By: Aleph Blog
June 08, 2012 at 10:59 AM EDT
When I started writing this blog, my Major Article List was a big thing to me. I wrote some pretty good things at RealMoney.com, and I wanted to have a record of the best of that. I only wish I had done the same thing for my Columnist Conversation comments, because many of them were [...]
When I started writing this blog, my Major Article List was a big thing to me. I wrote some pretty good things at RealMoney.com, and I wanted to have a record of the best of that. I only wish I had done the same thing for my Columnist Conversation comments, because many of them were far better than most articles at RealMoney. Give TST credit, they would frequently take my best comments, and turn them into posts, and pay me for them. They did not have to do that.
But, I would love to republish many of my best timeless posts here. I offer a deal to RealMoney: In exchange for being able to republish old posts and comments of mine here, I will offer you new posts of mine, or the best of my old posts at my blog, so long as they are timeless.
Regardless, when I was at RealMoney, I wrote a series that dealt with the motives of various investors as it stemmed from their balance sheets. For those that have access to RealMoney, here are the articles (note: I wrote different titles than what was used):
The main idea is this: There are a wide variety of investors, and they have differing abilities to hold assets. Why should investors have differing abilities to hold assets? And why should that matter?
When will you need the cash? That should be a central question for every investment adviser, dictating asset allocation. This is basic asset-liability management. This gets neglected in investing more often than most imagine.
With respect to institutional investors, my experience is the more of the investment is done internally, the more patient the capital tends to be. Perhaps that’s the illusion of control, but I tend to think that investors have more trust in their own reasoning than in the reasoning of external managers.
The longer the time that you can invest and wait for returns, on average, the more aggressive you can be in investing. The investor that can “Buy-and-hold” can take on the most difficult situations if there is a sufficient discount in the price to make the wait worthwhile, and avenues that allow for change to be encouraged.
So, when I think of how my investment is affected by those that invest alongside me, I divide them up this way:
When I go through 13F filings, I note the quirkiness of the assets held, and often held for a long time. Almost all of the 13Fs that I track I would classify as strong hands. They don’t care about the next quarter; they are thinking about the next 3-5 years. They care about the growing underlying value of the businesses; they wouldn’t care if stock market was only open one day per month. Some, like Seth Klarman, do little on the long side when opportunities are not compelling. Like underwriters at well-run insurers, when an insurance market is nuts, you stop writing business, and spend time improving your skills.
So for my own investing this past period after I finished my 13F analysis, I took the companies that had:
and put them in as competitors in my ranking system, against my current portfolio. Because of redundancy, it was about 320 companies in all. I think it was a good exercise, because it made me think about a bunch of companies that I would otherwise never consider. Anyway, the process is complete, and the equity portfolios have some promising new names with good prospects, and fellow shareholders that are for the most part “strong hands.”
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