"Sixty years ago I knew everything; now I know nothing; education is a progressive discovery of our own ignorance." Will Durant
Communication:
There is no doubt that communication is one of the greatest skills any capital allocator should master, something I've learned not only from Warren Buffett but also from Grahamites, who I think is the best writer for Gurufocus. With this article, I shall attempt to improve on this skill, and I also wish to commit myself to write more articles in the coming months.
Itzar Juna, another of the top writers for Gurufocus, wrote an outstanding article in which he highlights for us the qualities of being helpful as one of the common qualities of an outstanding investor. So, I will write the articles with this intention in mind, to be helpful to you.
Post mortem:
Last year my friend and I had the great opportunity to meet with François Rochon, one of the best stock pickers in Canada, from whom we learned the benefit of doing post mortems. Let’s look at what wisdom we can learn from the past.
Past track record:
In January 2007, I opted to go with the idea of value investing after reading “The intelligent investor”; the idea was crystal clear, stuck to me right away and this has never changed since. So, I first started applying the Graham principle by using Investopedia.com simulator tools, which provided me a safe platform to learn and to build a track record. This portfolio, with at least 25% in cash or bonds (ETF) delivered an average of 20.45% annual return from January 2007 to January 2012.
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” Warren Buffett
This 5-year test, which included a major financial crisis, gave me the confidence to apply my investment skills using real money. With my real portfolio in 2013 my return was 21.68%, while in 2014 it was 36.01%. These returns included dividends (without leverage and close to 50% of cash for many months); if my investments had been a 100% stock portfolio, the return would have been closer to 48%.
Return from January 2007 to January 2014:
Mr. Market, S&P500 index: 37.53%
Combination of my portfolios: 419.55% (2007-2012 Virtual, 2013-2014 Real)
Three years ago, I started using the GuruFocus website to build a public track record by publishing investment ideas.http://www.gurufocus.com/news.php?author=ecotycoon&u=45133
I posted seven different investment ideas on GuruFocus, two mistakes were publicly recognized within a month, with no loss of capital. As one of the directors I worked with taught me, “If you have to fail, fail fast!”. As for the five other ideas, four of them well delivered more than 20% throughout this period, while the last one delivered more than a 100% return within a year, being the first to win the value-investing contest on GuruFocus with a gain of more than 100% in less than a year.
“Be quick to take losses and reluctant to take profits.” -Phil Carret
As you might also note, those seven ideas were drawn from businesses located in four different countries; I verily believe that great value can be added by investing globally. As a reliable source of economic metrics for countries in which you are considering investing, I highly recommend the website heritage.org to you as a starting point. I heard about this website from Lauren Templeton. http://www.heritage.org/index/ranking
Let’s dig a little deeper into these ideas, especially the mistakes, in order to learn some wisdom from them.
FSLR First Solar, Published: 12/01/2012, Analysis mistake recognized publicly: 13/02/2012
Return: 0%
A good business, among the lowest cost producers of solar cells, with an impressive track record, an ethical investment with a good impact on society and the stock was looking really cheap. I decided to drop this stock because it was heavily financed by "Subsidies”. I’m still uncertain if it could have been a good idea if I had put more energy in the research; as for understanding this case after the analysis I did, the margin of safety was not sufficient.
Inspired by Shane Parrish, who runs a blog, the best weekly investment of time I know. Reading his blog has enabled me to improve my thinking, decision and learning processes, which would have been the key in this case. http://www.farnamstreetblog.com/
SAN Banco Santander, Published: 10/09/2015 , humility mistake realized publicly: 25/09/2012
Return: 5.33%
“Humility means you know the edge of your competency and you don’t arrogantly step over the boundary." Charlie Munger
During the summer of 2012, as the European crisis was getting more headlines and looking worse, it was too hard to resist the temptation to look for opportunities in Europe. I went looking for stock that had suffered the biggest drop. My approach was a mistake, but my biggest mistake in this case was that I didn’t understand the banking sector enough.
“The best bargains are not just stocks or assets whose prices are down the most, but rather those stocks having the lowest prices in relation to future potential earnings power.” Sir John Templeton
What I learned about Li Lu has inspired me to consider him as one of the greatest investors of our time. Visualizing the Li Lu process is something I try to do, and I now think he would never have made such a mistake as the range of possibilities can rapidly be spotted as being far from providing a good margin of safety.
Since then, I have studied more cases of outstanding investors who undertook similar actions with other banks in other financial crisis situations, and realize this literally destroys their return for many years. Learning from past mistakes of others is less expensive than learning from your own. The idea of Mohnish Pabrai to create a check list made by studying the mistakes of others sounds great.
RIM BBRY, Research In Motion, Published: 06/07/2012
(Return in this case depends on your trading strategy)
Return between: 24.57% and 100%, Minimum annual return: 9.37%
Once again a classic case of value investing with very little financial downside and unlimited upside, combined with a clear catalysis. If you had bought it when I posted the article, the price was so cheap that you were really protected from the downside because the company had lots of cash, no debt, and Prem Watsa, one of the best capital allocators of the world, on the board.
When the stock went up 100%, I do believe it was smart to reduce your position as the margin of safety had eroded with the increasing stock price, just as Donald Yacktman and Charles Brandes did, providing you with a really good return. Although the margin of safety eroded and competitors increased their moat, I think it would have been clever to have kept some shares in case of some real turnaround support under the leadership of John Chen, who has a really good track record.
ISIG Insignia Systems, Published: 04/05/2012 , Sold: 24/02/2015
Return: 73.47% Annual return: 26.73%
A classic case of value investing with very little financial downside and unlimited upside. At the date of publication, the cash value was only around 75% of the market cap of this stock. At the moment, the stock is above my standard of evaluation, so I would sell.
FFH Fairfax: Published: 12/01/2012
Return: 70.32% Annual return: 23% (with dividend)
Few things to say, it’s one of the best companies I know, with the best management I know, really well protected from the downside and its shares were selling at a wonderful price. My investment thesis was mainly based on their outstanding past track record both on the operational and investment side.
As an incomplete understanding is a human condition, I know I can always be wrong, so I always check the downside first. Their hedging strategy was a concern, and while also considering Brian Bradstreet's outstanding track record, I know there might be something great there to learn. I spent a fair amount of time in trying to understand this thesis. I think that the Hyman Minsky theories are really relevant in understanding the first principle behind this case. I also highly recommend that you study the work of Steve Keen, the best economics professor I know. The works of Garry Shilling and Lacy Hunt are also worth reading.
In this regard, the present stable economic situation seems quite far from being balanced, considering that as a shareowner I highly support the Fairfax thesis on deflation and their hedge with CPI linked derivatives as every bit of logic has led me to this thesis.
MRVLMarvell Technology Group, Published: 13/02/2013:
Return: 70.00% Annual return: 35.56% (with dividend)
Good business, good capital allocation management who profit from that special situation to buy back significant amounts of shares at a really good price. Even if the lawsuit turns against them, forcing them to pay $1.54 billion, the stock was so depressed that it was still a good opportunity. Beautiful case of the Dhandho style, where heads you make money and tails you make even more.
2020 ANTA Sports, First published: 12/01/2012
Recommendation to buy more on 20/03/2012 and 10/10/2012
Return between: 79.16% and 124.70%; Annual return between: 25.89% and 53.90% (with dividend)
Great business with a long track record since 1911 in the case of the Fila brand. The company has great management, financials, brands and products selling in a market with increasing demand in the long run, and the stock selling at a wonderful price. When I found Anta Sport in the beginning of the summer of 2011, I was really excited. I did a fair analysis and concluded it was a great opportunity in my field of knowledge to consider a long term investment.
Conclusion:
This process that started eight years ago was really unexpected, as I had no intention to invest before reading Benjamin Graham, since my focus was really on engineering. Nor did I have any knowledge of investing nor any connection with other investors with whom to share my thoughts. Being rather introverted, the first real professional investor I ever interacted with was Prem Watsa three years ago — this changed my life in a major way. These last three years have been really rewarding financially through the unleashing of the power of the subconscious mind, something I learned from Napoleon Hill, Prem Watsa, Frank Giustra, Josh Waitzkin and Arnold Van Den Berg. I’ve also discovered that what is the most important cannot be materially measured; John Templeton's books have been great reading.
If it wasn't for Warren Buffett, it is highly unlikely that I would ever have read Benjamin Graham's books, or taken the Dale Carnegie class, which really have changed my life. If per chance you ever read these lines, Mr. Buffett, I’m extremely grateful to you and to your friend Charlie Munger. I’ve since learned more every day and made outstanding friends. Guy Spier quoted Warren Buffett in his book "The Education of a Value Investor" : “Hang out with people better than you, and you cannot help but improve.” The idea of doing what you are passionate about, as emphasized by Kenneth Shubin Stein, is something that now sounds to me like a key to success whatever the subject of your passion might be. I think focus is really a key, while at the same time, I deeply believe humans have the potential to have more than one passion, Benjamin Franklin is a great example of that. I can’t wait for the next 70 years to allocate capital and learn every day like a champion, and more importantly, share it with others.
