July 2012     Issue 10


An Interview with Howard Marks on Bloomberg
Oaktree Capital, founded by Howard Marks, manages $77 billion, investing mainly in distressed debt, real estate, and corporate debt. In this interview, Marks sets out his belief that it is impossible to get macro calls consistently right, and equally impossible to time purchases so that they are at the bottom of the market.  He discusses the long-term returns currently on offer from the US real estate market and comments on the investment management process, quoting Charlie Munger:  “None of this is meant to be easy and anyone who thinks it is is stupid”.

Keynes: an outstanding investor
John Arthurs of the FT (you may need to register to view it) writes an interesting overview of some work undertaken by Elroy Dimson and David Chambers to look at the superb track record of Keynes whilst investing the Kings College Endowment Fund. The article compares his track record against other investors and discusses his contrarian investment approach and his conclusion that the “right method in investment is to put fairly large sums into enterprises one thinks one knows something about”.

Boring is good
This article written by Lucy Kellway for the FT (you may need to register to view it), addresses a similar point to one which was made in an article we included in a previous edition of the Value Investor Digest that “boring managers” make good business leaders.  We strongly believe that managers who are very focused, detail oriented and low on ego are much more likely to look after our capital sensibly.

Warren Buffett interviewed in Sun Valley
In this interview in early July, Buffett comments on the first green shoots he is seeing in the US housing market, on flatter growth in other US businesses over the last couple of months, and a more negative trajectory in Europe.

“The Oracle of Boston”: Seth Klarman
An excellent overview in the Economist of one of the investors we respect most.  What is perhaps most impressive about Klarman’s 30 year history of delivering c20% annual returns is that he often holds a lot of cash – currently 30% – and his mantra is to focus first and foremost on avoiding loss, preferring to be in cash and wait until he finds very high probability returns. We follow a similar approach: unless we find a sufficient margin of safety in our potential investments, we prefer to hold cash. This is the natural result of our bottom-up investment approach rather than an attempt to time markets.

A new book on Benjamin Graham
This brief book review in the Economist introduces a new book which has been added to our reading list:  “The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham” by Joe Carlen. The article itself provides a brief overview of the impact of this great investor – the pioneer of value investing.

Commodities, Windfalls and Capital Misallocation
This article is written by an Indian value investor we know and covers a current bubble in guar, a bean which is farmed in Rajasthan – the price has risen 6 fold in under a year.   The article set outs the impact of the price rise on the community and draws parallels with another agricultural bubble. The article illustrates the difficulty we have always had with businesses that are entirely dependent on commodity pricing.

The London Value Investor Conference – 2013
The organisers have started working on plans for next year’s event and will be announcing the date soon.