Remember John Paulson? The hedge fund manager made famous by his US$15bn in gains made shorting US mortgage bonds? Guru, right?
Here are Paulson’s Advantage Fund’s returns over the past five years:
So far in 2016 his fund is down a further 18.5%. $100,000 invested with Paulson at the start of 2011 is worth $26,500 today. Turns out the guru is not such a guru.
The evidence looks compelling that he got lucky, once, and has made himself a billionaire out of it.
What’s that got to do with us?
I see guru adulation from the media all the time, and it’s dangerous. Someone gets one call right, and suddenly they become an expert on every single topic the media wants a comment on.
Yes, we wrote some things about Dick Smith that looked prescient with the benefit hindsight. Yes, Ingham’s is another private equity float where the sellers have made a fortune in a very short period of time. No, we won’t be buying the shares.
If I had to bet, I would bet that it disappoints. But the whole point is that we don’t have to bet at all.
Most of the 2,000 or so ASX-listed stocks don’t look to have enough margin of safety to justify us doing weeks of work. Our strategy is to be patient, selective and to wait for opportunities to come along that seem clearly and obviously cheap. Even then we manage to get plenty wrong.
Ingham’s is just another to add to the long list of stocks where we don’t have an edge.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.