Article: The Hands-on Investor

[haha]

What interests me most about these discussions is what motivates those members who keep arguing against the possibility of skill.

Why do you care? Since you do not believe in it, your path is easy. Buy an index. Why make 10s of posts attacking the ideas of those who do believe in a skill factor?

Why not just let the idiots get clobbered by their delusion?

In many different areas I have often been entertained by those whose main preoccupation seemed to be proclaiming that something or other was not, nay could not be, possible.

OK by me!

Ha

[bcinvest]

Quote:

Originally Posted by FinanceDude Is Peter Lynch modern? What about Bill Miller at Legg Mason?

No I was talking about the believers of modern finance theory. Where are all of the superstar investors that adhere to the modern finance dogma. There aren't any. Modern finance theory does not stand up to empirical testing.

[kombat]

Quote:

Originally Posted by FinanceDude Buffet's investment success is well documented, NOt anecdotal, just take a close look at Berkshire's returns over 50 years.........

But Warren Buffet didn't just buy a few shares in some companies that turned out to be undervalued. He didn't pick "winners" out of a crowd of also-rans. He bought whole companies, and took an active role in managing them. He changed their structure, their direction, their vision. He didn't magically select undervalued companies - he bought enough shares to take ownership control, and directly added value to the companies.

[kombat]

Quote:

Originally Posted by bcinvest Where are all of the superstar investors that adhere to the modern finance dogma. There aren't any. Modern finance theory does not stand up to empirical testing.

Where are all the billionaire hedge fund managers who got there using technical analysis? Where are the financial mavens who successfully saw the 2008 crash coming (thanks to their ability to interpret the magic signals in the charts), and were positioned to profit enormously on the ride back up, all thanks to technical analysis and chartism?

[Major Tom]

Quote:

Originally Posted by haha What interests me most about these discussions is what motivates those members who keep arguing against the possibility of skill. Why do you care? Since you do not believe in it, your path is easy. Buy an index. Why make 10s of posts attacking the ideas of those who do believe in a skill factor? Why not just let the idiots get clobbered by their delusion? In many different areas I have often been entertained by those whose main preoccupation seemed to be proclaiming that something or other was not, nay could not be, possible. OK by me! Ha

My take on this is that in any field there are quite a lot of folk who think they know enough in order to achieve success with that particular endeavor when in fact, they merely know enough to be a danger to themselves, and anyone else who would follow their advice. It is these folk who give active investing a bad name.

As a large portion of my portfolio is in a taxable account, I would like the advantages that a good knowledge of individual stock picking would bring me. However, I lack the necessary desire and skills to be good enough, so am staying clear of that approach, at least for now.

[FinanceDude]

Quote:

Originally Posted by kombat But Warren Buffet didn't just buy a few shares in some companies that turned out to be undervalued. He didn't pick "winners" out of a crowd of also-rans. He bought whole companies, and took an active role in managing them. He changed their structure, their direction, their vision. He didn't magically select undervalued companies - he bought enough shares to take ownership control, and directly added value to the companies.

Actually, Warren never takes an active role on managing the companies, his due diligence is done well beforehand. He leaves the management teams in place when he buys a company. It is much different that jack Welch's "required returns" demanded of his divisional managers when he was CEO of GE...........

[Onward]

Quote:

Originally Posted by FinanceDude Actually, Warren never takes an active role on managing the companies

Buffet has been on the board of many of the companies he's invested in. Coke and Goldman come to mind, but there are others. I've even heard it said that he is not so much a good investor as a good director of companies. You can decide for yourself.

Something else I'll throw out there is that, even if he is enough of freak to be able to beat the market consistently with his stock-picking abilities, that in NO way implies that you can do it, or that his abilities are teachable, or even that his mental processes are above the level of his subconscious.

[clifp]

According to his biographer, Warren generally is a pretty much hands off director. If CEO, like the Katherine Graham asks him for advice, he will offer it otherwise he keeps pretty quite on such matters.

He never seeks to be on a board, and turns down almost all the offers, He recently stepped down from being a director on the Washington Post, but continues to hold a large stake in the company.

Actually Buffett's process for evaluating companies is pretty well understood. His teacher/mentor Ben Graham even wrote a book about it, The Intelligent Investor it is a classic.

Buffett also believes that temperament is even more important than intelligence when it comes to investing. Personally, I think you need an above average dose of both to be a good value investor. However, there are different types of investor who can do well but have a different set of skills. For example momentum investors need to be good at understanding the psychology of the crowds. A skill similar to that possessed by leading fashion designers and retailers.

[Dennis]

Well, I served The Financial World for 30 yrs thru my Limo Business and It's really just for the Wealthy.. Most taht have Co. Pension plans all set up for them and What $ they do have to invest otherwise, tehy don't want to take the time manaing it and hire FA's-Wealth Mgmnt Firms and just give them Index rtns and they're happy campers.. Alot of the $ is tied up In company Stocks, Deferred Comps and In Real Estate- starting with their Expensive Homes and other 2nd and 3rd places..

Teachers and other Union people also have Very nice Pensions and Health Ins. Benefits and Their Extra Savingsisn't needed for their Retirement either and will either Put it in Treas./Bonds or some conservative Bal Fund like Vangaurds, VWINX/VWELX..

When I started to get close to my Retirement< I went out and saw about a dozen of these FA's for us Little People, not Wealth Mgmnt. Firms either that most require $500k and up to open an account , and I just compared their Portfolio's they suggested to BALANCED FUNDS.. and the BF's either Did Just as well and even better in most cases! So why bother ?

It's been over 10 yrs now and The Bal Funds are still holding up and doing their job and I still go and see some FA's once a Yr and None of their Ports have done Better..and some even admitted to it.. a Couple of Bal. Funds and add some bonds if even want to be even More Conservative in the 30/70 to 20/80 range.. Otherwise? Just own TT's.. Treasuries and Tips as they say..

When you retire? I think one's Gambling days should be over, you won't have that "easy salary" $ comming in anymore to make up for your Investing mistakes.. And if you won't have enough Too Retire? Then guess you best Keep On Truckin' as they say..Until you can..Many of us Blew it not getting into a nice Union-Public Service or Teachers Job with a nice Fat Public Pension Plan to take care of us..I'm afraid those days are comming to an end for future generations though..