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Transcript of Superinvestors Powerpoint
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7/29/2019 Superinvestors Powerpoint
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Super Investors of
Graham andDoddsvilleSuper Investor AnalysisScott McConnell
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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
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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
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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
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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
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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%
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-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.
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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.
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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.
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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
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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.
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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
Cumulative454% 94% -12.6
1997 36% 33% 16.71996 63% 23% 31.91995 25% 38% -6.61994 18% 1%
-6.51993 42% 10% 44.120-Year
Cumulative2471% 388% -4.7
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
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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%