Super Investors of

Graham and
Doddsville
Super Investor Analysis
Scott McConnell

Reference
Year

Chuck Akre

Bill Nygren

Ian Cumming

Mario Gabelli

Mason Hawkins David A. Rolfe

Prem Watsa

Wallace R Weitz S&P500 (%)

Russell 2000

SI Index

Willshire

2012

16.3%

21.0%

9.6%

16.0%

16.5%

22.5%

6.5%

19.7%

15.4%

16.4%

16.0%

13.7%

2011

11.5%

1.8%

-11.5%

-0.4%

-2.9%

5.6%

0.0%

2.2%

2.1%

-4.2%

0.8%

-1.3%

2010

18.5%

12.2%

59.1%

23.1%

17.9%

14.5%

5.0%

27.5%

15.1%

26.9%

22.2%

15.6%

2009

37.5%

44.8%

59.8%

30.5%

53.6%

60.8%

35.0%

31.3%

26.5%

27.2%

44.2%

27.2%

2008

-42.9%

-32.6%

-55.2%

-37.2%

-50.6%

-38.1%

21.0%

-38.1%

-37.0%

-33.8%

-34.2%

-38.7%

5-Year
Cumulative

20.6%

34.8%

10.5%

16.5%

1.3%

47.5%

82.7%

26.8%

8.0%

19.1%

35.6%

1.2%

2007

6.5%

-3.6%

39.1%

11.8%

-0.4%

15.0%

48.7%

-8.5%

5.6%

-1.6%

13.6%

3.9%

2006

25.4%

18.3%

6.2%

21.8%

21.6%

-2.8%

9.2%

22.5%

15.8%

18.4%

15.3%

13.9%

2005

5.1%

-1.3%

61.4%

4.4%

3.6%

5.8%

-18.0%

-2.4%

4.9%

4.6%

7.3%

4.6%

2004

46.0%

11.7%

4.5%

16.5%

7.1%

9.6%

-4.1%

15.0%

12.0%

18.3%

13.3%

10.9%

2003

40.3%

25.3%

17.1%

30.6%

34.8%

42.3%

29.1%

25.4%

28.7%

47.3%

30.6%

29.4%

10-Year
Cumulative

246.8%

112.2%

222.4%

152.2%

83.4%

172.2%

201.1%

100.0%

99.7%

152.9%

181.8%

79.7%

2002

-3.5%

-14.4%

19.0%

-14.3%

-8.3%

-20.4%

11.2%

-17.0%

-22.1%

-20.5%

-6.0%

-22.1%

2001

2.4%

18.3%

-0.7%

0.2%

10.3%

-7.7%

-12.2%

-0.9%

-11.9%

2.5%

1.2%

-12.1%

2000

5.6%

11.8%

10.2%

-2.4%

20.6%

-10.3%

5.0%

21.1%

-9.1%

-3.0%

7.7%

-11.9%

1999

2.4%

-10.5%

-33.9%

28.5%

2.2%

57.0%

38.0%

22.0%

21.0%

21.3%

13.2%

22.1%

1998

27.1%

3.7%

2.5%

15.9%

14.3%

49.6%

30.0%

29.1%

28.6%

-2.6%

21.5%

21.7%

15-Year
Cumulative

370.9%

123.1%

184.5%

215.0%

161.4%

321.1%

453.8%

214.0%

93.8%

136.2%

297.5%

61.3%

1997

30.1%

32.6%

57.7%

38.1%

28.3%

21.1%

36.0%

40.6%

33.4%

22.4%

35.6%

29.2%

1996

19.7%

16.2%

0.2%

13.4%

21.0%

23.6%

63.0%

19.0%

23.0%

16.5%

22.0%

18.8%

1995

52.5%

34.4%

17.6%

24.9%

27.5%

42.6%

25.0%

38.7%

37.6%

28.5%

32.9%

33.4%

1994

2.9%

3.3%

-3.5%

-0.2%

9.0%

3.8%

18.0%

-9.0%

1.3%

-1.8%

3.1%

-2.5%

1993

6.3%

30.5%

47.2%

21.8%

22.2%

-6.2%

42.0%

23.0%

10.1%

18.9%

23.4%

8.6%

20-Year
Cumulative

1123%

523%

651%

649%

589%

775%

2471%

716%

388%

405%

1011%

250%

Average Returns
60%
50%

40%

30%

20%
S&P500 (%)

10%

Russell 2000

SI Index

0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-10%

-20%

-30%

-40%

-50%

Willshire

Arithmetic Averages
S&P500

20 Year
15 Year
10 Year

Russell 2000

10.1%
12%
11%
0.19

Willshire

9.9%
11%
8%
0.19

SI Index

8.2%
10%
9%
0.19

14.2%
16%
16%
0.17

Cumulative Returns
Year
1993
1994

1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

S&P500 (%)

Russell 2000

10.0%
11.1%
53.3%
88.6%
150.8%
223.5%
291.5%
256.3%
213.5%
144.5%
215.5%
253.3%
271.0%
330.3%
356.1%
187.4%
262.1%
316.4%
324.7%
388.4%

SI Index

19.0%
16.6%
49.3%
73.2%
111.3%
104.9%
147.9%
140.5%
145.3%
96.3%
188.5%
240.4%
257.4%
321.8%
313.3%
172.8%
246.5%
340.0%
322.4%
390.0%

Willshire

23.0%
26.7%
68.5%
105.6%
179.6%
241.1%
285.4%
316.3%
320.4%
295.2%
417.7%
485.0%
525.9%
619.8%
720.6%
441.6%
679.9%
851.5%
861.0%
1014.8%

8.6%
5.8%
41.2%
67.8%
116.7%
163.8%
222.0%
183.8%
149.6%
94.5%
151.8%
179.1%
191.8%
232.4%
245.5%
111.8%
169.5%
211.4%
207.5%
249.6%

Cumulative Returns
1200.0%

1000.0%

Returns

800.0%
S&P500 (%)
600.0%

Russell 2000
SI Index
Willshire

400.0%

200.0%

0.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

10 Year Rolling Returns

20.00%

18.00%

Percent Return

16.00%
14.00%
12.00%
10.00%

S&P500

8.00%

Russell 2000

6.00%

SI Index

4.00%
2.00%
0.00%

S&P500

Russell 2000

SI Index

VS S&P500

VS Russell

1993-2002

11.20%

8.00%

15.50%

4.30%

7.50%

1994-2003

13.10%

10.80%

16.30%

3.20%

5.50%

1995-2004

14.20%

12.80%

17.30%

3.10%

4.50%

1996-2005

10.90%

10.50%

14.70%

3.80%

4.20%

1997-2006

10.20%

10.70%

14.00%

3.80%

3.30%

1998-2007

7.50%

8.30%

11.80%

4.30%

3.50%

1999-2008

0.90%

5.20%

6.20%

5.30%

1.00%

2000-2009

1.40%

5.80%

9.30%

7.90%

3.50%

2001-2010

3.80%

8.80%

10.70%

6.90%

1.90%

2002-2011

5.20%

8.20%

10.70%

5.50%

2.50%

2003-2012

8.90%

11.80%

12.90%

4.00%

1.10%

Average

7.94%

9.17%

12.67%

4.74%

3.50%

S&P500

Rolling 10 years
Rolling 10 year volatility
Rolling 5 Years
Rolling 5 year Volatility

0.04565
4.57%
0.0953
9.53%

Russell 2000

0.02391
2.39%
0.0558
5.58%

SI Index

0.03321
3.32%
0.0651
6.51%

5 Year Rolling Return

35.00%

30.00%

25.00%

Returns

20.00%
S&P500
15.00%

Russell 2000
SI Index

10.00%

5.00%

0.00%

-5.00%

The volatility for the Superinvestor index was lower than the S&P500 for both 5 year and 10 year
rolling returns. The SI index had higher volatility than the Russell 200 for 5 and 10 year rolling
returns. This means the risk of the SI index is less than the S&P500 and more than the Russell 2000
for short and long-term returns. Yet the SI index still beats the Russell index and the S&P500
because its excess returns over the Russell 2000 is 3.5%-4.51% for 5 and 10 years. This beats the
increased risk of around 1% for the SI Index over the Russell 2000.

5 Year Rolling Returns

S&P500

Russell 2000

SI Index

VS S&P500

VS Russell

1993-1997

21.00%

16.60%

23.40%

2.40%

6.80%

1994-1998

24.80%

12.20%

23.20%

-1.60%

11.00%

1995-1999

28.80%

16.80%

25.20%

-3.60%

8.40%

1996-2000

19.40%

10.60%

20.20%

0.80%

9.60%

1997-2001

12.40%

7.80%

16.00%

3.60%

8.20%

1998-2002

1.40%

-0.60%

7.60%

6.20%

8.20%

1999-2003

1.40%

9.40%

9.40%

8.00%

0.00%

2000-2004

-0.40%

8.80%

9.40%

9.80%

0.60%

2001-2005

2.40%

10.40%

9.20%

6.80%

-1.20%

2002-2006

8.00%

13.60%

12.00%

4.00%

-1.60%

2003-2007
2004-2008
2005-2009
2006-2010
2007-2011
2008-2012

13.60%
0.40%
3.20%
5.20%
2.40%
4.20%

17.20%
1.00%
2.80%
7.20%
2.80%
6.40%

16.00%
3.00%
9.20%
12.20%
9.40%
9.80%

2.40%
2.60%
6.00%
7.00%
7.00%
5.60%

-1.20%
2.00%
6.40%
5.00%
6.60%
3.40%

Average

9.26%

8.94%

13.45%

4.19%

4.51%

The Superinvestors had better 10 year rolling returns in every period than the indexes. The
rolling returns give a better indication of the performance of the portfolios because they average out
best and worst years or outliers to give a larger picture of the performance of a portfolio that may not
be seen if looked at yearly. The higher rolling returns for the Superinvestors shows that they are
consistently beating the indexes over long-periods. Yet this is not fully the case for 5 year rolling
returns in which there are 2 periods against the S&P500 and 4 periods against the Russell in which
the SI index did not beat the market indexes in a 5 year rolling return. This suggests the
Superinvestors value investing is fully realized in long periods (10 years) and is not always the best
strategy for short-term investing.

Value investing is based on buying a stock for a discount to its true or intrinsic value. This is
based on the idea that the market is not efficient and the price does not always reflect the
value of the company. Valuing the company is done through numerous ways, mainly through
an analysis of tangible assets. Growth investing differs from value investing because it does
not look try to valuate the company but looks at the potential growth of the company. Growth
investors try to find a company that has high potential growth to invest in now and get longterm returns. It does not look for a mispricing of securities but analyzes the potential for
growth of the business.
Value Superinvestors show they consistently beat the EMH and MPT. The Superinvestors
show they do this by not only having higher returns than the indexes, but lower volatility or risk
than the indexes. The Superinvestors are not focusing on lowering risk through beta, asset
allocation, or diversification, but are instead focused on lowering risk by buying with a margin
of safety. In this way, they are able to beat the schedule of normal risk and return stated by
the MPT. The Modern Portfolio theory and the Efficient Market Hypothesis claim a strict risk
and return relationship for securities. From our market indexes, we get an idea of what this
relationship should be, the capital allocation line. From the three indexes, the line should be
y=1.2414x-.1395. Thus, for our SI index, with a risk of 17%, the expected return would be
y=1.2414(.17)-.1395 or 7.2%. Instead, the SI Index returns almost double that, 14.2%. The SI
index easily beats the MPT and EMH claim of an unbeatable risk and return relationship.
Superinvestors perform better than the index because they believe the market is inefficient
and securities can therefore be bought at a discount from their actual value. The biggest
secret of this is a high margin of safety as well, which means lower risk with higher return,
thereby truly beating the market.

Efficient Frontier
16.00%
14.00%

Expected Return

12.00%
10.00%
Efficient Frontier

8.00%

SI Index
6.00%

Capital Market Line

4.00%
2.00%
0.00%
0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Portfolio Standard Deviation

On an efficient frontier, the Superinvestor returns would be above the efficient frontier curve. This is because they
are beating the efficient frontier curves risk to return relationship. They are obtaining returns that are higher than the
expected level risk they are taking on. Given the efficient frontier produced by the relationship of the 20 year averages
of the S&P500 to the Barclays Aggregate Bond Fund, and the Capital Market Line from the average risk free rate of the
last 20 years, the SI index is able to beat the CML. Given the risk of the SI Index of 17%, the SI index should only have
a maximum return of 11.8% given the EMH and the CML. Yet the SI Index has abnormal returns above the CML and a
higher Sharpe ratio than the line has.

Yes I would invest in them based on their historic performance which not only shows their
ability as investors, but their methods ability to produce high returns and consistently beat the
market. Given my age, I will have a very long period of time to let my investments reach their
full value or true value. As shown, value-investing is most effective with a long-period of time
such as 10 years. This is a period of time I can easily afford at my age which would make
value investing an effective use of my money.
I would be confident investing others money in these Superinvestors because I know the
money of those investing would be in a model that has lower risk and higher return and that
has proven its effectiveness. Yet for my mom, it may not be a perfect approach. She will be
entering retirement in less than 10 years and will likely be taking most of her capital out of
investments. As such, her investments in a value investing approach may not be best for her
as she may need to take her money out before the full return is gained and before the security
reaches its correct price. Thus the security would still be sold at a discount to its full value of
the correct stock price, and it may even in some cases, as shown by the 5 year rolling returns,
be sold at a loss.

Prem Watsa
Fairfax

Total Value: Est 3 Billion

Performance of Fairfax

PROFILE

Graduated from the Indian Institute of Technology, Madras

with a chemical engineering degree
Decided to get his MBA from Richard Ivey School of
Business at University of Western Ontario
His boss handed him the book Security Analysis by
Benjamin Graham
Became Benjamin Grahams disciple
Founded his own asset management fir, Hamblin Watsa
Investment Counsel Ltd. In 1984

Investing Philosophy
Asset Allocation Not Found

Believes the market is inherently inefficient and unruly.

Shareholders and investors are irrational and motived by
fear and greed.
Contrarian for the most part, who has made gains off many
of the financial crashes in the last 35 years
Somewhat more risky approach, choosing some troubled
unlikely companies

TOP 5 HOLDINGS 3
Rank

Company

% weight as of 12.31.12

Research In Motion Ltd

24.5%

2
3

Johnson & Johnson

Resolute Fst Prods Inc

16.6%
13.06%

Level 3 Communications
Inc

11.9%

Sandridge Energy Inc

8.2%

Year

Prem
Watsa

S&P500 (%)

2012

7%

15%

2011

0%

2%

2010

5%

15%

2009

35%

26%

2008

21%

-37%

5-Year
Cumulative

83%

8%

2007

49%

6%

2006

9%

16%

2005

-18%

5%

2004

-4%

12%

2003

29%

29%

10-Year
Cumulative

201%

100%

2002

11%

-22%

2001

-12%

-12%

2000

5%

-9%

1999

38%

21%

1998

30%

29%

15-Year
Cumulative

454%

94%

1997

36%

33%

1996

63%

23%

1995

25%

38%

1994

18%

1%

1993

42%

10%

20-Year
Cumulative

2471%

388%

1988

31

16.6

1987

48

5.1

1986

180

18.6

27-Year
Cumulative
Return 31206

Excess Gain
(%)

-8.9
-2.1
-10.1
8.5
58
43.1
-6.6
-22.9
-16.1
0.4
33.3
-0.3
14.1
17
1.4
2.6
40
-12.6
16.7
31.9
-6.6
-6.5
44.1
-4.7
14.4
42.9
161.4

1171

30035

Wallace R Weitz
Weitz Series Value Fund
Total Value: $400 million

Performance of Weitz Series Value Fund

PROFILE

Graduated from Carleton College with a BA in Economics

Discovered Benjamin Grahams Security Analysis book and
did value security analysis in New York for three years
Joined a regional brokerage firm in 1973 in Omaha
Began Wallce R. Weitz & Company in 1983

Investing Philosophy

Preferably tries to buy stocks at a discount of 50% from

business value
Values a company with high discretionary cash flows rather
than book or earning ratios
Questions which variables matter most to a company and
values off of those variables
Looks at management as key to value, ethical, rational, etc.

TOP 5 HOLDINGS 1
Ran
k
1

2
3

Company

Valeant
Pharmaceutical Intl
Inc
Aon Plc

% weight as of
12.31.12
5.52%

5.25%

Berkshire Hathaway
Inc Del
Redwood Trust Inc

5.1%
4.88%

Wells Fargo & Co

4.23%

Year

Return (%)

S&P500 (%) Excess Gain

(%)

2012
19.72
15.4
4.3
2011
2.19
2.08
0.1
2010
27.49
15.06
12.4
2009
31.3
26.46
4.8
2008
-38.06
-37
-1.1
2007
-8.54
5.61
-14.2
2006
22.53
15.79
6.7
2005
-2.42
4.91
-7.3
2004
14.99
12
3
2003
25.38
28.7
-3.3
2002
-16.99
-22.1
5.1
2001
-0.86
-11.9
11
2000
21.07
-9.1
30.2
1999
22.02
21
1
1998
29.13
28.6
0.5
1997
40.64
33.4
7.2
1996
19.04
23
-4
1995
38.66
37.6
1.1
1994
-8.97
1.3
-10.3
1993
23.03
10.1
12.9
1992
15.14
7.6
7.5
1991
28
30.5
-2.5
1990
-6.35
-3.1
-3.2
1989
20.25
31.7
-11.5
1988
14.93
16.6
-1.7
25-Year 1457
919.9
537.1
Cumulati (11.6%/y (9.7%/ye (1.9%/ye
ve
ear)
ar)
ar)