Investment Manager’s Letter March 2008
So far in the year to date, Berkshire Hathaway has continued to power our investment portfolios to a strong level of out-performance. The composite result of our accounts up 2.0% for the year as of February 29th compared the S&P 500 and the Wilshire 5000 which are down 9.38% and 9.20% respectively. For the 12 months ended on February 29 our composite result was up 24.7% while the S&P and the Wilshire were both off about 5.5%. This Relative margin of plus 30% for the 12 months feels good for now, but positive trends do not go on forever so enjoy the good news while it lasts. If the Bear Market continues (which I think likely) sooner or later it takes down even the strongest companies.
As the cash crunch continues distressed leveraged speculators will tend sell their strong companies to meet the margin calls on their junk. For this reason we raised our cash levels a little last month and we may do more of this in the next couple of months.
It is with considerable optimism that I announce that Losch Investment Management LLC has formed a joint venture that will be called Losch, Tabakov Capital Management LLC. While this joint venture will have little impact on any of our existing accounts in the immediate future, its long term objective is to develop a partnership that will provide continuity in management philosophy and improved investment results for all our existing clients. In short, this joint venture is the result of my decision to follow Warren Buffett’s lead and abandon my plan to run our portfolios from the grave. The other half of the joint venture is Tabakov Capital Management LLC. A company founded by Rui Tabakov Reboucas. I, as investment manager, have Known Rui Tabakov Reboucas since 2003 when we met to discuss the investment management business, and our mutual interest in Berkshire Hathaway. At the time Rui Tabakov Reboucas was trying to decide between managing investments and a legal career. Based on my own experience I encouraged him to pursue the investment business. Rui was born in Sao Paulo, Brazil, in 1976. He comes from a family with a very strong legal tradition.
His grandfather was Chief Justice of the Sao Paulo State Supreme Court; his father is a retired judge; other relatives include two Justices, one judge, two State’s attorneys, and two lawyers. Rui Tabakov Reboucas’s maternal grandparents immigrated to Brazil from Bulgaria shortly after World War II. Mr. Rui Tabakov Reboucas graduated in Law at the Pontificia Universidade Catolica de Sao Paulo in 1999. Unsatisfied with just one law degree Rui Tabakov Reboucas then moved to this country and enrolled in George Washington University’s Law School. He received his Juris Doctor degree from that University in 2002. Mr. Reboucas published in 2005 the translation to Portuguese and adaptation to the Brazilian context of The Essays of Warren Buffett: Lessons for Corporate America.
He is a Registered Investment Advisor in the State of New York, and a confirmed value investor. As you can see from the above Rui Tabakov Reboucas is obviously a lot smarter than I, having begun the study of Warren Buffett’s and Charlie Munger’s investment philosophy several decades earlier in his life than I did. I have been working with Rui Tabakov Reboucas for several months to establish our joint venture, and have been impressed with the quality of his investment research, and his understanding of the market. From the beginning it was obvious that Rui’s investment philosophy and mine are closely matched. In the early stages of this joint venture Rui Tabakov Reboucas’s main contribution will be to add depth and perspective to our stock research, and I feel sure that his talents will have an immediate positive impact on upon our investment results. While, I have no plans to cede control of decision process anytime soon I feel this is a very positive step in the succession process, and by getting started now it gives us lots of time to benefit from each other’s ideas to make sure that everyone (Rui, all of our clients and I) are on the same page.