Investing Ideas

Peter Lynch managed the Fidelity Magellan fund from 1977 to 1990 averaging 29% returns over the period of 14 years. At one point the fund grew assets to an unmanageable $100 billion. In recent years the fund became an Index hugger with most stock picks matching the S&P. Factoring in expenses the fund underperformed its category and even the S&P 500 index for years.

Stansky who managed Magellan for nearly a deade retired October last year. He was replaced by Harry Lange. One year later the fund looks a lot more interesting to me. A year ago the top 10 holdings in order of percentage of assets were GE, Microsoft, ExxonMobile, HomeDepot, Citigroup, J&J, Intel, Lowes and Viacom. This year the fund has Nokia, Slumberger, J&J, UnitedHealth, GE, Peabody, AIG, Google, Genentech and Corning. When you manage $45 Billion you need to find good large cap stocks wherever you can, so its great to see Harry Lange is looking at international stocks, the fund has Nokia, Nomura, Canadian Natural Resources and Samsung among its top 25 holdings.

Only time will tell if the fund returns to its glory days but its a step in the right direction.
Conflicts: My 401k is managed by Fidelity and I have avoided the Magellan Fund in the past.

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A great man once said “If you dont know money, know your money manager”.

If you think you, your money manager or your mutual fund can beat the market youre probably wrong. Sixty five percent of mutual funds wont beat the S&P 500 this year. Most of the ones that do beat it will fall short next year. Why invest in a mutual fund that cant beat the market? You can easily invest in an index fund.
So you still want to beat the market? If you cant beat the market find someone who can. The last thing you want is to be invested in a high flying fund just as its about to dive. You need a money manager who can beat it consistently and has proven it over long periods of time. There are other money managers that i consider superinvestors like George Soros and Bruce Sherman but it is not possible for the average investor to invest with them so they have been excluded. I must mention Masters’ Select Value a mutual fund that is a favourite of mine. Three of its Four money managers Bill Miller, Bill Nygren and Mason Hawkins are in my favourites list. Its a great way to get exposure to multiple superinvestors in 1 mutual fund.

Take a look at my favourite money managers. Most of these superinvestors have beaten the S&P over long periods of time (10 years or more).
Individual Stocks
Warren Buffet: Berkshire Hathaway (BRK.A, BRK.B)
Eddie Lampert: Sears Holdings
My personal preference here is Berkshire Hathaway. It is better than Sears holdings in virtually any comparison.

The 3 dollar Bills
Bill Gross: Pimco Bond Funds (Too many funds to name)
Bill Nygren: Oakmark Select
Bill Miller: Legg Mason
I find it hilarious that my 3 favourite mutual fund managers are all named Bill.

Additional US Funds
William Danoff: Fidelity Contrafund
Joel C. Tillinghast: Fidelity Low Priced Stock
Harry R. Hagey: Dodge and Cox
Ken Heebner: CGM Focus/CGM Realty
Mason Hawking: Longleaf Partners

International funds
Charles de Vaulx: First Eagle Global
Riad Younes: Julius Baer International

There are too many great mutual fund managers and i wanted to keep my list small. I feel that some names need to be mentioned even if they are did not make my favourites list. Here are a few more brilliant managers and management teams

Richie Freeman: LeggMason Partners Aggressive Growth
Christopher Davis: Davis New York Venture Fund
John Calamos: Calamos Growth Fund
Wally Wietz: Wietz Partners Value Fund
Jeffrey Bruce: Bruce Fund
Oakmark International
Dodge and Cox International
Matthews Pacific Tiger

Conflicts : I have investments in Berkshire Hathaway, Fidelity Contrafund and Fidelity Low Priced Stock

Confession: I am the great man who said “If you dont know money, know your money manager”.

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What if i told you there was a mutual fund with one of the best money managers in the world and had returned amazingly consistent growth every year for decades. What if i said that the fund had the flexibility of investing usually found only in hedge funds. What if i also told you that the fund had no load, administrative or management fees. The fund is diversified across sectors and also invests internationally. It holds stocks, complete companies, bonds and foreign exchange. The fund manager puts all of his own money in this very mutual fund thus completely aligning his interest with the mutual fund holders. As an added bonus the fund will never have distributions which force you to pay tax even if you still hold the shares.

The name of this amazing mutual fund is Berkshire Hathaway but its a stock and not a fund. Lets look at the company in detail regarding the claims I made.

Manager: Warren Buffett Nicknamed the “Oracle of Omaha” or the “Sage of Omaha”, Buffett has amassed an enormous fortune from astute investments, particularly through his company Berkshire Hathaway, in which he holds a greater than 38% stake. With an estimated current net worth of around US$42 billion, he is ranked by Forbes as the second-richest person in the world, behind only Microsoft chairman Bill Gates.

Returns: Since 1965 the company has averaged 21.5% returns in per share book value. This is one of the best returns for any company or mutualfund over any large period of time (10 yrs+). During the same period of time the S&P index has returned 10.8% and most mutual funds perform worse than the S&P.

Expenses: Mutual funds have a bunch of expenses and fees. Initial sales fees, Deferred and Redemption fees cut into your investments. The fees I mentioned are incurred only once. There are also Administrative, Management and 12b-1 fees that are charged anually whether the mutual fund makes you money or not. Since Berkshire Hathaway is a stock there are no fees. Warren buffet recieves no stock options and has an annual salary of $100,000.

Diversification: Berkshire Hathaway by defenition is a holding company owning subsidiaries and stocks engaged in a number of diversified activities.

Major stock holdings: American Express, Ameriprise, Anheuser Busch, Coca-Cola, M&T Bank, Moody’s, Petrochina, Proctor & Gamble, Wal-Mart, Washington Post, Wells Fargo, White Mountain Insurance

Minor stock holding: ConocoPhillips, General Electric, United Parcel Service, Nike, Home Depot, Costco

Major Subsidiaries: GEICO, General Re, National Indemnity, MidAmerican Energy, Iscar Metalworking

Minor Subsidiaries: Clayton Homes, Acme Brick, Ben Bridge Jewellers, Benjamin Moore, Borsheims Fine Jewellery, CORT Business Services, Fruit of the Loom, Garan, Helzberg Diamonds, HomeServices of America, Dairy Queen, McLane Furniture, Nebraska Furniture, Netjets, Pampered Chef, Sees’ Candies, Shaw Industries, Wesco Financial and more

Flexibility: Mutual Funds are restricted in what they can invest. Most funds are restricted by the valuation (Value vs Growth), Geographic (US vs International/Emerging Markets), type of Instrument (Stocks/Bonds/Currency). Berkshire Hathaway has no such restriction. It can invest in any type of Company anywhere in the world. It can also invest in any form of investment.

Taxes: Mutual funds are forced by law to distribute at least 90% of its’ realized capital gains and dividend income each year. You then have to pay taxes on the distribution. In the case of Berkshire since you just buy or sell the stock of a company, you only need to pay capital gains taxes when you sell the stock. In the meantime Berkshire can compound your money for you.

Conclusion: A company run by the best money manager of our time. It has the diversification of a mutual fund, flexibility of a hedge fund and the cost and tax advantages of a stock.

Conflicts - I own class B shares of Berkshire Hathaway.

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