Meet the Guy Who's Outperformed Warren Buffett 80:1

May 7, 2016

In this issue:
» Why is a billionaire trader loading up on gold?
» Transport sector grappling with driver shortfall
» Weekly round up of the markets
» ....and more!
Rahul Shah, Co-Head of Research

Just how good are 20% returns compounded over nearly five decades? Insanely good. That's Warren Buffett's track record for you. For perspective, Rs 1,000 handed over to Buffett back in 1968 is worth about Rs 50 lakhs now. That's an outperformance of the benchmark index of 50:1. Little wonder, Buffett is considered one of the greatest investors ever.

How about outperforming Buffett himself by a factor of 80:1 and that too for as long as five decades? No, this isn't a figment of our imagination. Recently, Forbes put the spotlight on Carl Icahn's long-term track record. And while we knew he is an insanely successful investor, we were still left speechless with what he'd actually done.

Icahn has turned every Rs 1,000 entrusted to him into Rs 40 crores, thus outperforming the Oracle of Omaha 80 times over. This translates into mindboggling annualized returns of 31%.

Don't let his track record fool you into thinking that everything he touches turns into gold. A deeper look at his portfolio dating back to 1994 (for positions he has a 5% stake or more in) reveals that his win rate hasn't been all that extraordinary. Out of every 100 stocks he's invested in, only a little more than half have been profitable.

Of course, he's done exceedingly well whenever he got it right. His average loser might have lost 40%-50%, his average winner has doubled his money.

Ichan also doesn't trade in and out of positions very frequently. He is aware that, in investing, patience is a virtue. His average holding period is more than two years. Whenever juicy returns have been on offer, he has been totally comfortable waiting for them to materialize.

And he hasn't let his losers deter him from pursuing his investment philosophy. He seems well aware that investing is a game of probabilities and therefore not all positions will do well. But as long as the winners more than compensate for the losers, the portfolio should do well over the long term. And Icahn's portfolio hasn't just done well, it's significantly outperformed Warren Buffett's over the long term.

Come to think of it - our Microcap Millionaires service isn't very different from Carl Icahn. Like Icahn, we don't obsess over all of our recommendations going right. In fact, we structure our portfolio with extra cushioning so that losses from our non-performing stocks can be easily absorbed.

And we too look for asymmetric payoffs. We don't just want our winners to win. Want them to win big. This is why for every Venus Remedies and Peninsula Land (58% and 39% losses), we have a Titagarh Wagons and a Lloyd Electric (545% and 176% just a year).

Even our holding period is similar to Carl Icahn's. Where we perhaps differ is our policy of taking a stock out of the portfolio at the end of two years, irrespective of its performance. Therefore, if we haven't exited the stock early, we will certainly take it out of the portfolio at the end of its 2-year holding period, no questions asked.

While these are still early days, the Microcap Millionaires portfolio is enjoying Icahnesque returns. A little over two years since inception, the portfolio is up 81.5% point to point. The benchmark index has certainly failed to keep up, gaining only about 26%.

Now, despite the similarities, our strategy is actually inspired by Benjamin Graham, not Carl Icahn. But Carl Icahn's track record is proof that, if applied sensibly, it can do wonders over the long term. It can even outperform Graham's favourite student in a big way.

Do you think the strategy outlined by Carl Icahn is effective for earning attractive long-term returns? Let us know your comments or share your views in the Equitymaster Club.

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2:30Chart of the day

We came across an interesting write up published by Business Today. It seems that out of the 8.5 million trucks that are there on Indian roads, about 2.3 million are inactive. That's right, every one out of four trucks is lying idle.

And why is that? Well...disruption in the transport business is one of the many reasons. The onslaught of the radio taxis and their rewarding pay structures, the relatively higher respect their drivers garner and the flexible hours that the job allows has led a big chunk of the truck drivers to shift towards this line of work. Not to mention that aspects such as NREGA and other government initiatives have played their role in reducing the truck driving population as well.

As per estimates, there was driver shortage of 22% last year.

But here's the interesting bit. All of this is happening at a time when nearly two-third of the freight in the country is done via roads and highways. Today's chart of the day indicates the shift in the trend in the overall mode of freight transport in India; which has seen a massive shift in favour of road freight which used to have a share of only 10% around independence.

How is Freight Transported in India?

How is Freight Transported in India?

While some are of the view that the trend is now likely to reverse as more money is being spent towards setting up other transport infrastructure and freight costs are moving upwards, others believe that the demand for road freight will not disappear given its last mile connectivity advantage.

It may be noted that the trend in India is quite the opposite of what is happening around the world; road freight is considered the most inefficient mode. As reported by Business Today, it is five times more expensive to transport freight via road as compared to waterways.

All said and done, sales volumes of medium and heavy commercial vehicles have been rising. A part of the reason is the low base effect and an improvement in freight rates. Plus, the low oil prices also allow to earn better margins to fleet operators, thus providing a reason to purchase more vehicles now.

But the broader issue still remains - who will drive these trucks? While the CV space is poised for a recovery following a few lull years, it is such aspects that will require investors to keep their expectations in check. We will keep an eye out on this trend.


Some of you may have heard of Stanley Druckenmiller. He's a billionaire with one of the best long-term track records in investing. He famously closed down his hedge fund, Duquesne Capital, in 2010 because he felt unable to deliver high returns.

We were all ears when he recently revealed his biggest currency position: Gold. His logic is simple. The US markets have been artificially boosted by the Fed ever since the global financial crisis. And now the Fed has run out of ammunition.So it makes sense to get out of the stock market and buy Gold.

He believes 'the Fed has no end game' and 'the chickens are now coming home to roost.' After many years of unproductive corporate behavior, stagnant or declining profits, the easy money policies seem to have run its course. The stock market may have exhausted itself.

We agree with Druckenmiller. Recently, Dan Denning, in the Vivek Kaul Diary, said that Gold may be in a new bull market.


Stock markets around the world continued to remain weak over worries of continued slowdown. In the US, poor jobs data from the Labor department pulled down the equity markets. Not only the non-farm payrolls increased below economists' expectations but also the job gains were the smallest since September. However, the US markets rebounded by the end of the week on hopes that the Fed rate hike may be postponed until September. Therefore, the weekly loss was capped at a mere 0.2%.

Even the European markets were beaten down for the week. The European Commission has forecast that the Eurozone will grow at a pace below expectations and inflation will remain subdued in 2016. The gross domestic product (GDP) of the 19 Eurozone countries is anticipated to increase by 1.6% this year. The projected increase is less than the 1.7% growth of 2015 and 0.1% less than its February predictions. While markets in UK and Germany were down by around 2% each, the France index fell by around 3% for the week.

Performance During the Week Ended 6th May, 2016
Performance During the Week Ended 6th May, 2016

Weak manufacturing data, looming bond defaults and regulatory concerns in China kept Asian indices down. Markets in China and Japan were down by 0.9% and 3.4%, respectively. Back home, the S&P BSE Sensex index ended the week lower by 1.5%. All major sectoral indices ended the week in the red. Maximum selling pressure was witnessed in metal, banking and IT stocks.

4:55Weekend investment mantra

"In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten." - Peter Lynch

This edition of The 5 Minute WrapUp is authored by Rahul Shah (Research Analyst).

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2 Responses to "Meet the Guy Who's Outperformed Warren Buffett 80:1"

Dr. K. S. Ananda Kumar

May 19, 2016

To conclude a judgment, from a single example is not correct. We should peruse at least 4 or 5 examples to come to a decision.


Jiban K. Paul

May 7, 2016

I do not really know who has outperformed Warren Buffett 80:1. It is great it it is Carl Icahan.

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