About

About John Huber

John Huber HeadshotJohn Huber is the portfolio manager of Saber Capital Management, LLC, a value-focused investment firm that manages separate accounts for clients. Saber’s objective is to compound capital over the long-term by making investments in undervalued stocks of high-quality businesses.

By using separate accounts, Saber’s clients get complete transparency over the investment process and well as complete control over the access to their funds (the funds are held in the client’s name in their own separate account). Saber looks to partner with like-minded clients who are interested in a patient, long-term investment approach that is rooted in the principles of value investing.

John can be reached at john@sabercapitalmgt.com.

Investment Approach

Saber’s approach to investing is based on the general principles of value investing. Stocks are pieces of businesses that should be analyzed by thinking critically about the economics of the business, its durability against competition, its future prospects, the effectiveness of management and their track record, and the price that a private buyer would pay for the entire company.

Saber’s investment strategy is to make investments in durable, high-quality businesses at attractive prices. A central tenet of my approach is to focus on simple businesses that I thoroughly understand. My investment process involves researching and building lists of businesses that I’d like to own, and then patiently waiting until I can identify an obvious gap between price and value. Since high-quality businesses rarely go on sale and since great insights don’t occur every day, a Saber portfolio is typically a concentrated portfolio. The strategy is set up to capitalize on my best ideas.

The goal is to build a portfolio of investments that collectively can compound over time at rates of return that are significantly better than the stock market averages. Good businesses that are producing high returns on capital can be great compounding machines over time.

To achieve successful long-term compounding, it is important to be patient and focused on the long-term prospects for businesses. Since most market participants are focused on short-term results and quarterly earnings estimates, opportunities often abound for those who can afford to maintain a longer-term view. Short-term volatility should be viewed as opportunity, not risk, as downward volatility (stock prices going down) is what creates bargains in the stock market.

Perhaps most importantly, it is imperative to be maintain a vigilance toward capital preservation. Focusing on reducing investment mistakes is often the key to producing superior long-term results. Saber strives to always remember Warren Buffett’s famous 2 rules of investing:

  • Rule #1: Don’t Lose Money
  • Rule #2: Don’t Forget Rule #1

Saber Capital’s Name

Saber Capital’s name comes from Sabermetrics, a baseball term coined by Bill James, and made famous by Oakland A’s GM Billy Beane, who became the subject of the best-selling book Moneyball by Michael Lewis. Sabermetrics was a value investing strategy, but it was more commonly known as a strategy based on quantifiable observations and data. Moneyball was centered around things like runs scored, walks, base hits, and on-base-percentage. The strategy was fairly simple: evaluate players based on how often they get on base, and look to buy these players for less than what they were truly worth.

BHI Content Focus

Writing is a tool that helps me clarify my thoughts. The process of putting thoughts into words forces me to flesh out certain ideas and build a more concrete framework for the particular subject matter I’m writing about. I firmly believe that writing about businesses and investment ideas helps me improve as an investor. My hope for this blog is that readers find some value in reading my commentary, and hopefully we can all extract some benefit from this writing exercise as we try to improve our investment skills.

Thanks for reading!

 

48 thoughts on “About

  1. I’d love it if you also went into detail on how you started your firm, and how that’s going, the things you learn from the experience. It’s something I think many readers have thought about doing, but many(including me) don’t know very much about.

    1. Hi Nikhil, I’ll do a post on how I started the firm and why sometime in the next week or so. That’s a good suggestion, and thanks for reading.

  2. Hi John, been following your posts at Gurufocus since you started and I like what I read. My question to you is… what got you started down the road of stock market investing? Was it the inspiration of a person you know personally or was it from a book or media? Thanks for your great material here.

    1. Hi Cory, Thanks for the nice words. I’d probably have to put together a full post to describe my road to value investing. My passion for value investing started in a way that is not unlike many others (i.e. Buffett letters, books, etc…). As far as stocks in general, I’ve always been interested in them. My father was a very good investor in stocks and real estate, and I learned a lot from him. In college I read a few articles on Buffett, but never thought I’d pursue investing as a career. I wanted to get into journalism or broadcasting (I’ve always been fascinated by news, politics, sports, current events, etc… that’s what I went to school for), but things quickly changed and I bought a couple investment properties and quickly realized that I wanted to pursue investing as a career.

      I began devouring everything on Buffett, and then from there studied Graham (Intelligent Investor and Security Analysis). Then Lynch, Schloss, Klarman, and the other usual suspects. I actually applied those techniques to real estate, and tried to build capital that way, which worked well for me. I bought small properties, and some small apartments. I also did some work in commercial real estate.

      But the whole thing was a means to an end. I wanted real estate to provide me with adequate means to eventually launch an investment business. This came together last year, and I decided to start my investment management firm then.

      My goal the entire time was to try and build my own capital so I could begin the investment partnership. While investing in stocks and working on my real estate investments, I spent years voraciously reading everything… I mean everything. I strongly considered going back and getting an MBA, but decided against it because I didn’t think it would have been the best choice of my money, and more importantly, my time. I felt I could learn everything on my own by reading, reading, reading.

      I actually built my own curriculum based on Columbia’s MBA curriculum, along with numerous other value investing sub-topics I wanted to include. I included all of Buffett’s letters, all the Graham letters and notes from his old Columbia lectures, and many of the things I have posted on this site. I called this “John’s MBA”. Corny, but it worked well in terms of allowing me to learn at a faster rate than you can in school. Plus I got to keep the $100K that an MBA costs and I invested that. Like Jim Rogers says, $100K will someday be $2 million. Do you want to spend $2 million on an MBA? (I have nothing against MBA’s, and have many friends that have them from prestigious schools, and they have all done well. I just decided for my own personal situation, it wasn’t the best allocation of resources).

      So I just kept plugging along… and I’m still plugging along. I actually go through about once per year and draft up a new “semester” with things I want to study. So much to learn, and there are so many people that know so much more. But one thing I’ve realized is that the process is enjoyable and things compound over time (“all knowledge is cumulative”).

      It’s a fun process, a fun business, and I am very lucky to be in it. And very lucky to have been able to have people around me that have taught me things, either directly or indirectly. And where would any of us be without Graham and Buffett and the others? Some really incredible teachers out there that have generously shared their ideas… this makes it possible for someone like me to be able to learn and compete. That’s one of the reasons why I started this blog. I have far less to offer than most out there, but I thought if I could put up some resources and some ideas on this site, that I’d at least be able to put a small dent in the massive debt that I owe to all the other great investors and teachers that have shared all their time, their resources, and their ideas with the public.

      Anyhow, that turned into a post I guess… but those are some roundabout thoughts on how I arrived here. Long way to go… it’s a great business and I hope to be doing this for a long time.

      Thanks for reading the blog.

      1. The trick with education is to get someone else to pay for it, so you make a profit from your education. Many people have been led to believe they should take out a lot of debt but it isn’t really the way to do things:

        http://connellytech.blogspot.com/2013/02/how-to-obtain-excellent-education-for.html

        I don’t know much about MBAs but it is standard operating procedure for Ph.D. students to be fully funded, and they can opt for a masters halfway through if they don’t like research. I’m sure finance Ph.D.s can do the same. You could probably build an equivalent degree to an MBA by planning a finance Ph.D. and then exit with a masters. The same as building a synthetic long position out of options…

        Masters degrees including MBA are generally funding the business model of academia, so they’re not the best deals (the same goes for most name brand undergraduate schools). Apparently finance and consulting companies can bankroll MBAs, so that’s another option.

      2. Hi John,

        Thanks for the great blog – exceptional resource for any value investors. Fortunately, I stumbled upon your blog while googling value investing online and I’m so glad I did. I, myself, am on the same board as you were some time ago debating whether to go to do my MBA mainly for value investing education as it fits my overall mindset and lifestyle as we always look for bargain even when I’m buying a pair of pants – so why not looking for bargains when buying businesses right? I have thought about using the Columbia Curriculum to do my own self-study. However, I didn’t manage to get a good detail copy of the curriculum. Would you mind sharing your curriculum that you used to start your value investing education?

        Thank you again for this blog and i’ll be one of the avid readers of your blog.

    1. I’ll write some posts on that at some point. Lots of material that I’ve gathered over the years. Much of it from Columbia, but most of it is all out in the public domain. I’ve compiled all kinds of resources, and I’ll try to find an organize way to post it at some point.

  3. Perhaps a worthy addition to your all star investment managers might be Philip Carret, who Mr. Buffett described as having had the greatest all time record of success in the investment management business. Phil created the fourth mutual fund in the U.S. in 1928, Pioneer Fund, which was spectacularly successful until he sold it to a young associate in 1962, when he founded Carret and Company, where his record remained outstanding. He continued to actively participate in portfolio management until his death at age 101, at which time he was still fully functional mentally. Originally a friend of Howard Buffett’s, he met Warren in the early 1950’s and they became lifelong friends and mutual admirers. Years before Ben Graham published his classic “Security Analysis”, Phil wrote a book titled “The Art of Speculation”, which became a national best seller at the time, and which pretty much defined the parameters of what became known as “value” investing. BRK biographer Andy Kilpatrick designated Phil as “the grandfather of value investing. In that era investing in common stocks was generally referred to as being “speculative”, as compared to more conservative investing in bonds. Phil never was interested in self-promotion or marketing his process, and was happy enough to let his record speak for itself. In addition to Warren Buffett, Phil was a good friend of Phil Fisher, Walter Schloss, Bill Ruane and many other “rock stars” of his era. He deserves a place in your pantheon of greats.

  4. Dear John,

    I recently came across your website and we share the same philosophy. My question is the quote by Warren Buffet on losing money is confusing to me. Does that mean when you buy a stock, it never goes down from purchase date or he never loses money because of the time horizon he has per purchase. So, you can be down at any given point, but as long as you did not sell you never lost money. Please help clarify this-thank you.

    1. Hi Philip, Thanks for reading.

      The Buffett quote on not losing money stems from Ben Graham’s margin of safety concept from the Intelligent Investor. Basically, “not losing money” refers to permanent (not quotational, i.e. temporary) loss of capital. Buffett was not concerned if the quoted value dropped after his purchase price. In fact, he actually preferred that to happen. In one of his most famous investments, the Washington Post, the value of his holdings dropped significantly after his initial purchase price.

      Buffett once said that he wouldn’t care if the stock market closed for 5 years after he made a stock investment. That implies that he doesn’t care about the fluctuations, with the exception that they occasionally give him an even greater opportunity to buy more.

      So the short answer is: he doesn’t care about temporary fluctuations. He cares about value and permanent loss of capital. The latter comes from paying too much, or from buying a business that deteriorates. He tries to establish a margin of safety that comes from both the quality of the business as well as the valuation (the price paid for that business). He relies on these two things to help prevent permanent loss of capital. Buffett, like everyone else, makes mistakes occasionally, but the idea is to limit risk by establishing a margin of safety through focusing on above average businesses at cheap valuations.

      Hope this helps… feel free to follow up if you have further Q’s.

      Thanks for the comment.

      1. I’d like to add that one may interpret these two rules (and John’s good explanation) such that one should focus not on winning, but on not losing. My experience is that I have made the largest losses when concentrating on trying to win (which has lead me into gambles). Concentrating on not losing really helps, and I think that’s the deeper meaning of these rules – and one of the key aspects in Buffett’s investment process…

  5. John,

    Just found your site after reading your article on value walk. I really liked your article on Coach, a company in which I own a few shares. I appreciated the fact based approach, and the deliberate conclusion.

    I intend to read your blog as often as I can.

    I also liked your reply above about how you got into investing. I was fortunate to “retire” at age 54 this year after a 30 year career in IT, all of it in large corporate environments in leadership positions. Investing is a love of mine, and getting to do it is such a joy. I too read voraciously, everything I can get mu hands on.

    best,
    Skip

  6. Hi John,

    I just stumbled on your blog through some link and I am new to Value Investing- infact, I have not even started investing. I would highly appreciate if you could guide me as where to start from, what kind of companies should we look at to invest i.e what should be the turnover of the companies. Shall I start reading Graham or Buffet first. I am not a finance professional, so do in need to study finance before investing, I know book keeping, annual report reading. Don’t understand the buzz about intrinsic value and how to determine it. What could be the best way to explore your blog?

    Would highly appreciate your earliest response.

    Regards,

    Manish Kansal

    1. Hi Manish, Thanks for reading the blog. I think the best way to learn about investing is to start your own business. This gets you thinking like a business person rather than a stock investor, which is absolutely crucial in my opinion. But outside of that, I think the best education you can receive is by reading the same books that everyone recommends to get started. The first book I read on Buffett was the Warren Buffett Way. I’d recommend this as a nice introduction to how Buffett thinks about stocks. I still have my old notes from this book, along with notes from a few others. This book really got me excited about thinking about stocks the same way I thought about real estate investments (as a business).

      I would say the five most important books I’ve read are The Warren Buffett Way, The Intelligent Investor, Greenblatt’s Genius Book, Snowball, and Phil Fisher’s Common Stocks and Uncommon Profits. Those five were the five that really framed how I think. Security Analysis would probably be next, but that’s more of a text book, and I’d read the first five before diving into Graham’s magnum opus.

      After reading those books, I will tell you two other things that will be crucial. The first is take an accounting course (you can find one at a local community college, or take one online). You need to grasp the basics of accounting, as it’s the language of business. The second thing is read the Buffett letters, starting with his partnership and working your way through the Berkshire Letters. I would treat this like a college course. When I first started, I printed out all of Buffett’s letters. I bound the partnership letters like a book, and I punched holes in the Berkshire letters that filled 3 large 3-ring binders. I then worked my way through them one by one.

      This last thing has probably been the single most important aspect of my initial education. And in fact, I still read through the letters quite often. I can now recall many of Buffett’s investments and the year that he discussed them, and I often refer back to these letters when I’m looking at a similar situation. They also make excellent case studies.

      So that’s really all you need as a foundation. Read the books, take an accounting course, and read Buffett’s letters. I wouldn’t waste much more time reading other books after that. I would then dive into reading 10-K’s and annual reports. Just read reports and do case studies, one after another. Over time, your knowledge compounds and things begin to snowball. You can always refer back to the Buffett letters when you are wondering about a certain aspect of an investment. But just reading annual reports will help you begin to understand businesses. I would pick simple businesses to study at first.

      Over time, you’ll begin to acquire an understanding of certain businesses, and those will be the businesses that you can begin to value. You can build a list of these businesses.

      These are just some thoughts…basically the path that I embarked on. Although I read a lot more than this. I read a lot of things that didn’t add much value. There are a few other books that are excellent, but those five or six give you the foundation. The rest comes from the letters, and just practicing valuation by reading reports and making your own conclusions.

      And I should add the disclaimer: This is not advice per se… this is more just a recollection of things that have helped me. Plenty of other investors have chosen different paths, and have done different things to reach their destination. Some have elected to go to school, some have worked for other investors, etc… not bad ideas. So my ideas are not unique, and they are not the only path.

      Hope this helps… feel free to keep in touch with me. I’d love to help any way that I can.

  7. Hi John, I love the site and have passed it along to my value investing buddies! I’m heading to Omaha next week – any chance you’re headed out to see Warren as well? All the best and keep up the good work!

  8. Hi John,

    I’m interested in a stock and wish to compare it to other company’s in regards to its P/E, P/B, FCF, EBITDA etc. At an overview level. How do I select the other companies to compare to ensure apples to apples? For example, QEP is an special event play. I see on Yahoo where it lists three competitors and the industry numbers. But the competitors have much higher Mkt Caps. (see URL: http://finance.yahoo.com/q/co?s=qep&ql=1). Or do I look at the company’s Industry? (see URL: http://finance.yahoo.com/q/pr?s=QEP). In GuruFocus, they fail to list another company to compare against QEP. Bottom line, if I have a stock, where would find out which companies I should compare it to. I would appreciate your insight and recommendations.
    Thank you very much for your response.
    I have learned a lot from your site. Please continue the great work.

    Thanks,
    Michael

    1. Hi Michael, I tend to first go straight to the company filings. Usually the 10-K and the proxy statement list useful information about competitors. The proxy statement usually will list companies that management deems somewhat similar in terms of size (usually this comparison in that filing is done for compensation purposes). The annual report might list other competitors that are much larger or smaller, but often will mention a few similar competitors, so I’d start there.

      If you’re just looking for other companies that are the same size and with similar valuations, you can always use a screener. Some people use Bloomberg, but Morningstar has a great screener that is cheap and it allows you to search by industry, valuation, size, location, etc…

      Thanks for the question.

  9. Hi John,

    Do you have a checklist or criteria/ filer for stock selection? Could you write a blog post on that – maybe with a case example.

    Kaustubh

    1. Hi Achit. I just recently sold Strayer for three main reasons. Basically, I have become somewhat concerned about the regulatory landscape after the events at Corinthian. I am not concerned at all about Strayer specifically, but the government appears motivated to make things difficult for this industry. While I believe this is the reason we had opportunities to buy good businesses at double digit free cash flow yields, I’m concerned about future legislation that might materialize over the next few years that could impact the profitability of these firms. Again, I think Strayer will have the best chance of any firm to navigate these headwinds, and I’m not directly concerned about a government “death penalty” at Strayer, or anything remotely close to what happened at Corinthian, but when I look out 5 to 10 years, it’s hard to predict what the landscape will look like.

      The second reason is I’ve recently begun getting somewhat nervous about the price of education and the overall debt that the country is taking on. Student loan debt has grown $500 billion since 2008 (almost doubled) to where there is now $1.1 trillion in student loan debt. This is an astronomical amount of debt, and although I can’t predict how this shakes out, I do think that a business that makes over 75% of its revenue from tuition payments that are financed by debt makes me somewhat uneasy. And here again, I really respect Strayer and the management team. I think the products they are offer are good products, and I truly believe they have a main priority of providing good education for their students, which is what is necessary for these institutions to survive in the long run. However, the overall debt that the general student population could be crippling to innocent bystanders such as Strayer, as loans could eventually become harder to acquire, interest rates could rise, etc… There are lots of things that could go wrong here. Again, this isn’t a prediction, it’s just a risk that I’ve begun to consider more closely.

      Third reason: the operating leverage. This is a more company specific reason, although all of these companies in the industry operate with a degree of operating leverage. Basically, like financial leverage, operating leverage works as a double edged sword. It can be great as revenues increase. Earnings will grow much faster. But the opposite can spell trouble. Strayer basically operates its university with a capacity for around 70,000 students, yet it only has a current enrollment of around half that. So like an airplane with empty seats, each additional student adds incrementally to Strayer’s margins, meaning that if they can grow enrollment, their operating margin will grow at a rate much faster than revenue. But again, the opposite is also true. And when I apply the same 5 to 10 year visualization of what the company will look like then, I find it hard for me to be able to handicap the odds of Strayer growing. I’m not doubting that they can grow, it’s just that I am having trouble estimating the various probabilities. This uncertainty combined with a fair amount of operating leverage combines to make me rethink the overall thesis.

      And finally, after a 50% or so increase in the price of my shares in a fairly short period of time, I think the stock is no longer at a price that is a “no brainer” type price. I think it’s still cheap, and it still trades at single digit cash flow multiples. And I think given the operating leverage, I wouldn’t be surprised to see Strayer go much, much higher if enrollment stabilizes and returns to growth. This could be a huge boon for profits. But I’m just uncertain about how this will work out and given the other two broad risks and the rapid increase in price off of a level where I thought almost everything would have had to go wrong for me to lose money, I decided I would sell my stock.

  10. I saw your post on Case Studies, Can you give a few examples of some that you found to be the most helpful. Harvard Business Cases, Etc.
    Really enjoy your site.

  11. John,

    BRK has an amazingly large, and profitable Insurance operation, but increasingly it’s profits from operating companies with substantial “moats” (BNSF, Marmon, MidAmerican, Heinz, Iscar) makes me wonder if it’s not reasonable to transition book value valuation to comparable operating companies? Union Pacific ( which is remarkably similar to BNSF) trades at 4.5X book value, for example. Mr. Buffett and Mr. Munger have stated that operating business will be the major focus of retained earnings of the future. Additionally, Mr Buffett has stated that insurance float would grow very slowly or stay relatively flat. Is perpetually valuing BRK as an insurance company rational?

    It seems that MKL is already making shareholders aware of this growing “operating” business conundrum. In the 2013 annual report they state the following (MKL 2013 report, page 5):

    “In the past we’ve headlined our book value per share, while at the same time noting our five year compound annual growth rate in book value (CAGR). Starting this year, we’d like to shift the emphasis more towards the five year CAGR rather than the static book value amount.
    The reason for this subtle shift is that while the insurance businesses of Markel remain tethered to the reasonably accurate GAAP accounting balance sheet definitions of book value, our growing Markel Ventures operations are more accurately valued by considering their generation of cash as shown on the consolidated statements of income and cash flows. Also, capital management activities such as share repurchases, and share issuances in acquisitions, affect the calculation of raw book value.
    We believe that the five year change in book value is now just as important a measurement to consider when thinking about the value of your company as the book value itself. We’ll describe our reasons for this statement later in the letter as we get to the always treasured accounting discussion. Stay tuned!

    This is more of a mental exercise as I know that my share of the BRK earnings don’t change with market valuation. But I am curious if you feel an eventual change in the market’s perception of valuation is possible?

    Thanks!

    1. Hi Achit. Good comment, and yes, I did notice Markel’s comments on this topic in their letter this past year, and I’ve always kind of thought this way. I think the growth, or long term CAGR, is much more appropriate than any static P/B ratio at any given time. I think Berkshire’s intrinsic value has probably compounded at 20% annually, which is similar to the growth in its book value, over the course of its existence (or at least since Buffett began 49 years ago). I think the same should be said for Markel, and many other similar companies. It’s not the level of the book value that is important in measuring value, but the growth over time. And even this growth of book value is just a proxy for intrinsic value, it’s not exactly the same. Berkshire is worth far, far more than book value. Buffett is willing to buy at 1.2 times, and many people mistakingly assume that the value is around this level or maybe slightly higher. I think Buffett thinks the value is much, much greater than 1.2 times (thus the reasoning for why he’s interested in allocating capital to it at this level).

      Markel is much more heavily weighted toward insurance, but over time, if Markel Ventures continues to grow, this could change as well.

      Thanks for reading!

  12. John, Great articles. I am a very novice investor who is just starting to get into value investing. It makes so much sense to me and I absolutely love the concepts. I am an accountant by day, but enthusiastic and motivated rookie investor by night. I do have a question about Walter Schloss though. After doing some reading on his investment philosophy and some of the analysis you provided on him, something struck me in the article written by Eli Rabinowich. In it, his Edwin stated that in 2001 he couldn’t find any cheap stocks and that was their time to quit. My question is that if Walter and Edwin could no longer use their profitable strategy and the market was being flooded by more CFA’s while at the same time technology was giving more investors and edge to find these elusive value stocks that Schloss built his life on, how does that translate to today’s market? Can one invest purely based on numbers in the financials instead of truly understand the workings of the business as Buffett. I’m not an MBA, I don’t pretend to know the first thing about what makes a successful business, but I do understand numbers and ratios. I guess the short version of my question is was it a case of the Schloss’ no longer wanting to run their fund or not being able to continue their successful strategy? And if they didn’t think they were able to continue their strategy, what should make a novice investor such as myself confident I would be able to use their strategy? Thanks.

    1. Hi Chris,

      Thanks for reading the blog. I think it’s very possible to run a successful strategy based on Schloss’ approach. I think his retirement has to be taken in context. He was in his late 80’s, and his son was in his 60’s, so I think that it probably just got to the point that they were no longer interested in working as hard as they used to (this is just a guess, I have no idea if that had anything to do with it).

      What’s interesting is that they closed shop right before a time period that would have been extremely profitable for their type of asset based investment strategy. In fact, many technology companies traded for less than the cash on their balance sheets in 2002 at the market bottom. I think if they stayed in the game, they would have found plenty of opportunities in 2002-2003.

      Schloss kept investing in his personal account, if that tells you anything. There are a few articles I linked to on his page here that profile him as late as 2008.

      Generally speaking, I think there are always corners of the market that provide lots of opportunities for small individual investors who are patient. The other thing to remember is that Schloss was running hundreds of millions of dollars at the time of his retirement… a much more difficult sum to invest in his strategy than an individual investor. So maybe a combination of assets under management and age contributed more to that decision than lack of opportunities.

  13. Do you publish a news letter with your investment thoughts John. I know you manage money but my little stash is embarrassing small.

  14. John–

    I love your site and i love reading your thoughts on investing. Like you I have always admired the Schloss/Graham style of investing. (i.e., getting $1.00 of value for 60 cents). However, I also enjoy reading your thoughts on “compounders”, which would fit more in line with Buffett and Munger’s present philosophy and investing style.

    I also notice that you yourself run two different funds or use two different investing “strategies”–one that focuses on cheap stocks and one that focuses on compounders.

    My question is pretty simple–which of the two strategies do you find tends to produce better investing results for you and your clients? Is one style more near and dear to your personal investing heart?

    i apologize in advance if you’ve written on this subject and I missed it

    Thanks!
    Kevin

    1. Hi Kevin,

      It’s a great question. In fact, there is a post I wrote a month or two ago that discussed the two categories of investing (I think if you search Disney in the search box on the site you’ll see it). I talked about how Buffett in his earlier years liked compounders, but didn’t hold them forever. He was much more opportunistic. This is really the approach I take as well. I think to achieve the type of results that Buffett or Schloss achieved, one has to be opportunistic because very few compounders will grow their market values by 20% per year over long periods of time. Occasionally some do, but they are rare and very difficult to find in advance. I think that’s probably one of the reasons Buffett sold AMEX after a few years of significant gains and Disney after a 50% rise (these were in his partnership days when he was smaller). I think compounders offer enormous value because they provide a tailwind for the investor (time is your friend because as time passes, the company is increasing its intrinsic value). This fact alone makes compounders the ideal investment, even over a 3-5 year period because they are growing value. So while I might not hold businesses “forever”, I’m content to be very patient, and I prefer businesses that are growing (rather than shrinking) intrinsic value because this provides me with a margin of safety as well as investment returns that can come from two sources: increased earning power as well as possible increased valuation that the market places on the business.

      But it’s also important to keep in mind that the objective of investing is to figure out what something is worth and pay a lot less. Obviously, at an equal price compounders offer more value than businesses that aren’t growing, but the idea is to determine that gap between price and intrinsic value, and this means estimating the cash that you can pull out of the business over time. Of course, a business that is growing its cash streams over time is more valuable than one that’s not, but it’s important to remember that each business has a value and sometimes bargains are found in areas outside of the “compounder” category.

      To answer your question, I look at both categories, but I don’t specifically categorize (I don’t go out looking for compounders, or looking for bargains, I just spend time reading, thinking, evaluating, and waiting for an opportunity that I easily understand that represents obvious value).

      It’s a blend, and although I don’t categorize investments up front, they do tend to fall into either the compounder bucket or what I call the special situation bucket. And depending on the opportunity set I currently have, the allocation between these varies and changes over time…

  15. Hey John,

    Just wanted to let you know that I love reading your posts – they’re a treasure trove of investing knowledge and wisdom.

    I’m a young and budding investor (a freshman in college pursuing an accounting degree) who’s taken a keen interest in investing. I understand the conundrum that comes with obtaining valuable feedback in investing – holding stocks for a long time horizon implicitly results in you obtaining “feedback” only after the thesis has played out over years, not to mention the element of randomness that comes which might screw you over. All of which makes useful first-hand feedback somewhat difficult (?) to obtain. (especially since I have limited capital as well)

    I’m sure you’ve heard of deliberate practice, as popularized by Gladwell in ‘Outliers’, and I just want to hear your thoughts (and obtain advice as well) regarding deliberate practice (for investing), or just improving in investing in general. Could I have your advice on how to refine my own investing process? I actually feel kind of lost now, and I feel that I’m just haphazardly reading investing books/blogs and being inefficient when I could be systematically improving and refining my own investing process.

    I would definitely appreciate any advice that you could give me!

    Cheers!

    1. Thanks for the comment, and glad you are enjoying the site. I’ve touched on this topic in other comments on the site, and maybe in a few posts as well, so you might find more details there. In fact, this would be a good post topic, but since time is short and I wanted to respond, I’ll say briefly that the first step is to gain a general understanding of the concepts and the mindset of investing, which can be gained by simply reading Graham’s books and Buffett’s letters (also his bio called Snowball is excellent). That’s all I think you really need. The other books might have a few nuggets of info, but that’s really the main core. Then, the next step is learning accounting (which you’ll be doing for the next four years it sounds like). Accounting is the language of business. Too many people are more interested in macro economics (which is important), but I think accounting is the most important thing to learn when it comes to the technical aspects of valuing a business. If you don’t understand financial statements, it will be hard to do well investing. After that, I’d say the best thing to do is begin reading about companies. This is less of a precise science (in my opinion) and more of an art. I definitely think deliberately doing this is probably more productive than casually doing this, but there is no right way to do it. My general advice is always to begin with businesses that are simple to understand. Begin reading annual reports. They get easier and easier as you read them (again, it’s like learning a language). Read lots of books about businesses. I think all of this knowledge accumulates up over time, like compound interest as Buffett says. If you find yourself wasting time, maybe make a list of one thing each day that you want to accomplish (one 10-K, one chapter of a book, etc…). Try to be focused on learning things. One idea that I’ve always kept in mind is the thought that you should go to bed smarter than you woke up–in other words, learn something each day. Try to get better each day. I’m not sure who said that, maybe Munger… but that’s a really good concept to keep in mind, and might keep you from wasting away the hours on the web.

      Thanks again for reading, and good luck!

  16. Hi John,

    I would really like you to leave a few more thoughts on the ‘case studies’ that you have mentioned multiple times on this blog. Can you please explain exactly how you do it? And where do you find good cases to study?

    Furthermore, i would really like to hear which variables you look at when you value a business. I remember Geoff made a post with some financial information asking readers to value the company based on that. And i just thought; i have absolutely no clue! What i like to do is to figure out what i think earnings will look like 5 and 10 years from now. Then i plug that into a very simple DCF-model only containing year-1 earnings – based on what i think is current earnings-power -, discount-rate, perpituity growth rate (most often, i just use 4%. 2% inflation + 2% population growth. If it is a really great company i might use 5% or even make a seperate forecast of earnings growth rate from year 10-20) and net-cash. However, i will have to know a whole lot about the company to make a reasonable estimate of earnings 5 and 10 years from now. How do you go about that?

    Best regards
    Kasper

  17. Hi John,

    Big fan of your site and the way you articulate your investing thinking process. I am really curious on what data sets you use, what subscriptions, if any, you have and what you find are the most valuable?

    Am starting to manage my own money and would appreciate any comments/advice.

    Thanks.

    1. Hi Dave,
      I don’t use much in the way of subscriptions. What I have done lately is begun subscribing to trade magazines of whatever industry I happen to be researching at the moment. I find these very informative, and educational. I get the Wall Street Journal, but that’s about the only recurring thing that I use. I like reading the Financial Times, the Economist, and a few other papers, but the only one I get delivered each morning is the Journal. For data, I do use Morningstar some, but it’s mostly just SEC filings and reading all kinds of trade publications, books, papers, and other related things like that.

  18. John, thanks for this website – it is a great source of information and inspiration !
    Please check the post – Buffet’s early investments – it shows file not found. I would love to read it
    Thanks !!!!

  19. Hello John, I always like to enjoy reading your blogs. The containts are very good, helpful and easy to understand for people like me who are learning investing. It would be nice if you can write some blogs related to financial statements, how one can analyse these statements. Lets say if a company has Net cash flow from operations is -ve but net cash flow is +ve than it is good or it is bad thing?
    Thanks

  20. Hi,
    I follow FAST also. I have trouble with the Depreciation of property and equipment of $60.5M vs Purchases of property and equipment of $119.5M. This is from the last 10-Q, but looking back their depreciation charges are always way less than cap-x. I did ask FAST investor relations this question but did not receive a response. Would you be so kind as to offer a explanation.
    Thanks
    JT

    Graham Dodd
    “Concept of “Expended Depreciation.” Taking a business attitude
    towards the Eureka Pipe Line’s exhibit, it is evident at the start that the
    depreciation allowance should be not less than the average expenditures
    made on the property.”

  21. Hi John, I ran into your website a couple of days ago and I’ve found it to be really insightful and found we share a lot in terms of investment philosophy (mine has been developing recently since I’m young).

    Wanted to share an article I published earlier this year, analyzing AMERCO (parent company of U-haul) which I think is one of the least followed great companies out there.

    http://seekingalpha.com/article/3343725-amerco-the-security-i-like-best

    Regards,

    Francisco

  22. Hi John,

    I enjoy your site. I think it would be helpful if posted your returns as it would lend credibility to much of your writing.

    Thanks,
    Michael

    1. Thanks Michael. I think there are rules on what can be disclosed on a public site, since I run a private fund (in addition to separate accounts), but I (or my attorney) will figure that out as I would like to post results. I’ll probably post them (if it’s possible) once I build a 5 year record at Saber. Thanks for the feedback.

  23. A book that I found interesting was The Most Important Thing, by Howard Marks. He is very correct, I understand and know little.
    Also found a study by Sohnke M. Bar tram and Mark Grinblatt. They have some formulas that they think work for value investing.

  24. Hi John,

    I am a recent graduate (did a bachelors of accounting) and working at a large accounting firm. I figured this would be a good place to start. I am trying to build up capital while reading and learning as much as I can. You wrote above that you started in real estate investments as a means to an end (ie. to build your personal capital). Why didn’t you choose to build you capital in stocks? Was it because of the leverage you could employ? I am wondering what the best method for myself would be and hoping to learn from your insights.

    Thanks,
    Viraj

Leave a Reply

Your email address will not be published. Required fields are marked *