From Whitney Tilson’s latest email to colleagues
1) I was going through some of the first articles I ever wrote and came across one of my all-time favorites that I thought you’d enjoy: The Last Bull on Berkshire, www.fool.com/archive/boringport/2000/02/14/the-last-bull-on-berkshire.aspx (full text below).
I published it on Feb. 14, 2000, only 13½ months after I’d launched my fund on 1/1/99 and made Berkshire my largest position. Then, the Nasdaq proceeded to nearly double while Berkshire crashed by 46% as investors dumped their value stocks and poured money into the internet bubble.
But I didn’t lose faith and, in fact, only a few weeks after writing this article, on March 10, 2000, the day the Nasdaq peaked (from which it would then decline by 80%!) and, not coincidentally, the day Berkshire bottomed, I bought 6 more A shares at $41,500, which made this position 30% of my tiny fund.
I held those shares for nearly two decades (though I did trim some to manage the position size only three months later after the stock quickly rebounded to over $60,000).
There are some great lessons here:
- Sometimes markets go crazy so you must always make the market your servant, not your guide.
- Most of the time when the market tells you that you’ve made a mistake, YOU HAVE, so you must be very careful not to be a stubborn idiot and get incinerated by buying more and more of a stock that goes to zero (or close to it)! To ensure that this doesn’t happen, you need to revisit any losing investment with a fresh set of eyes and try to figure out what you’re missing by actively seeking out new (and especially disconfirming) information and analyses, etc. HOWEVER, after this process, if you’re convinced that you’re right and that the stock is an even better buy, then buy more!
- When you’re 95%+ certain that you’re right – and your downside is well protected – BET BIG!
- If you’re running a small fund and trying to make a name for yourself: a) look for a safe, high-probability investment where you can really back up the truck and put up a big year; and b) when you do make such a bet, shout it from the rooftops (in your investor letters, articles, conferences, etc.) so that when the bet pays off, people notice and it builds your reputation and helps you raise money.
- Let your winners run – but you must also trim positions to manage risk.
2) This short article, written three years ago, pretty well captures the mistake I made since March 2009 that eventually led me to close my fund: being so scarred by 2008/early 2009 that I over-forecasted tail events, which led me to position my portfolio conservatively, ready to weather any storm, when it was fairly obvious (certainly with the benefit of hindsight today!) that the skies were clear and the seas were calm.