01 Sep 2010 Investors Embrace Bear Market Funds
The problem is that individual investors are exiting stock funds only after they've fallen, thereby locking in losses and missing out on any potential recovery...

We cater to short-term investors," says Paul Brigandi, senior portfolio manager at Direxion. The funds are for "sophisticated investors who have time to monitor and manage the portfolio on a daily basis."

22 Aug 2010 Rethinking Gold: What if It Isn't a Commodity After All?
Invest in gold, then, according your beliefs about the future of the greenback. Just don't invest based on the idea that gold is a proxy for inflation. You are likely to be played for a fool.

21 Aug 2010 Preparing for the Next 'Black Swan'
Investors Are Flocking to New Strategies Designed to Profit From a Market Calamity...

16 Aug 2010 Why Does the Market Hate Blue Chips?
In a down market marred by exceptional uncertainty, high-quality stocks should be a dead certainty to outperform, as investors seek out safer investments, but that hasn't happened this year. To the continued bewilderment of value-driven investors, high-quality stocks are cheap relative to the broad market...

15 Aug 2010 The demand for financial assets is not like the demand for iPods
This apparent contradiction can be resolved. Financial markets do not operate in the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the price of a financial asset rises, demand generally increases...

09 Aug 2010 Vigilante on the move
Underpinning this thesis is a belief that interest rates will march higher over the next decade, reversing an almost 30-year period of generally falling rates. When bond yields rise, their prices fall, eating into any gains from the security’s coupon. A combination of rich-world overindebtedness and insufficient consumption in developing countries could also dampen returns, Mr Gross argues. Bear markets in bonds tend to be less spectacular than those in equities, but what they lack in depth they compensate for in length. In the 1960s and 1970s, when interest rates crept steadily upwards and prices sagged, bonds were dubbed “certificates of confiscation”...

04 Aug 2010 Five Stocks Prove Buy and Hold Is Not Dead
The main reason for the low returns over the past decade was the fact that in the late 1990s investors forgot about fundamentals and bid up stock prices to unsustainable levels. The price/earnings ratio on the S&P 500 index increased to 30 times earnings, which was twice the average of the preceding eight decades. Thus investors were betting that earnings would keep increasing at a faster rate over the future...

02 Aug 2010 Another Can't-Miss Deal That Can Miss Spectacularly
But as is so often the case when investments are promoted on the basis of high yield, these deals are unsuitable for most investors. Even in the rare situations when they might make sense, you must proceed with extraordinary caution...

02 Aug 2010 What Multiples Are Telling Us Now
Because bonds are equities’ chief competitor for the investment dollar, a comparison of valuations with yields is essential and a far superior way to proceed than simply making comparisons of current multiples with history. When yields are high and this competition, consequently, is keen, equities need lower multiples to attract investment dollars, whatever else is happening, than when bond yields are low and the competition for the investment dollar is less keen. Such considerations could have helped avoid many of the missteps of simple comparisons to the averages...

02 Aug 2010 Time to reassess how fund managers are rewarded
Mr Morris argues that private-equity managers have charged excessive fees and overstated returns by using misleading measures of their internal rate of return. In addition, he says, the returns they do achieve are due to factors, including high leverage and the overall movement of the stockmarket, for which private-equity managers cannot claim credit...

27 Jul 2010 Coke Makes for a Safer Investment Than Treasuries
If you're worried about safety, I'd make the argument that buying shares of Coca-Cola (NYSE: KO) today is at least as safe as buying a 10 year Treasury. Whereas Coca-Cola has less than $12 billion in debt (about 1/3 of its total annual revenues), the U.S. Treasury has to fund something close to $13 trillion in the next 10 years, - which amounts to close to 80% of its revenues over that period - but that doesn't account for continued deficit spending.

You might make the argument that the U.S. Treasury can always have the Federal Reserve print more cash to meet its debt obligations, but Coke can do the same thing by issuing new shares. Both scenarios assume there are willing buyers of course.

25 Jul 2010 Ten Stock-Market Myths That Just Won't Die
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."

23 Jul 2010 Jeremy Grantham - GMO Q2 2010 Letter
Why Are Quality Stocks Cheap?

High quality stocks were left very much behind in the great rally last year, which was the biggest and most speculative since 1932. Much more surprisingly, they have underperformed this year, probably for the reasons discussed above. But unlike small caps, they have been cheap for almost five years and, given the uncertainties around today, this is unusual. There are surely additional reasons, other than the low rates, why the great companies have persistently sold at a discount. Why didn’t quality stocks at least become expensive, and risky stocks become cheap on a relative basis, when we were at the deepest point in the crisis? Most risky fixed income securities certainly became very cheap then. I understand the general direction of the performance of quality stocks: down in 2005, 2006, and 2007, which were speculative years; up a lot in 2008, which was the year of anti-risk panic; and down in 2009 and 2010, which were also very speculative. But, I’m puzzled by the general value level around which they have been moving. It’s as if there is an extra and unusual force working against them. This type of mispricing always has a reason. It may not be particularly rational, but there is a reason. Let me confess that I have no certain answer, but I’ll offer a couple of candidates. One is the population profile: there are more new retirees per new worker than there used to be. Retirees are selling stocks to pay the bills and to buy more conservative fixed income investments. And what stocks are they selling? By the time they retire, they probably own blue chips, having sold down most of their speculative stocks in the decade before retirement. This is just a guess; I have no good data to prove it. But it does seem reasonable.

A second candidate, accompanied by stronger circumstantial evidence, is the “Let’s all look like Yale” syndrome. In the last 10 years, institutions and even ultra-rich individuals have, in general, been increasing the share of their portfolios that is invested in private equity and hedge funds, commodities, and real estate. And even within their equities, they have been increasing their share of foreign equities, including emerging markets and small caps. At the second derivative level, hedge funds may feel that they do not get paid to buy Coca-Cola, and private equity firms, particularly now, do not go after many of the great franchise companies. So what is being liquidated to buy all of this new stuff? Old-fashioned blue chip U.S. stocks and U.S. government bonds that used to completely dominate even sophisticated institutional accounts and now no longer do. In the case of U.S. bonds, we have the noble Chinese to step into the breach for a powerful reason: they have no alternative if they want to run trade surpluses. But blue chip stocks are on their own, without any natural offsetting buyers.

In a rational market, structural selling pressures that are not related to long-term value will create a modest mispricing opportunity into which sensible money will be drawn. That would be a nice, boring world to live in. In ours, where herding dominates and an extreme libertarian like Greenspan or a painfully academic academic like Bernanke are the shepherds, the inefficiencies can be much greater than in Fama’s and French’s wildest dreams. And so it is today. The next time – at some unknowable point in the future – when relative prices for quality versus the rest of the market once more cross through fair value (as the market in aggregate did in October 2008 and June 2009, by the way), the excess return for quality could be over 40 percentage points!

23 Jul 2010 Looking for a Yield Boost? Think Ketchup
Mr. Grantham continues to wonder why top-quality names sell so cheaply. I have a theory: The kind of people who typically buy these kinds of shares—widows, orphans and the like—have simply walked away from the stock market in disgust altogether. They're buying bonds instead. That may be creating an opportunity.

20 Jul 2010 Double Dip? Seven Reasons Why Not
It seems these days that half the headlines in the financial media fear a double-dip recession, as do half the conversations on Wall Street. There certainly are risks, not least in Europe’s financial difficulties. But still, there are reasons to question such widespread concerns. History, after all, offers only one true double-dip experience, and that grew out of a policy error. More, the actual data on the economy fly in the face of such an outlook...

20 Jul 2010 Increased Productivity Has Destroyed Millions of Jobs, And That's Good
U.S. Manufacturing output has more than doubled since 1975 while manufacturing employment has decreased by about 8 million jobs, resulting in more than a three-fold increase in worker productivity (output per worker) since the 1970s...

12 Jul 2010 Hazardous Waters: Should Investors Bet on Rising Risk?
Investors have a chronic habit of chasing any asset that rises and fleeing it when it falls, even though they should become less willing to buy into whatever grows more expensive and more eager to pick up whatever gets cheaper. (Just think of how much happier you were to hold stocks three years ago than you are today.)

Dataroma's opinion: Hmmm... what is the point of "insuring" your portfolio against volatility anyway?!

09 Jul 2010 Antidotes for the Economic Slowdown
The U.S. economy has unquestionably slowed since the recovery began last summer. Although some see this as a prelude to the much feared double-dip recession, I believe that it is just a pause in the recovery brought about the by the removal of the fiscal stimulus and the problems in Europe...

03 Jul 2010 Equities are still suffering from a valuation hangover
As the cult of equity gained more and more adherents in the 1990s share prices were bid to stratospheric levels. On the best long-term measure, Robert Shiller’s cyclically adjusted price-earnings ratio (which averages profits over ten years), valuations in 1999 were more than a third higher than their previous peak, just before the great crash of 1929. It was a nice irony. Investors bought shares because they desired high returns but their enthusiasm pushed prices to a level from which high returns became impossible...

29 Jun 2010 Repent at leisure
orrowing has been the answer to all economic troubles in the past 25 years. Now debt itself has become the problem, says Philip Coggan...

24 Jun 2010 Investors may not have caused commodity price rises
...in boom conditions commodity consumers will be so desperate to get their hands on raw materials that they will drive prices up to absurd levels, at least for a short time. When demand falters, or new supply shows up, the price bubble can evaporate as quickly as it arose, without a speculator in sight.

22 Jun 2010 So That's Why Investors Can't Think for Themselves
A study published last week in the journal Current Biology found that the value you place on something is likely to go up when other people tell you it is worth more than you thought, and down when others say it is worth less. More strikingly, if your evaluation agrees with what others tell you, then a part of your brain that specializes in processing rewards kicks into high gear...

20 Jun 2010 Why are both Treasury bonds and gold performing so well?
Take the recent surge in the gold price to a nominal record of $1,251.20 an ounce. Owning gold is traditionally seen as offering protection against inflation. And inflation is very bad news for owners of government bonds. But the ten-year Treasury bond yields just 3.3%, a level that is towards the low end of the historical range...

Dataroma's opinion: Remember, gold has no yeild, has virtually zero utility and cannot be valued. That, by definition, makes gold a greater-fool-investment.

18 Jun 2010 U.S. Debt and the Greece Analogy
Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences...

16 Jun 2010 Dividends Reign as Market Pours
Shares of lots of good companies with decent cash positions are sporting historically high dividend yields...

14 Jun 2010 U.S. Firms Build Up Record Cash Piles
The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963.

08 Jun 2010 Hey, Money Managers, Stop Putting the Squeeze on Investors
The market can't function optimally when tens of thousands of professionals managing trillions of dollars act like sheep, locked into simultaneously pursuing whatever happens to be going up in price and fleeing whatever is falling...

04 Jun 2010 McMansion welfare: Why does government subsidize home ownership?
People are increasingly asking why we subsidize home ownership anyway. What's so good about owning a home that the government provides this function? Plus the limits on what are considered "conforming mortgages" have been raised so high that we're subsidizing $900,000 McMansions. Why would we do that, and why would we want to teach people to expect extravagances to be subsidized?

03 Jun 2010 Waiting for the big one
Where do Europe’s money-market jitters sit on the financial Richter scale?

03 Jun 2010 The pain in Spain
Austerity packages are difficult to pull off, as the Spanish experience shows...

28 May 2010 Even sophisticated investors have just been chasing returns
...when the academics examined why investors ploughed money into different types of hedge fund, one reason stood out: recent performance. Funds that had performed well in the previous three quarters attracted significantly more money. Each 1% of extra performance attracted around $9m of new assets...

26 May 2010 Beware the European Index Trap
Take Spain. You may be tempted to invest some money there just because everybody hates it and it's plummeted like a stone this year.

But if you buy the iShares MSCI Spain Index exchange-traded fund, a huge amount of your money will go into shares of the country's stricken banks.

25 May 2010 Emotion isn’t something to fear, but to exploit
An investor’s job is to identify a good business, figure out what it’s worth, then wait until someone hits the panic button and sells it for less than it’s worth...

24 May 2010 Third Avenue Funds - Shareholder Letter
It is difficult to function as a value investor unless the value analyst has a firm grasp of economic reality. It is equally difficult to promulgate intelligent financial regulations unless the sponsors of the regulation have a firm grasp of economic reality. Neither the general public, nor legislators and Obama administration officials, seem to have much of a grasp of economic reality, at least when it comes to dealing with troubled financial institutions.

24 May 2010 How Will Greece Get Off the Dole?
This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot of countries, most of all Greece, aren’t as rich as we used to think.

20 May 2010 That sinking feeling
The bail-out has slowed but not stopped investor flight from Europe’s periphery...

19 May 2010 Goldman Is the Wrong Target
Of all the institutions and individuals to blame for the crisis, the government singles out the only bank that saw the train wreck coming and acted to protect itself. If others had done the same, we would not be in the position that we find ourselves today.

15 May 2010 The fear of all sums
The role of mathematics in America’s housing bust...

11 May 2010 Graham & Doddsville Spring 2010 Newsletter
We focused on free cash flow before the metric was popular . W e basically looked at the amount of cash that the business could return to us as shareholders and valued that. If you could buy a decent — not great, but decent — quality business with a 10% free cash flow yield, my experience is that you would not lose money. A decent business is going to grow maybe not really fast, but if you can start out with a 10% free cash flow yield and it is going to grow at some modest rate, 3-4%, you are going to end up with a pretty decent invest- ment – a theoretical 13-14% rate of return. Think about how that compares with what anyone says the mar- ket can offer over a given period of time, which is between 7-8%. So the question is why should a decent quality or good quality business be priced to give you a 13-15% return when the market is priced to give you a return of about half that? Eventu- ally somebody discovers this, somebody wakes up – it is not necessarily that the boring company with a dou- ble-digit cash flow yield has got some major trick up its sleeve; it just gets recog- nized as mispriced relative to the market. I would say that even though the equity market has run up quite a bit, there are still a lot of those companies around...

10 May 2010 Jeremy Grantham: Playing with Fire
Our policy is simple: however complicated the world may be, we will play by the numbers. The global equity markets taken together are moderately overpriced, and the U.S. part is now very overpriced but not nearly so bad as it could be. Surprisingly, within the U.S. the large high quality companies are still a little cheap, having been left totally behind in the rally. They are unlikely to do very well in a bubbly environment, however long it lasts, but should be great in declines and in the end should win. A potential plus for quality franchise stocks in the next few years is that they are far more exposed to emerging countries and, as investors fall in love with all things emerging, this should be seen as an increasing advantage. A mix of global stocks, tilted to U.S. high quality, has a 7-year asset class forecast of about 5% excluding inflation compared with a long-term normal of about 6%.

03 Sep 2010 Clipper - Q2 2010 Commentary
Because of the enormous risks in today’s economy, characteristics such as durability and adaptability should be especially highly valued. But despite these risks, shares in many global leaders are trading at or near their lowest absolute and relative valuations in decades, creating a significant opportunity for long-term investors. The best way to understand this opportunity is to take a moment to consider the alternatives. For example, money market funds now yield close to zero and in some cases actually have surcharges that result in a negative yield. That means money market investors today are simply accepting a zero percent return as their best case. But when (not if) we enter a period of inflation, real returns on money market funds will be negative and holders will suffer real losses in purchasing power.

Turning to intermediate and long-term U.S government bonds, these have done so well for so long, investors feel safe owning them. However, as is usually the case, those asset classes that investors feel are the least risky are often those that are in a bubble. For example, in the years leading up to the worst real estate decline on record, people could hardly imagine losing the equity in their home. In fact, the higher prices went, the more real estate seemed like a low-risk sure thing and the more comfortable people were increasing their leverage. Today the same is true of intermediate and long-term government bonds. A 10-year U.S. Treasury bond, for example, currently yields less than 3%. Because interest rates have fallen steadily for almost 30 years, few bond investors can recall more than a temporary period when bonds declined in value. Investors who know history, however, realize that the last time interest rates were at today’s levels, bonds went on to decline in value for more than 20 years. What’s more, on an inflation-adjusted basis, investors in U.S. Treasuries lost more in those 20 years than stock investors did during the Great Depression! It is striking today that the dividend yield alone on many high quality and durable companies is higher than the coupon on a 10-year government bond. In addition, this dividend generally represents a payout of less than half of earnings. This means investors in these equities are currently receiving an earnings yield more than twice the yield on bonds and a dividend yield that roughly matches. Furthermore, because such businesses maintain a certain amount of pricing power, these earnings and dividends should be somewhat inflation-protected compared to bonds whose real yields erode in times of inflation...

...While we would agree that it is likely that many emerging markets will grow faster than the United States, there may be ways to capitalize on this trend that involve less risk than blindly buying some foreign index. For example, in our view, where a company earns its money is more important than where its stock is listed. Although the S&P 500® Index is considered a domestic stock index, the companies that make up the Index earn roughly half of their profits outside the United States. In other words, although companies like Procter & Gamble, Coca-Cola and others are truly global companies, they often trade at a discount to foreign companies with similar growth prospects because they are wrongly perceived as domestic companies. As a result, they offer investors a good combination of exposure to higher growth economies such as China and India at a lower valuation and with better diversification, governance, liquidity, and financial transparency.

Coming through one of the worst decades ever for stock investors, commentators and the public are more pessimistic than ever. The term “black swan” was recently popularized by author Nassim Taleb to describe the rare, high-impact and hard-to-predict events that roiled financial markets in the last decade. But black swans are nothing new. The future has always been full of unpredictable but significant events.

What is new today is the assumption that black swans must necessarily be negative. While recent history is full of many negative surprises, investors and commentators have forgotten that many high-impact, hard-to-predict events are enormously positive for society as a whole and capitalism in particular. For example, over the last several decades biotech and pharmaceutical companies (like Merck) have produced almost miraculous cures to diseases that have plagued humanity for centuries. Is it possible in the years ahead that they will find a cure for costly and horrifying diseases like Alzheimer’s, Parkinson’s and diabetes and in doing so produce huge unexpected savings for our health care system? How about energy? Over the last several years, innovative companies have developed new technology that allows them to tap vast reserves of cheap, clean natural gas trapped in domestic shale formations. Is it possible in the years ahead there could be breakthroughs in solar or even nuclear technology as well as energy transmission and storage that could dramatically reduce the economic, political and environmental costs of energy?

01 Sep 2010 T2 Partners Presentation
Makes the case for and recommends three large-cap blue chips: Anheuser-Busch InBev, Microsoft, and BP...

01 Sep 2010 Video: Whitney Tilson on CNBC
Recommends high quality large cap stocks...

31 Aug 2010 Sound Shore - Q2 2010 Commentary
There is much fretting about equity markets currently due to sovereign stress and the possibility of a US and/or worldwide “re-recession.” Long-term investors, however, should also keep in mind that the S&P 500’s forward P/E multiple of 13.0 times, according to Thomson Baseline, is reasonable when compared to the 15-year median P/E of 17.0 times and also attractive versus the limited competition from interest rates. As well, corporate America’s financial health, unlike that of households and most governments, is in aggregate very strong.

We anticipate the unpopular, yet higher quality stocks we have favored are poised to resume their outperformance particularly if economic concerns continue. Sound Shore’s process remains focused on locating and investing in companies that we believe have market or better financial prospects which are priced at a discount to historic norms and the market. Currently our portfolio’s aggregate forward four quarter P/E multiple and 2011 earnings per share growth are estimated at 10.6 times and 21%, respectively, based on consensus estimates, both of which compare favorably with the S&P 500.

30 Aug 2010 Meridian - Q2 2010 Commentary
The economy is growing, but at a disappointing pace, especially for the early stages of an economic recovery. The recent news on housing, consumer confidence and job creation has been disappointing. Interest rates remain low and inflation does not appear to be an issue at this time. Deflation, in fact, appears to be more of an immediate concern. Europe has hit the wall on borrowing to finance government programs and has announced austerity measures, including spending reductions and tax increases. The United States has potentially large tax increases on the horizon and, in our opinion, will soon be forced to cut spending also. Many states face the same issues. We believe the only solution is a strong private sector that innovates, invests and creates jobs. This, unfortunately, has not been a priority of the Obama Administration and Congress. Our outlook is for a period of slow growth, large deficits, high levels of unemployment, low interest rates and moderate inflation.

28 Aug 2010 Video: Bruce Berkowitz on Consuelo Mack WealthTrack
Bruce Berkowitz,. Morningstar’s Fund Manager of the Decade is raising eyebrows by investing more than half of his Fairholme Fund in beaten down financial stocks. He’ll explain why he believes it will pay off...

28 Aug 2010 Warren Buffett’s New 80th Birthday Vow: "Work Past 100"
“I plan to work past 100 but to do so I may have to learn to think outside the box,” Buffett tellls Deal Journal...

27 Aug 2010 Video: Christopher Davis on Consuelo Mack WealthTrack
An exclusive television interview with third generation value investor Christopher Davis. This former Morningstar “Money Manager of the Year” discusses how family tradition helps him find long term financial values...

24 Aug 2010 Video: Charles Bobrinskoy on Bloomberg
Ariel's Bobrinskoy Is `Worried' About Bond Market Bubble - thinks high quality large cap stocks are very cheap...

12 Aug 2010 Video: Charles Bobrinskoy on Bloomberg
Charles Bobrinskoy of Ariel Investments talks about Federal Reserve policy and the U.S. stock market...

11 Aug 2010 Bill Nygren: Growing Macro Focus Creates Micro Opportunities
The competition has definitely decreased for those of us who make long-term investments based on a company's internal dynamics. More trading by others wouldn't necessarily change things for us, but with most traders wanting short-term price momentum on their side, it has led to more extreme price swings.

With the majority focused on momentum instead of value, more stocks are selling at either abnormally large discounts or premiums to long-term value. It gives us more cheap stocks to choose from but hasn't really altered how we build or exit positions...

05 Aug 2010 Yacktman - Q2 2010 Commentary
We like businesses that sell products in well-established, slowly changing markets like beverage, household products, personal care, and food. These “consumer staple” products typically sell at low price points and are consumed and repurchased frequently.

Category leaders like Coca-Cola in soft drinks or Tide in laundry detergents may continue their dominance for generations, making it easier to predict the future prospects of these businesses.

The media companies we own are largely subscription businesses, which we also like. Comcast gets paid predictable monthly fees from its customers for providing cable television, internet, and telephone services. News Corp and Viacom receive recurring monthly fees for the cable content they provide to pay television providers. Even in a challenged economy, pay television is one of the last items to be cut by households.

Identifying great companies is not especially difficult. Appraising the future prospects of a business and paying an appropriate price are far more critical to managing risk and generating attractive returns than just picking leaders.

Economic issues may cause short term pressure on the earnings of some of the companies in our funds, though we think we are being sufficiently compensated for that possibility by current valuation levels. We are optimistic and patient, and believe that owning securities at attractive prices and adhering to high quality standards will allow us to the endure bumps in the road that may lie ahead.

05 Aug 2010 Muhlenkamp Funds - Adviser Conference
Well, there are several [events] that are somewhat at cross purposes. We’re seeing great companies selling at good prices. I think I end the quarterly newsletter [Muhlenkamp Memorandum #95] by saying, “If we thought this was a normal cyclical recession we’d be fully invested, but we’re not.” One of the things that occurred in ’08 was good companies got cheap, and then got a whole lot cheaper. Since that time, we’ve been asking ourselves: “Who might have to sell and how much?” We believe that the prices that were reached in late ’08, early ’09, were heavily driven by people who were forced to sell—particularly hedge funds that had to cut back on their leverage, and both hedge funds and mutual funds that had to meet redemptions.

If it were a normal cyclical recession, big and good companies should be selling higher than they are. We had a conversation here [at the office] where one of my analysts said, “Microsoft, at these levels, is a screaming buy.” And I agree with that. My question is: “How did it get to these levels in the first place?” My suspicion is somebody sold it for reasons other than investment assessments; e.g. how good the company is; its cash flows; what the price should be.

We know that pension funds in this country have been moving a certain amount of their allocation from stocks to bonds for about two years now, and that we should be getting near the end of that. We know that’s been going on, which, frankly, is one of the reasons that interest rates... We think U.S. Treasury rates are below where they should be. When that turns, I’m not quite sure. Along with that, if we have major European banks cutting back on their balance sheets, that, too, would have an effect similar to hedge funds and mutual funds selling a couple of years ago; i.e. if I wanted to sell something—and if I can’t get a bid on the stocks I want to sell—I’ll sell the stocks where I can get a bid. So, that’s giving us pause...

05 Aug 2010 Hancock Classic Value Fund - Q2 2010 Commentary
In our view, the market fears have created significant opportunities for the long-term investor. We believe investors are overlooking the opportunity in equities, both from a broad market perspective, as well as at the company level. The expected return on the S&P 500 is now over 11% per annum, versus roughly 3% for U.S. Treasuries, or an 8% equity risk premium. Value stocks, defined as the cheapest quintile of the 1,000 company universe, now have an expected return of over 16% per annum over the medium to long term given today’s valuations.

04 Aug 2010 How Fairholme Is Breaking Wall Street's Rules
It is a double irony that Mr. Berkowitz happened to launch Fairholme in 1999, near the peak of the big 1990s bubble. That was the high water mark of two myths: That stocks 'always outperform,' and that you can't possibly beat the market, so you should stop trying and just give in to index funds. The decade since has buried both of those myths. And Mr. Berkowitz, and his investors, have been dancing on their graves.

02 Aug 2010 Dodge & Cox - Q2 2010 Commentary
We believe a long-term perspective on investing is especially important during periods like the first half of 2010. Short-term concerns can often deflect attention from longer-term positive developments. After the events of 2008, it is not surprising that many are searching to identify the next “crisis.” In the United States, for example, high unemployment, rising health care costs, and weakness in real estate are real concerns. Past economic recoveries have struggled with similar issues, yet the economic rebound was sustained (the post-1982 and post-1991 recoveries are two examples). The current environment has significant positives: interest rates are at record lows, inflation remains subdued, home prices are stabilizing, and household net worth is rising. While some
economic indicators may lag, the economic recovery can continue. This optimism, combined with what we believe are attractive current valuations, leads us to the view that the long-term prospects for equity investing are favorable.

30 Jul 2010 Weitz Funds - Q2 2010 Commentary
During the late 1990’s, large capitalization growth stocks—especially those with any connection to technology and the Internet—were stock market leaders. Investors were so focused on the largest 25- 50 stocks that these stocks became over-valued (and the small- and mid-cap companies’ stocks languished at relatively cheap valuation levels).

Since then, the tables have turned. Over the past ten years, the small-cap Russell 2000 Index has risen by 3% per year (or 34% on a cumulative basis) while the large company-dominated S&P 500 has actually declined by -1.6% per year (or a cumulative -15%). During this period, many of the large- and mega-cap companies grew nicely, but their valuations shrank. For example, suppose a company earned $1 per share in 2000 and sold at 30 times earnings, or $30. If earnings tripled over the next ten years to $3 per share but the price-earnings ratio fell to 10 times, the stock would trade at the same $30 per share, even though its business was clearly more valuable ten years later.

There are a number of reasons for this reversal of fortunes. We believe that the most important is that “value matters” and since the large-cap growth companies entered the decade over-valued relative to the smaller companies (thanks to the tech bubble), it was natural that they under-performed in the subsequent ten years. Another factor was the shift in asset allocation by pension and endowment fund managers from U.S. (primarily large-cap) stocks to private equity and hedge fund “alternative investments” over the past ten years. Also, since all of these companies are global businesses, there is probably concern that the European debt crisis will depress their earnings. Finally, “performance chasing” investors probably helped carry this trend too far by selling their stock laggards and buying those that were “working.” Whatever the reasons, the result is that a number of terrific companies with many good years of growth in front of them are selling at very cheap prices.

The diversity of businesses is surprising—consulting services (Accenture), insurance brokerage (Aon), computer hardware, software and services (Dell and Microsoft), spirits and beer (Diageo), advertising (Omnicom), industrial gases (Praxair), electronic components (Texas Instruments), and package delivery (UPS). It is almost as if “large” and “high quality” have become disqualifying characteristics. We believe that these stocks are cheap and well- positioned for a rising stock market and strong and defensive enough to hold up well if the economy were to suffer a “relapse.”

30 Jul 2010 Fairholme Fund - Q2 2010 Commentary
Over one-half of The Fairholme Fund’s assets are invested in securities of mostly hated financial services and real estate related companies. After all, “there is no job growth without economic growth; no economic growth without access to credit; no access to credit without a stable, functioning financial system. Financials tend to lead markets into and then out of recessions followed by asset deflation and then inflation. Never being 100% certain as to events and timing, approximately 20% of the Fund’s assets are in relatively, short-maturity corporate debt and cash equivalents.

Over one-third of The Fairholme Focused Income Fund is invested in short-term credits of American International Group, Inc. (“AIG”), General Growth Properties, Inc. (“GGP”) and others that are perceived to be or are in actual financial stress. Underlying equities lead us to believe that all are “money good.” Nearly two-thirds of the Fund is invested in cash and what we consider to be cash equivalents.

You should also note our large and growing debt and equity holdings of AIG and GGP. Like their industry brethren, both were in critical condition from last year’s credit freeze and both appear to be thawing from near-death experiences. We believe a moderate climate will allow AIG to repay U.S. taxpayers and GGP to emerge from its self-induced bankruptcy. Further, Fairholme Funds has agreed to buy new GGP trust shares, subject to numerous terms and conditions.

Portfolios are positioned for today’s nascent recovery with its fits and starts. Don’t Lose remains Rule #1 as we strive to be greedy when most remain fearful about the future.

29 Jul 2010 Video: Don Yacktman on Bloomberg
Donald Yacktman, manager of the Yacktman Focused Fund, discusses the performance of Viacom Inc., ConocoPhillips and Microsoft Corp. shares and the outlook for the companies...

26 Jul 2010 Tweedy Browne - Q2 2010 Commentary
Volatility returned to global equity markets in the second quarter in large part due to uncertainties surrounding the debt crisis in Greece and Spain and concerns about economic policies in the U.S. and Europe. As a result, the gains of the first quarter were largely erased in the second quarter. While unsettling for many, the silver lining is that volatility often brings with it investment opportunities to those with a longer term perspective. It’s hard to imagine that just a few months back, market commentators were talking about the pricing of oil being changed to Euros, given the rather grim outlook for the U.S. dollar. Instead, the mounting deficits in a number of southern European countries have increased pressure on the Euro, with the currency declining against the dollar by nearly 20% from its previous high late last Fall. Memories are indeed short.

We feel that our Fund portfolios are currently well positioned, particularly in light of some of the macroeconomic challenges we are facing around the globe. Our Fund portfolios have very little direct exposure to the PIIGS (Portugal, Ireland Italy, Greece, and Spain), our financial exposure in Europe is limited to a couple of insurance companies, and we have no investments in European bank stocks at this time. The bulk of our investments today in Europe and elsewhere are in larger, globally diversified, conservatively financed businesses that generate a considerable amount of their sales and profits in the emerging markets, and often pay an attractive dividend. While many of these companies, such as Nestle, Diageo, Heineken, Unilever, Kone, Novartis, and Total, among others, are headquartered in Europe, they are truly global enterprises. In our view, valuations remain reasonably attractive, and business is steadily improving. While many western governments wrestle with how to rein in large deficits, businesses have adjusted relatively well to the new economic realities.