Buffett and Munger’s elements of success.
lsgifund.com
From the LSGI Advisors Report - April 23, 2011
Common investment themes. Several common themes emerge when examining the strategies of Mr. Munger and Mr. Buffett. Common elements of their strategies to generate excess investment returns include the fact that they both:
(1) focused on very small publicly traded companies,
(2) ran concentrated portfolios,
(3) looked for companies with niche markets,
(4) allocated capital based on a risk/reward analysis (Kelly formula),
(5) were not afraid to buy illiquid stocks,
(6) bought firms with growth potential,
(7) looked for a firm’s ability to generate attractive margins,
(8) bought their positions at reasonable valuations,
(9) managed a limited amount of assets (so they could take advantage of the small company sector),
(10) acted decisively, and invested heavily, when the odds were in their favor,
(11) bought firms that they felt they understood,
(12) purchased only after conducting extensive due diligence,
(13) were not concerned at a lack of Wall Street coverage or interest,
(14) evaluated dozens of firms for each one they bought,
(15) tolerated above-average portfolio volatility, and
(16) focused on the long term.
What were some of the major elements of their investment success? First, they focused on the inefficient sectors of the market and on companies that they understood. Many of the firms they invested in were very small – ‘microcaps’ would be the term used today. And when they found situations where the stock was so mispriced that the odds were tilted heavily in their favor they invested decisively, running a concentrated portfolio. The academic argument of diversification to reduce company-specific risk was not in their playbooks.
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These are some pretty good bullet points to consider when exploring a new investment theme. It's funny that I stumbled onto this Web site when researching companies to add to my AG/commodity basket of emerging companies.
The LSGI Value Portfolio has outperformed the S&P 500 by more than 300% over the years 2001-2011. Their web site may provide some good under valued investment candidates: lsgifund.com
EKS |
