Superinvestors Powerpoint

7/29/2019 Superinvestors Powerpoint

1/13

Super Investors of

Graham andDoddsvilleSuper Investor AnalysisScott McConnell


2/13

Year Chuck Akre Bill Nygren Ian Cumming Mario Gabelli Mason Hawkins David A. Rolfe Prem Watsa Wallace R Weitz S&P500 (%) Russell 2000 SI Index Willshire

2012 16.3% 21.0% 9.6% 16.0% 16.5% 22.5% 6.5% 19.7% 15.4% 16.4% 16.0% 13.7%

2011 11.5% 1.8% -11.5% -0.4% -2.9% 5.6% 0.0% 2.2% 2.1% -4.2% 0.8% -1.3%

2010 18.5% 12.2% 59.1% 23.1% 17.9% 14.5% 5.0% 27.5% 15.1% 26.9% 22.2% 15.6%

2009 37.5% 44.8% 59.8% 30.5% 53.6% 60.8% 35.0% 31.3% 26.5% 27.2% 44.2% 27.2%

2008 -42.9% -32.6% -55.2% -37.2% -50.6% -38.1% 21.0% -38.1% -37.0% -33.8% -34.2% -38.7%

5-Year

Cumulative20.6% 34.8% 10.5% 16.5% 1.3% 47.5% 82.7% 26.8% 8.0% 19.1% 35.6% 1.2%

2007 6.5% -3.6% 39.1% 11.8% -0.4% 15.0% 48.7% -8.5% 5.6% -1.6% 13.6% 3.9%

2006 25.4% 18.3% 6.2% 21.8% 21.6% -2.8% 9.2% 22.5% 15.8% 18.4% 15.3% 13.9%

2005 5.1% -1.3% 61.4% 4.4% 3.6% 5.8% -18.0% -2.4% 4.9% 4.6% 7.3% 4.6%

2004 46.0% 11.7% 4.5% 16.5% 7.1% 9.6% -4.1% 15.0% 12.0% 18.3% 13.3% 10.9%

2003 40.3% 25.3% 17.1% 30.6% 34.8% 42.3% 29.1% 25.4% 28.7% 47.3% 30.6% 29.4%

10-Year

Cumulative246.8% 112.2% 222.4% 152.2% 83.4% 172.2% 201.1% 100.0% 99.7% 152.9% 181.8% 79.7%

2002 -3.5% -14.4% 19.0% -14.3% -8.3% -20.4% 11.2% -17.0% -22.1% -20.5% -6.0% -22.1%

2001 2.4% 18.3% -0.7% 0.2% 10.3% -7.7% -12.2% -0.9% -11.9% 2.5% 1.2% -12.1%

2000 5.6% 11.8% 10.2% -2.4% 20.6% -10.3% 5.0% 21.1% -9.1% -3.0% 7.7% -11.9%

1999 2.4% -10.5% -33.9% 28.5% 2.2% 57.0% 38.0% 22.0% 21.0% 21.3% 13.2% 22.1%

1998 27.1% 3.7% 2.5% 15.9% 14.3% 49.6% 30.0% 29.1% 28.6% -2.6% 21.5% 21.7%

15-Year

Cumulative370.9% 123.1% 184.5% 215.0% 161.4% 321.1% 453.8% 214.0% 93.8% 136.2% 297.5% 61.3%

1997 30.1% 32.6% 57.7% 38.1% 28.3% 21.1% 36.0% 40.6% 33.4% 22.4% 35.6% 29.2%

1996 19.7% 16.2% 0.2% 13.4% 21.0% 23.6% 63.0% 19.0% 23.0% 16.5% 22.0% 18.8%

1995 52.5% 34.4% 17.6% 24.9% 27.5% 42.6% 25.0% 38.7% 37.6% 28.5% 32.9% 33.4%

1994 2.9% 3.3% -3.5% -0.2% 9.0% 3.8% 18.0% -9.0% 1.3% -1.8% 3.1% -2.5%

1993 6.3% 30.5% 47.2% 21.8% 22.2% -6.2% 42.0% 23.0% 10.1% 18.9% 23.4% 8.6%

20-YearCumulative

1123% 523% 651% 649% 589% 775% 2471% 716% 388% 405% 1011% 250%

Reference


3/13

Average Returns

3

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

S&P500 (%)

Russell 2000

SI Index

Willshire


4/13

Cumulative Returns

Year S&P500 (%) Russell 2000 SI Index Willshire

1993 10.0% 19.0% 23.0% 8.6%

1994 11.1% 16.6% 26.7% 5.8%

1995 53.3% 49.3% 68.5% 41.2%1996 88.6% 73.2% 105.6% 67.8%

1997 150.8% 111.3% 179.6% 116.7%

1998 223.5% 104.9% 241.1% 163.8%

1999 291.5% 147.9% 285.4% 222.0%

2000 256.3% 140.5% 316.3% 183.8%

2001 213.5% 145.3% 320.4% 149.6%

2002 144.5% 96.3% 295.2% 94.5%

2003 215.5% 188.5% 417.7% 151.8%2004 253.3% 240.4% 485.0% 179.1%

2005 271.0% 257.4% 525.9% 191.8%

2006 330.3% 321.8% 619.8% 232.4%

2007 356.1% 313.3% 720.6% 245.5%

2008 187.4% 172.8% 441.6% 111.8%

2009 262.1% 246.5% 679.9% 169.5%

2010 316.4% 340.0% 851.5% 211.4%

2011

324.7% 322.4% 861.0% 207.5%2012 388.4% 390.0% 1014.8% 249.6%

Arithmetic Averages

S&P500 Russell 2000 Willshire SI Index

20 Year 10.1% 9.9% 8.2% 14.2%

15 Year 12% 11% 10% 16%

10 Year 11% 8% 9% 16% 0.19 0.19 0.19 0.17


5/13

0.0%

200.0%

400.0%

600.0%

800.0%

1000.0%

1200.0%

1993 199419951996199719981999 200020012002200320042005 200620072008200920102011 2012

Returns

Cumulative Returns

S&P500 (%)

Russell 2000

SI Index

Willshire


6/13

S&P500 Russell 2000 SI Index VS S&P500 VS Russell

1993-2002 11.20% 8.00% 15.50% 4.30% 7.50%

1994-2003 13.10% 10.80% 16.30% 3.20% 5.50%

1995-2004 14.20% 12.80% 17.30% 3.10% 4.50%

1996-2005 10.90% 10.50% 14.70% 3.80% 4.20%

1997-2006 10.20% 10.70% 14.00% 3.80% 3.30%

1998-2007 7.50% 8.30% 11.80% 4.30% 3.50%

1999-2008 0.90% 5.20% 6.20% 5.30% 1.00%

2000-2009 1.40% 5.80% 9.30% 7.90% 3.50%

2001-2010 3.80% 8.80% 10.70% 6.90% 1.90%

2002-2011 5.20% 8.20% 10.70% 5.50% 2.50%

2003-2012 8.90% 11.80% 12.90% 4.00% 1.10%

Average 7.94% 9.17% 12.67% 4.74% 3.50%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%14.00%

16.00%

18.00%

20.00%

PercentReturn

10 Year Rolling Returns

S&P500

Russell 2000

SI Index

S&P500 Russell 2000 SI Index

Rolling 10 years 0.04565 0.02391 0.03321

Rolling 10 year volatility 4.57% 2.39% 3.32%

Rolling 5 Years 0.0953 0.0558 0.0651

Rolling 5 year Volatility 9.53% 5.58% 6.51%


7/13

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Returns

5 Year Rolling Return

S&P500

Russell 2000

SI Index

The volatility for the Superinvestor index was lower than the S&P500 for both 5 year and 10 year

rolling returns. The SI index had higher volatility than the Russell 200 for 5 and 10 year rolling

returns. This means the risk of the SI index is less than the S&P500 and more than the Russell 2000

for short and long-term returns. Yet the SI index still beats the Russell index and the S&P500

because its excess returns over the Russell 2000 is 3.5%-4.51% for 5 and 10 years. This beats the

increased risk of around 1% for the SI Index over the Russell 2000.


8/13

5 Year Rolling ReturnsS&P500 Russell 2000 SI Index VS S&P500 VS Russell

1993-1997 21.00% 16.60% 23.40% 2.40% 6.80%

1994-1998 24.80% 12.20% 23.20% -1.60% 11.00%

1995-1999 28.80% 16.80% 25.20% -3.60% 8.40%

1996-2000 19.40% 10.60% 20.20% 0.80% 9.60%

1997-2001 12.40% 7.80% 16.00% 3.60% 8.20%

1998-2002 1.40% -0.60% 7.60% 6.20% 8.20%

1999-2003 1.40% 9.40% 9.40% 8.00% 0.00%

2000-2004 -0.40% 8.80% 9.40% 9.80% 0.60%

2001-2005 2.40% 10.40% 9.20% 6.80% -1.20%

2002-2006 8.00% 13.60% 12.00% 4.00% -1.60%

2003-2007 13.60% 17.20% 16.00% 2.40% -1.20%

2004-2008 0.40% 1.00% 3.00% 2.60% 2.00%

2005-2009 3.20% 2.80% 9.20% 6.00% 6.40%

2006-2010 5.20% 7.20% 12.20% 7.00% 5.00%

2007-2011 2.40% 2.80% 9.40% 7.00% 6.60%

2008-2012 4.20% 6.40% 9.80% 5.60% 3.40%

Average 9.26% 8.94% 13.45% 4.19% 4.51%

The Superinvestors had better 10 year rolling returns in every period than the indexes. The

rolling returns give a better indication of the performance of the portfolios because they average out

best and worst years or outliers to give a larger picture of the performance of a portfolio that may not

be seen if looked at yearly. The higher rolling returns for the Superinvestors shows that they are

consistently beating the indexes over long-periods. Yet this is not fully the case for 5 year rolling

returns in which there are 2 periods against the S&P500 and 4 periods against the Russell in which

the SI index did not beat the market indexes in a 5 year rolling return. This suggests the

Superinvestors value investing is fully realized in long periods (10 years) and is not always the beststrategy for short-term investing.


9/13

Value investing is based on buying a stock for a discount to its true or intrinsic value. This is

based on the idea that the market is not efficient and the price does not always reflect the

value of the company. Valuing the company is done through numerous ways, mainly through

an analysis of tangible assets. Growth investing differs from value investing because it does

not look try to valuate the company but looks at the potential growth of the company. Growth

investors try to find a company that has high potential growth to invest in now and get long-

term returns. It does not look for a mispricing of securities but analyzes the potential forgrowth of the business.

Value Superinvestors show they consistently beat the EMH and MPT. The Superinvestors

show they do this by not only having higher returns than the indexes, but lower volatility or risk

than the indexes. The Superinvestors are not focusing on lowering risk through beta, asset

allocation, or diversification, but are instead focused on lowering risk by buying with a margin

of safety. In this way, they are able to beat the schedule of normal risk and return stated by

the MPT. The Modern Portfolio theory and the Efficient Market Hypothesis claim a strict risk

and return relationship for securities. From our market indexes, we get an idea of what this

relationship should be, the capital allocation line. From the three indexes, the line should bey=1.2414x-.1395. Thus, for our SI index, with a risk of 17%, the expected return would be

y=1.2414(.17)-.1395 or 7.2%. Instead, the SI Index returns almost double that, 14.2%. The SI

index easily beats the MPT and EMH claim of an unbeatable risk and return relationship.

Superinvestors perform better than the index because they believe the market is inefficient

and securities can therefore be bought at a discount from their actual value. The biggest

secret of this is a high margin of safety as well, which means lower risk with higher return,

thereby truly beating the market.


10/13

On an efficient frontier, the Superinvestor returns would be above the efficient frontier curve. This is because they

are beating the efficient frontier curves risk to return relationship. They are obtaining returns that are higher than the

expected level risk they are taking on. Given the efficient frontier produced by the relationship of the 20 year averages

of the S&P500 to the Barclays Aggregate Bond Fund, and the Capital Market Line from the average risk free rate of the

last 20 years, the SI index is able to beat the CML. Given the risk of the SI Index of 17%, the SI index should only have

a maximum return of 11.8% given the EMH and the CML. Yet the SI Index has abnormal returns above the CML and a

higher Sharpe ratio than the line has.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

ExpectedR

eturn

Portfolio Standard Deviation

Efficient Frontier

Efficient Frontier

SI Index

Capital Market Line


11/13

Yes I would invest in them based on their historic performance which not only shows their

ability as investors, but theirmethods ability to produce high returns and consistently beat the

market. Given my age, I will have a very long period of time to let my investments reach their

full value or true value. As shown, value-investing is most effective with a long-period of time

such as 10 years. This is a period of time I can easily afford at my age which would make

value investing an effective use of my money. I would be confident investing others money in these Superinvestors because I know the

money of those investing would be in a model that has lower risk and higher return and that

has proven its effectiveness. Yet for my mom, it may not be a perfect approach. She will be

entering retirement in less than 10 years and will likely be taking most of her capital out of

investments. As such, her investments in a value investing approach may not be best for her

as she may need to take her money out before the full return is gained and before the security

reaches its correct price. Thus the security would still be sold at a discount to its full value of

the correct stock price, and it may even in some cases, as shown by the 5 year rolling returns,

be sold at a loss.


12/13

Prem Watsa PROFILE

Fairfax Graduated from the Indian Institute of Technology, Madraswith a chemical engineering degree

Decided to get his MBA from Richard Ivey School ofBusiness at University of Western Ontario

His boss handed him the book Security Analysis byBenjamin Graham Became Benjamin Grahams disciple Founded his own asset management fir, Hamblin Watsa

Investment Counsel Ltd. In 1984

Total Value: Est 3 Billion

Asset Allocation Not Found

Investing Philosophy

Believes the market is inherently inefficient and unruly.Shareholders and investors are irrational and motived by

fear and greed. Contrarian for the most part, who has made gains off manyof the financial crashes in the last 35 years

Somewhat more risky approach, choosing some troubledunlikely companies

Performance of Fairfax

YearPrem

WatsaS&P500 (%)

Excess Gain

(%)

2012 7% 15% -8.92011 0% 2% -2.12010 5% 15% -10.12009 35% 26% 8.52008 21% -37% 58

5-YearCumulative

83% 8% 43.12007 49% 6% -6.62006 9% 16% -22.92005 -18% 5% -16.12004 -4% 12% 0.42003 29% 29% 33.310-Year

Cumulative201% 100% -0.3

2002 11% -22% 14.1

2001 -12% -12% 172000 5% -9% 1.41999 38% 21% 2.61998 30% 29% 4015-Year


1997 36% 33% 16.71996 63% 23% 31.91995 25% 38% -6.61994 18% 1%

-6.51993 42% 10% 44.120-Year


1988 31 16.6 14.4

1987 48 5.1 42.9

1986 180 18.6 161.4

27-Year

Cumulative

Return 31206 1171 30035

TOP 5 HOLDINGS 3

Rank Company % weight as of 12.31.12

1 Research In Motion Ltd 24.5%

2 Johnson & Johnson 16.6%

3 Resolute Fst Prods Inc 13.06%

4 Level 3 Communications

Inc

11.9%

5 Sandridge Energy Inc 8.2%

Performance of Weitz Series Value Fund


13/13

Wallace R Weitz PROFILE

Weitz Series Value Fund Graduated from Carleton College with a BA in Economics Discovered Benjamin Grahams Security Analysis book and

did value security analysis in New York for three years

Joined a regional brokerage firm in 1973 in Omaha Began Wallce R. Weitz & Company in 1983

Total Value: $400 million

Investing Philosophy

Preferably tries to buy stocks at a discount of 50% frombusiness value

Values a company with high discretionary cash flows ratherthan book or earning ratios

Questions which variables matter most to a company andvalues off of those variables

Looks at management as key to value, ethical, rational, etc.

Performance of Weitz Series Value Fund

Year Return (%) S&P500 (%) Excess Gain

(%)

2012 19.72 15.4 4.3

2011 2.19 2.08 0.1

2010 27.49 15.06 12.4

2009 31.3 26.46 4.8

2008 -38.06 -37 -1.1

2007 -8.54 5.61 -14.2

2006 22.53 15.79 6.7

2005 -2.42 4.91 -7.3

2004 14.99 12 3

2003 25.38 28.7 -3.3

2002 -16.99 -22.1 5.1

2001 -0.86 -11.9 11

2000 21.07 -9.1 30.2

1999 22.02 21 11998 29.13 28.6 0.5

1997 40.64 33.4 7.2

1996 19.04 23 -4

1995 38.66 37.6 1.1

1994 -8.97 1.3 -10.3

1993 23.03 10.1 12.9

1992 15.14 7.6 7.5

1991 28 30.5 -2.5

1990 -6.35 -3.1 -3.21989 20.25 31.7 -11.5

1988 14.93 16.6 -1.7

25-Year

Cumulati

ve

1457

(11.6%/y

ear)

919.9

(9.7%/ye

ar)

537.1

(1.9%/ye

ar)

TOP 5 HOLDINGS 1

Ran

k

Company % weight as of

12.31.12

1 Valeant

Pharmaceutical IntlInc

5.52%

2 Aon Plc 5.25%

3 Berkshire Hathaway

Inc Del

5.1%

4 Redwood Trust Inc 4.88%

5 Wells Fargo & Co 4.23%

Documents

Superinvestors Powerpoint