The Inevitable 10% Correction

[Lsbcal]

Sometimes I wonder: what is luck?

Aren't we all here because of luck? And I'm not going to invoke some higher power explanation here. Why did this spherical mass we live on get the atmosphere to sustain life? Probably just luck that we evolved as we are now at this very moment. And Buffet, he's said that he was lucky to be born at a period in time where his talents could be utilized. Maybe in a few thousand years there will be a much higher percentage of Buffet minds. But the markets will be so evolved in those years that Buffet's mental advantages will be almost impossible to duplicate.

I'm personally turned off by the extreme uses (not mild statistical arguments) of the "luck explanation" when it comes to investing. Not saying Hamlet is guilty of this. But others quite often use luck as a justification for one form of investing as the only way to do things. I've seen it used here and at Bogleheads in some outrageous ways.

I think the luck explanation should be used sparingly.

 

[NW-Bound]

There have been a couple of concurrent threads about ER's being lucky. And another poll reconfirms what long-timers here have known for a long time, that a high percentage of ER's are of the INTJ personality. Perhaps it's all due to luck that they have the INTJ gene.

About Buffett, there is no way he would let Geico get into the subprime business like AIG. In fact, I remember the earlier episode, perhaps in late 2007 when the words were out that some financial corps were in trouble due to leveraging and lack of liquidity, Buffett laughed in an interview and said that only when the tide was out that we would know who had been swimming naked.

And later, when one after another corp went belly up, they asked him if the carnage was over, if the last shoe had dropped. Again, he laughed and said that we could be dealing with a centipede here.

I really like Buffett's sense of humour.

 

[Brat]

Oh, oh. My return for the year is now over 8%. Time to see if there is something we can do without as not all MRDs have been shoveled out the door.

 

[Walt34]

Oh, oh. My return for the year is now over 8%. Time to see if there is something we can do without as not all MRDs have been shoveled out the door.

Sad Violin - YouTube

 

[Hamlet]

GEICO isn't going to go bankrupt now, but when Buffett first bought stock it was in severe distress. Bankruptcy was a definate possibility at that time. One of his biographies quotes him as saying at the time that he had put huge money into something that could go under tomorrow. It didn't, but it could have. If it had, his investing performance would have been impacted dramatically. He would still have been successful, but he might not be famous.

There have been a couple of concurrent threads about ER's being lucky. And another poll reconfirms what long-timers here have known for a long time, that a high percentage of ER's are of the INTJ personality. Perhaps it's all due to luck that they have the INTJ gene.

About Buffett, there is no way he would let Geico get into the subprime business like AIG. In fact, I remember the earlier episode, perhaps in late 2007 when the words were out that some financial corps were in trouble due to leveraging and lack of liquidity, Buffett laughed in an interview and said that only when the tide was out that we would know who had been swimming naked.

And later, when one after another corp went belly up, they asked him if the carnage was over, if the last shoe had dropped. Again, he laughed and said that we could be dealing with a centipede here.

I really like Buffett's sense of humour.

 

[NW-Bound]

Buffett does not always make the right call, and he often admits to his errors publicly. And some close calls might have cost him dearly as you said, and might have bumped him from being among the top 5 richest men in the world.

So, there is an element of luck alright. But it is the same as an athlete getting the gold medal at the Olympics. Lucky or not, they are head and shoulder among the peers, let alone the average weekend biker or runner.

 

[dallas27]

So did we have a correction? I think it dropped something like 9.8%. (I'm sure someone is about to correct me by <0.2%)

Technically no, but emotionally yes?


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[Totoro]

If I remember well, GEICO previously was owned by his mentor Graham. He made a bundle on it, then sold. I believe he put nearly all his assets in that one company.

Years later Buffett comes across GEICO again, in tatters and in trouble. Somehow (probably with Buffett's help) GEICO recovers and goes on a rampage after that.

That story alone made me stop believing I could ever do anything remotely Buffett-like. It's hard to tell the potential winners on a down from the losers on their way to the graveyard.

Not to mention his own mishap with Berkshire, that wasn't a great idea back then.

 

[NW-Bound]

I wouldn't dream of doing something like Buffett did. Where was he when he was your age? What he has now, if I have 0.001X of that, I would be very happy and most likely be doing something else rather than chatting here.

But about the "almost correction", I believe it hit 10% down on intraday. I did not sell, and even bought a bit. Don't think I will be setting a new personal high watermark anytime soon. The sectors I am in have not been doing well. Time to look elsewhere, or be patient? This is my own problem to solve.

PS. Umm... Make it 0.0001X Buffett's net worth, and I would be outta here.

 

[ejman]

-snip- What he has now, if I have 0.001X of that, I would be very happy and most likely be doing something else rather than chatting here.

-snip-
PS. Umm... Make it 0.0001X Buffett's net worth, and I would be outta here.

Interesting because I don't think I would be doing anything differently with $5M (if my math is right) as opposed to what I'm doing now. Heck am not sure even 10 times that amount would be much different but maybe it's just lack of imagination on my part...

 

[RetireBy90]

So did we have a correction? I think it dropped something like 9.8%. (I'm sure someone is about to correct me by <0.2%)

Technically no, but emotionally yes?

I heard this discussion on CNBC a couple times recently. One talking head answered that we had to get the full 10%, that if you start rounding up you must also include previous declines of close to 10% and then look at what happened then. After a correction is done, the market should either turn into a down market for few years, or return to test the highs.

The other impact of a correction is shaking faith in the market, which takes some excess out of the market, making investors more careful. Not sure we accomplished this either.

That said, I think we are still at high valuations. Never got below average PEs and certainly no where near fair priced by the Schiller 10 year look back method.

Not sure what you call it, and certainly not sure what it means for the market in the near future.

 

[NW-Bound]

Interesting because I don't think I would be doing anything differently with $5M (if my math is right) as opposed to what I'm doing now. Heck am not sure even 10 times that amount would be much different but maybe it's just lack of imagination on my part...

I believe 0.0001X of Buffett's fortune would be $6.8M, unless he got hurt bad by the current correction. But I do not think so, as I also hold BRK and it has been gaining during the correction.

How would I live differently with $6.8M? Not a drastic change, but I could be wandering around Provence for example, or driving from one distiller to another in Cognac, comparing their brew.

Or I could be up in a village in Northern Italy, inquiring in some cafe about the availability of donkey stew, as it is common there.

 

[nash031]

I heard this discussion on CNBC a couple times recently. One talking head answered that we had to get the full 10%, that if you start rounding up you must also include previous declines of close to 10% and then look at what happened then. After a correction is done, the market should either turn into a down market for few years, or return to test the highs.

The other impact of a correction is shaking faith in the market, which takes some excess out of the market, making investors more careful. Not sure we accomplished this either.

That said, I think we are still at high valuations. Never got below average PEs and certainly no where near fair priced by the Schiller 10 year look back method.

Not sure what you call it, and certainly not sure what it means for the market in the near future.

It is against my investing religion to care, but I don't see how it can accurately be termed a "correction" when it occurred over a two-week period and the fall in prices wasn't matched by any new earnings information. In other words, the P/E mentioned changed for two weeks and is right back to where it was. Not much of a correction, if you ask me. IMO, a correction would result in a longer lasting adjustmust of P/E.

In any event, it's all just a starting point for the next bull. Or bear. Or stagnation.

 

[explanade]

Pigeons are a delicacy up there too.

Plenty of pasta and good wine though and you can get the specialties from Parma, Modena and Bologna too.

You don't really need $6.8 million though to spend time up there, unless you want to buy a lakeside villa, in which case you need about 10 times that.

 

[NW-Bound]

You don't really need $6.8 million though to spend time up there, unless you want to buy a lakeside villa, in which case you need about 10 times that.

After what I spent on work on my homes this year, I really need more money to go searching for that donkey stew. And indeed, one needs the minimal of 0.001X Buffett's NW to even think of getting a residence near Lake Como.

When we were in Switzerland, took the train for a day trip down to the border with Italy, but ran out of time, did not get very far, and I settled for pizza instead. No donkey stew that time.

 

[ejman]

I believe 0.0001X of Buffett's fortune would be $6.8M, unless he got hurt bad by the current correction. But I do not think so, as I also hold BRK and it has been gaining during the correction.

How would I live differently with $6.8M? Not a drastic change, but I could be wandering around Provence for example, or driving from one distiller to another in Cognac, comparing their brew.

Or I could be up in a village in Northern Italy, inquiring in some cafe about the availability of donkey stew, as it is common there.

I'm sure you are right, I was just using round numbers for illustration purposes only. I think I would hire a chauffeur for the driving around Cognac part. I admit that really sounds like fun. Donkey stew? Dunno I've never had any but we had a donkey at our ranch a few years back. Cookie was the name. Ornery was the MO.

 

[NW-Bound]

Pigeons would be like doves, which I think would taste like quails.

Donkey would be like horse meat, I think, which I have not had either. Same as with horses, donkeys are not raised for meat, and only used as food when they are put down for age. Meat could be tough, hence the stew. Need to point that out to appease animal lovers.

PS. I read that the donkey in Northern Italy is actually brought up from Sicily. So, I would also need to go there to investigate. See what whims money allows one to do?

 

[dallas27]

I think things could be learned if buffet set a personal goal to spend all his money before his death. very interesting to see what choices he would make.

wouldn't it be interesting if we were only allowed to pass on a certain amount of wealth, otherwise it went to some central charity/betterment organization.

 

[Options]

Re The "Inevitable" 10% Correction:

"For every investor who beats the market in a given year, there is another whose lost by the same amount.

There are two types of investors when it comes to predicting next year's stock market: 1) those who don't know and 2) those who don't know they don't know.

Often the right answer is knowing you don't know.

The only thing associated with the market's daily ups and downs that is predictable is the pontification of analysts who attempt to explain the often unexplainable.

Left to our own devices, we'll find patterns for everything. This phenomenon is known as data mining."

- Alan Roth in How a Second Grader Beats Wall Street

Overconfidence. Beware.

 

[rodi]

Pigeons would be like doves, which I think would taste like quails.

Donkey would be like horse meat, I think, which I have not had either. Same as with horses, donkeys are not raised for meat, and only used as food when they are put down for age. Meat could be tough, hence the stew. Need to point that out to appease animal lovers.

PS. I read that the donkey in Northern Italy is actually brought up from Sicily. So, I would also need to go there to investigate. See what whims money allows one to do?

While investigating in Sicily - if you're on the west coast, (Palermo to Agrigento) - make sure you try couscous con pesce. One of my favorite dishes every. And every place makes it a little bit different.

If I had the fraction of Buffet $$ you guys are talking about I'd probably be wandering around Europe having flown there business class. That's the one splurge I can't quite bring myself to make. I have "front of the plane" envy.

 

[redduck]

I wouldn't dream of doing something like Buffett did. Where was he when he was your age? What he has now, if I have 0.001X of that, I would be very happy and most likely be doing something else rather than chatting here....
P.S. Umm... Make it 0.0001X Buffett's net worth, and I would be outta here.

I thought Warren Buffett was an active member of this forum. Isn't he one of those members suffering from the OMY syndrome and is always worrying the FIRECalc numbers are not to be trusted?

 

[explanade]

After what I spent on work on my homes this year, I really need more money to go searching for that donkey stew. And indeed, one needs the minimal of 0.001X Buffett's NW to even think of getting a residence near Lake Como.

When we were in Switzerland, took the train for a day trip down to the border with Italy, but ran out of time, did not get very far, and I settled for pizza instead. No donkey stew that time.

I remember seeing one House Hunters International where one of the choices was an apartment on one of the towns on the lake. It wasn't like Villa Balbianello (Home | Villa del Balbianello, Lenno (Como) | Le Dimore del FAI) which is right on the lake, maybe doesn't have much of a water view but not a far walk from getting to the lake.

Or another one where the choices were all on Lake Garda, which I understand isn't dotted with as many luxurious villas but still beautiful:

Looking for Love and Leisure on Lake Garda : House Hunters International : Home & Garden Television

 

[haha]

Pigeons would be like doves, which I think would taste like quails. Guessing is fun, but can be false.

Quail is white meat, pigeon and dove dark meat, breast and all. Duck is also dark meat. Powerful and continued long distance flying = dark meat. Fast jump to a new hiding place, white meat.

Ha

 

[StickInTheMud]

A little late to the game on this thread, but I was looking through my portfolio and realized that my biggest position of the year was a purchase of the VINFX (Vanguard 500 Index) at the close price on 10/15.

Not to brag, but I called the bottom on that one.

As of close today, I'm up 6.45% after fees on that position in two weeks.

 

[brewer12345]

Pigeons would be like doves, which I think would taste like quails.

Donkey would be like horse meat, I think, which I have not had either. Same as with horses, donkeys are not raised for meat, and only used as food when they are put down for age. Meat could be tough, hence the stew. Need to point that out to appease animal lovers.

PS. I read that the donkey in Northern Italy is actually brought up from Sicily. So, I would also need to go there to investigate. See what whims money allows one to do?

As Ha said, dove is very dark meat, almost like the very leanest grass-fed beef there ever was. Tasty.

Skip the donkey stew. Come visit and I will serve you some squirrel for nothing.

Squirrel and rabbit gumbo is on the menu for this weekend...