for any job" and "I feel like tap dancing all the time."
Obvious?
Much of what I've written may seem obvious, but I would argue that the vast majority of money in this country is managed by people who neither have the right approach nor the right personal characterisitics. Consider that the average mutual fund has 86% annual turnover, 132 holdings, and no investment larger than 5% of the fund.
Those statistics are disgraceful! Do you think someone flipping a portfolio nearly 100% every year is investing in companies or trading in stocks? And does 132 holdings indicate patience and discipline in buying stocks only when they are on sale and odds are highly favorable? Of course not. It smacks of closet indexing, attempting to predict the herd's next move (but more often mindlessly following it), and ridiculous overconfidence -- in short, rampant speculation rather than prudent and sensible investing.
The performance trap
I have not discussed historical performance as a metric for evaluating money managers, not because it's unimportant, but rather because it's not as important as most people think. Consider this: If you took 1,000 people and had them throw darts to pick stocks, it is certain that a few of them, due simply to randomness, would have stellar track records, but would these people be likely to outperform in the future? Of course not.
The same factors are at work on the lists of top-performing money managers. Some undoubtedly have talent but most are just lucky, which is why countless studies -- I recommend a 1999 article by William Bernstein -- have shown that mutual funds with the highest returns in one period do not outperform in future periods. (Look at the Janus family of funds for good recent examples of this phenomenon.)
As a result, the key is to find money managers who have both a good track record and the investment approach and personal characteristics I've noted above.
Conclusion
The characteristics I've described here are not only useful in evaluating professional money managers. They can also be invaluable in helping you decide whether to pick stocks for yourself. Do you have the right approach and characteristics?
-- Whitney Tilson
Whitney Tilson is NOT an esteemed value investor. He is a fraud.
http://www.1440wallstreet.com/index.php/site/comments/60_minutes_whitney_tilsons_publicist_strikes_again/
60 Minutes: Whitney Tilson’s Publicist Strikes Again
by StockJockey
Sunday, December 14, 2008 - 8:36 pm
I have to had it to Wall Street’s Tres Amigos...the boys know how to market themselves.
Whitney Tilson was hardly the first talking head to warn about the dangers building in the housing market, and based on his performance (in this strategy - Tilson Focus Fund), has not capitalized on it.
But, along with Bill Ackman and David Einhorn, he continues to put himself front in center, stealing the spotlight tonight on CBS’s 60 Minutes.
Whitney seems to be a pretty stand up guy, but if he wants a little love from this site he will at least have to beat 50% of his peers. And after seeing him lay out his case, I came to a conclusion that is less bullish as Whitney.
He seems to be able to connect the dots, but not capitalize on his legwork.
Check out his contribution to 60 Minutes tonight, and see if you reach the same conclusions. Yes, stocks are on sale, but I am not sure most most investors will exhibit the patience of Whitney.
With the Alt-A and option ARM loans getting ready to reset, it is hard to get terribly constructive on this market. At least for a while.
And while Scott Pelley said that Tilson made a name for himself warning about the subprime storm, I would argue that James Melcher of Balestra Capital, the well known John Paulson or even Wayne Nef of Nef Value Research beat Whitney to the thesis, and are a bit less promotional to boot.
Enjoy the spotlight, Whitney. We could do worse than have you represent us, I suppose.
Comments:
I love your articles on Tilson. Tilson is just a huckster who’s been able to fool the value crowd. I suspect what really happened is that Whitney caught a big whiff of his buddy Ackman’s MBI presentation, stole all of the data and then stole the Amherst data while “citing” it and has been peddling it as his own. This was probably his reaction to a growing irate investor base that was like “Whitney, you steer us into the SAME investments we could do reading 13Fs and you charge us a fortune for it!” so Tilson probably decided to “look busy” and become an “expert” on something hot which was the mortgage mess.
Look at Tilson’s holdings, it’s all ripoffs of his idols. This guy just cannot think at all. He spends all of his time peddling investment newsletters, value conferences, writing for Kiplingers, going on Bloomberg, CNBC, and now 60 Minutes, he blogs about education reform and Obama. Does this guy ever have a chance to look at a quarterly filing? Probably not but he still gets to charge nice fees for the AUM his firm has despite probably just begging Ackman or Einhorn for a morsel investment tip. Best of all, his investors pay him to be focused on investing yet he does all of these other activities that increase his pay.
Can you imagine his “idol” Buffett doing anything but pouring over companies? Hell no. Tilson is what is known as a “value fraud” and many value investors are susceptible to following these false idols.
Posted by Value Pimp on 12/16/2008 at 12:22 AM
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