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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 12:26 AM   #41
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Re: A serious question (for once), about the theory of buy and hold and down markets

The Buffett premium is in the companies he buys and invests in. Whoever is the successor will have a tough time doing that - btw the new annual report has an ad for a successor to get started on the investing side of things. He has internal guys identified to take of the other stuff - insurance and top level organization.

He is looking for the following in the new guyFrom the annual letter)
I intend to hire a younger man or woman with the potential to manage a very large portfolio, who we hope will succeed me as Berkshire's chief investment officer when the need for someone to do that arises. As part of the selection process, we may in fact take on several candidates.
Picking the right person(s) will not be an easy task. It's not hard, of course, to find smart people, among them individuals who have impressive investment records. But there is far more to successful longterm investing than brains and performance that has recently been good. Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions. Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I've seen a lot of very smart people who have lacked these virtues. Finally, we have a special problem to consider: our ability to keep the person we hire. Being able to list Berkshire on a resume would materially enhance the marketability of an investment manager. We
will need, therefore, to be sure we can retain our choice, even though he or she could leave and make much more money elsewhere.


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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 01:55 PM   #42
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Re: A serious question (for once), about the theory of buy and hold and down mar

First of all, I appreciate your change in attitude AirJordan. I guess you have been reading and researching and realizing just how little you know. At 24 you are way ahead of the curve though. I have the same issues with buy and hold strategy, I mean I logically know that it is what I should do but it still makes me nervous. But I have health problems that most people do not know about, so that is an extra issue for me and makes my strategy a little different. Plus I am married to a man who will probably amass wealth at least equal to mine, and just recently became a millionaire, so that eases some fears, but who knows if kids are brought into the equation or if he gets fired or if he runs off with another woman, etc. However, for you, I wouldn't worry too much as your portfolio now isn't that large and from what I gather you plan on having a career in law, so the fluctuations shouldn't be of great concern for you. I would say just chill out and keep up with your lbym strategy and keep buying and holding, however do keep the general market in mind not so that you sell in a panic, but when you feel the market is overvalued/undervalued, etc., use that in deciding what you will do with your newly earned money to invest. And the number one factor for you is to remember to marry well. I know quite a few dumb men who are seemingly brilliant and should have tens of millions of dollars now, while sipping fruity drinks from some island retirement haven, but instead they are 60 and still working due to multiple divorces. Never underestimate the idiocy of men when faced with a beautiful woman.
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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 02:21 PM   #43
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Re: A serious question (for once), about the theory of buy and hold and down mar

Quote:
Originally Posted by donheff
Unless you are really smart and you have read all the books we mentioned. Then you place a stop limit - like a drop of 20% and liquidate everything to cash. Then when the market comes back up toward normal - say a 15% rise - you get back into equities.
i don't know about this advice, sounds like a losing strategy to me. unless we hit a depression or something horrible like that, you would just be hurting your returns with this type of a play.
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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 02:28 PM   #44
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Re: A serious question (for once), about the theory of buy and hold and down mar

sorry, you were being sarcastic on second examination. but the funny thing is i know people who have done stuff like that. get really scared sell off and then enter the market at a higher price. that is what i think about when i get the itch to panic, don't want to be a sucker like that.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 02:29 PM   #45
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Re: A serious question (for once), about the theory of buy and hold and down markets

The market always seems to be able to take out my stop limit and spike right back up!
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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 02:36 PM   #46
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Re: A serious question (for once), about the theory of buy and hold and down mar

Quote:
Originally Posted by donheff
Unless you are really smart and you have read all the books we mentioned. Then you place a stop limit - like a drop of 20% and liquidate everything to cash. Then when the market comes back up toward normal - say a 15% rise - you get back into equities.
I used to have a strategy of selling when share price fell below the 39 week moving average, and then buying when it rose up again past the 39 WAR. Eventually I realized that every round trip in and out of the market costs me money because one can never transact exactly at the average-crossing moment; you always overshoot the sell on the way down and overshoot the buy on the way up. These losses are magnified with the whipsaw effect that happens if the price crosses its averages frequently in a sideways market. Add in transaction costs and the psychological drama of needing to watch the market every minute, and it just wasn't worth it.

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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 03:19 PM   #47
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Re: A serious question (for once), about the theory of buy and hold and down markets

Do like I do.

I have a long range plan to invest in equities. I buy a lot every month and only check my statements when the market is up. There were quite a few months in a row in 2000-2003 where I never opened an envelope.

I remember when someone asked Sam Walton what he thought when the value of his Walmart stock dropped about 20% one day in 1987, he told them "I wasn't going to sell any today anyway".

Jumping out of the market and back in, you have to be right twice, and believe me most of us aren't that good.

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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 03:26 PM   #48
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Re: A serious question (for once), about the theory of buy and hold and down mar

good advice. now how do i get your discipline? seriously need some valium with a volatile market as of late.
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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 03:39 PM   #49
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Re: A serious question (for once), about the theory of buy and hold and down mar

Quote:
Originally Posted by newyorklady
good advice. now how do i get your discipline? seriously need some valium with a volatile market as of late.
NYL, what should be comforting to you and me hopefully in the future, is that you have amassed enough money (wellll maybe not i you live in Manhattan) but at least enough in most places to live pretty comfortably off of what you make alone, even without putting it in a money market. Since this is the first time I've seen the market hit a big dip since I've gotten in, I wanted to just hit the cash out button. But the minds here have assuaged my concerns, and shown me that (barring another Great Depression), sticking through those ups and downs it is the way to go.

Otherwise I just smoke a bowl, and have a few scotches, that works too
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Re: A serious question (for once), about the theory of buy and hold and down mar
Old 03-09-2007, 04:04 PM   #50
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Re: A serious question (for once), about the theory of buy and hold and down mar

Try to put in perspective the 3-4% drop that just occurred vs 20 years ago when those of us who were around and invested in equities participated in this:

"Black Monday is the name given to Monday, October 19, 1987, when the Dow Jones Industrial Average (DJIA) fell dramatically, and on which similar enormous drops occurred across the world. By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%."

http://en.wikipedia.org/wiki/Black_Monday_(1987)

Turns out that was a dynamite buying opportunity providing bargain basement prices for stocks that would take off on a run lasting more than a decade. For those who sold and tried to figure out when it was "safe" to buy back in, it was the end of their retirement dreams.

Moral of the story: Hang on and try to enjoy the ride.

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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 04:18 PM   #51
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Re: A serious question (for once), about the theory of buy and hold and down markets

In October of 1987 I invested my life savings of $10,000 into a couple mutual funds and within a week watched it go down over 30%.

After that, nothing bothers me.

By the way, it came back and doubled by 1990. I've invested in equities every month since then and have never sold a one except to rebalance.


Don't worry about it, your house probably goes up & down more than this % every day and you don't even know it.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 04:42 PM   #52
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Re: A serious question (for once), about the theory of buy and hold and down markets

Quote:
Originally Posted by Cute Fuzzy Bunny
The unknown factor in equity ownership in the short term is usually psychological. I've seen BRK shareholder meetings, they're like woodstock. IMO its a long term psychosis thats like Ben and Jerrys or Krispy Kreme stockholders...only the company makes good money and has sound financial foundations.
I wouldn't judge a stock either way by its annual meeting, but I think you're missing the point of the hoopla. It's free advertising, not a cult. Berkshire is made up of companies selling many different things to many customers. Buffett gathers these many people together, some of them with eight-figure portfolios, and spends the whole weekend selling to them. For some of the businesses, the annual meeting sales are bigger than the Thanksgiving-Christmas season. We're not just talking a sofa from Nebraska Furniture Mart-- we're talking NetJets shares, multi-carat jewelry, and tons of homebuilding materials. The GEICO gecko stays pretty busy, too.

So of course he wants to throw a huge party and let the fanatics get everyone in the mood to have a good time. It's like Koslowski used to do with Tyco, only this time all the shareholders are invited too.

I'm impressed at how Borsheim's prices their jewelry in terms of the unrealized capital gains that shareholders have on their "A" shares.

Quote:
Originally Posted by Cute Fuzzy Bunny
I'm quite sure that the stock takes a healthy drubbing the minute Warren bites the dust. And eventually comes back to 80-85% of the value of the day before.
Theres a Buffet premium though that I dont think you ever get back.
I might be a buyer on that "day after" though. But you might have to hold a few years to get the full effect of the bounce-back.
I don't know about that one. The stock was supposed to come under heavy pressure when Suzie died and all her shares went to her foundation. Then the stock was supposed to crater when Buffett announced his donation plan last July requiring the Gates Foundation to sell all the shares they receive each year. Yet over the last year share volume has barely budged. Even over the last decade, share volume has barely doubled. If the share volume gets big enough, though, the S&P500 might have to consider adding BRK to the index.

Look at what Buffett doesn't have to deal with: Every successful mutual-fund manager has had to contend with fund bloat. Every one save cash for shareholder redemptions during bear markets, no matter how many blue-light specials are flashing. Every manager has trouble getting in trades for gazillions of shares of stocks. Every conglomerate has trouble imposing their "culture" on their subsidiaries, and especially keeping the talent in place after they've sold out. Every CEO has to cater to the investors & analysts to keep their credit rating up (and their interest costs down). Every CEO has had to deal with ethics & legal issues... some more successfully than others.

Considering those factors, look how hard Buffett's successor would have to work to screw everything up. If they get an inch off the beaten path then the board will jerk their chain almost as hard as the shareholders.

I think most of Buffett's big moves over the last decade have been to reassure shareholders on the succession issue. Jain knows insurance better than most. Simpson's a better stock picker than Buffett. Many of the businesses have turned their CEOs over to the second generation without problems under Buffett's benign neglect, and I suspect that a lot more Boomer business owners are facing the same decision now. Howard Buffett's on the board, Bill Gates is on the board, and some Yahoo! just joined as well. Advertising for a Simpson successor to carry on the culture is sheer marketing brilliance.

I've spent the last six months reading just about every word written by or on the guy. The most interesting book wasn't really about him-- "Warren Buffet CEO" interviews the CEOs and attempts to predict who'd take over if Buffett died tomorrow. With Howard Buffett as Chairman, Jain running Gen Re, Simpson running what's left of the stocks (mostly at GEICO), and Santulli running the operations... not much has to change. Everybody's been working under Buffett for years and it's unlikely that they're going to take stupid pills the day after he dies.

The prospect of Boomers selling their companies to Berkshire to preserve their family heritage and escape estate taxes-- that's potentially huge. I also suspect that one of the board's first moves after Buffett steps down dies (who am I kidding) would be to declare dividends.

We'll have to see what Alice Schroeder's biography has to say about succession. Buffett cooperated with her and she's no shill.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 10:04 PM   #53
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Re: A serious question (for once), about the theory of buy and hold and down markets

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I've spent the last six months reading just about every word written by or on the guy.
See? It IS a cult
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-09-2007, 11:50 PM   #54
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Re: A serious question (for once), about the theory of buy and hold and down markets

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See? It IS a cult
Sounds that way to me.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-10-2007, 06:40 AM   #55
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Re: A serious question (for once), about the theory of buy and hold and down markets

Seriously though...

A lot of people have shown excellent skills in capital allocation and the ability to have the discipline necessary to do the right thing investment wise, hang in there and weather the storm.

I think plenty of them have created self-reproducing successor teams that have been moderately to quite successful. Some of the university endowment crews come to mind. Some families. Although the structure was usually created by the progenitor and once modified, it often fails. And its never quite as successful as the originators.

Warren has a system, although it seems that people familiar with it have tried to create funds, books, or 'systems' to reproduce it...with mediocre results.

I think it boils down to the fact that guts and instincts cant be taught or made systematic.

So BRK will face two challenges. The perceptual loss of a unique leader and the actual effect.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-11-2007, 10:20 PM   #56
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Re: A serious question (for once), about the theory of buy and hold and down markets

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Originally Posted by Cute Fuzzy Bunny
See? It IS a cult
I can't imagine why you think so. Just because I have both an A and several B shares, bought B share for my Mom, and my ex-girlfriend. I religiously spend about 20-30 minutes a day reading the Motley Fool Berkshire board. Watch every Warren Buffett interview twice, as well as read the annual letter at least twice.

Perhaps, that fact I am seriously considering hoping on plane and flying 3500 miles from beautiful green warm Hawaii to cold barren Omaha, Nebraska this May to genuflect at the feet of the Oracle, may lead you to think it some kinda of cult.

It is no cult, just the best risk adjusted investment out there.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-11-2007, 11:36 PM   #57
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Re: A serious question (for once), about the theory of buy and hold and down markets

'Cuz I owned an A share, then my family grabbed me and put me in the back of a station wagon and drove me out to the desert.

Three months with no see's candy, no dairy queen burgers and no jordans furniture.

Hell on earth I tell you. Hell on earth.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-12-2007, 03:25 AM   #58
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Re: A serious question (for once), about the theory of buy and hold and down markets

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Originally Posted by Cute Fuzzy Bunny
'Cuz I owned an A share, then my family grabbed me and put me in the back of a station wagon and drove me out to the desert.

Three months with no see's candy, no dairy queen burgers and no jordans furniture.

Hell on earth I tell you. Hell on earth.
No See's candy that sounds like child abuse. Of course for me the worse thing would be no GEICO caveman commercials...
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-12-2007, 07:18 AM   #59
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Re: A serious question (for once), about the theory of buy and hold and down markets

Oh great - now I want a Dairy Queen dip cone for breakfast.
And thats a 30 mile drive.
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Re: A serious question (for once), about the theory of buy and hold and down markets
Old 03-12-2007, 09:38 AM   #60
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Re: A serious question (for once), about the theory of buy and hold and down markets



Two of them up the street from me. But so far the reprogramming is working.

No deep desires for a brassiere burger.
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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