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Marc Gerstein  

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  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    The Buffett discussion has definitely become heated so I decided to address it straight on with a full-fledged seeking alpha article:

    seekingalpha.com/artic...

    The theme was inspired by zorrow's (well thought out, in my opinion) musings regarding what the average investor can or cannot learn from Warren Buffett.
    Nov 9, 2010. 04:33 PM | Likes Like |Link to Comment
  • Applying a Buffett Strategy to Garmin Stock [View article]
    My main point was use of Garmin as a case study to illustrate a Buffett-style approach. it was chosen because it appears often in a Buffett model I use, but superficially, seems very much like a non-Buffett stock. Looking at Garmin alone (not as part of a case study) - while I don't do intrinsic value, I do agree with your analysis. Readers who want more on Garmin should click the link in Jacob's comment.
    Nov 9, 2010. 03:50 PM | 3 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    "Unfortunately, you don't appear very bright, nor do you appear interesting in learning."

    Was this directed at zorrow? I appreciate that you don't agree with him, and there are some points that make me hesitate a bit (the word "insider" is necessarily a very sensitive one in the context of investment; Buffett is not an insider in the nefarious sense of the word, but it is true that he has had opportunities to invest money outside the context of the public markets). But on the whole, I find his comments thoughtful and indicative of one who has done his homework.

    Going back to a point zorrow made early on -- that Buffett may have no relevance to the average investor -- Robert Hagstrom makes for an interesting case in point. As I'm sure most debaters here know, Hagstrom was one of the early authors to gain stature by writing extensively about Buffett, his most famous book being "The Warren Buffett Way." Buffett did not in any way participate in that effort; Hagstrom worked entirely with publicly available information, mainly the BRK annual-reports. I think it's fair to suggest that "The Warren Buffett Way" is as good and definitive an one-stop summary of the public Warren Buffett as we're ever likely to see. Put another way, if the average investor is likely to learn anything from Warren Buffett, Hagstrom is a terrific source (actually, Hagstrom even follwed up with a book on focus investing that I'm sure made Whitman smile it he read it).

    As it turned out, Hagstrom didn't just write. He actually launched a mutual fund wherein he applied the public-Buffett investing techniques to the real world. It was called the Legg Mason Focus Trust. I recall having looked at it some years ago and having been very much unimpressed with its performance record. Unfortunately, I can't now offer supporting evidence because Hagstrom gave up on his Buffett strategy. Somehwere along the fund became the Legg Mason Growth Trust (LMGTX). Morningstar's current report summarizes the transition as follows:

    "This fund's strategy originally owed a debt to Warren Buffett, with its emphasis on growth stocks picked up at discounted prices. While manager Robert Hagstrom still runs a concentrated portfolio, doesn't trade much, and seeks stocks trading at a discount to fair value--all Buffett hallmarks--he has shifted his focus to include areas undergoing rapid change (which Buffett has traditionally avoided). He covets franchises that can deliver strong unit growth, which he believes will be key amid a dearth of pricing power."

    On the whole, LGMTX has had some ups, some downs but on the whole, a track record that falls far shy of what one who started out applying the teachings of a legend might hope to achieve.

    The Hagstrom experience lends some credence to zorrow's suggestion that a lot of Buffett's performance comes from factors not relevant to the average investor. I think there's another factor: Buffett's own unique non-replicable intelligence (something that I think played huge roles in the track records of all those we now revere as investing legends). Former hedge-fund manager James Altuscher also wrote a book analyzing a lot of the not-so-folksy aspects of what Warren Buffett has done over the years. Roger Lowenstein has likewise covered that in "When Genius Failed", more specifically, his discussion of how the Fed called Warren Buffett in as it attempted to rescue Long Term Capital Management. I assume the Fed did not do that because of Buffett's love of low valuation metrics, economic moats, etc. :-)

    Ultimately, different observers can come to different conclusions, but to suggest that zorrow is not bright and uninterested in learning . . . that is just plain wrong.
    Nov 9, 2010. 09:55 AM | 3 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    Would have, could have, should have .... Buffett's non-concentrated portfolio has existed for a long, long time (well before BRK got as big as it is today), as has his willingness to invest in exotic hedge-fund-type investments, as has even his willingness to invest in shares of companies that don't even come close to meeting the so-called requirements with which his name is most associated. There's nothing to extrapolate. The facts are clear to anyone who looks.
    Nov 5, 2010. 03:07 PM | Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    "There is a vast difference between what financial product salespeople tell people to do and what successful investors have done. Remember what Buffett said:"

    Guess what. There is also a vast difference between what Buffett has said over the years and what he has done, on a variety of topics including the number of investment positions BRK owns. And Buffett isn't even a financial product salesperson!
    Nov 5, 2010. 09:40 AM | 1 Like Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    I didn't allege anything. I copied and pasted. Any reference at all to day-traders and high-frequency traders in that context is indefensibly absurd.
    Nov 4, 2010. 01:46 PM | 2 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    The only one who should owe anybody an apology is Whitman.

    Before you disagree, imagine for a moment that it was a Seeking Alpha contributor who spouted off like that (assuming the editors would even allow it to pass), or a Seeing Alpha commenter. I can easily imagine the SA community up in arms about the rudeness.
    Nov 4, 2010. 01:26 PM | 2 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    I don 't know that 4%-5% is "fat pitch" level (assuming such a thing exists outside the Morningstar play-pen). Stakes of 4%-5% imply a portfolio with 20-25 positions, which I think would be regarded as being pretty reasonably diversified, especially for an individual who doesn't need to put billions to work.
    Nov 4, 2010. 01:23 PM | 1 Like Like |Link to Comment
  • How Many Holdings Makes Sense in Your Portfolio? [View article]
    The association of Warren Buffett and portfolio concentration is little more than folksy public relations.

    The list of investments disclosed in the annual reports is, indeed, small. But you have to read the accompanying text. The annuals disclose only those positions for which the value of the holdings is above a certain amount. There are plenty of other positions that are not listed.

    Actually, he does a lot of things contrary to his home-spun value image, including investing in financial weapons of mass destruction (as I recall, his reason for doing so was something along the lines of his having thought the prices were right). In truth, he beats the market by being a damned good hedge fund manager.
    Nov 4, 2010. 11:37 AM | 6 Likes Like |Link to Comment
  • Marty Whitman: Great Stock Picker, Wrong on Diversification [View article]
    The lines Whitman fed to Barron's strike me as completely fake. Is he looking for shock value to attract assets to the Third Avenue Value Fund? Who knows. But consider this from the Barron's interview:

    Q.There have been a lot of investment ideas, such as modern portfolio theory, that started in the academic world. How important are they to what you do?

    A. They may be of some use to day traders and high-frequency traders. But as far as value investing, control investing, distress investing and credit analysis is concerned, that stuff is absolute garbage.

    There's a lot that can be said about modern portfolio theory and other such academic approaches (and I'm not fan of them) but one thing that CANNOT be said is that they are relevant to "day traders and high-frequency traders." Actually, I think a lot of practitioners are too willing to site too long with assets selected based on data that has been allowed to go too stale.

    I don't mean to defend day-trading, which I don't engage in. But too often over the years I've encountered too many loudmouths who, when they want to trash something without really knowing or thinking about what the heck they're talking about, simply say "Oh, that's for day-traders." When I see a line like that, I have to dismiss the whole interview as one big pile of #$%&#$.

    It's sad, very sad, to see such a giant stoop to such a pathetic level.
    Nov 4, 2010. 11:29 AM | 4 Likes Like |Link to Comment
  • How Many Holdings Makes Sense in Your Portfolio? [View article]
    "As Warren Buffett said 'Wide diversification is only required when investors do not understand what they are doing'!"

    Be careful about nuggets of wisdom from Warren Buffett. In truth, he diversifies more widely than many realize. The holding disclosed in the BRK annual reports are only those above a certain $ threshhold. In truth, there are plenty of others that don't make it into the annual report.
    Nov 4, 2010. 11:20 AM | 1 Like Like |Link to Comment
  • Around the World: ETF Pullback Choices [View article]
    I addressed this in the article I submitted on 11/4.
    Nov 4, 2010. 10:20 AM | Likes Like |Link to Comment
  • Barnes & Noble's Nook: New Niche? [View article]
    After agonizing for a long time trying to decide on a dedicated e-reader or iPad (which lets me have apps for both B&N and Kindle), I decided to go with Kindle. That turned out to be a GREAT decision.

    I never truly understood the difference between back-lighting and e-ink, but now that I'm in the e-reader world, I say with confidence e-ink wins, hands down. (When I read in bed, I hook a little lamp onto the Kindle and it works perfectly; it focuses the light very directly so my wife has never complained) So, too, does the lighter weight. It may not seem like a big difference when you look at numbers in a comparison chart, but when you hold one of these things and actually read for more than few minutes, you realize the differences are huge. And you gotta love the long battery life!

    Color is cute. So, too, is video. But I think we need to guard against the internet generation getting a bit uppity, as it often does when it tries to get us to believe that if something can be done then it must be done. I actually canceled print subscriptions to The New Yorker and The Economist and stopped looking at their web sites and now use Kindle only. It actually turned out that the magazines and web sites were too distracting with too many pretty things to look at. I've found that with Kindle, I wind up reading far more of each issue than I ever did with hard copy or on the web. (The Economist charts aren't as pretty but Kindle zooms them to the point of adequacy.) If you like to read, never underestimate the benefit of pure text.

    That's why I find it hard to see Nook Color as a serious entrant in the e-reader marketplace. Not being an iPad user, I'll defer to others to evaluate Nook Color as a tablet-lite.

    But Nook Color does strike me as a product that was born in corporate conference rooms in response to a mandate from higher ups to "Do something" or "Make a splash."

    This wouldn't be unique to B&N. One of the things that swayed me away from Nook and toward Kindle was a plea in the Nook discussion forums for B&N to forget chess, soduku and web browsing and "just give us an e-reader that works." Good point. Why the heck would anyone care about playing chess or soduku on an e-reader? Again, it's the conference-room mentality: "Look at these comparison charts. Now we have stuff that Kindle doesn't."
    Nov 1, 2010. 04:55 PM | Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    There are a couple of ways to respond here.

    The most basic answer is that the ranking system I used to narrow the lists down to 15 stocks had 15 that were higher rated than MO and RAI. With RAI, the growth portion of the model had a lackluster score, and looking at the company, it seems that this was, indeed, the case. Dividends grew nicely in the past, but that was accomplished through an escalating payout ratio. As to MO, it looks like dividend growth had been good in the past, but turned negative in recent years.

    But there’s a bigger-picture issue here.

    For most investing strategies (income, growth, momentum, etc. etc. etc.), the market is likely to offer up far more appealing ideas than one can fit into a portfolio. That’s definitely so for income. My suggestion is that you pick an approach you like and if you’re satisfied with the results you’re getting, then all is well. Don’t worry about situations where someone else using a different approach to, say, income, has different stocks.

    When I used to give presentations on stock screening at the Money Show, I always included a PowerPoint slide wherein I added an 11th commandment: “Thou shalt not covet thy neighbor’s stocks.”

    If you feel there’s room to improve on what you’re doing, then by all means do what you can to improve. But if your results are good, that’s that. If you succeed with Stock A, there’s no reason to be concerned that your neighbor is succeeding with Stock B. Nobody should get caught up in the notion that there is one correct income list (or value list, etc.) and that all other lists are wrong. That will produce lots of stress and no benefit to a brokerage account, and possibly damage if one gets too carried away with short-term performance comparisons and winds up getting into a data mining trap (where strategies are designed, not based on sound ideas, but instead, to try to replicate certain past performance numbers).

    As to JNK, depending on when I run my model, sometimes JNK is the one that’s there. As I said, my conviction on which ETF (or even whether to spread assets among them all) is not strong and probably won’t strengthen until we get more junk-bond ETFs and more histories.
    Oct 31, 2010. 12:19 PM | 3 Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    "Any ETF, CEF or fund comes with an expense that has be factored in, so there's an automatic shaving of the yield"

    Actually, that depends of the source you use. The data I work with reflects what the shareholder receives (expenses are already subtracted). Glossaries or footnotes can be boring, but they are important since different sources will take different approaches.
    Oct 29, 2010. 04:20 PM | 1 Like Like |Link to Comment
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