BROADCASTS.com

With Frank Byrd, Founder of Fielder Capital Group
Warren Buffett Index Funds
Steve's last guest today is Frank Byrd, a money management veteran, former Merrill Lynch financial consultant, chartered financial analyst, and founder of Fielder Capital Group.
Frank joins Steve to talk about Warren Buffett and his value investment strategy and, relatedly, the performance of index funds versus active portfolio management and why big money management firms are often a poor match for small-time investors. Steve kicks off the conversation by mentioning that he too worked for Merrill Lynch in a sales capacity at the beginning of his career in finance. He asks Frank to talk about his encounter with the reputation, writings, and strategies of Warren Buffett while he was still hammering away making cold calls to sales prospects. The back story to Frank's discovery of Buffet is that during his sales work, he developed relationships with a number of older individual investors who had enjoyed a successful long-term track record in stocks. These investors tended to pick stocks of companies that they understood and had confidence in. With very modest beginnings, many of these investors had accumulated multi-million dollar portfolios over the decades.
Warren Buffett Value Investing
This experience \u2013 seeing an approach to investing that worked and trying to develop a repeatable strategy based on this success \u2013 was at odds with the Wall Street research Frank was reading at the time. A breakthrough came when a colleague brought him a copy of Buffett's annual report for his company Berkshire Hathaway. Buffett's commentary lined up with Frank's observations and emerging investment philosophy and, as he put it, immediately \u201cchanged my life.\u201d Finally, here was an approach to investing that simply made sense: \u201cBuy shares of great businesses run by great people at good-to-great prices and hold them a long time.\u201d\xa0 This goes a ways towards describing the value investment philosophy in a nutshell.\xa0 Steve describes a similar experience while working at Merrill Lynch when the head of research explained the core concepts of value investing, setting Steve on a path to discover Buffett himself.
Value-oriented Money Management
Frank began to attend Berkshire Hathaway meetings while researching other successful money managers that followed Buffett's strategy of buying a small number of stocks and holding them for the long-term. These managers had the common denominators of low portfolio turnover (infrequent buying and selling), lack of \u201cover-diversification\u201d (low number of stocks), and a value orientation (understanding company balance sheets).\xa0 Extensive research identified only a half-dozen managers with strong track records that followed these principles. Unfortunately, only half of these managed funds were open to new investors. The main question in Frank's mind was why there so few managers with strategies guided by these concepts.
After Merrill Lynch, and still driven to learn more about Buffett's and a mere handful of other manager\u2019s approaches, Frank went back to school to get an MBA at Columbia University where Buffett himself studied under Benjamin Graham, the founder of value investing.\xa0 Steve brings up a contradiction between, on the one hand, the widely held (as well as critiqued) idea in economics of \u201cthe efficient market,\u201d which says that markets price in all known information about a company, thereby making it virtually impossible to get a jump, price-wise, on other investors and, on the other hand, Buffett's seeming success at gaining just such an advantage over other investors. While some would see buying at a certain price as a kind of timing, Buffett's commitment is to buying stocks at a reasonable price based on their financial fundamentals and holding for the long term.