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June 02, 2008


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Lee D

Well done. Thank you for posting this.


Glad you enjoyed it, Lee.

Believe it or not, every now and then we aspire to (something approaching) legitimate journalism.


Outstanding post on a brilliant shadow of the markets (this is coming from an afore-alluded to quant, mind you). Now that youve whet your appetite, go and read the book.

Stupid Equity Guy

I am going to have to reread this post a few times... Thank You for the content to consider...



Can I forget how to calculate beta? Who cares if the CFA exam is Saturday.


This is not factual AUM data. I know for a fact.


@ John

please email me, its.the.anal.yst@gmail.com .

If you have credible information, and can support it, please let us know!

Thanks for the comment!


So Seth has done 20%. Kudos to him!

So, I read recently somewhere [correct if wrong] that BRK has compounded for ~42 years at 25%. Obviously very, very impressive.

Let's examine someone who is not under the radar, but whose performance surely is:

Mirage: compounded 25.5 years at 27%.

Take the cash from that buyout and invest in Wynn Resorts:
Wynn: 5.5 years at 48%.

Net: 31 years at 29.7%.

For every $1000 you gave Steve Wynn when Mirage went public, you'd have $3,207,547 now if my math is correct.

[And that's with Wynn dropping $65 from its high, or it'd be even more!]

Even if Wynn's growth slows down - as it assuredly will - a few more years and his track record will be better than WEB's when it comes to capital allocation.

And it blows Seth Klarman away. And the fees for holding shares are ~0.


Yeah, Baupost doesn't manage as much as you noted here although they did nearly double their AUM over the course of 2007


Again, Gents (or ladies?) if you have information different from what we've posted please let us know.


Bulging Bracket

Anecdotes are not data, no matter how strenuously the anecdote argues the point.

He's obviously done well, but his approach isn't generalizable. You need to be lucky, amazing, and managing the right sized portfolio (enough to pay your overhead but not so big as to distort your arb opportunities) to make his approach work. He's just displaying the common fallacy of attributing one's success to brilliance rather than luck. Excuse me while I remain unimpressed.

I do love how he's making a huge, flaming "fund top" sign with this speech. The moment anyone mentions how they've excised risk from their portfolio is that moment of impending doom. Portfolio insurance guys, LTCM, Enron, Dude with a really big fish, they all talk about how they managed to figure out a way around risk. Except they didn't. Drinking your own kool aid is a ridiculously bad idea, and this guy sounds like he's chugged a keg's worth.

I'm disappointed in you guys, you're usually less easily impressed by self-serving bullshit. Are there ways to take advantage of quant trading, index tracking, etc? Of course, any popular trading/investing strategy will have predictable arb opportunities. Does that make them idiotic? No. Has he proved an inefficient market? Er, no. Reasonable people don't go for a universal strong form of EMH. It holds almost all the time over most time-horizons, but psychology has an impact and there are short-term discontinuities (say when there are confidence issues that reduce availability of credit).


@ BB

Your comments are valid, obviously, however one point which I'm not sure you grasped (or perhaps I didn't point out in this write-up) is that the Fund does not make use of recourse (i.e. margin) debt. The parties you mentioned all did, and high levels of it to boot.

Of course, as you accurately point out, one could perceive this speech as a sort of 'jumping the shark', self-aggrandizing kind of thing. But then you realize that of the 13 page .pdf document, 2 small paragraphs really point out his successes. Is it no longer acceptable to discuss one's performance, especially when said performance has been extradorinary, and has been such for a long period of time? I'm not saying you're wrong, per se, and definitely understand where you're going, but I think you may be missing the larger point (i.e. he has been so successful yet so few know who he is, as a testament to his desire not to drink his own koolaid)

Also, past performance is, of course, no indication of future results. The crux of the matter, however, is that among active fund managers and large investors, how many have a better track record than he? Maybe a small handful, at best.

As always though, we appreciate your comments, keep 'em coming!


This sentence in particular really strikes a chord: Institutional constraints and market inefficiencies are the primary reasons that bargains develop.

The manner in which institutions manage their money breeds inefficiency.

At a dinner last fall, a PM got up and said: "Thank you for your money. We appreciate it. But I think you are stupid. Your end result, selecting us to manage your assets, is commendable; however, the path that you took to get here is bizarre. You look for managers to fit in little boxes...you are my growth. You are my value. You are my international. You impose restrictions: no investments in North Korea. No investments in Sudan. Don't you realize that by doing this, you are creating pockets of opportunity for someone else to exploit?"

Institutions must follow set codes, criteria, and policies that guide their investments. They must choose the "safest" choice for fear that their risk will result in a blow up. These guidelines and policies create opportunities for others to exploit.


Please tell me the pm was very drunk haha amazing if its true

Bulging Bracket

While all my examples of "we found a riskless way to make money" were highly levered (partly due to the embedded leverage in the options needed to make the strategy work), it don't matter whether or not you borrow money. When you proclaim yourself to be a brilliant investing genius who never loses money, YOU GO SPECTACULARLY BANKRUPT. You also become a shorthand for anti-capitalist hipsters and politicians for the horrors of finance. It's a natural law, just like thermodynamics and kinematics (at non-relativistic speeds).

There are always people who have spectacular records over an astonishing long period. They're called outliers. You may have heard of the term. They always exist. If this guy had won $300M in the Powerball, or picked a ridiculous exacta, and then discussed his brilliant strategy for making money, you'd be laughing at him just as I am. But because he caters to your prejudices about investing, you take him seriously. That's bullshit.

He has a decent strategy. It has worked for him. He is not proof that we are all idiots or liars for not doing exactly what he does. Lots of other people with the same insights have gone bankrupt or turned in crappy results thanks to poor execution, poor timing, or a lack of opportunities. It's like looking at 25 year fund performance charts and thinking that they mean something. The lucky stay alive and if you're unlucky for a year or 3 you're out of business.

Buffet, despite his Limousine Liberalism and rent seeking through policy, has always been humble. He knows he has gotten lucky, he talks about it. His strategy has worked for him, though he relies on insurance, a corrupt and clubby industry. This guy has forgotten that he's a remarkably lucky remora and is now talking about how stupid the sharks are.



Excellent points! 6or the record my particular prejudices don't favor Baupost's any more than it does SAC's.
I'm in complete agreement with your comments re:believing one's own bs.
Karma, as they say, she's a bitch.

Jordan retro 5

Truth is better than a thousand gold pieces, a warm WanLiHan frost, Can arrive a salute sent sweet, A salute all take my thoughts, Busy day take good care of yourself all gold and silver, A LuBao from a prairie greetings, Bring me fragrant smell. From the north's blessing, Let me feel friendship is precious.

Jordan retro 5

Truth is better than a thousand gold pieces, a warm WanLiHan frost, Can arrive a salute sent sweet, A salute all take my thoughts, Busy day take good care of yourself all gold and silver, A LuBao from a prairie greetings, Bring me fragrant smell. From the north's blessing, Let me feel friendship is precious.

wine bags

Shocking! I smell something fishy going on here.

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