A correspondent writes,
This sort of stuff really killed it in 2001-2007 because investors totally abandoned "real asset" business in favor of tech in the late 1990s.
In the 2009-2012 period some of this stuff did well because commodities all came back so quickly (look at something like FCX in that timeframe)... a lot of stuff went 10X, but this time it was probably just trading up with commodities rather than trading up for half-off and then the commodities go up.
I learn more and more every day how much "value investors" have a serious psychic need to quantify value because they think the most important thing is buying something half off. Even though Munger and Buffett have been saying the opposite for a long time, people don't understand that and go back to "half off".
Since you can't value most good businesses (i.e. what is google worth? 20X the analyst estimate of 2018 earnings????). Buffett has always stayed away from tech and growth, but I think this has been an interesting period because a lot of the really good businesses have been tech/growth businesses.
so all the value guys spend most of their time with commodities. you can model and "stress test" everything. And you can model the future... good businesses like google will never tell you "we think we can grow FCF from here at 20% for a couple of years", but almost every commodity company will tell you something like that.
Probably the most seductive thing is that you can quantify the downside. So you get an investment "that doesn't lose money even if oil falls 50% and can double in two years at flat prices" and this investment fits perfectly into the Kelly Criterion, just like Mohnish said in his first book (which he has also walked back). Unfortunately the "best" investments that look like this are companies like SD and EXXI 12 months ago.
Most value guys aren't stupid, so they say "why is this so cheap" and "why am I so lucky?" Unfortunately, the crappier the company, the easier it is to answer this question. With "good companies" like LNG and KMI (obviously jury still out on both), most value guys always put them in the two hard pile, because they weren't dirt cheap, and there wasn't anything wrong with them to suggest that the value guy had an edge by doing more work and being braver.
Unfortunately, with Sandridge Energy or some other terrible company, it is easy to understand why the company is so cheap. Now that a value guy knows everyone hates it, he can concentrate on modeling the upside and downside "just like Buffett did with American Express during the Salad Oil Scandal period"....
Basically I think all the value guys have put together a bunch of "mental models" like Munger says they should, but they have all the wrong models because the right ones are too hard to understand. Buffett buying AXP is easy to understand and quantify, but his best purchase ever might have been See's Candy. What the hell do any of us know about See's Candy? He paid like 20X earnings for a maturish chain of stores selling chocolates and made a long term IRR of the type that has only recently been replicated by some of the most successful tech companies.
So after all the "real value guys" had a tough time in 1995-2000, they got a huge reward in the next 6-7 years, due in no small part to rising commodities... not that far off from claiming "Asset Allocation" is the best money management strategy or Bill Gross is a genius after a 30 year bull market in bonds.
I can't recall a decent investment Buffett has made in the last 10 years, other than his "loan sharking" investments from the crisis. I'm not really sure what the moral here is, other than that I believe markets have gotten much more efficient since around 2005 (when everyone became a value guy). There is so much brainpower going towards valuing assets that all you have left is the type of stuff Klarman has been doing (only buy stuff with forced sellers), or a lot of what Buffett and Klarman are doing that no one is talking about - basically buy the safe 8% IRR that is overlooked because everyone is looking for the 15% IRR.
I would add that small caps have probably allowed great value guys to continue to add value over the last 30 years even after everyone became a value investor and all the corporate raiders showed up, but in the last 15 of those year, rates have been so low that private equity has become a major player.
Private equity has killed it in the small/mid cap space over the last 15 years because they can go to any company and say, "let me see your books, and if we like them, we will buy your company and double your pay"... value investors have been left with all the companies that looked like crap after private equity looked over their books, or have management teams that weren't interested in maximizing value.