Half of the Price of a Common Stock is “Fashion”

One of the best interviews with the Kahn brothers was with the Ivey Value Investing Class in 2005 and there’s one part in particular that encapsulates the mindset required to be a successful value investor. Here’s an excerpt from that interview:

25.57 The only thing I can say is we maintain a really strict contrarian approach. So if something is very popular and everybody loves it and we’re buying it we have to say to ourselves what are we doing wrong here. Because I’d say half of the price of a common stock is ‘fashion’ basically so what we’re doing is we’re buying long skirts at the thrift shop when mini skirts are in favor. So we’re buying the long skirts for a dollar or two and then waiting till long skirts come back into Saks and if you can do that you’re halfway home you know you’re almost halfway home if you can just stick to being a contrarian.

 

Source: The One Thing All Value Investors Can Do To Get You Halfway Home – Irving Kahn

Find out What Four Legendary Investors Think of Market Valuations Today

Art Samberg, Mario Gabelli, Leon Cooperman and Russell Carson share their thoughts on today’s market valuations and the economy at the Columbia Business School’s 2017 Reunion Weekend.

Assessing Durable Competitive Advantage in Businesses

Successful investors know that finding a business with a high barrier to entry, a moat in Buffett parlance, is the key to creating long-term wealth.  Identifying businesses that have a competitive advantage that is sustainable and durable, will deliver the greatest rewards to the owners. Continue reading

Mohnish Pabrai Explains Why Charlie Munger Says “Pay Attention to the Cannibals”

In an article over at Forbes, Mohnish Pabrai lays out a strategy he calls the “Uber Cannibals” based on buying the 5 companies with the biggest share repurchases.

Dividends are a tax-inefficient way to get money back to shareholders; neither company pays a dividend. Buybacks work a lot better.

Source: Move Over Small Dogs Of The Dow, Here Come The Uber Cannibals

Portfolio Housecleaning

A great article from Meb Faber on how it can pay to look at your portfolio with the objective of getting rid of legacy positions that no longer merit being in the portfolio.  The opportunity cost to investors of these legacy positions can be enormous.

In essence, you’re forcing yourself to start with a mental clean slate. In a perfect world, how does your ideal portfolio look as of today, going forward? To the extent the actual holdings in your portfolio fit into your vision, they remain. Those that don’t get the axe.

Source: The Zero Budget Portfolio | Meb Faber Research – Stock Market and Investing Blog

2016 Asset Class Returns

Asset Class Index Performance 2016
Emerging Markets MSCI EM 8.58%
REITs NAREIT Equity REIT Index 8.31%
High Yield Bonds Barclays Global HY Index 14.27%
US Bonds Barclays Aggregate 2.65%
US Large Cap S&P 500 11.96%
Commodities Bloomberg Commodity Index 11.40%
Developed Intl. Markets MSCI EAFE 1.00%
US Small Cap Russell 2000 21.31%

Charlie Munger’s Advice on Annuities and Privately Traded REITs

Anytime anyone offers you anything with a big commission and a 200 page prospectus, don’t buy it.  Occasionally, you’ll be wrong if you adopt the “Munger Rule”.  However, over a lifetime, you’ll be a long way ahead – and you will miss a lot of unhappy experiences that might otherwise reduce your love for your fellow man.

Source:  Bevlelin, P. (2003) Seeking Wisdom From Darwin to Munger. Sweden: Post Scriptum AB