Warren Buffett Retires and A Superinvestor of Graham-and-Doddsville Emerges
A look at the contemporary "Superinvestor" following Graham and Dodd’s principles, who owns two of my favorite energy investments
In 1984, Warren Buffett published an article challenging one of the most widely accepted ideas in finance at the time: that markets are “efficient” and that active investors cannot consistently outperform them. Buffett’s essay, The Superinvestors of Graham-and-Doddsville, made a compelling counter argument.
Buffett highlighted nine separate investment funds that had each substantially outperformed the market over many years. The funds’ managers worked independently, owned different stocks, and managed their portfolios in their own ways, yet they each achieved substantially above market results.
What they shared was a common discipline. Each applied the principles of value investing, taught by Columbia professors Benjamin Graham and David Dodd, which meant buying businesses for less than their intrinsic value and selling them once their stock prices rose to reflect their true worth.
If Buffett updated his Superinvestors essay today, I think there’s one other name he would add to the list: Fairfax Financial Holdings, led by Prem Watsa, who is sometimes referred to as “the Canadian Warren Buffett.”
Fairfax has compounded book value per share for decades and its shares have materially outperformed the broader market, particularly in recent years:
Like Buffett’s Berkshire, Fairfax has built its track record through disciplined value investing, deploying capital into out-of-favor sectors and businesses trading well below their intrinsic worth. And like Buffett, Fairfax has added to its energy exposure as the sector has gone deeply out of favor:
Connection to Bison Insights
Two of Fairfax’s largest energy holdings are companies I’ve covered in depth in this Bison Insights newsletter:
The first, The Deep Value, High Performing Natural Gas Play That The Market Has Overlooked, discusses a hard to buy, deeply undervalued natural gas producer.
The second, Cashing In on Gavin Newsom’s Presidential Ambitions – The Biggest Winner from California Energy Policy Moderation, explores a company poised to benefit from recent energy policy changes in California.
Both have meaningfully outperformed the broader energy market, as measured by the XOP Oil and Gas ETF, since Bison Insights publication. And they both have a way to go before reaching what I believe to be their true intrinsic value:
In my most recent article, I provided an update on the undervalued natural gas producer, comparing it to Jerry Jones’ company, Comstock Resources, which just sold a large block of acreage directly offsetting some assets of the company, offering a fresh transaction market perspective of the underlying value of its acreage.
Also, I recently interviewed the CFO of the company featured in Cashing in on Gavin Newsom’s Presidential Ambitions – The Biggest Winner from California Energy Policy Moderation to gain a deeper understanding of its current operations and future plans. In that interview, we discussed what it’s like reporting to Fairfax Financial, the company’s second-largest shareholder after the company’s chairman of the board.
While no single investor’s involvement guarantees success, Fairfax’s ownership of these businesses is promising for the return prospects of these two companies highlighted here on Bison Insights. For readers following these companies, it is worth noting that one of the most successful firms still practicing disciplined value investing, compounding returns above the broader market for decades, has significant ownership in them.
Disclaimer: This is for informational and educational purposes only. This is not an offer, solicitation, or investment recommendation. Please consult an advisor and do your own diligence. Past performance may not repeat itself.
Great read. Unfortunately, I sold my Fairfax before the big move up. I became frustrated with his holding Blackberry way too long. I am a patient investor, but that was a bridge too far.
In the Bison space I think you may be a great analyst and solid value guy. But the challenge in this space is the cyclicality of these stocks and most need to be sold at or near the top of the next cycle. My mistakes in this sector have been holding too long.