Interesting video for Buffetologists

[Guest kawikaho]

http://finance.yahoo.com/tech-ticker/article/304946/Even-Warren-Buffett-Can%27t-Match-His-Own-Success-McArdle-Says?tickers=HD,BRK-A,JNJ,GS,COP,WLP,UNH

 

She makes some interesting points.  Some of which I've been contemplating for awhile. 

[tooskinneejs]

I find it odd that she says large margins of safety and significant mispricings of securities "just don't happen anymore" (or something to that effect), given the pricing of securities that we all just witnessed a couple of months ago.

[oldye]

I find it odd that she says large margins of safety and significant mispricings of securities "just don't happen anymore" (or something to that effect), given the pricing of securities that we all just witnessed a couple of months ago.

 

She's a twit.

[EdWatchesBoxing]

I find it odd that she says large margins of safety and significant mispricings of securities "just don't happen anymore" (or something to that effect), given the pricing of securities that we all just witnessed a couple of months ago.

 

I work at a finance firm that does arb trading and the traders there don't believe in long term mispricings. I just listen to them and smile. Once, I tried to tell them my story and they looked at me as if I was crack. Their reponse: "We just don't do that value stuff here." They much rather pick up change in front of a bulldozer. I have feeling it's like this in most places.

[jasonw1]

I guess it depends how to define "long term"

[EdWatchesBoxing]

I guess it depends how to define "long term"

 

"Long term" is any position held overnight.

[Guest kawikaho]

I think you guys are misinterpreting what she meant.  I remember reading Walter Schloss saying something to the same effect: that it's extremely hard to find Graham/Dodd style value nowadays, because every value investor knows and has Graham's book!  I have come to similar conclusions and that once a "simple" investing strategy is widely known (I say simple because others can't be replicated so easily, e.g. Buffett's style of buying companies outright) it loses its edge cause everyone knows about it.

[oldye]

I think you guys are misinterpreting what she meant.  I remember reading Walter Schloss saying something to the same effect: that it's extremely hard to find Graham/Dodd style value nowadays, because every value investor knows and has Graham's book!  I have come to similar conclusions and that once a "simple" investing strategy is widely known (I say simple because others can't be replicated so easily, e.g. Buffett's style of buying companies outright) it loses its edge cause everyone knows about it.

 

Companies with very wide moats were selling for 20%-25 of intrinsic value.  The two this board is named after, as recently as a few months ago were available for 212 and 2100 a share respectively, while maintaining fortress like balance sheets and growing intrinsic value.  

You're right, this isn't rocket science, I just don't think you'll see anything better in our lifetime. 

[ragnarisapirate]

that lady is crazy... her thoughts on data technology are ridiculous; yes, computers can now look at balance sheets quickly, however, can they get a feel for how much property, plant, and equipment are worth? can they value goodwill and intangible assets (both accounted and un-accounted for? can they get a feel for integrity of management?

 

I think not.

 

I am betting that buffett could do pretty well right now. A few months ago, he said that if he could have put his entire net worth in 1 stock, it would have been WFC @ what, 9 bucks a share? If he would have done that, he would be sitting on a 300% gain (roughly). Hell, he could do absolutely nothing for a few years and still of compounded at 50% annually.

 

 

[Guest kawikaho]

I think you guys are misinterpreting what she meant.  I remember reading Walter Schloss saying something to the same effect: that it's extremely hard to find Graham/Dodd style value nowadays, because every value investor knows and has Graham's book!  I have come to similar conclusions and that once a "simple" investing strategy is widely known (I say simple because others can't be replicated so easily, e.g. Buffett's style of buying companies outright) it loses its edge cause everyone knows about it.

 

Companies with very wide moats were selling for 20%-25 of intrinsic value.  The two this board is named after, as recently as a few months ago were available for 212 and 2100 a share respectively, while maintaining fortress like balance sheets and growing intrinsic value.  

You're right, this isn't rocket science, I just don't think you'll see anything better in our lifetime. 

 

Well, not quite.  I've seen this happen before during 2000's stock market crash, and I'm sure people who have lived and invested through Oct. 87 have seen similar bargains.  BRK-B went through the same declines in 2000 as it did in 2009, and subsequently rebounded in similar fashion.  Definitely not once in a lifetime; I've already seen it twice since I started investing!  And, I hope and know I'll see this again several times before I die. 

[tooskinneejs]

kawikaho said: "I've seen this happen before during 2000's stock market crash, and I'm sure people who have lived and invested through Oct. 87 have seen similar bargains.  BRK-B went through the same declines in 2000 as it did in 2009, and subsequently rebounded in similar fashion.  Definitely not once in a lifetime; I've already seen it twice since I started investing!"

 

Doesn't this go against her theory that significant mispricings of securities "just don't happen anymore?"

[Guest kawikaho]

I think they over exaggerated.  I took what they said to mean, they just don't happen very often... and, they don't!  Anyways, I'm not defending this person.  I just think she made some interesting points, some of which I've been thinking about for quite some time. 

[Guest kawikaho]

that lady is crazy... her thoughts on data technology are ridiculous; yes, computers can now look at balance sheets quickly, however, can they get a feel for how much property, plant, and equipment are worth? can they value goodwill and intangible assets (both accounted and un-accounted for? can they get a feel for integrity of management?

 

I think not.

 

I am betting that buffett could do pretty well right now. A few months ago, he said that if he could have put his entire net worth in 1 stock, it would have been WFC @ what, 9 bucks a share? If he would have done that, he would be sitting on a 300% gain (roughly). Hell, he could do absolutely nothing for a few years and still of compounded at 50% annually.

 

 

 

Where did you get 300% gain?  27/9 = 3 = 200%.  Not 300%.  2x = 100%, 3x = 200%.  And if he sat on his gains for the next 3 years doing nothing, that would be 26% compounded.  Definitely not 50%.

 

Besides, I believe Warren bought Wells Fargo at various prices, and bought even as high as $40/share.  I don't know what his exact cost basis is, but I've heard him buying it in his personal portfolio at near $20.  That's when I bought it, and subsequently sold at $30/sh, late last year.  I'm sure he didn't exactly go ALL IN at $9/sh.  He's probably averaged somewhere near $15.

[Myth465]

Buffet has talked about this for years and people have known about Buffet and value investing for quite a while, at least 20 years. Simple but not easy is the name of the game, and December 08 and March 09 clearly show that fear and greed still dominate the business cycle.

 

You hold your cash and pick your spots and must be prepared to go against the grain if necessary. The lady sounds decent enough but, is simply off base.

 

Mark Sellers - 7 Traits of Great Investors

 

○ Trait #1 - The ability to buy stocks while others are panicking and sell stocks while others are euphoric.

 

○ Trait #2 - A great investor is that he is obsessive about playing the game and wanting to win.

 

○ Trait #3 - The willingness to learn from past mistakes.

 

○ Trait #4 - An inherent sense of risk based on common sense.

 

○ Trait #5 - Great investors have confidence in their own convictions and stick with them, even when facing criticism.

 

○ Trait #6 - It's important to have both sides of your brain working, not just the left side (the side that's good at math and organization.)

 

○ Trait #7 - The most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process.

 

 

 

[Guest kawikaho]

Interesting.  I wonder what that cigar butt was.  Weird, because that would go against his investment philosophy of buying good companies instead of Graham's cigar butts at cheap prices. 

 

I know Warren likes playing bridge, and from what I've heard countless times, bridge players make excellent traders.  Although, I wonder since trading and investing is so fraught with risks that are unseen that it's not comparable to a closed system of gaming like bridge.  I'm sure he loves playing probabilities and would game the derivatives trade, even though it would go against his views on them.  Anyways, I've read him say in many interviews that if he didn't have to manage a huge portfolio, he wouldn't be buying the companies he is buying now.  He would definitely go for smaller companies.

 

I hope you guys don't think I'm down playing the guru.  He's one of my idols.  Not just because he's an investing king, but because of his philanthropy.

 

 

Remember, even as recently as late 1990's/early 2000's, he was investing in REIT liquidations in his personal account.  Furthermore, during the same time period, someone once won a single stock tip from Buffett for a charity.  He didn't recommend some mega-cap with a wide-moat.  He recommended a cigar-butt in liquidation.

 

[RichardGibbons]

The cigar butt in question was First Industrial Realty (NYSE:FR).

[Guest kawikaho]

Much thanks for that.  I think Kumar has a point, and this is an example of why value investing IS hard: is there value here, or a value trap?  This might not be one of Warren's choices anymore ever since the crash in real estate.  It might be a bad idea like buying COP when oil was at an all time high.  A poor choice even by the guru's own admission.  I will have to do some DD on this one.  I wonder if Warren still owns it.  Anyone have any input on FR?

[mpauls]

uggh.  I stopped listening after the first sentence that came out of this lady.  "Does it tarnish his record"? I can't stand people that talk as though he is new at this.  All he is doing is allocating capital to those areas that earn the most attractive long term yields.  As new opportunities become available on terms more attractive than current holdings he simply buys the more attractive asset and sells the lesser attractive asset.  Moreover, facts can change and when they do, you must make appropriate adjustments-otherwise you are irrational. 

[mpauls]

I tried to give it another chance made it 3/4's of the way through this time!

 

Has she ever read Graham and Doddsville?  I'm sorry this girl is an idiot.

[limbacmf]

If Buffett were to start from scratch tomorrow with a few million, I don't think he'd be looking at the companies he looks at right now.

 

It's harder to find a bargain in the large cap arena, where stocks are more closely followed, than in the small cap arena. That's why Buffet makes "bad" bets now.  They're not bad, they're just not as good as the ones he could make with a smaller asset base.

 

 

 

[netnet]

 

Where did you get 300% gain?  27/9 = 3 = 200%.  Not 300%.  2x = 100%, 3x = 200%.  And if he sat on his gains for the next 3 years doing nothing, that would be 26% compounded.  Definitely not 50%.

 

Besides, I believe Warren bought Wells Fargo at various prices, and bought even as high as $40/share.  I don't know what his exact cost basis is, but I've heard him buying it in his personal portfolio at near $20.  That's when I bought it, and subsequently sold at $30/sh, late last year.  I'm sure he didn't exactly go ALL IN at $9/sh.  He's probably averaged somewhere near $15.

 

Minor point on this good discussion--on the math calculations.  Yes 9 to 27 makes a 200% gain, but it is way more than 26% per year return...It's not 50% either but it is closer to 50% per year than 26%, over three years, it's  about 45% per year. (1.45^3 is about 3).

 

 

I definitely believe that WEB would go where ever the value would be, so he probably would be in very interesting exotica, except during times like last March, when he probably would have gone whole hog into Wells as he did with Amex years ago.

[Guest kawikaho]

 

Where did you get 300% gain?  27/9 = 3 = 200%.  Not 300%.  2x = 100%, 3x = 200%.  And if he sat on his gains for the next 3 years doing nothing, that would be 26% compounded.  Definitely not 50%.

 

Besides, I believe Warren bought Wells Fargo at various prices, and bought even as high as $40/share.  I don't know what his exact cost basis is, but I've heard him buying it in his personal portfolio at near $20.  That's when I bought it, and subsequently sold at $30/sh, late last year.  I'm sure he didn't exactly go ALL IN at $9/sh.  He's probably averaged somewhere near $15.

 

Minor point on this good discussion--on the math calculations.  Yes 9 to 27 makes a 200% gain, but it is way more than 26% per year return...It's not 50% either but it is closer to 50% per year than 26%, over three years, it's  about 45% per year. (1.45^3 is about 3).

 

 

I definitely believe that WEB would go where ever the value would be, so he probably would be in very interesting exotica, except during times like last March, when he probably would have gone whole hog into Wells as he did with Amex years ago.

 

You know what, you're right.  Made a significant error in doing the calculation.  It is closer to 50%.  I was looking at 1.26^3 = 2, and not 3.