Jurgis

Once Mr. Big buys Playboy mansion, you guys can hold meetup there. 8) This thread will skyrocket.

So now we know the bear scenario so far: - MA AG going for GILD - Competing (cheaper?) drug approved for Hep C - CEO leaving Unfortunately with CEO leaving, I'm not adding unless stock falls even more. I'll keep my current position.

FT also chimes in: http://www.ft.com/cms/s/0/5eb91614-bee5-11e5-846f-79b0e3d20eaf.html#axzz3yMo2NBXO

Possibly unrelated: Alphabet's Go program just beat European champ: http://www.scientificamerican.com/article/computer-beats-go-champion-for-first-time/

http://www.wired.com/2016/01/the-rise-of-the-artificially-intelligent-hedge-fund/ Mentions Renaissance, Bridgewater, etc. We'll see how this works out. IMHO, it's a bit too early, but I think humans have <10 years left for outperforming. After that, kiss your careers goodbye. I for one welcome our new AI fund managers. Can we get lower fees, please?

Screw value investing! Long live FANG! 8) This message does not mean what you think it means. Or the opposite.

That question can be asked about a lot of places... ::)

401(k)s are easy... or are they? There is usually no access to VTI or equivalent. So I do synthetic VTI by splitting SP500 + midcap/smallcap whatever is available. Possibly waste of fees. I put 40% into international funds. Possibly waste of fees and performance. For last 5+ years international has underperformed hugely. Will it revert? I put 20% into bonds/cash. Well, this is per-person decision, so that's not very interesting. I guess out of these, the biggest and most interesting decision is whether to put money into international or not.

Not anymore. Though perhaps oil will turn around at some point. Actually, this would be totally impossible for me. I think both you and netnet above are way oversimplifying outperformance and this is not necessarily a good thing. Telling people that it's "simple" to outperform and suggesting that this can be based on simple commonsense approaches is setting up people for underperformance and extended underperformance when they continue to try to follow the "simple" solutions (or even worse, wobble from one "simple" solution to another. As good examples, HK has been underperforming, MOAT ETF and related moaty ETFs have been underperforming, Greenblatt Magic Formula has been underperforming (AFAIK, I don't think there's a reliable source for its performance info). All of these are based on simple, common sense, "it should work" approaches. None of them actually work. It's great that LEXCX survived up till now, but I would not bet on it working for the next 10-20 years. Edit: notes to myself so I don't forget: RSP/PRF - no 15 year results. Outperformed SP500 marginally in 10 MOAT - only 3 year results, underperforming SP500 ~4% QVAL - only 1 year results, 2015 was minus 13% But that's probably way too much negativity :), so I am banning myself from this thread 8) Happy outperformance in the next 10-15!

If WFC's repurchases increase Berkshire's stake to above 10%, would they need to sell shares to get under the 10% level or would they just be restricted from buying more? Don't have to sell, just restricted from buying more.

Swapped back from DISCK to DISCA, spread down to 1%.

If only it was that simple. Current generation has forgotten the value investors who followed this advice, sold out in 1995 and ... came back when? Nobody catches exact tops and bottoms. If you sold out in the boom of 2005 and bought back in 2008... oh well, this wasn't very profitable either. I'll refer to http://brooklyninvestor.blogspot.com/ who talks about this much better than I do.

OT: Some time ago I looked at the composition of Gross's fund, saw all these weirdo options/derivatives/etc. threw up my arms and said "WTF". I got tons on flak on this from someone in the industry who was helping to choose a bond fund. All the "but this is a great fund, it's Bill Gross, you don't understand". I just walked away from the discussion. Did not make any friends either. :-X

For some reason topic title is very different from question inside the thread. So I'll answer both: 3 companies at current prices: 1. BRK 2. FFH 3. BAM 3 companies for 10 years at "right prices" - this is rather meaningless, since right price for me might be $1 for GOOGL... but: 1. V 2. TDG 3. GOOGL

Like randomep says, future-economics is rather OT and not practical to discuss right now. However, transition to such might be quite violent: e.g. if Earth population stops growing and starts shrinking, economy may go into perpetual what we call "recession". Not clear how this will be handled. Similar issue with <20% population having jobs (i.e. 80%+ unemployment). And younger members of CoBF may experience it firsthand. But still 20+ years to get there I'd guess.

If you don't want to think and discuss and rather resort to insults, then good luck to you.

BTW, here is why the argument "they are overweighted the most expensive stocks and underweighted the least expensive." is very slippery. In scenario above if A drops to 0.6, the person can point to this and argue "they are overweighted the most expensive stocks and underweighted the least expensive.", since valuation of A is 0.6/0.5=1.2 (compared to valuation 1 of B) and its weight should be 0.5. But if A drops to 0.4, the person can point to this and argue "they are overweighted the most expensive stocks and underweighted the least expensive.", since valuation of A is 0.4/0.5=0.8 (compared to valuation 1 of B), so B is expensive and overweighted. In some sense the argument is tautology.

Vinod, I respect you a lot, but analogy arguments don't necessarily work. We are not in a huge bubble like we were in 2000 although market is a bit overvalued perhaps. My concern is that the argument is "just continue trying for another year and then another year and then another year". Of course, it all depends on a person. If they believe that past 5 (or whatever) years of underperformance was due to market running up from the bottom and it's going to change now, then perhaps they should keep trying. Although, I am afraid that there is a lot of rationalization. In 2013-2014 it was "index is running up too fast, I can't keep up, all stocks are running up without differentiation". In 2015 it was "index did not run up, but was kept up by FANG, value stocks were slaughtered". At which point should investors face the facts and realize that the issue might be them and not what index did? Anyway, I am not saying that people who have underperformed should jump to index right now. I share some concern that this might be wrong time. But like somebody said keeping doing the same thing and expecting different outcome may indicate foolishness. Or it may indicate strong belief in the method that may be rewarded. Or not. ;) Choose your poison wisely. Peace.

This is repeated by every critique of market weighted indexes. But it is not as simple as that. It very much depends where market and economy and investment sentiment is in the cycle. The fact that company X grows revenues/earnings/FCF in excess to others in index does not automatically make it bigger part of the index compared to others. It only happens if its growth is disproportionately rewarded by investors. For contrary example, look at AAPL. Edit: hmm, I just realized that the argument is more complex than I tried to present it. I have to run now, I'll try to come back to it. This is exactly what I mean. You have more of what the market disproportionately rewards. You had a lot of energy a couple of years ago and today or when it becomes really cheap you will have none. You were 50% invested in technology & telecom in 2000. 35% in banks in 2007,..... . An index investor participates fully in all bubbles. Apart from the performance there is also the volatility of the index. By avoiding all 'popular themes' in your portfolio you can avoid a lot of the huge market swings and sleep a little bit better. OK, hold your horses. You are just pushing your opinion without really thinking. First of all, we would have to agree what metric you are using to value companies. If you use P/E, then companies without earnings should be 0% of the index to not be "disproportionately" overweighted. I don't think you mean that, so please provide the weight/valuation metric and then we can argue. Popular themes might be bad, but they also might be good. This is not an argument for or against "they are overweighted the most expensive stocks and underweighted the least expensive". This is a great example of where your argument is likely wrong - depending on the metric. Let's use PSR as metric since P/E does not work (you can propose something else). So let's say we have 2 company index A with sales 1 and market cap 1 and B with sales 1 and market cap 1. They are perfectly weighted. Now sales of company A drop to .5 (like your energy companies example). So to preserve its weighting it's market cap should also drop to 0.5. Now you probably will complain that B is overweighted, but it isn't. You give examples of bubbles, but that's again hand wavy argument. So, yes, market cap weighted index has bubbles. This does not mean that any alternative that you use won't have similar or worse performance long term. There are two issues with the alternatives: - They might have the same crashes - They might not have the same crashes, but may not perform as well during the upcycles.

This.

This is repeated by every critique of market weighted indexes. But it is not as simple as that. It very much depends where market and economy and investment sentiment is in the cycle. The fact that company X grows revenues/earnings/FCF in excess to others in index does not automatically make it bigger part of the index compared to others. It only happens if its growth is disproportionately rewarded by investors. For contrary example, look at AAPL. Edit: hmm, I just realized that the argument is more complex than I tried to present it. I have to run now, I'll try to come back to it.

Possible Buffett support for ineffective managements in AXP and IBM (and others?). I am not saying that AXP and IBM managements are ineffective. But there is likelihood that they are. And it seems that Buffett supports them and therefore stops them being replaced by better ones. OTOH, Buffett might be right and then his support for AXP and IBM managements is very valuable. Pick your choice.

Outperformance over ten-year periods is difficult, sure, but who cares? All that matters is end performance. Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995. Hussman LOL, says the guy who has not made any money for investors for 10 years+ : http://hussmanfunds.com/theFunds.html BTW, his argument is broken: he does not look at market recovery post crashes which produces great returns. And BTW, there are about 5 people in the world who can avoid market crashes. But of course, there are a lot more who believe they can do so only to be proven wrong. Hussman is a loser who sells to idiots.

I think I wrote up a bit on this in the other thread ( http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/difficulty-of-outperforming/50/ ) So instead of repeating, let me approach this from another side. Why I don't want to actively invest anymore? 1. Burnout. I think that's possibly the most encompassing reason, but it might be also composed from the reasons below. 2. The more I read and learn, the more I see that I don't know anything. :) 3. In depth analysis is not fun. For multiple reasons: really understanding business is hard for me, modeling predicting future business curve is hard, etc. 4. Related to above: I'm not and I won't be as good in analysis as some people on CoBF. Unfortunately, investing is a lousy business for "OK" people. If you're not great, you are very unlikely to outperform the baseline (index). You can make great living as an OK carpenter or engineer, but you should find another way to spend your time if you're just "OK" investor. 5. Portfolio composition is very hard. I don't know when X will outperform Y and deciding X vs. Y vs. none vs. both is not something that I do well. 6. Corollary of the above: at no time in the past my biggest holdings were best (or even good) performers. In fact my biggest holdings usually performed very badly. (If this continues, lookout for huge FFH/BRK underperformance from here - wait we already had this in 2015 when I bought both. So... you guys have been warned 8) ). "Put your money into your best idea" is usually a great way for me to lose money. 7. Underperformance for last 4-5 years. Outperformance before that possibly based on luck or things that have changed. (I definitely did not know what I was doing then, so it wasn't "expertise"). 8. Corollary of the above: underperformance of recent picks or bigger-picture ideas (oil in particular). ------------------------- Another subtopic: Solutions for SP500 overvaluation if switching to indexing today: 1. 60%/40% SP500/bonds - problem: bonds are also overvalued (low yield). I would not advise this. It might be OK to do Graham-suggested 75% stocks/25% bonds (going to 50/50 and 25/75 if valuations change). I doubt I'd go with that, though I probably would hold 20% cash. 2. Buy RSP or PRF instead of market weighted index. This may reduce overvaluation. But don't quote me on it, I did not look at comparative valuations of these funds. 3. 60%/40% US total market / International - international has lagged for years and is cheap(er). If I had an account where I would not be able to buy stocks, but would be able to buy any fund possible, I think I'd go with: 20% cash/bonds (undecided if bonds, due to crappy bond yields, but perhaps some well known bond mutual, possibly PONDX or Loomis Sayles), 20% emerging market stocks fund (no particular name in mind), 20% international developed market stocks fund (possibly Vanguard International or Fido International or one of the "consumer moat" funds), 20% US total market weighed, 20% PRF/PRFZ. Might put some into MOAT - though its performance hasn't been hot.

OK, I think b) answers the question. I have quibbles regarding a) and c), but it doesn't matter if b) is right. Thanks.