After Dollar General Corp. (NYSE:DG) made a bid for Family Dollar Stores, Inc. (NYSE:FDO) earlier this week, Family Dollar Stores, Inc. (NYSE:FDO)’s Board is at a crossroad. Few weeks back Dollar Tree, Inc. (NASDAQ:DLTR) had announced its decision of acquiring Family Dollar Stores, Inc. (NYSE:FDO), and everyone, including billionaire investor Carl Icahn was surprised that Dollar Tree, Inc. (NASDAQ:DLTR) made the bid instead of Dollar General Corp. (NYSE:DG). Now, Family Dollar Stores, Inc. (NYSE:FDO) blames Icahn for Dollar General Corp. (NYSE:DG) not being interested in it earlier. Icahn clarified these allegations on CNBC in an interview on Tuesday.
“[…] I am certainly happy for the IEP shareholders that benefit from this, the only thing that irks me about it is, again and I keep repeating this at the risk of being corny, I really do care about corporate governance. So, I think this is an example of why the system is so dysfunctional […],” Icahn said.
Icahn revealed that recently he had a ‘friendly’ dinner at his apartment along with Family Dollar Stores, Inc. (NYSE:FDO)’s CEO, Howard Levine, some of the company’s board members and Icahn’s own staff. The billionaire investor mentioned that though he didn’t bring up the topic, people from Family Dollar Stores, Inc. (NYSE:FDO) started discussing about the takeover and blamed him for Dollar General Corp. (NYSE:DG) being disinterested earlier in acquiring Family Dollar Stores, Inc. (NYSE:FDO). Icahn said that he found this ‘completely disingenuous’.
“[…] His [Howard Levine] ego was involved, I am an old poker player and this is the way I saw it. He mentioned it several times that the CEO who ran it for all these years is to be blamed and I said to him, “Well, what happened in the 10 years that you were running it?” […]” Icahn added.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
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