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so you by then with low expectations built in and if they do a little better
or a lot better you have the chance for asymmetric returns on the upside
and those are precisely the stocks that institutional managers to worry about
doing well in the next year too systematically avoid and overcompensate
for that because they don't want to be there
so if there's uncertainty about uncertainty about the business or use
kinda no its not be as good in the next year or two a
institutional investor systematically avoid those stocks you don't pay a lot
for anything so if they do a little better a lot
better you have a chance for asymmetric returns
if you if you have if the low expectations coming
didn't pay for high expectations so hopefully you don't lose very much so if
you don't lose very much on the company's with the good news
doesn't get a little but you know the news doesn't get a little better than
expectations and you make a lot on the company's
works a little better a lot better you know on a surprise you can end up
making a lot of money and it and it's very systematic and
those factors have actually got a strong because of the institutional bias now on
the market now as you know sometimes even though you do bring an analysis
stock still become a dog can stay a dog
yet you say you get a better return with a handful
relatively him for securities twenty to thirty
yet you also have a fun where you can offer much more but you get less a Boyy
with twenty or thirty do better than say 500 okay well are
we really think it was underwriting this systematic risk the people are avoiding
the stock so if you wish or 1000 lives next year
are you how to take a pretty good guess about knows
pick a number six percent are going to make it through the following year you
can underwrite that risk it might be 5.8 percent might be 6.3 percent but you can
pretty well yes what that number is gonna be I
when you underwrite a hundred lives you know one or two guys going one way or
the other could give you a a different a outlook
now over a 10-year period that you can actually do a little better
underwriting with those 100 lives you know you can not insure
Solomon ensure others and maybe do but still two or three or four people
going the wrong way in any particular you can really change your results and
your expectations so we look at the same way as stock
investing you with a more concentrated portfolio
over time you could probably make two or three points more year but you probably
have to wait around five or 10 years for those extra 23 points and in the
interim its can be very volatile ride we can actually do it with 500 or 800
stocks with much less volatility we do two or
three points last still beating the market by six or seven hundred basis
points a year are but the key is what you stick with
most people can't live with the volatility when they
underperform for your to they leave so if you know yourself and you truly
have a 10-year horizon it may be a better bet to take the more selective
portfolio we actually a mutual fund that has a more selective approach it's
really for people who are a little bit braver
meaning they understand what we're doing we're buying above-average companies but
only when they're available below average prices and that makes
sense to them they're willing to stick it out for five or 10 years
most people are like that most people are would rather have a a bit of a
smoother ride give up a pointer to in return still
with excellent returns in and take a a more diversified approach
so are there's something for everybody they both make sense the trade-off
between the extra risk you're taking which I don't know you have a for
relatively new funds today I'll one in effect your version of a
domestic index your version of an international index
somebody said that's not and access quantum say don't care since
the Saints the principle that counts yet to other funds that the are more
roller coaster
could be more of a roller coaster are a little bit more of a roller coaster
a but yes they they have between 75 and 100 stocks in general
to excuse me so we have %uh you know international or domestic index like
fines and we have international and domestic
more select funds with 75 to 100 sucks in general
and you make the point that at least the last thing I read was your domestic is
doing better than the market your
international underperforming and you say well thats what the real
world is like you can have periods of underperformance
are that's exactly I how it works it always if
it we have strategy wrote books about it their work every day and every month in
every year running late of I exactly everyone would
do it and everyone did do it and it's not real
it doesn't it doesn't happen so we're taking we're taking where
long-term investing it doesn't work every day every month in every year most
people can stick with it I totally admit that
arm but that's what works are and so when I spend my time
doing the books is explaining why it works now
the last time we met you said your way crime get value does not work with
financials and utilities you think you found a way to do those
two industries now now that's a great question thanks for asking it I'll
we we did of our index is we do now include
are both utilities and financials we developed a
a our own I methodology for evaluating those in with sir
them into our broader indexes up for the company so both
the so the domestic index does include financials and utilities
we do not include financials and still internationally
because of all the different standards where banks are regulated all across the
globe them there are some checking this to the
black box nature of what what is exactly the bank portfolios
that we don't feel comfortable internationally doing yet
that's another project for down the road but domestically we feel very good about
the regulatory I'll now our international success
that's other than financials something you can rely on now
that's are also very good question appreciate you asking it we week
that there aren't many databases that a that report to
follow international companies we've looked at them all we're not comfortable
using any L the there the data is
not anywhere nearly as good as what's available domestically we do our own
database domestically also but internationally
it's almost impossible to invest with the commercially available
data and so we ended up putting together a desperate team that actually created
our own database for international
and we've homogenize 20 I six countries now
I with the way that we look at Castro the way with that we look at
evaluation of companies and and returns on capital and
and we do that work ourselves and so I think that's something very unique and
even though are selected international is
underperforming are our index is is performing in line with the index we
think over the long term we've only been doing it for about six months we
think over the long term which I mean at least 45 years we should have