Are There Too Many Buffett Disciples?

[hodedofome]

http://www.pragcap.com/are-there-too-many-buffett-disciples



It’s estimated that more than 40,000 people pack the CenturyLink arena in Omaha to hear what Buffett and Munger have to say at the Woodstock of Capitalism. Every year I read about more and more value investing groups and panels at this event that bring together some of the brightest minds in finance to share ideas and their process.

It makes you wonder how many portolio managers and analysts from hedge funds, mutual funds, institutional pools of capital and wealthy individual investors have grown up devouring everything that’s been said or written by or about Buffett and Munger over the years. I know I certainly have.

This brings up an interesting question for investors to consider: Should you worry about your competition for investment ideas? Does it make sense to pay attention to what the other players in your investment universe are doing?

I generally think that the majority of investors are better served by trying to create a competitive advantage over their own emotions rather than worrying about what others around them are doing. But you still have to be aware of the fact that other investors can distort the market, asset class, funds or companies that you’re investing in. The ease with which investors can access different products and research these days means more weak hands will be entering some of the more well-known, previously less traveled roads for investment ideas.

This isn’t restricted to value investing either. There’s a growing chorus of people who are worried about the impact of the growth seen in index funds and ETFs, as well. Some of these worries could prove to be grounded in reality while others are probably overblown. The truth is that no one really knows how the advances in research and an increased understanding of market history will affect any strategy going forward. It’s diffficult to quantify these things and it could take years or decades to truly understand the implications.

My guess is that it will probably mean more volatility in certain areas of the market at times, but also fewer opportunities for low hanging fruit.

I’m not suggesting anyone should abandon an investment process or strategy simply because others have discovered it. I think it’s great that more investors are wising up and following the historical evidence. It’s also one thing to study an investment philosophy but something else entirely to actually implement it successfully.

I do think it’s worth paying attention to the fact that there is now a greater amount of competition for good ideas than ever. Investors are getting smarter all the time. Of course, this doesn’t mean people have all the sudden developed an never-ending supply of self-awareness and emotional intelligence.  I still think those attributes will always remain any investor’s biggest advantage over others and their own biases.

[forummm]

My guess is that the increased ability of technology to identify low-hanging fruit is stronger than the increased use of indexing's decrease in focus on finding "mispriced" assets. If there's money to be made, someone will find it. Even with indexing, there are still people who dream of beating the market and try new approaches to do that.

[phillyvalue]

I would first agree with the spirit of the article's recommendation, in that the tougher half of value investing is in execution rather than learning the philosophy. And the execution part has more to do with psychology and also an individual or firm's position in life / the market, than it does with reading and understanding what others have done. What I mean by the last part is that few individual investors and very few institutional investors can truly think like true value investors when managing their portfolios. Most individuals, despite their intentions, need to care about short-term portfolio results. The vast majority of institutional investors need to worry about short-term results because their own clients lack the patience and trust to wade through years of underperformance. The ultimate result of this is that very few individuals and very, very few institutional investors can really execute the value investing philosophy even if they do aspire to it.

The other counter to the argument is that while the absolute # of "Buffett disciples" may appear large, what is their % AUM vs the entire world stock market? Likely a few percent at most.

[innerscorecard]

I wonder what percent of these disciplines have read the Buffett Partnership letters.

[Grigory]

My guess is that the increased ability of technology to identify low-hanging fruit is stronger than the increased use of indexing's decrease in focus on finding "mispriced" assets. If there's money to be made, someone will find it. Even with indexing, there are still people who dream of beating the market and try new approaches to do that.

Web-based stock-trading technology has been around for 20 years, and the fundamental analysis of companies' spreadsheets is remarkably easy and can be coded by anybody. The real trick lies in identifying the moats and margins of safety... That's why there aren't "cyber Buffetts" running giant profitable hedge funds with their supercomputers. ;)

I wonder what percent of these disciplines have read the Buffett Partnership letters.

Very low, I'd wager. A lot of people are only there for the sales and idol worship. Each year, almost half the auditorium clears out after lunch to go shopping instead of listening to the second part of Buffett's Q&A.


As for the article in the OP, there are always opportunities, especially in volatile, unstable, emotionally driven markets like the one we have now. Benjamin Graham had many successful disciples other than Buffett, and each of them adopted the basic Graham strategy to their own purposes. Look up Walter Schloss, for example...

[innerscorecard]

Having a big value fund is probably harder than ever, but being an individual value investor is probably easier than ever, with easy and cheap access to foreign markets through Interactive Brokers or Fidelity.