I often refrain from posting about Warren Buffett, since there is no value investor on earth who is better covered by the media. Every once in a while, I just can’t help myself.
Warren Buffett and Carol Loomis appeared on the Charlie Rose show last night, to discuss Loomis’ new book Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012
For more on Warren Buffett click here.
Barron’s published an article this weekend titled “Graham and Doddsville Head Downtown” describing NYU’s first value investing class. Jamie Rosenwald, co-founder of Dalton Investments, launched the class to let NYU MBA students in on a secret; one that is well known by uptown rival Columbia Business School.
Rosenwald, an engaging 54-year-old, attended NYU, too. “I was jealous that Columbia had street cred,” he says.
In Rosenwald’s class, students learn the basic tenets of value investing.
Buying companies at 50 cents on the dollar dramatically lessened a risk of loss. Intensive research also abridged the risk, and reduced the need to diversify. As day follows night, stock prices eventually reflect fundamentals. The students waded through Berkshire Hathaway’s annual reports and shareholder letters from renowned investor Seth Klarman of the Baupost Group.
Lessons learned through the writings of Buffett and Klarman are brought to life by top practitioners who are invited to address the class.
To bring the lessons home, he invited his fellow value investors to class. David Abrams of Boston’s Abrams Capital, who got his start with Klarman, told about an early and costly mistake, when he persuaded his boss to buy a fifth of a company that turned out to be a fraud. “Be very wary of book value,” Abrams warned the students. “The problem with Excel [spreadsheets] is that [they] give you a very false sense of precision.”
Bob Robotti, another prominent investor, got his start as an accountant. “You have to understand the numbers,” Robotti said. “But you don’t have to be Warren Buffett to do this right.”
As the birthplace of value investing, Columbia Business School has become known as the academic capital of value investing. However, in between the days of Benjamin Graham and David Dodd and now, Columbia has also gone through periods where value investing fell out of favor.
Below are a few articles that discuss the resurgence of value investing at Columbia in the late 1990’s / early 2000’s. I would like to think that this time will be different, and value investing at Columbia is here to stay. Unfortunately, as value investors, we are all too aware that “Many shall be restored that are now fallen and many shall fall that are in honor.” (Horace – Ars Poetica)
“Value Hunting: Columbia Students Bet on Ugly Ducklings” (Hermes, Fall 1994)
“The Heresy That Made Them Rich” (The New York Times, October, 29, 2005)
Click here to read the original Barron’s article “Graham and Dodd Head Downtown.”
GrahamAndDoddsville.net wants to wish all of our American readers (and everyone else) a happy, healthy, and safe Thanksgiving!
Enjoy the videos below to help kick-off a relaxing vacation. They are 4 of my favorites. I’m not sure whether they should make you laugh or cry. In any case, they make me thankful for being a value investor!
“I Want To Buy Salesforce.com”
“PM vs. Analyst”
“The Facebook IPO – Part I”
“The Facebook IPO – Part II”
Howard Marks’ latest memo, A Fresh Start (Hopefully), is now available on the Oaktree website.
Marks’ memos are a must read. If you have what Seth Klarman believes to be the ‘value investing gene’ – you are likely to find yourself nodding yes as you read along.
A compilation of Marks’ memos were recently published in a book called The Most Important Thing. You can also read the originals, which can be found here.
Over the coming days, I will post some older articles by Howard Marks to the SuperInvestor Resources page. In general, Marks’ clarity makes him a very ‘quotable’ investor. One of my all-time favorite quotes is:
Certain common threads run through the best investments I’ve witnessed. They’re usually contrarian, challenging and uncomfortable— although the experienced contrarian takes comfort from his or her position outside the herd. Whenever the debt market collapses, for example, most people say, “We’re not going to try to catch a falling knife; it’s too dangerous.” They usually add, “We’re going to wait until the dust settles and the uncertainty is resolved.” What they mean, of course, is that they’re frightened and unsure of what to do.
The one thing I’m sure of is that by the time the knife has stopped falling, the dust has settled and the uncertainty has been resolved, there’ll be no great bargains left . When buying something has become comfortable again, its price will no longer be so low that it’s a great bargain. Thus, a hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron.
It’s our job as contrarians to catch falling knives, hopefully with care and skill. That’s why the concept of intrinsic value is so important. If we hold a view of value that enables us to buy when everyone else is selling—and if our view turns out to be right— that’s the route to the greatest rewards earned with the least risk.”
Have a wonderful Thanksgiving!
Click here for more on Howard Marks.
The first time I saw this scene from Other People’s Money was in my value investing class. I came across the clip several months ago, thanks to Walrusvalue, and just saw another reference to it on CSInvesting.org.
In this clip from the 1991 comedy, Other People’s Money, Danny DeVito gives a 3 minute explanation of value investing – Benjamin Graham Style – with the clarity of a Warren Buffett.
On October 29, 2012 The New York Times published an article titled “That Guy Won? Why We Knew It All Along.”
Amid the many uncertainties of next Tuesday’s presidential election lies one sure thing: Many people will feel in their gut that they knew the result all along. Not only felt it coming, but swear they predicted it beforehand — remember? — and probably more than once…
Most will also have a ready-made argument for why it was inevitable that Mitt Romney, or Barack Obama, won — displaying the sort of false, after-the-fact “foresight” that psychologists call hindsight bias.
Political pundits aren’t the only ones to suffer from hindsight bias.
“The important thing to know about hindsight bias is that it not only changes how you see the world, but also how you see yourself in it,” said Neal Roese, a professor of marketing at the Kellogg School of Management at Northwestern University, who just published a review paper on the bias with Kathleen D. Vohs of the University of Minnesota. “You begin to think: ‘Hey, I’m good. I’m really good at figuring out what’s going to happen.’ You begin to see outcomes as inevitable that were not.”
Investors must be extra careful to remain aware of how hindsight bias might affect their decisions.
Once they know an outcome, people tend to inflate their initial predictions by an average of 15 to 20 percent, Dr. Roese said — ample wiggle room to retrospectively alter almost any prediction from “it’s going to happen” to “it probably won’t,” be it a tennis match, a legal decision or a presidential race.
It’s only natural.
One reason it’s hard to avoid this bias is that it mirrors how the brain operates biologically. The brain cannot possibly make sense of incoming sensory information instantaneously; it continually reconstructs, inserting meaning and making judgments very quickly, but post hoc.
Can we change human behavior?
The solution is contained in the psychological processes that underlie the bias itself, studies suggest. Take the presidential race. It’s a dead heat in the polls, and the fact that so many will argue after the vote that the winner was inevitable implies that they have front-loaded arguments to support both outcomes. One way to counteract the bias is to play out those possibilities before the final outcome.
[“That Guy Won? Why We Knew It All Along”, The New York Times 10/29/2012]
