Comments on: The seductive Warren Buffett

By: sdunl

sdunl — Sun, 09 Dec 2012 15:07:14 +0000

Salmon,

You should be teaching in college with all the other market efficent theorists. In response to your comment of …”Buffett had a good run, but at this point there’s really zero reason to believe that his kind of fundamentals-based value investing still gives anybody an edge”. You are right, 60 years is a good run.

I’m not sure where you grew up but some village is missy their idiot.

By: TFF

TFF — Wed, 05 Dec 2012 14:25:12 +0000

May look at some of those ideas, y2kurtus, but not sure they are in my comfort zone. Staying in my comfort zone is more important at this point than returns.

But thanks!

By: y2kurtus

y2kurtus — Wed, 05 Dec 2012 03:43:37 +0000

@TFF, If you have after tax money to invest (most people don't) then look at some of the higher yielding MLP's like Linn energy (LINE). For Pre-tax money I'd check out Digital Realty Trust (DLR), they're basically a data-center management company pretending to be a REIT. I bet they'll grow pretty good and pay you while you watch! If you can spend two hours a month looking at individually held investments, (which I think you do having read about a hundred of your well thought out posts), then I would consider playing with 25% of your life's saving on an ultra diversified pool of binary outcome stocks. Put in the search terms "longtimefollower yahoo finance" in google and read everything that guy has ever posted. I've been looking at his stuff for several years now and his game (which I now actively try to emulate) is to buy companies which are often on the brink of death and usually trade for <$10/share. About 45% the time you lose everything, 10% of the company somehow manages to limp along the razors edge between life and death for years(see RiteAid) and 45% of the time you make between 400 - 1000%. If you run the expected value using the low end of that range the returns are so high that any normal person would think them to be impossible to sustain. Happy holidays!

By: MiltonRecht

MiltonRecht — Tue, 04 Dec 2012 20:56:51 +0000

Buy and hold also minimizes taxes and Buffett is one of the kings of tax avoidance. Capital gains taxes create a “lock in” effect. The capital gains tax creates an incentive for investors such as Buffett to avoid selling lower return investments and reinvesting in higher return investments. Without a capital gains tax, it is unlikely Buffett would hold his investments as long as he does.

By: absinthe

absinthe — Tue, 04 Dec 2012 20:32:08 +0000

“[As] every personal-finance columnist will tell you … you will almost certainly buy and sell at the wrong time”

Nonsense. If it were true you could just observe dumb money and take the other side of the trade, and “almost certainly” make money. (And then lots of people would do that, the trade would either turn into a volatile mess or disappear entirely, etc.) That’s just pap the columnists toss out to make readers anxious enough to keep reading them.

The problems with personal finance and buying and selling at the wrong time have nothing to do with timing the market (profiting in expectation) and everything to do with having the right portfolio (staying balanced and maintaining a consistent risk profile). And as TFF points out, your personal finance implications over the years have exhibited exactly this disregard (“THINGS HAVE CHANGED! MODIFY YOUR PORTFOLIO!”). There have been some indications that portfolio theorists need to readjust their inputs, but nothing on the order of what you’ve suggested.

By: OSusanna

OSusanna — Tue, 04 Dec 2012 20:07:11 +0000

You recently labeled yourself as a “muni bond geek.” What do you think of Mr. Buffet’s investment in municipal bonds.

And, have you heard about longtime muni bond expert Dr. Philip Fischer’s white papers on eBooleant.com? I’d love to hear your thoughts on those. His forthcoming book, Investing in Municipal Bonds will be on shelves and Amazon from McGraw-Hill in early January.

By: Chris08

Chris08 — Tue, 04 Dec 2012 18:55:12 +0000

Well I find piggybacking on Buffett not a bad strategy. Over the last ten years Berkshire stock has appreciated 81% vs 50% for the S&P. Over five years Berkshire has declined 6.5% vs. 5% down for the S&P. Over one year Berkshire has risen 12.5% vs 13% for the S&P. If you factor in the costs even for a low cost index fund, I’d say over ten years Berkshire has clearly beaten the market and come very close to equaling it over the last five years and one year. I have never lost money purchasing a Berkshire stock at around the same price Buffett paid and holding it. His buying a stock is a good guarantee of its soundness. For higher returns I use a mixed bag of many biotech stocks; the winners more than pay for the losers.

By: Eericsonjr

Eericsonjr — Tue, 04 Dec 2012 18:52:13 +0000

KenG, I don’t think anyone seriously looks to Felix for investment advice. He changes his mind more often than he changes his bespoke shirts. Why you hatin’?

Felix: You know as well as anyone that the three current ways of beating the market (two of which are long-term) as as follows:
1. Insider info
2. Fraud/churn
3. HFT
Of course, only one of these is “legal” in the legal sense (and it is–naturally and by design–unavailable to Muppets). But the risks of the other two strategies are very small and the payoff can be substantial. Sure beats working, I’ve heard.

By: mwwaters

mwwaters — Tue, 04 Dec 2012 17:40:57 +0000

If one looks up Seth Klarman’s letters from the 90′s, they’re very interesting. From today’s standpoint, he has dramatically outperformed the market, but during the 90′s he was being strongly outperformed by the S&P. Even in 2001, his fund’s total return did not yet catch up to the S&P, but from buying many cheap stocks after the bubble burst and because he didn’t lose money in the bubble, he eventuaully strongly outperformed the market.

That’s the common misperception about investing in equities. People say “long-term” when they mean 1-2 years. But historically, bear markets can last for much longer. Bull markets can last for quite awhile too, such as 96-00 and 68-73. You get the returns from investing in undervalued stocks, but the long-term is very looooong. The 1,2,3, 5 year comment does not do the strategy justice for that reason, and also why Buffett prefers to use book value.

By: KenG_CA

KenG_CA — Tue, 04 Dec 2012 16:31:35 +0000

While it’s ok to compare Berkshire stock with the S+P or fund managers, you shouldn’t compare Buffet with them. Berkshire is more like a holding company, and while the stock may not be performing as well as the S+P over the last five years, I would bet that Buffet and Berkshire have made more money than they would have had they invested in stocks over that period. They buy companies or large shares of companies for income, and they don’t have the same goals as traders (I’m being nice and not calling them speculators).

By: jamestToler

jamestToler — Tue, 04 Dec 2012 16:23:32 +0000

Interesting article but one crucial point is missing and that is Buffett is managing billions of dollars and universe of investment is very limited when dealing with that much cash. He has acquired Burlington Northern, Lubrizol, various newspapers and made billions of dollars for Berkshire yet the stock has not performed as well as the market. What can he do about that? In the short term the stock market is a voting machine but in the long term it is a weighing machine. He has said with 1 million dollars he could make 50 percent per year. That is an interesting statement from a man who only grows as an investor each year. I wouldnt’t doubt that, especially if you gave him all of American Business to decide from instead of practically a very small percentage.

By: TFF

TFF — Tue, 04 Dec 2012 15:37:54 +0000

http://blogs.reuters.com/felix-salmon/20 10/05/10/why-volatility-means-you-should -sell-stocks/

http://blogs.reuters.com/felix-salmon/20 10/05/20/revisiting-the-equity-premium/

…and if I had listened to you just three short years ago, you would have advised me to:

http://blogs.reuters.com/felix-salmon/20 09/04/06/how-stock-market-indices-underp erform/

“just pick a basket of stocks, and hold them forever, reinvesting dividends”

That last, at least, was sound advice…

By: TFF

TFF — Tue, 04 Dec 2012 15:33:07 +0000

Felix, I still don’t understand your obsession with “beating the market”. You are living proof that index investing doesn’t work — in the middle of the market crash, when you should have been buying, you were talking about volatility, the evaporation of the “equity premium”, and the impossibility of positive returns.

You don’t need to beat the markets to invest successfully, you simply need to avoid stupidity. It is easier to avoid stupidity when investing in individual stocks than when investing in index funds.

Trying to beat the market is a fools’ game. My goal was and is to secure my financial future, a strategy that caused me to invest in bonds in 2007, in stocks in early 2009, and by deleveraging in 2012. I was never trying to beat the markets, simply asking myself, “How can I achieve 6% annual returns to achieve my goals with minimal risk?”

What actions did your investment philosophy lead you to take over the last five years? Were you truly selling out of the market in 2009-2010 as you preached in your columns?

Bonus question — if my goal is to achieve 6% annual returns with minimal risk, what is my remaining portfolio invested in today?