Categorizing your position holdings similar to the way baseball managers categorize players can help you better understand and organize your positions for what I hope to be better returns. Taking a look at Tom Gayner’s portfolio as of the most recent 13F filing. I categorize some of my own positions forex trade analysis mlb my portfolio just as an MLB manager categorizes his players into the majors, AAA, AA, and A.
The manager he was referring to was Theo Epstein. Tom thinks about investing and capital allocation in a very similar way that a baseball manager thinks about managing a baseball team. As the manager of a baseball team, you have to do the scouting, the managing of the triple A team, the double A team, the single A team and then you are also managing the major league team. Those categories could be speculative growth, which he may have less conviction in because of the competitive nature of the industry that the company is in or the high uncertainty that the industry may have.
Another category may be the more conservative companies that don’t grow much but pay large dividends like the telecoms or the utilities. Just as a portfolio manager categorizes the companies he holds, a baseball manager will categorize his players into categories such as major leaguers and players in the farm system. The majors are where the most is at stake so it is best to think of your highest conviction ideas as major leaguers. Just as the manager of a baseball team will also scout for new talent or hire other scouts to do the scouting for him, a portfolio manager should always be scouting for new companies and may also have his own scouts, or research analysts in this case, scouting for new companies. This may entail learning about companies in a different industry than the portfolio manager is used to or learning about new companies in industries that the portfolio manager is already familiar with.
Just as the manager of a baseball team also has a budget that determines how much he can spend to acquire these players, a portfolio manager has a limited amount of capital he can invest. There needs to be adequate budgeting for the manager of a baseball team to best manage a ball club, and there needs to be adequate capital allocation for a portfolio manager to best manage a portfolio. Tom Gayner was asked a question and he said there is nothing on his watch list that he isn’t already invested in. In other words, he is invested in all of the great companies that he wants to be and he doesn’t have any companies on a watch list that he is waiting to get to a certain price. Tom doesn’t concentrate his positions as much as Warren does and Tom attributes this to Warren’s incredibly high IQ. There are about 22 positions that are .
Dataroma from their most recent 13F filing. Tom mentioned that owning a company will force him to do more research and think about it more. If he doesn’t have an ownership interest in a company, he realized that he just won’t pay as much attention to it, so owning even a really small percentage of a company is somewhat of a lifehack for Tom to push himself to think and pay more attention to a certain company. This could be a reason for such a large amount of small positions in Markel’s portfolio. I remember Mohnish Pabrai talking about this also where he said that Warren used to buy 100 shares of a company to get the company’s annual report so he could learn more about it, but Mohnish says he would only buy one share to carry out this approach of motivating oneself to learn more about a company.
I am not fully invested and have spent a lot of time searching and reading up on companies that pique my interest or putting companies on a watch list until they reach my target price. I wrote down six categories that I came up with below and I briefly defined how I came across each category. I then selected one company from my own portfolio that I think fits each category to hopefully help myself get a better understanding of my own positions. Major Leaguers: The Major Leagues is the most competitive league and therefore has the most at stake. My positions in this category are the ones that I believe I have the most conviction in and are my largest positions. I have been developing a position and researching these companies for a longer time so these companies will make up a larger portion of my portfolio. Triple A: This category tends to be my second biggest positions and are companies that can easily join the majors provided another great entry point comes about.
Double A: This category contains the next tranche of holdings based on conviction. This category consists of companies that I believe are solid but may lack an important investment threshold on my checklist like poor management, poor industry characteristics or a lack of a competitive advantage. In Oaktree’s case, I don’t believe that I understand the company enough, therefore, I only have the company in Double A. Single A: These companies I know don’t have the greatest odds of being great long-term companies with a strong competitive advantage. Trade Block: This category contains positions that haven’t worked out well and I am looking to get rid of. Scout Team: These are the companies that are on my watchlist to buy and I don’t have any equity stake in as I write this article. I wrote this article myself, and it expresses my own opinions.