How We Think

2009 Post Mortem

When we think about our goals at Cook & Bynum, we are not trying to earn a certain return or accumulate a certain amount of assets.  Rather, we are trying simply to execute well a pure, concentrated value investing philosophy on whatever assets we have under management and given whatever opportunities the market presents at that point.  We also seek to improve every day at our craft.  We will continue to try to drive this process, confident that if we are successful at the process, the results for our partners and for us will be satisfactory.

We will get better at executing our philosophy only if we have an accurate feedback loop.  To this end, we frequently conduct post mortems on decisions we made to see what we can learn from the successes and failures.  The first quarter of 2009 provided immense opportunity for the rational investor.  While we were able to take advantage of this opportunity and to do some intelligent things, you would be materially better off if we had committed fewer errors of omission.  Two missed opportunities in particular cost you the most potential profits.

The first involved a Coca-Cola bottler in Latin America.  We bought the stock as aggressively as we thought possible throughout the first half of the year.  However, we were unable to identify until last summer the broker that provides us the best liquidity.  We made about 100% on this position in 2009.  If we had found the liquidity sooner, we would have had a much larger percentage of your capital deployed in this business, and results for the fund would have been materially better.

The second missed opportunity in 2009 involved our circle of competence.  We strongly believed that a number of companies in South America were providing terrific buying opportunities in the first quarter, but we did not consider them to be in our circle of competence.  Therefore, we did not invest in any of them.  Since our trip to Chile and Argentina this fall we believe we can now adequately predict the futures of some of those businesses.  Unfortunately, the bargain prices available last March no longer prevail.  Having had a few of these companies in our circle one year earlier would have significantly improved results for 2009 and possibly beyond.  That said, we will continue following our strategy of staying within our circle of competence.  We will try never to open the portfolio up to unknowable risks by being undisciplined about what we do and do not know.