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I bought my first stock, KFC, in the early 1960s from farm labor earnings at age 12. It doubled when Heublein, a liquor company, bought it. I promptly sold it and bought American Motors during the only time it had comparative success in the auto scene and promptly lost most of my gains. It was thirty years later after college, marriage, kids and dealing with getting a struggling business off the ground I returned to stock picking. My dad passed away and left us with the money he had surprisingly accumulated from investing his social security checks. It took me almost two years to figure out what stocks to invest my inheritance. Why? I did not look at it as my bride's and my money, rather it was still Dad's money and I could not stand the thought of losing any of his money. I made some mistakes as all of us do when traveling down the stock picking path. My biggest mistakes made many years ago were selling Labcorp and Apple after nice gains.

My predominate stock picking path in the 1990s up to around 2002 was Graham & Dodd cigarette butt stocks. My record was positive in that category, but you had to have a spread of holdings because you never forgot or avoided the reality those companies were compromised in some manner. I am still instinctively looking for cigarette butt opportunities. The difference today is the bulk of our holdings are in large quality firms and the cigarette butt buying moves are in liquid firms that have been temporarily compromised or unnecessarily knocked down by governmental impositions or legal attacks that can be quantified through researching as to what the realistic maximum amount of actual effect is likely to be versus what the market is saying the effect is. This is how I looked at BAC and why I bought it a short while before Buffett got his awesome deal with BAC.

My comments today center on the realities facing us stock pickers going forward. The number of publicly traded stocks has been halved since 1997. The number of IPOs coming into the American marketplace is a mere trickle compared to earlier eras. Private equity firms are everywhere and have cash pouring out of their proverbial pockets owing to low interest rates, institutions of all sorts desperately seeking return on their investments, small to medium size companies selling out because of generational transfer issues and the on-going onslaught of the big companies getting bigger by buying out their competitors rather than building new product plants, etc. is drying up future potential investment opportunities.

Information is everywhere, too. You can't beat insiders. They know it all. We little guy stock pickers cannot beat the next echelon behind insiders, the money manager stock pickers who know nearly all there is to know about particular companies. It is what they do day in and day out.

I am wary of momentum stocks. Yes, holding my Apple position from 2000 would have made us a lot of money and if I had invested alongside my son in Amazon when it was $40, that would have been sweet. Just as I learned much during my cigarette butt investment period that I still utilize, I've also learned much during the post-Internet bubble (2000-2001) era. Investing for me since the late 1990s is buying quality companies at attractive prices and holding forever if possible. Period.

So where are the quality companies at attractive prices today? Increasingly I'm seeing they are seldom found in the USA in 2017. They are overseas in developing countries where the demographic and societal upward movement trends are fostering growth. My issue is this is too much comprehend even with stock screeners. The comments made above ring true in those markets, too. I am kidding myself if I think a guy like me with four to six hours of quality time a week for investing studies is going to be able to accurately survey & assess the world markets, the companies involved in various industries, the governmental regulations in those countries, determining the validity of the financial reporting, etc. for opportunities with a margin of safety. I will be taking positions in the developing world with some of our cash, but it will increasingly be through a managed fund specializing in that province. You may say do this with specialized index funds. Yes, that is the logical path espoused today by most knowledgeable pundits. I beg to differ with the present populist motif of avoiding actively managed funds. I want to be alongside folks that have skin in the game. Now that we are well on the other side of middle age, we don't need a huge upside, we are willing to forego some upside in return for decent protection to the downside, two characteristics of better managed active funds. Additionally, we have been in a long era of upward stock valuations that makes index investing look impressive. This will change when the tide goes out and the going gets rough. No, I don't know when that will be. Yes, I know these comments make me look foolish today.

I wish we could return to the times of yesteryear when small, local companies could go public and local folks could enjoy risking some money in companies managed by local folks. Local in my definition can be a company in the same region. A town 40 miles away has a surprising number of millionaires because of a local company selling stock in the late 1960s to raise funds. Yes, it is always buyer beware, but there is also buyer aware leading to wealth accumulation historical phenomenon, too.

Lastly, my bride and I will continue to keep our hand in the stock picking arena. Like many of you, it is my hobby and truthfully, a bit of my avocation. I look upon our investments as an allocation decision pie chart of sorts. I manage what I do best and increasingly let others manage what they do best for us.

I'd love to hear if there are any folks on this esteemed Berkshire board who are using a hybrid approach where they actively manage part of their holdings and outsource the remainder. Inquiring minds want to know.
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