2018 Year-End Value Investing Note - Use your own compass

Investing-wise this year was likely exciting for you - it was for us. Whether you owned Canadian oil and gas stocks (yikes), were riding the marijuana train, or just paying plain old large caps swinging 20% month-over-month, your portfolio was likely… movin’. Of course there are those that bet their life savings on Bitcoins (yuck) or CryptoKitties (at least cute) and were hoping to pay their rent with it must have had even more excitement (but are likely not readers here).

2018 Lesson - Have your own compass

Recently we mentioned Guy Spier, friend of Mohnish Pabrai and manager of the Aquamarine Fund.

He is quite a prolific speaker but according to himself he is “probably best known for having lunch with Warren Buffett”. Back in 2008 he (along with Mohnish) paid $650,100 to have lunch with Warren Buffett (as part of the annual charity lunch auction). You can read his thoughts about the lunch here - https://observer.com/2015/12/my-lunch-with-warren-buffett-changed-my-life

His key takeaway was this:

The most memorable piece of wisdom that Warren shared that day was about the need to live by an “inner scorecard,” instead of worrying how others think of you. He illustrated this by asking: “Would you prefer to be considered the best lover in the world and know privately that you’re the worst—or would you prefer to know privately that you’re the best lover in the world, but be considered the worst?” It was clear that he operates entirely according to his inner scorecard, living and investing in ways that perfectly suit his personality and his values. For me, this was his greatest lesson.

2018 was a wild ride. And as we go through waves of fads, booms and busts it is important to have a central compass. The core theme of my own investing to date is having to go against the grain to find things that truly are cheap and not just a value trap. Of course, some out there rode Bitcoin and marijuana into the sunset and of course I wish them the best on their beach adventures. But I know I wouldn’t have been “right” or “wrong” but just lucky if I made money on those. And that’s just fine with me.

“It’s not greed that drives the world, but envy.” - Warren Buffett

Guy Spier 101

Guy Spier gives a good overview of his views on value investing in a 2016 talk and we definitely recommend you take a look. This was at the Ben Graham Centre for Value Investing.

The Ten Commandments of Investment Management – Mohnish Pabrai October 2018 Talk

Here at Canadian Value Investors we are big fans of Mohnish Pabrai.

In October of 2018 Mohnish Pabrai gave a talk at Professor Arvind Navaratnam’s class about the Ten Commandments of Investment Management. This is the first time Mohnish has given this talk where he outlined his money management principles. He notes that most participants in the investment management business violate these commandments.

We have summarized his talk to give you a quick reference point to review.

Commandment One: Thou shall not skim off the top

-Skimming is taking some percentage of fees as a fixed fee and in the case of hedge funds typically 1-2% off the top and an additional performance fee.

-Two of the original practitioners were Warren Buffett and Charlie Munger, who practiced the art with no fees off the top. Buffett once he merged his partnerships was 0-6-25 where he took no fees off the top, and instead received 25% of any return over a 6% annual return hurdle. Mohnish believes Charlie Munger was 1/3 of return over 0% but it was a special kind of operation.

-Practice the art with your own assets. With the power of compounding even a small amount of money will become significant over a few years. If you are compounding at anything north of 15-20-25% which you should be able to do with small amounts of capital, your money will be doubling every 4-7 years. This then gives you the ability to in effect live off that base while the assets are growing.