Don’t Follow Wealthy Investors, Part 14

We have counseled readers time and again not to follow in the footsteps of various Billionaires, like Warren Buffett, Michael Dell, Eddie Lambert, Wilbur Ross, or Bill Gates. The ultra wealthy have different motivations and goals when they are "deploying capital" — what you and I call investing. Capital deployment may not necessarily have as its goal straight up return maximization.

When Michael Dell buys his own stock, it is as much a PR move as it is an investment. He gets benefits from that purchase (Media coverage, analyst approval, retails sales promotion) that does not accrue to you.

Remember Kerkorian’s bid for GM ? The old man was trying to wrest control of one of the most storied names in American Industry. That’s an enormous ego stroke that you don’t get for your 1,000 or even 10,000 GM shares. I suspect the short term returns were inconsequential to him.

How about Joseph Lewis’ 7% stake in Bear Stearns? Taking a big stake in Bear made him a bold player in the high stakes game of Wall Street control. The loss of $500 million to Lewis is inconsequential; how’d that trade work out for those people who tagged along?  Eddie Lambert’s investment in Citi (C)?  A disasterous bet he is now unwinding.

Don’t imagine the Sovereign wealth funds are any better — they have their own agendas, political or otherwise. Besides, from what we have seen so far, they ain’t so hot anyway.   

My point isn’t that these guys are dumb (they are not) or bad investors — history shows otherwise. No, the point is that thy have different motivations, tools, and terms than you, and blindly following them into any investment is simply foolishness. (when Warren Buffett makes a deal, you can rest assured he gets slightly better terms than you).

I was reminded of this issue again yesterday, thanks to an article about the newspaper business in Editor & Publisher.

I recall wondering in these pages why a bright guy like Bruce Sherman would ever want to get involved in a dying transitional industry like Newspapers. The nasty emails and comments from his acolytes were both amusing, while being astonishing naive. According to these folk, Bruce could do no wrong. Thus, I was an idiot for even thinking about criticizing this investment. Clearly, only a moron doubts anything about Mr. Sherman. Only Sherman — and Chuck Norris — never buys any stock that goes down. Oh, and on top of that, newspapers were cheap on a P/E basis, thus providing additional proof of my cluelessness.

Well, it seems Mr. Sherman has thrown in the towel. According to Editor & Publisher, recent SEC filings reveal Mr. Sherman’s current newspaper holdings to be 0.0%.

Here’s an excerpt from E&P:

"Bruce Sherman, whose Private Capital Management (PCM) investment firm nearly single-handedly forced the sale of Knight Ridder — ushering in the era of Wall Street antipathy toward newspaper stocks — formally bid the sector goodbye in a series of regulatory filings Thursday.

In documents filed with the Securities and Exchange Commission (SEC), PCM said it no longer owned any stock in The New York Times Co., Lee Enterprises or Belo, and that it was effectively done as an investor in The McClatchy Co. . .

It was remarkable to see all those 0.0% ownerships of class in filing after filing because PCM not long ago had serious stakes in the nation’s biggest publishers. In September of 2005, for instance, PCM owned a gigantic 37.61% of McClatchy common stock. Thursday, the firm reported that it directly owned no shares at all, and was simply managing on behalf of an investor a tiny portfolio of 9,164 shares. In that same period, PCM owned a 15.07% stake in the Times Co., an 18.96% stake in Lee, and a 22.31% stake in Belo. It also had substantial positions in Gannett and a small amount of Tribune Co. stock."

Some of the emails about Mr. Sherman bordered on myopic hysteria over criticisizing any of his investments. These folks definitely have the first half of Strong Opinions, Weakly Held down pat. For their sake, I hope they are intellectually flexible enough to understand the second half. Perhaps the dittoheads who aped Sherman’s march into media were at least smart enough to follow his retreat out of them . . .

I emphasize this again and again, but we might as well say it once more for the record: LEARN TO THINK FOR YOURSELF. The importance of this cannot be stated enough.


Sherman’s March: Man Who Forced Knight Ridder Sale, Says Goodbye to Newspapers
Mark Fitzgerald
February 15, 2008 5:40 PM ET updted Friday

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What's been said:

Discussions found on the web:
  1. Dave commented on Feb 17

    Nice. Waking up and blogging on an early Sunday morning to show em who’s boss.


    BR: Actually, I wrote this yesterday, and set it to launch this morning . . .

  2. Lester commented on Feb 17

    Everyone needs to think for themselves – brilliant. After reading this intelligent post, I’m not going to blindly follow Buffet’s investments anymore. I’m convinced – I’m now going to follow everything Barry says.

  3. John commented on Feb 17

    Barry you’re criticizing the herd instinct which is like saying that water runs downhill. Of course the motivations and leverage of a Buffett are totally different from a typical poster here but you’re comment goes to the heart of a key national characteristic, gullibility. It’s up there with optimism, narcissism, hypocrisy, generosity, and all our other national vices. It’s what makes us very good at some things and awful at others. That’s not to say Warren’s model of value investing is broken it just has to be looked at in a different way.

  4. Terry commented on Feb 17

    Sage advice. Probably (hopefully) common sense to your resdership but appreciate the reminder amidst all the play the warren, wilbur & co seem to be getting on CNBC these days. And I cringe when I think about how many folks Cramer led into WCI just because of Icahn… that didn’t work out so well.

  5. Jonathan commented on Feb 17

    Isn’t NOT doing what everyone else is doing supposed to be what makes you money in the market?

  6. Eric Blood Axe commented on Feb 17

    But wasn’t the Knight-Ridder sale, also about suppressing their truth-telling about Iraq?.

  7. Ross commented on Feb 17

    Sherman simply marched to the sea leading a pack of lemings.

    “a smart man learns from his mistakes.”

    “a really really smart man learns from the mistakes others have made.”

  8. Marcus Aurelius commented on Feb 17

    I tried follow George Bush’s moves, and I ended up in prison.


  9. dwkunkel commented on Feb 17

    Thinking for yourself requires a skeptical view of almost everything including your own assumptions. It’s difficult to do and even more difficult to teach.

  10. dwkunkel commented on Feb 17

    Thinking for yourself requires a skeptical view of almost everything including your own assumptions. It’s difficult to do and even more difficult to teach.

  11. RW commented on Feb 17

    Learned that lesson the hard way many years ago when I tried to use a big-block system on COT data to track the commercials. That particular lesson was not as expensive as some but it dragged out longer because every once in awhile it actually seemed to work; made me want to try another tweak but eventually I just figured I’d been ‘fooled by randomness’ again.

    On a more up note, sometime in the winter of last year a regular poster on one investing blog I visit gravely informed the audience that Carl Icahn’s bid for WCI Communities was a sign the real estate bottom was in and everyone should wise up and follow the big, smart money. The shorts did get squeezed and maybe that was what Icahn was looking for but who knows and who cares: It was a great setup and establishing a short position was relatively cheap for the ride from around 20 and change down to about 4 (WCI eventually went to 1 and change I think but I was leaving the builders and mortgage REITs by then and focusing on banks).

    PS: I feel your pain Marcus – I tried to follow the moves of Dubya’s brother Neil and not only wound up in the dock but got a dose of VD on top of it. Man I never learn.

  12. dblwyo commented on Feb 17

    Speaking of throwing in the towels and doing your own work:
    1) Fast Eddie took a bath on C and is getting out (WSJ)
    2) Railroads aren’t just making cost-of-capital but Warren’s infinite horizon gets another boost because they’re re-building networks due to major traffic increases. (park that one out of the park please Warren)
    3) Speaking of which when Warren buys businesses he understands what nobody mentioned was that he spent years studying them: cf YouTube (search MBA and Buffett) for a great series of stories from the late 90s that’ll tell you more on “how-to” than every gets into the MSM.
    4) and Michael Dell still won’t buy Apple

  13. Winston Munn commented on Feb 17

    If I think for myself and come to a conclusion and then later find out it was the same conclusion reached by Warren Buffet, what then?

    Is that a Catch-22?

  14. Mike commented on Feb 17

    How dare you criticize Bruce? You should be ashamed of yourself.

  15. goatchowder commented on Feb 17

    I dunno. About 4-5 years ago Buffet said he was starting to hedge by buying Euros.

    I did the same, not because Buffet said so, but because I also saw Trouble Coming. Seems like that was a good move.

  16. rickrude commented on Feb 17

    nationalizing troubled financial institutions
    with negative assets will create more deficits.
    To fix this shortfall, They will need to nationalize oil companies (like in Canada and Venezuala).

    Brilliant move. socialism comes to the rescue of capitalist financiers.

  17. halbhh commented on Feb 18

    “Buying whatever Warren Buffett bought, often months after his share purchases, delivered twice the return of the Standard & Poor’s 500-stock index during the past three decades.”

    Investors would have earned an annual return of 24.6 percent by buying the same stocks as Buffett after he disclosed his holdings in regulatory filings….”

    etc. etc. etc.

    no harm in using google to find information for yourself!

    by all means anyone wonder if BR is blowing smoke here should research it themselves.

  18. Jackson commented on Feb 18

    Barry, I cannot believe you linked to Chuck Norris facts. Spectacular.

    Likewise, it’s always struck me that Sherman has the most important attribute necessary for any investor: the ability to change his mind. If there’s anything I want to emulate, other than having a tank named after me, it’s that.

  19. Geraldine Fabrikant commented on May 4

    IT has been a rough stretch for those who have invested with Bruce S. Sherman, the co-founder of Private Capital Management.

    After years of stellar performance, his asset management firm has stumbled. Based in Naples, Fla., it was one of the big losers in the near-collapse of Bear Stearns, with total losses estimated at several hundred million dollars.

    That debacle followed huge losses in newspaper company stocks, which Mr. Sherman abandoned by the end of 2007, according to public filings. (One of those losses was in the stock of The New York Times Company.)

    Today, much of Private Capital’s glitter is gone — and some investors wonder whether they should bail out or hope for better days. It is the type of quandary faced by investors whenever money managers with strong records stub their toes badly — whether they run managed accounts, as Mr. Sherman does, or hedge funds or mutual funds. The common wisdom is to grit your teeth and hang on, said R. Allen Purkiss, the founder of Purkiss Capital Advisors, a financial planner in Ridgefield, Conn.

    “If you have a fund where nothing has changed and performance wanes a bit, chances are you are better off staying with what you have,” he said, adding that it is only natural that highfliers sometimes falter. “There are times when they are ahead of the market and so their performance languishes.”

    Mr. Sherman declined to comment for this article. Private Capital has operated as a unit of Legg Mason since 2001, when it was acquired for $1.4 billion. In a statement, Legg Mason said, “We continue to believe in Private Capital management’s disciplined, high-conviction investment process.”

    But many investors have grown weary of Private Capital’s misadventures. The firm, which caters to wealthy investors, has shrunk to $15 billion in assets from $31 billion in 2005. Over the last three calendar years, Private Capital has reported a 4.52 percent average annual return, trailing Morningstar’s composite of similar investment funds by 5.47 percentage points, according to Morningstar. That contrasts with what had been a spectacular record: an average annual return of 16.95 percent over the 10 years ended on Dec. 31.


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