Here’s a great excerpt from Whitney Tilson’s notes on the 2007 Wesco Annual Meeting. During the meeting Charlie Munger provides some great insights on the growing popularity of value investing, efficient markets, and the two markets that are most inefficient:
Is value investing becoming more widespread?
I think our way of looking at things will become more popular. In fact, it already is a lot more popular than it was decades ago. I used to look out at this group and it was 20 people. The increased popularity of the investment style will not make it easier for all of you to make a lot of money. All these smart people competing will make it harder, but that’s not all a bad thing: maybe some of you will have to make money less the way we did and more the way some engineer does.
Efficient markets
If markets were efficient, this tent wouldn’t be so full. Some business schools are teaching properly, but the world grew up amidst a different fashion, encouraged by academics of the era. What we believe is simple, and many avoid it because of that simplicity. They want to be experts. And how can you be an expert if it’s simple? Also, execution is difficult – and people don’t like to fail.
The whole institutional reward system encourages different behavior and thought. If you went to work at a big firm, you’d grind your way up. It’s a hierarchy. Nobody cares about how to do it better. And by the time you’d been there 10-15 years, you’d be thinking their way. This didn’t happen to Warren.
[Wesco board member] Peter Kaufman came into a business [Glenair] and became the CEO in his early 30s, so he’s been the CEO a long time. The whole place is twenty or more times bigger. That’s a Berkshire experience, but that’s not normal. Normal bureaucracy doesn’t reward an attitude like ours.Where are there market inefficiencies?
Two markets are inefficient: very small ones (which are not much use to Berkshire, with its $120 billion), and ones where crazy people are doing crazy things, especially if they’re selling. From time to time, the big markets have some crazily mispriced securities in them. But there’s no question that in small markets there’s a lot of opportunity to find mispricings.
You can read the entire notes here – Whitney Tilson’s 2007 Wesco Annual Meeting Notes.
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