Tuesday, July 26, 2005
More Notes from Omaha
Question: According to a business week report published in 1999, you were
quoted as saying “it's a huge structural advantage not to have a lot of money. I
think I could make you 50% a year on $1 million. No, I know I could. I guarantee
that.” First, would you say the same thing today? Second, since that statement
infers that you would invest in smaller companies, other than investing in
small-caps, what else would you do differently?
Answer: Yes, I would still say the same thing today. In fact, we are still earning those types of returns on some of our smaller investments. The best decade was the 1950s; I was earning 50% plus returns with small amounts of capital. I could do the same thing today with smaller amounts. It would perhaps even be easier to make that much money in today's environment because information is easier to access.You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share!! I tried to buy up as much of it as possible. No one will tell you about these businesses.
Start turning over some rocks. Let me know if you find anything.
Also, value guru Ron Muhlenkamp of Muhlenkamp Funds recently hosted a Q&A with some of his clients, and as usual he presents a slightly unconventional view of the world. He still likes homebuilders, despite expecting the real estate bubble to burst, enjoys buying Buicks at Chevy prices (Buicks? time to update your metaphor Ron), and argues that France and Germany are so interested in maintaining the status quo that they are killing themselves.