In one sentence: Phil uses Allan Mecham's 13F history as a worked example of how to read a guru's portfolio (concentration, "practice shares", buying and selling over time) and why a guru's buying should send you back to your own research and not replace it.
Key ideas
- Why Mecham. Started roughly a decade earlier with little capital and ran about $1 billion. Phil calls him a "Rule #1 style" investor. A broker-dealer reportedly accused him of falsifying a record because he made money in 2008, though Phil says his results are audited and independently administered. Phil is giving his own view, so treat the details as hearsay. [03:00–06:00]
- Use a data site. The SEC site shows holdings but not how positions changed over time, which is the useful part (new buy, add, trim or exit). Cross-check more than one site (Rule1investing.com, Dataroma, GuruFocus). [07:00–09:00]
- Curate, because everything is a buy for someone. There are about 8,000 filers, so you need a rule to cut the list down. Phil's list has about 47. [09:00–11:30]
- Phil's concentration test. The top five holdings should be at least about 50% of the portfolio. The rest are small practice shares used to learn about a company before committing. [11:30–13:00]
- Mecham's top five. Berkshire B (about 22.5%), Interactive Brokers (about 12.5%), AutoNation (about 12.4%), Leucadia (about 11.2%) and Monro (about 9%), for about 67% in five names out of about 25. [17:00–19:00, 40:00–41:30]
- Not a one-way buyer. He bought Berkshire at about $90, sold about a third, then bought it back at higher prices (last at about $144). Phil reads this as liking the company throughout and trading around price. [18:00–19:30]
- A guru's big position can reopen your "no". Phil already dismissed Interactive Brokers but takes it more seriously because it is Mecham's second-largest holding. [21:00–22:00]
- But you must still understand the business. Phil's rule: if you don't understand how a company competes and earns, it doesn't matter how many gurus own it. The reason is selling. In a 50% fall you won't know whether to hold or leave, and the filing will tell you 45+ days late. [27:00–29:00]
- Weigh the group. For Interactive Brokers, only one of about 47 gurus held it big and two held toe-in-the-water amounts. The rest, in effect, agreed with Phil's "no". [24:30–26:00]
- Second-look rule. Danielle's compromise: if several gurus you respect buy something you rejected, take a second look. If you still see something they don't, you're done. Phil adds that most people stop digging too early. [29:00–31:30]
- Reading the activity. Mecham trimmed AutoNation by about 10% (taking profit without alarming the market). In Leucadia he bought a small amount at about $24, then about 3.4 million shares at about $16, then sold most of them near $25 for a gain of roughly 60%. A drip of new small buys while selling may be intended to prop up the price. Phil says it's possible, not provable. [31:30–38:00]
- Complex holding companies are hard to value. Leucadia, like Berkshire, can't be valued from earnings. Trusting the manager's own stated buy price helps. Phil says Buffett has said he would buy Berkshire at about 120% of book value, and that $144 was about that level. [38:30–40:00]
- Phil's 15% target. 15% a year for 10 years turns $1 million into about $4 million. Some down years are acceptable if others are up. [33:00–34:00]
- Value investors raising cash. Phil mentions Bruce Berkowitz closing his fund and says that sort of move is a sign of a high market. He sees "a time to play golf". [34:00–35:00]
How it maps to RuleOne
- The screen can show whether an idea has insiders or a big holder behind it, but nothing reads guru 13Fs yet. If Radar ever tracks them, the useful fields are portfolio weight, trend over time and number of gurus holding, not just "who bought".
- The practice-share idea matches the screen's habit of watching a name before sizing it. A 0.1% holding in a filing is noise and not a signal.
- This reinforces the tranche (Rb) habit: build the position in steps as the price falls, like Mecham's Leucadia buys.
Buffett, Munger and Graham links
- Berkshire's buyback price: in 2011 the board authorised repurchases at up to 110% of book value, raised to 120% later that year. Phil's "he said it in his letters" is loose, so check the letters before relying on a number.
- Buffett on staying inside what you know: Berkshire 1996 letter (circle of competence).
- Buffett's institutional imperative: Berkshire 1989 letter. Phil develops it in the next episode (144).
Words to know
- Practice shares: a very small position that makes you follow a company closely.
- Stockpiling: buying more as the price falls.
- Book value: assets minus liabilities, per share.
- Toe in the water: Phil's phrase for a guru's tiny position.
Try this
Pick one guru on a 13F site. Write down their top five weights and total them. Then choose one holding you've never researched, look up how many other gurus hold it and how big, and decide whether it earns a place on your watchlist at All stocks.
Check yourself
- What is Phil's concentration test for a guru?
Answer
The top five holdings should be about 50% or more of the portfolio. The rest are small "practice shares". - Why can't you follow a guru's buy without your own work?
Answer
You'd be buying and holding something you don't understand, you won't know whether to hold or sell in a crash, and the filing lags by 45 days or more. - What does it mean when a guru buys a small amount while also selling?
Answer
It might be an attempt to support the price during a sale, but you can't prove it. Treat it as a question to research and not an answer.
Short quotes
"It's a clue, a big huge clue that gold is over here. But you have to know the difference between fool's gold and real gold." (Phil, ~28:00, auto-transcribed, lightly shortened)