Investment Objectives & Advice

The Giant’s Warning!

“Those who can not remember the past are condemned to repeat it.” – George Santayana

On Mar 30, 2000 One of the stalwart of value investing Julian H. Robertson Jr. hung up his boots & closed down his seven funds. It was due to the underperformance of his funds over last 18 months, when the funds lost 4% in 1998 followed by a decline of 19% in 1999. By the March 2000 his fund were down another 13.5%. In contrast to his funds, the Technology heavy index Nasdaq was rising rapidly, His investors started to pull out money and roughly $7.7bn was withdrawn.

Investing Pandit’s & News houses didn’t let go the chance to write the headlines about the incident. Some of the headlines to help you give the better picture of reality:

“There is an old adage, Don’t fight the markets. Julian did and lost”Washington Post

“The financial markets humble ordinary investors all the time. In Julian H. Robertson Jr., they have humbled an investing giant.”The New York Times

Julian was not alone to face this criticism, Other value investors like the legend himself Warren Buffet was also under attack. Value investors were touted as the old economy investors. Those who don’t know Julian Robertson, He is one of the most consistent billionaire for last two decades currently at the age of 88 with a net worth of $4.3bn (Forbes link). He had founded the hedge funds “Tiger Management” in 1980 and for the first 18 years $10k invested in his fund would have turned into ~2.6mm with a CAGR of 32% net of fees, This by any yardstick was phenomenal performance. In his letter to investors, he gave the warning as below:

“The current technology, internet & telecom craze, fueled by the performance desires of investors, money managers and even financial buyers, is unwittingly creating a Ponzi pyramid destined for collapse. The tragedy is, however, that the only way to generate short term performance in the current environment is to buy these stocks. That makes the process self perpetuating un-till the pyramid eventually collapse under its own excess.

What happened next is a historical dot com bubble burst during early 2000. From the peak of Mar 2000 by Mar 2002, Nasdaq saw a correction of more than 70% & Index had fallen to the level last seen in 1995. Seven years of investing with zero returns! Even with the touting from so called new generation money managers, he did not give up his investing principle. He rather thought it to be best to close his funds, return the money of investors. He didn’t quit the game of investing just the responsibility to manage other people’s money. He explained his reason to investors as well:

“The people who were cynical and jumped in and played this boom are going to win this game. But to take the cynical risk against your fundamental belief, I wonder if in the long run that will work.”

He also shared his wisdom about the reason behind his success & the challenges:

“The key to Tiger’s success over the years has been a steady commitment to buy the best stocks and shorting the worst. In a rational environment, this strategy functions well. But in an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much.”

These words to me reminded a lot about the current market scenario. In absence of actual earnings, the thing fueling the current rally is the high expectation of future growth coupled with liquidity. I do not know the future and not sure what would be the outcome but as an ardent follower of value investing approach, The probability of further upside is not sufficient for me to take the plunge even if I have to sit out of the rally. My only sane advise would be to repeat the warning, Don’t be the last Fo-Mo buyer!

Happy Investing!

Experienced Voices

The Legendary Teacher 01: Invest & Compound

“The greatest investment a young person can make is in their education, in their own mind. Because money comes & goes. But what you learn once stays with you forever”W. Buffett

Warren Buffett does not need any introduction to any person in investing community. His record of investment performance is quite public in form his letters to the shareholders. In the 55 years of historical record, Berkshire Hathaway grew at a compound rate of 20.3% vs 10.0% growth of S&P 500. Before you think that anyone can beat the index easily, let me remind you that may be they can beat index but not so consistently. To put in context, $1000 invested in Berkshire in 1965 would have turned into $27.4mm vs $190k in S&P 500 Index. Also, he has advised that anyone starting his investments is better of buying a low cost Index fund or a ETF. He proved it using his famous bet against hedge funds. In 2007, Warren bet a million dollars that an index fund would outperform a collection of hedge funds over the course of 10 years, which he won hands down.

Warren was born on 30th August 1930 in Omaha, Nebraska. He had developed an interest in business and investing in his youth, he bought his first stock at the age of 11. The book that inspired him to become a businessman and an investor was “One Thousand Ways to make $1000.” The first of his business ventures included selling chewing gums, Coca Cola bottles, and weekly magazines from door to door. He talks about his early life and tells those who see him as a role model that, “Without passion, you don’t have energy, without energy, you have nothing.”

He attended the Wharton School of the University of Pennsylvania under his father’s pressure. He then took a transfer to the University of Nebraska from where he graduated at the age of 19 with a Bachelor of Science in Business Administration. Though the major turning point in his education was studying under Ben Graham @Columbia Business school. He worked as a security analyst at the Graham-Newman Corporation. Then he became a general partner of the Buffet Partnership Ltd. and stayed there from 1956 to 1969. He has been serving as the chairman of Berkshire Hathaway since 1970.

Warren Buffet became famous for his strong and heavy adherence to value investing. He is a strong believer of investing in business that one understands. He had his periods of criticism, when he stayed out of Tech stocks in the run-up during Y2K but his portfolio outperformed the market during the dot com bubble burst. For every 10yr investment period since 1965 to 2019, he outperformed the returns of S&P500 except for 4 occasions all in last decade. This could be mainly attributed to increased prominence of tech stocks in the market and his apprehension towards the current monetary policy of Fed.

Even though Ben Graham is the Dean of wall street & value investing philosophy, his star student Warren Buffet, who brought Ben’s teaching to masses through his success. I am yet to find a serious value investor, who has not read Warren’s letter. In 2008, Warren became the richest person in the world as per Forbes. I was in middle of my own Post graduation, when I first got to know about him. Currently he is the 4th wealthiest person as per the Forbes Billionaires 2020 and has a total real-time net worth of $82.4bn as on Sep 5, 2020. So far, he has given away ~$41bn in charity. He has pledged to donate 99% of his wealth. In 2011, the highest civilian award of the United States was awarded to him, The Presidential Medal of Freedom.

He has been quite open about his investing philosophy and approach in all these years. He is patient, when it comes to his investments, to wait for the right opportunity to strike. His first television interview is still something worth listening to understand the pillars of his success. It was taken in 1985 and after listening to him, you will realize how timeless these principals are. If you are in your quest to be a successful investor, you can always start from his letter’s. for last 15years letter are available on the website of Berkshire Hathaway just keep changing the years. For more reading you can refer to few books; The Essays of Warren Buffet, Back to School or Warren Buffet on Business.

let me leave you with two of his quotes to provoke you to start saving & start your investing journey. “If you buy things you do not need, soon you will sell have to sell things you need.” & “If you do not find a way to make money when you sleep, you will work until you die”. Lot of my learning in the investing journey could be attributed to him and other prominent investors like him.

This Teacher’s day, I decided to share the list of such legendary teachers to help you on your investment journey. Look out for this section for more legendary teachers on Investing & learn a thing or two from them. The article was prepared with the help from Naren Anchalia.