Chou Funds 2009 Semi-Annual Report Available

Francis Chou has posted his semi-annual report on his website. I pay most attention to his shareholder letter for the flagship Chou Associates Fund, because the other fund letters are based on it.

As I repeatedly say, reading the thoughts of value managers like Chou and Tim McElvaine and a few others is more fruitful than Warren Buffett. That is NO slam at Buffett. If you're a regular Controlled Greed reader, you know reading Buffett's "Superinvestors of Graham and Doddsville" in 1986 was a formative event in my (financial) life. But the massive size of Berkshire Hathaway limits his stock-picking universe -- which he freely admits -- so time might be better spent following others.

Back to Chou. Among the points in his latest letter:

• The last two years have been the hardest time he's seen managing money.

• Non-investment grade bonds are fully priced, he sees better buys in investment grade bonds and bank debt.

• Compared to corporate bonds, US Treasuries are in bubble territory: "In our opinion, this is the worst time to hold cash and short-term treasuries unless you believe we are headed into a 1930s style depression." And he adds that anyone believing that should cash out of his funds.

• On inflation. The government-infused liquidity "is countering some of the deleveraging and credit freeze" in the crisis. But that longer term these actions can bring "huge unintended consequences including the return of high inflation and the likely debasement of the US currency."

• Chou then maps out his choice for inflation protection: Constant Maturity Swaps. His funds won't be able to invest in these until November. But he outlines what they are and how they work.

He didn't discuss specific stock holdings in much detail. I haven't compared this report to his previous one, but it looks like not a lot has been going on with his stock holdings. King Pharmaceuticals (KG) is still by far his largest holding in the Associates Fund (which I own as well).

Chou reports that as of 8/14/09 cash accounted for 6.2% of Associates Fund assets. He owns a fair amount of bonds.

Read the entire thing when time permits.