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Old 07-22-2007, 04:53 AM   #61
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I guess I was lucky to be in a place were there were so many stocks that traded at low single digit PE and well below book value.
From time to time I do tell myself that the returns these 2 years were too good to be true and I need to take the money and run. But then I take another look at my stocks, and see how cheap they still are - most of them well below NAV. I don't see any reason to sell and buy more expensive stocks.

When my stocks reach NAV (for RE companies) or P/S of 2 (for industrial companies) I start getting nervous. But there is still a long way to get there.

A value approach make sense to me. Concentration on a few or 1 company can lead to great returns, it can also lead to severe cuts (alot of company risk and depending on the run up market risk). If I were lucky enough to hit the jackpot... I would be taking the money off the table an redeploying it in a diversified portfolio of stocks and bonds. I would not push my luck. And yes... it would be luck. And yes, it would catch up to me.

No offense: either you are very naive or you are pulling our collective chains. Suffice it to say, however you accomplished it (if you did), it would make sense reassess the strategy (being kind with the description of strategy).
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Old 07-22-2007, 10:35 PM   #62
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20 years of hardcore saving and investing, by my 40th b-day.

Getting kicked out of school and losing my scholarship money was the best thing that happened to me. Gave me motivation and set the low bar/starting point.

"Compounding interest is the greatest mathematical discovery of all time". Albert Einstein
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Old 07-22-2007, 10:42 PM   #63
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20 years of hardcore saving and investing, by my 40th b-day.
That's very good. It took us more than 25 years.
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Old 07-22-2007, 11:46 PM   #64
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Thanks Spanky. Hopefully the next 1mm won't take as long.
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Old 07-23-2007, 02:12 AM   #65
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Concentration on a few or 1 company can lead to great returns, it can also lead to severe cuts (alot of company risk and depending on the run up market risk).
My portfolio contains around 20 stocks, but 7-8 of them are big holdings while the rest are smaller. Investing in more stocks is harder as I read all the reports and try to attend the annual meetings when I can.

Also, there is no reason to take out money from the cheaper stocks and put it in more expensive ones just to be more diversified.

"Wide diversification is only required when investors do not understand what they are doing." - Buffett
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Old 07-23-2007, 04:55 PM   #66
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Started the path to financial recovery in 1995 after the financial drains of grad school and that great job market of the early 90s .

Made first real estate investments in 1996 in Southern California and continued to 1031 and re-leverage. Hit 1M (excluding personal residence) around 2003. Hit second mark in '06.
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Old 07-25-2007, 05:40 PM   #67
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My portfolio contains around 20 stocks, but 7-8 of them are big holdings while the rest are smaller. Investing in more stocks is harder as I read all the reports and try to attend the annual meetings when I can.
The same point is made in this article: http://www.sprott.com/pdf/06_14_2007...0Go%20Home.pdf
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Old 07-25-2007, 09:06 PM   #68
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I have to say, I'm mighty impressed with you people. As a group, you're the epidome of "The Millionaire Next Door."

As for me, I started very slowly. Graduated with a B.S. in chemistry in 1969, a Ph.D. in chemistry in 1973, did four years of post-doctoral research, got my first "real" job in 1977 (age 32) and my current job in 1978. The pay was okay as academic pay goes, but nothing to write home about--literally, as my banker father was quite disappointed at the financial aspect of my career. I didn't mind it. I loved what I was doing.

From the beginning of my first real job, I saved as much as I could, but I had a big family to house, feed, cloth, and educate. Then in 1990 my wife and I wrote our first textbook. Soon thereafter she got her Ph.D. and a job, so we had a second income. Then our textbooks started selling well, and we have now sold over 2,000,000 copies.

I don't know when we passed the $1M mark. I wasn't paying attention. I now know what my net worth is, but more importantly I know that I've been blessed with a full, wonderful life and hope to make it fuller and more wonderful as we go into retirement next summer.

Everyone's life is different.
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Old 07-25-2007, 09:16 PM   #69
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Started serious investing at age 28 when I got my first "real" job. 14 years to first million in 1999, 7 years to the 2nd one despite the setback in 2000-2002. No need for a 3rd. None of it real estate. All of it investing in mutual funds, stocks, ETFs.
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Old 07-26-2007, 03:17 AM   #70
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My portfolio contains around 20 stocks, but 7-8 of them are big holdings while the rest are smaller. Investing in more stocks is harder as I read all the reports and try to attend the annual meetings when I can.

Also, there is no reason to take out money from the cheaper stocks and put it in more expensive ones just to be more diversified.

"Wide diversification is only required when investors do not understand what they are doing." - Buffett
Yup! I have read the same. One can diversify amongst a smaller amount of stocks in that asset class. As I stated before, concentration can lead to greater returns (albeit at higher risk). Of course, I doubt very seriously that most people have the same understanding of the company and its management, portfolio management, etc. that Buffet does. Buy and Hold is valid as long as one knows what they are holding!

You stated that you made $1MM in 7 years. l am assuming that you did not start with a portfolio of $500k... But something modest like $10-$20k/year. Which would mean that you had to make massive gains. For example, if you started with $20k and made it to 1MM in 7 years, you made 5000% gain.

My point: I doubt that type of success would continue or that I would repeat it. If I were lucky enough to hit the jackpot, I would understand (now after doing this for years) that it was primarily luck [on my part]. I would be moving much of the money out of the equities that made the big run. I might redeploy it in stage out of it over a period of time (months). Since I am investing for retirement, I would want to lock the gains in and reduce the chances of losing it. [I would not be looking to take big risks]. If I wanted to keep some money in the security just in case it continues to run. I might do so. By the way, the risk being taken with say a $20,000 initial investment is not the same as having $500,000 in one stock with a portfolio of $1MM.
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Old 07-26-2007, 07:57 AM   #71
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My portfolio contains around 20 stocks, but 7-8 of them are big holdings while the rest are smaller.


In other words, diversification is for the rest of us while a concentrated portfolio is for the experts such as Warren Buffet, Peter lynch, Harry Dent -- not to mention Yona.
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Old 07-26-2007, 02:15 PM   #72
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What's that old saying? Don't confuse brains with a bull market.
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Old 07-27-2007, 02:38 AM   #73
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Yup! I have read the same. One can diversify amongst a smaller amount of stocks in that asset class. As I stated before, concentration can lead to greater returns (albeit at higher risk).
I am new here, but from what I read until now, I noticed that there are few here that made a lot of money by having a successful business. That means that more than 50% of their net worth is concentrated in one business, yet not many people will think they are taking a huge risk. So why so many people think that owning part of 20 or so successful businesses is so risky?

Some people here made a lot of money owning RE. Some have 2-3 houses, yet no one think they are taking a big risk. My biggest holding is a RE company, I am very familiar with their buildings. And the stock is traded at about 1/3 of NAV. Why do you think it is more risky to own a RE via stock than directly?

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Of course, I doubt very seriously that most people have the same understanding of the company and its management, portfolio management, etc. that Buffet does. Buy and Hold is valid as long as one knows what they are holding!
You can't have a very good return with buy and hold strategy. There is almost no business that can grow more than 20% a year. Ben Graham said you should hold a company for 2 years. Joel Greenblatt developed a formula that will yield 32% if you replace your stocks every year.

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You stated that you made $1MM in 7 years. l am assuming that you did not start with a portfolio of $500k... But something modest like $10-$20k/year. Which would mean that you had to make massive gains. For example, if you started with $20k and made it to 1MM in 7 years, you made 5000% gain.
I also saved during this time. So my return was not so high. Actually, my return wasn't high until I read these lines from Buffett:

"If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."

http://www.businessweek.com/bwdaily/dnflash/june1999/sw90625.htm

It surprised me that someone can achieve such a high return. So I read more about it, and found out that he is not the only one that can have very high returns with small amount of capital. Take a look at this:

http://www.gurufocus.com/news.php?id=877

Quote:
My point: I doubt that type of success would continue or that I would repeat it. If I were lucky enough to hit the jackpot, I would understand (now after doing this for years) that it was primarily luck [on my part]. I would be moving much of the money out of the equities that made the big run. I might redeploy it in stage out of it over a period of time (months). Since I am investing for retirement, I would want to lock the gains in and reduce the chances of losing it. [I would not be looking to take big risks]. If I wanted to keep some money in the security just in case it continues to run. I might do so. By the way, the risk being taken with say a $20,000 initial investment is not the same as having $500,000 in one stock with a portfolio of $1MM.
I was lucky to be in the right place (HK) at the right time (after a few very bad years of the local economy - Asia crises, SARS etc..). The stocks were beaten very hard. I found stocks that were traded well below net cash. If you buy a stock that is very cheap, it will go up sooner or later and it is nothing to do with luck. Usually I hold a stock for 1-3 years - until I think it reaches its fair value, or if I found cheaper one.
Some of the stocks that I had, already had a great run and I replaced them with cheaper ones.

I am not old, but in my 35 years of existence, I already noticed that people will believe to what they want to believe regardless of the facts.
You can believe me or not, it is fine with me. You don't know me and I have no way to prove my returns. But I hope that at least you believe people like Buffett, Graham & Greenblatt. If you read Graham's books, you will see that he developed a formula that any one can use, and it will beat the market. Greenblatt even put his formula free of charge on the internet.

I noticed that the common wisdom on this forum is to invest with index funds, which is great for people that want to have a good return with no effort at all. I also advice my friends and family to buy index funds, as I know that they don't have the time or the mentality to buy stocks. But to say that there is no way someone can beat the market by high margin, is just not true.
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Old 07-27-2007, 03:52 AM   #74
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I am new here, but from what I read until now, I noticed that there are few here that made a lot of money by having a successful business. That means that more than 50% of their net worth is concentrated in one business, yet not many people will think they are taking a huge risk. So why so many people think that owning part of 20 or so successful businesses is so risky?

...

Good luck making your second million.
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Old 07-27-2007, 03:58 AM   #75
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But to say that there is no way someone can beat the market by high margin, is just not true.
Someone or some group will always beat the market by a big margin (>xx%) but not likely on a consistent basis (i.e., years after years).
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Old 07-29-2007, 12:02 PM   #76
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What's that old saying? Don't confuse brains with a bull market.

No, it's always the same.

goal setting, drive, and determination.

No random winnings, no lucky hands, all irrelevant. Index funds and a diverse portfolio are great advice for a passive investor. To an active investor, these have no direct relevance as a good or bad strategy.

If you think humans are incable of identifying a good business, and seeing a good "buy" opportunity when it presents itself, you're kidding yourself. You can probably do this at age 13. It does however take time, and effort, to be on top of things, so you can recognize the opportunity, and take advantage of it, when the time comes. Same story day in, day out, for successful people everywhere.

So, the advice is:
If you want passive investments, diversify and try index funds/mutual finds.
If you want active investments, work hard, stay on top of it, and don't give up.

Suggesting an active investor diversify for no reason, is not good advice IMO.

-Mach
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Old 07-29-2007, 01:49 PM   #77
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There is no set formula that is going to consistently "beat the market". If there was, everyone would be using it, and it would stop working.

The people who make killings in the market are either very, very lucky; or they have an innate "feel" for things that just cannot be quantified in any formula or plan. Warren Buffet didn't follow someone else's formula... he made his best calls, and he haad that "feel". Thousands and thousands of people have studied him, how he thinks, what he's written, where and how he invested... and have gotten nowhere.

Personally, I'm very likely to stick with my aggregation of mutual funds. I don't know nearly enough about stocks, the businesses various companies are in, and the business models of the specific companies I could invest in. I just don't see how more than a minute fraction of investors could consistently and reliably make money in stocks without being expert in every facet of the businesses they're investing in. My philosophy is, the fund managers are being paid millions of dollars a year to do what they're doing... if they aren't successful, they'll be replaced. I'll trust them and their judgement to handle that particular sector of my investments, and I'll trust that my diversification will protect me if/when their judgement falls short or bad karma strikes. Over the long run, I'll do better than most "active investors". Sure there'll be some who far surpass me, and my hat is off to them. If I knew who they were today, I'd start to piggyback on them. But since I won't know who they are until after the fact, I guess I'll have to be content with a BMW while they zoom by in a Bugatti or something
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Old 07-29-2007, 03:41 PM   #78
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There is no set formula that is going to consistently "beat the market". If there was, everyone would be using it, and it would stop working.
We're disussing learning about your investments, or not learning about them. Likewise, if as you say passive investments always returned on average more than active trading, we'd all passively trade and it would stop working. Which of course isn't the case. Passive investors choose passive investments, active investors choose active investments, as they return more on average.

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The people who make killings in the market are either very, very lucky; or they have an innate "feel" for things that just cannot be quantified in any formula or plan.
The reality is, that if you work hard at something, you are far more likely to be successful at it than someone who does not. Goes for most everything of course. How did investments become magically excluded from this? (they did not)

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Personally, I'm very likely to stick with my aggregation of mutual funds. I don't know nearly enough about stocks, the businesses various companies are in, and the business models of the specific companies I could invest in.
Bingo. Good advice. If you don't know (or care to know) about investments, go passive...mutual funds, index funds, etc. It's a good strategy, and good general advice, I both do this, and suggest this for folks like us as well.

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Over the long run, I'll do better than most "active investors".
I doubt it. You'll do better than the worst active investors, but on average as long as they are competent, and your money manager is competent (to say both are competent), active trading in stocks over time will give higher returns. Don't most financial calculators display higher returns when you choose the "riskier" investment strategy over the "conservative" one?

I'm not being argumentative out of any desire other than to undertand investments better, and the human factor of making them.

-Mach
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Old 07-30-2007, 02:19 PM   #79
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My philosophy is, the fund managers are being paid millions of dollars a year to do what they're doing... if they aren't successful, they'll be replaced.
I wish I could be so confident that things work like that. In practice, many portfolio managers are closet indexers who, relatively speaking, will never have a really bad year. They won't do much to earn their millions of dollars a year, either.

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Over the long run, I'll do better than most "active investors".
Passive investing in low-cost index funds is an alternative that you may wish to consider. Just a thought.
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Old 07-30-2007, 02:50 PM   #80
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Likewise, if as you say passive investments always returned on average more than active trading, we'd all passively trade and it would stop working.

....

You'll do better than the worst active investors, but on average as long as they are competent, and your money manager is competent (to say both are competent), active trading in stocks over time will give higher returns. Don't most financial calculators display higher returns when you choose the "riskier" investment strategy over the "conservative" one?
I'm copping out a bit and not bothering to find the studies. But, I think a lot of people are active investors because they feel that they can do better, but many studies show that they're actually doing much worse. Too many people remember their gains and don't remember their losses. Someone that was up 100% one year and down 50% the next might not remember or realize, then, that they're stuck with the same amount at the end.

That said, I think an disciplined, focused investor can do better than the indexer and the average investor (for all intents, I think we should call average active traders "speculators" instead of "investors"). I also don't think that this flies in the face of Fama and French's efficient market theory. They acknowledge a premia for small stocks and value stocks. Of course, the full explanation, if I understand it, is because there is increased risk associated with that reward.

The best way to reduce risk in this case is through increased knowledge. Let's use an example of a micro stock versus a large stock and substitute analysts for the entire market.

A micro stock might have one part-time analyst. A large stock might have the attention of 20 analysts. We can argue that a stock price is always fairly priced based on all available knowledge and, as such, there's no incentive to try and bet against the market. However, when we look at the micro stock, it seems obvious that it would be easier for one investor to learn about the core business and capitalize on perceived strengths and trends before that knowledge is dissiminated to the broader market.

In essense, that seems to be the core of Buffet's style and one that's been preached regularily. He and Munger treat buying a stock position in a company as no different than buying the whole company... it just works out to a different percentage of ownership on the books. So, if you're always buying companies and never buying stocks, you stick with what you know and gravitate to companies that you 1) understand the best and 2) feel you can fairly price.

In a sense, as an individual investor, you might be in the best position to leverage this kind of mindset. The failing of many active mutual fund investors is that, if they do well (either through having a hot hand at the casino or true understanding), they attract money that might throw them out of their sweet spot. After all, if you're an awesome fund manager with micro cap stocks, you can only take in so much new money before you're forced out of micro cap stocks. As an individual investor, you won't face that issue for quite a long time.

all that said, I'm still happier right now with the bulk of my money in index funds and a little play money for speculation.
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