LongHaul Posted February 15, 2019 Share Posted February 15, 2019 Munger Mentioned at the DJCO meeting that the best picks of a local Investment Manager could not beat the market. It happened 3x apparently. Any thoughts on why this failed? Link to comment Share on other sites More sharing options...
netnet Posted February 15, 2019 Share Posted February 15, 2019 The answer, I believe, turns on three issues: everyone is not Buffett or Munger, so diversification will get you average returns. The deeper issue is that asking an analyst for his or her best idea is a forcing function on something that should not be forced, your need to wait for an outstanding idea to surface. Buffett's best idea at the top of the market ('68) was to get out of the market! in all probability, the investment firm graded the trade on a yearly basis and ideas often take more than a year to work out Link to comment Share on other sites More sharing options...
5xEBITDA Posted February 16, 2019 Share Posted February 16, 2019 Munger Mentioned at the DJCO meeting that the best picks of a local Investment Manager could not beat the market. It happened 3x apparently. Any thoughts on why this failed? a) most people are bad analysts b) the quality of local managers in Omaha, I'm guessing, is awful c) Buffett/Munger know a & b are true and don't want people to lose money so they always recommend not investing yourself and go into index funds and they say look even these smart people can't do it Link to comment Share on other sites More sharing options...
LongHaul Posted February 17, 2019 Author Share Posted February 17, 2019 The answer, I believe, turns on three issues: everyone is not Buffett or Munger, so diversification will get you average returns. The deeper issue is that asking an analyst for his or her best idea is a forcing function on something that should not be forced, your need to wait for an outstanding idea to surface. Buffett's best idea at the top of the market ('68) was to get out of the market! in all probability, the investment firm graded the trade on a yearly basis and ideas often take more than a year to work out I am guessing you nailed it netnet. Great analysis. Unless something was missed but I can't think of anything else right now. Link to comment Share on other sites More sharing options...
lotsofguts Posted February 18, 2019 Share Posted February 18, 2019 I think this article might explain part of it. From: http://pembridgecap.com/?m=201706 "The Best Idea Fund Charlie Munger coined a problem at his dinner party: Capital Group (large LA based fund manager) created The Best Ideas fund. This fund would collect one favorite stock per analyst in the fund. Munger mentioned that this fund underperformed the market significantly and asked guests as to why this might be. The answer was consistency bias: the idea that managers had spent the most research time on was typically their “best idea”. Human beings tend to selectively filter new information that confirms the first thing they belief to be true based on something they read or listened to. the specialist problem: specialist analysts get biased toward their sector benchmarks. They do not select the best stock, but the best stock in the sector. TC Comment: this compounds the insider view bias that Kahneman discovered. Man is naturally taking too much of an insider view already in general, and not enough benchmarking ideas to the outsider view, or base rates." Link to comment Share on other sites More sharing options...
LongHaul Posted February 18, 2019 Author Share Posted February 18, 2019 Thanks for posting lotsofguts. That adds new information and perspective on who the analysts were and Charlie's answers. Link to comment Share on other sites More sharing options...
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