The Risks of Following a Long-Term Guru

There are many investors, myself included, who look at what long-term successful investors are doing. Sometimes strong correlations exist, as in the early 1990s, when many value investors such as Warren Buffet, Tweedy and so many others forged into Wells Fargo (WFC). As one would expect, at times there exists an extreme dichotomy.

In September of this year, long-term successful investor Joseph Lewis starting buying into Bear Stearns (BSC). In that month, he purchased 7% of the company. One could easily say he had a strong conviction.

Currently, in December, he even increased his exposure to 9.57% through his Aquarian Investments Ltd., Cambria Inc. and other entities. Mr. Lewis can be thought of as a mogul. He owns approximately 170 companies, and is also considered to be one of the best currency traders. After making his initial fortune in the London restaurant trade, Lewis moved into foreign exchange and equities, dealing from a base in the Bahamas in the late 1970s. The Tavistock Group, his main investment vehicle, is valued at more than £1 billion on the strength of the private company's holdings in the energy, property, industrial and financial service sectors. He also owns 7,000 valuable acres in Orlando, Florida, and has extensive Russian oil investments. Mr. Lewis has a reported net worth of $2.5 billion and, has made a substantial bet on BSC.

The other successful long-time investor is David Einhorn and his Greenlight Capital Hedge Fund. Greenlight started in 1996 with $1 million and through David's successful value investing grew to a multi-billion dollar fund with 20+ compounded rate of return. In the most recent 13F SEC filing, Greenlight disclosed it was short BSC.

In investing there are always opinions, and always two sides to a trade. This is exactly what makes markets. I am sure each is very confident from his own perspective. Obviously one will be right...and possibly one could be terribly wrong. As Warren Buffett and Charlie Munger commented, with regard to Long Term Capital Management, one should not make bets and risk one's future. Long Term Capital made large bets and blew up. Mr. Lewis has taken a very substantial contrarian bet which one can allude to as being too aggressive. In the short term he is experiencing a drawdown.

At this stage, many are asking if it is time to buy into the banks, and be such a contrarian. Unfortunately there are too many unknowns. Furthermore, many banks are leary of lending to each other. My bet is with David Einhorn and Greenlight. In investing, one needs to define the risks, and be very clear where the trade works and where it does not. It would be very nice if we could blindly invest like these long-term gurus and have their successes. However successful long term investors know differently. Do you?

Comments

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It's good to remember that every seller has a counterpart who is buying the shares sold -

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