Author Topic: Buffet says he buys through downturns - calls market timing "crazy"  (Read 7910 times)

yoda34

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http://www.cnbc.com/2016/02/29/warren-buffett-were-a-more-aggressive-buyer-of-stocks-when-theyre-going-down.html

Given some of the discussion on the board lately, including talking about the "buffet indicator", I thought that this story would be interesting.

He basically buys even more aggressively as the market drops (he is a value investor) and never exits the market. He describes trying to time the market by exiting and then trying to re-enter at the bottom as crazy.

You may not like everything about the man, but it's hard to not admit that he is one of the best investors in history.


I'm a red panda

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #1 on: February 29, 2016, 06:31:59 AM »
I'm not going to question his investing, but I will question the terminology.

If he buys -more aggressively- when the market drops, how is that not timing the market?
« Last Edit: February 29, 2016, 07:26:10 AM by iowajes »

YoungInvestor

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #2 on: February 29, 2016, 06:44:38 AM »
I'm not going to question his investing, but I will question his terminology.

If he buys -more aggressively- when the market drops, how is that not timing the market?

I think you are confusing timing the market and making a value call, here.

yoda34

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #3 on: February 29, 2016, 06:51:57 AM »
I'm not going to question his investing, but I will question his terminology.

If he buys -more aggressively- when the market drops, how is that not timing the market?

By the definition that you are implicitly stating anything other than a rigid fixed allocation DCA investment strategy would be market timing, which clearly isn't the case.

Market timing often involves removing money from the market and trying to time the bottoms for re-entry (there are other forms but that's my basic definition).

Buffet buys all the way down and holds. Buying based on an estimation of the underlying value of the an equity isn't timing, it's an explicit strategy to buy low and hold, then sell high (or never sell as the case may be).

It is true that as the market drops, you may find more stocks that appear closer to the intrinsic value but not always. Value investing does not try and time the "bottom" for value, it simply recognizes that the closer you buy a stock towards the value of the company, the better your returns (which is true).

I'm a red panda

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #4 on: February 29, 2016, 07:27:42 AM »
I'm not going to question his investing, but I will question his terminology.

If he buys -more aggressively- when the market drops, how is that not timing the market?

I think you are confusing timing the market and making a value call, here.

Only because I was going off the OP's recap.  Buffet isn't saying he is buying when the market drops; he is buying when the stock reaches the level he wants it to reach. 

But I still don't think the only thing that is "timing" the market is exiting and waiting to rebuy. People who try to time their buys because they see a drop, without evaluating the value of the stock are basically doing the same thing.

Woody Viet

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #5 on: February 29, 2016, 08:18:53 AM »
I'm not going to question his investing, but I will question his terminology.

If he buys -more aggressively- when the market drops, how is that not timing the market?

By the definition that you are implicitly stating anything other than a rigid fixed allocation DCA investment strategy would be market timing, which clearly isn't the case.

Market timing often involves removing money from the market and trying to time the bottoms for re-entry (there are other forms but that's my basic definition).

Buffet buys all the way down and holds. Buying based on an estimation of the underlying value of the an equity isn't timing, it's an explicit strategy to buy low and hold, then sell high (or never sell as the case may be).

It is true that as the market drops, you may find more stocks that appear closer to the intrinsic value but not always. Value investing does not try and time the "bottom" for value, it simply recognizes that the closer you buy a stock towards the value of the company, the better your returns (which is true).

While I agree with your intuition I still think what you are describing is market timing. To me market timing is any case where you alter the proportion of your assets that you choose to invest in a certain asset class based on the belief that you can predict the future movements of that assets price level.

In Buffet's case he's got great businesses generating tons of cash so over time you would expect the proportion of Berkshire's assets in cash to rise and the proportion in cash to fall. Now it's all well and good saying that he simply waits for good opportunities to come along independently of market conditions and say this isn't market timing (and I would agree that it isn't).

However he has explicitly stated that he likes having 'dry powder' around to invest when markets are in distressed conditions. To me this certainly amounts to market timing, as he expects at some point in the future for the market to significantly decline, thus allowing him to invest on better terms than he can get today. Is this not a bet on the markets eventual direction? If someone turned around and said I'm not investing until the S&P has a 30% drop wouldn't you label them a market timer?

By no means am I bashing the man's approach or the wisdom of such a strategy. I just think you have to call it market timing.

yoda34

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #6 on: February 29, 2016, 09:02:15 AM »
I disagee. If buffett was bypassing investment opportunities because he was waiting for a market drop then you would be right.  But he is not. He builds cash in order to invest in good specific value opportunities whenever they may appear with no regard to what the overall market is doing. Now it is true that more value opportunities appear after a market crash but buffet doesn't wait for the crash then invest. He finds opportunities then invests no matter what the market is doing (like buying Heinz)

This is not market timing

Aphalite

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #7 on: February 29, 2016, 09:06:11 AM »
I think people have different definitions of market timing in their minds - A lot of posters associate it with dancing in and out of the market, which to me isn't intelligent and nothing worthy of praise. However, for others, and I think yoda is one of them, the definition is only on the buy side - "market timing" is fine if you're taking a valuation approach on the buy side, buying when securities reach your estimate of it's intrinsic value, then not selling unless valuations become extremely unhinged in regards to your opportunity cost (say, P/E of 100, or stock yield of 1%, when treasury yields are double that at 2% or more).

However, trying to apply "valuation" to the entire stock market is crazy. There's no possible valuation measure that can account for the differences in all of the different companies/securities in the stock market

Mmm_Donuts

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #8 on: February 29, 2016, 09:18:52 AM »
I read the article and watched the first video -- I really don't think Buffet is advocating market timing at all. He says:

Quote
A great strategy is just to buy stocks consistently over a lifetime. And not worry too much if they go up or down on any given month or year.

The only sentence remotely resembling market timing is where he says that they buy more aggressively as stocks are going down, but he doesn't claim to know where the bottom is, and also emphasizes that they don't ever STOP buying. Overall his message is not about timing the market, it's about investing consistently, whether the markets are high or low.

Seppia

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However, trying to apply "valuation" to the entire stock market is crazy. There's no possible valuation measure that can account for the differences in all of the different companies/securities in the stock market

This seems insane to me.
Of course you can apply valuation to the "stock market".
There are some objective measures of value (the very widely known Shiller P/E or the Buffet indicator to name two) which have been pretty consistent in predicting 10-15 year returns.

Sometimes this forum can be pretty extremist in its approach.

To simplify:

"Oil is doomed, for sure stocks are going to drop in the next month" = market timing

"we are in the midst of a 7 year long bull market, the US dollar is at historical highs, so as a European investor it is maybe not super smart to go all in VTSAX with this large windfall I just received, I'm maybe going to consider tilting my AA more towards European and emerging markets stocks" = having a brain

Woody Viet

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #10 on: March 01, 2016, 05:19:58 AM »
I disagee. If buffett was bypassing investment opportunities because he was waiting for a market drop then you would be right.  But he is not. He builds cash in order to invest in good specific value opportunities whenever they may appear with no regard to what the overall market is doing. Now it is true that more value opportunities appear after a market crash but buffet doesn't wait for the crash then invest. He finds opportunities then invests no matter what the market is doing (like buying Heinz)

This is not market timing

I think his philosophy indirectly leads to him investing less in equities in expensive markets due to their being fewer investments available at the prices he finds attractive. This in turn has led to large stock piles of cash being accumulated during these expensive markets where they haven't been able to find a place to put it.

You can see the effects of this in his glee at the 2009 downturn as it was an opportunity to invest a large and growing cash pile. You can also see them in Berkshire's move to investing in utilities, where they can guarantee sufficient returns by investing internally when the market isn't giving them anything.

For the record I am a value investor and I almost agree with you. I'm only willing to deploy cash into assets which I think are at least fairly valued. I get around the 'expensive markets - slim pickings' situation by investing all over the world. I just think that having an investment philosophy which says you can only buy on excellent terms can lead you to implicit timing the market if you aren't careful about it; that is, if you get stuck in cash.

yoda34

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #11 on: March 01, 2016, 06:46:23 AM »
I disagee. If buffett was bypassing investment opportunities because he was waiting for a market drop then you would be right.  But he is not. He builds cash in order to invest in good specific value opportunities whenever they may appear with no regard to what the overall market is doing. Now it is true that more value opportunities appear after a market crash but buffet doesn't wait for the crash then invest. He finds opportunities then invests no matter what the market is doing (like buying Heinz)

This is not market timing

I think his philosophy indirectly leads to him investing less in equities in expensive markets due to their being fewer investments available at the prices he finds attractive. This in turn has led to large stock piles of cash being accumulated during these expensive markets where they haven't been able to find a place to put it.

You can see the effects of this in his glee at the 2009 downturn as it was an opportunity to invest a large and growing cash pile. You can also see them in Berkshire's move to investing in utilities, where they can guarantee sufficient returns by investing internally when the market isn't giving them anything.

For the record I am a value investor and I almost agree with you. I'm only willing to deploy cash into assets which I think are at least fairly valued. I get around the 'expensive markets - slim pickings' situation by investing all over the world. I just think that having an investment philosophy which says you can only buy on excellent terms can lead you to implicit timing the market if you aren't careful about it; that is, if you get stuck in cash.

I agree with everything you said - I think we are closely reaching the point of just arguing on semantics. If I build cash because I'm having trouble finding individual investments that meet my definition of "value" and the market is also over valued (by whatever metrics you want) vs building cash because the market is overvalued (while bypassing investments I would normally make) - the end result of both of these may look and feel exactly the same (i.e. building cash as the market moves higher) but would be for different reasons. I guess you could call that implicit market timing *shrugs*.

I know that when I make investment choices based on value, I totally ignore the overall market movements and valuation metrics, but I can see the point that you're making that I may end up with a similar result as someone who is changing asset allocations based on their macro view of the market's future movements

Woody Viet

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #12 on: March 01, 2016, 06:58:40 AM »
I disagee. If buffett was bypassing investment opportunities because he was waiting for a market drop then you would be right.  But he is not. He builds cash in order to invest in good specific value opportunities whenever they may appear with no regard to what the overall market is doing. Now it is true that more value opportunities appear after a market crash but buffet doesn't wait for the crash then invest. He finds opportunities then invests no matter what the market is doing (like buying Heinz)

This is not market timing

I think his philosophy indirectly leads to him investing less in equities in expensive markets due to their being fewer investments available at the prices he finds attractive. This in turn has led to large stock piles of cash being accumulated during these expensive markets where they haven't been able to find a place to put it.

You can see the effects of this in his glee at the 2009 downturn as it was an opportunity to invest a large and growing cash pile. You can also see them in Berkshire's move to investing in utilities, where they can guarantee sufficient returns by investing internally when the market isn't giving them anything.

For the record I am a value investor and I almost agree with you. I'm only willing to deploy cash into assets which I think are at least fairly valued. I get around the 'expensive markets - slim pickings' situation by investing all over the world. I just think that having an investment philosophy which says you can only buy on excellent terms can lead you to implicit timing the market if you aren't careful about it; that is, if you get stuck in cash.

I agree with everything you said - I think we are closely reaching the point of just arguing on semantics. If I build cash because I'm having trouble finding individual investments that meet my definition of "value" and the market is also over valued (by whatever metrics you want) vs building cash because the market is overvalued (while bypassing investments I would normally make) - the end result of both of these may look and feel exactly the same (i.e. building cash as the market moves higher) but would be for different reasons. I guess you could call that implicit market timing *shrugs*.

I know that when I make investment choices based on value, I totally ignore the overall market movements and valuation metrics, but I can see the point that you're making that I may end up with a similar result as someone who is changing asset allocations based on their macro view of the market's future movements

Haha yes, I think you might be right there.

I see a potential danger in the system, and when it looks a lot like market timing I think it's worth worrying about. In my own investing, which is largely quantitative and spread across the world, I haven't run across this problem. It's nice to be a small fish in a big pond.

Aphalite

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This seems insane to me.
Of course you can apply valuation to the "stock market".
There are some objective measures of value (the very widely known Shiller P/E or the Buffet indicator to name two) which have been pretty consistent in predicting 10-15 year returns.

Sometimes this forum can be pretty extremist in its approach.

To simplify:

"Oil is doomed, for sure stocks are going to drop in the next month" = market timing

"we are in the midst of a 7 year long bull market, the US dollar is at historical highs, so as a European investor it is maybe not super smart to go all in VTSAX with this large windfall I just received, I'm maybe going to consider tilting my AA more towards European and emerging markets stocks" = having a brain

Sorry Seppia, I misspoke. What I should have clarified is that statement is in context of Warren's investing strategy. He doesn't really buy or sell based off of total market valuation, he looks at companies on their own merit and compares it to opportunity costs. For example, in the early 1960s, because stock valuations were so high and he could not find good bargains, he decided to start buying whole companies (dying companies with good cash flow that he then deployed into other ventures). In the late 1990s, when valuations again became unhinged, and he couldn't find anything to purchase, he bought an insurance operation that had a huge portfolio of fixed income assets (as the yield was more than double stock yield at the time). Just yesterday, he gave an interview where he mentioned that he paid way more for Precision Cast Parts than he would have if interest rates were higher. Every purchase he makes is in the context of opportunity cost.

I think it's harder to "time the market" (again, referring to a valuation based purchase approach) when your only tools are index funds comprised of many different companies in this valuation based approach because it's harder and more complicated to estimate the probabilities and risks associated with 3000 companies (talking total stock market fund here), all of which are weighed differently within the index, than it is to study one company, its industry, its competition, and risks associated with the company. That's all. If there's anyone out there that can do it, then they are either smarter than I or more ignorant than I, or any combination thereof.
« Last Edit: March 01, 2016, 09:56:23 AM by Aphalite »

protostache

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #14 on: March 01, 2016, 09:35:24 AM »
Many of the accounts of the "legendary" investor / hedge fund managers that have risen to the top of the financial media, have involved "oversized" bets placed on single positions. Buffet's history of portfolio management doesn't represent a prudent, well diversified ( and even consistent ) process. In 1987, he had a majority of asset in 3 stocks. From there he added and built up an oversized position in KO ( with other positions such as Wells Fargo, WFC ), which produced a lot of his performance "alpha" in the 90's.
In the late 60's, he was prescient in that he abruptly closed up shop and returned money to investors because he thought the market was overvalued and didn't present any "opportunities".   
In early 2000's he used a large allocation and shorted the U.S. dollar ( which didn't work out ).     
A continued positioning into WFC through the financial crisis has had average to flat performance and a position taken on Conoco Phillips COP at the top of the oil spike in 2007 has shown negative performance.   

Consequently, one of the best moves an investor can make is to build a core position in small cap value universe. Academic and empirical evidence  ( vs. anecdote of Buffet, financial experts, etc. ) has shown that SCV has outperformed all other stock universes over 90 years https://docs.google.com/document/d/1kToqLWLISRk4n4YnSzv1hT5kBN54l5CvhwGgDwJKPJI/edit?usp=sharing.  Prior to the 21st century, it was difiicult to invest in specific "stock universes" , but the evolution of exchange traded investment products/funds over the past 10 years has provided many options for investing in small cap value ( one being Vanguard small cap value ( VBR ). 
The use of a low transaction, quantitative tactical allocation process has produced further risk mitigated alpha vs. buy and hold. https://docs.google.com/presentation/d/1pQuBfbPd18ca0G-KiZc5FIWNMx0pNa87INgsLjEwuzY/edit?usp=sharing

James
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Boulder, CO

The thing you need to remember about BRK is that it is not primarily interested in minority shareholder positions in publicly traded equities. The equity portfolio is a small part of a gigantic holding company that owns a multitude of businesses, large and small. Berkshire Hathaway owns ten entire companies that would be listed as part of the S&P 500 if they were publicly traded, plus another 25% of Kraft Heinz, plus a few dozen smaller companies that make everything from furniture to candy and everything in between. Some of those companies are insurance companies that in turn own mind boggling huge amounts of equities and fixed income securities that aren't listed in the annual report because they're held as float and thus aren't reportable to the SEC. You have to dig up the state-by-state insurance company reports to get an idea of what they're actually holding.

You can sort of thing the equity positions reported in 13F reports as part of Berkshire's cash position. A great example is the trade they just completed. Berkshire acquired a large number of Proctor & Gamble shares when they sold Gillette back in 2005. This year, Berkshire traded their entire holding back to P&G in exchange for Duracell. P&G even shoved over a billion dollars of cash into Duracell to make it more attractive.

MustacheAndaHalf

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There are some objective measures of value (the very widely known Shiller P/E or the Buffet indicator to name two) which have been pretty consistent in predicting 10-15 year returns.
This should boggle more people's minds - that the stock market can be partly predicted over the period of decades.  It was espoused by Warren Buffet's mentor, that the stock market is a weighing machine in the long-term.  To restate it:  Lower P/E stocks are about 0.4 correlated with higher performance than higher P/E stocks in the time frame of decades.  Here's Vanguard's white paper exploring which factors predict future returns:
https://personal.vanguard.com/pdf/s338.pdf

Telecaster

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #16 on: March 01, 2016, 01:08:56 PM »
Many of the accounts of the "legendary" investor / hedge fund managers that have risen to the top of the financial media, have involved "oversized" bets placed on single positions. Buffet's history of portfolio management doesn't represent a prudent, well diversified ( and even consistent ) process. In 1987, he had a majority of asset in 3 stocks. From there he added and built up an oversized position in KO ( with other positions such as Wells Fargo, WFC ), which produced a lot of his performance "alpha" in the 90's.
In the late 60's, he was prescient in that he abruptly closed up shop and returned money to investors because he thought the market was overvalued and didn't present any "opportunities".   
In early 2000's he used a large allocation and shorted the U.S. dollar ( which didn't work out ).     
A continued positioning into WFC through the financial crisis has had average to flat performance and a position taken on Conoco Phillips COP at the top of the oil spike in 2007 has shown negative performance.   


Buffett isn't just a portfolio manager, he also runs a business.   The business is the part we need to focus on.  The business of BRK is using leverage (mostly float from its insurance companies) to invest in other businesses.    And yes, he got "lucky" with positions in companies like KO, which saw its stock to go absurd levels (and back down, too).  But is incorrect to say stocks like KO were the engine driving BRK's price.

As of 2015 BRK's earnings had increased by 19.2% a year over the previous 50 years.  The stock price had increased by 20.8%  a year over the same time period.   That's just as you'd expect, earnings are driving the stock price.  Earning and price don't always align, and indeed can be wacky in either direction for uncomfortable periods of time, but price always comes back to earnings, eventually. 

Speaking of which, BRK is pretty cheap at the moment compared to the earnings.   One could do worse than buying a few shares.   

 






« Last Edit: March 01, 2016, 01:19:55 PM by Telecaster »

Rubic

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #17 on: March 01, 2016, 03:41:11 PM »
Link to transcript:

https://www.scribd.com/fullscreen/301250188?access_key=key-BT8y8UPDxzfvJSRxIC7n&allow_share=true&escape=false&view_mode=scroll



(OT: Whats the magic [ url ] formatting to embed a link in the message text for this site's markup engine?)


Mmm_Donuts

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #18 on: March 01, 2016, 04:19:38 PM »
OT reply: it is this:

(url=http://example.com]Example[/url) - replace first and last brackets w square brackets.

See this BBCode wiki page for more info.

jim555

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #19 on: March 01, 2016, 04:48:13 PM »
Frankly if you are in the market, by definition, you time it.  You need an entry and exit point, and that is timing.  So I guess he is "crazy" to be in the market.

Sarnia Saver

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #20 on: March 01, 2016, 05:14:14 PM »
'Timing the market' typically is used to described people who buy or sell based on their own opinions of market tops/bottoms.  OP is stating that Buffett buys more aggressively during market downturns.  This is not based on opinions, but on the fact that the market is cheaper right now than it previously was.

jim555

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #21 on: March 01, 2016, 05:20:24 PM »
'Timing the market' typically is used to described people who buy or sell based on their own opinions of market tops/bottoms.  OP is stating that Buffett buys more aggressively during market downturns.  This is not based on opinions, but on the fact that the market is cheaper right now than it previously was.
The problem with buying "cheaper" is that sometimes it gets "cheaperer" after you buy it, falling knives can be dangerous.

Sarnia Saver

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #22 on: March 01, 2016, 05:23:51 PM »
Granted.  The inference is that he just keeps buying all the way down, and all the way up. 

His advice should be taken with a grain of salt for most investors, he can take a haircut that would scalp almost anyone else.  P


Telecaster

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #24 on: March 01, 2016, 05:42:57 PM »
Whether or not he "runs a business", the rubber meets the road ( for the average investor ) as reflected in the share price ( BRK-A ). Since holdings are shrouded in delayed 13F holdings and we have some history of  these "accounts/ inner workings" of portfolio decisions regarding KO, COP, WFC, U.S. Dollar Index, special "warrants"  ( GE and GS ), etc., it is easy for  investors to get mesmerized by he or Munger's "esoteric" investment positionings, yet it may be foolhardy to rely on "human" portfolio management fallability ( and possible slippage in mental capacity due to age ) when, instead, one can just buy an index of hundreds of stocks proven in performance under the guise of rigorous academic analysis ( small cap value ). It may be an interesting curiosity to allocate a small amount to BRK-A, but that would be the extent of it.

The small cap Russell 2000 ( bench mark proxy for small cap in portfolio analysis below ) has outperformed BRK-A since 1999 and 2008; no stock picking, position adjusting, shorting of the dollar, buying of railroads, etc. needed.

The problem is that those of us without a crystal ball can't predict in advance specifically what periods small caps will out perform. 

If you cherry pick certain time periods, then you can definitely find periods out performance.  If we look at all of the available data, which goes back to 1987 according to Yahoo!, BRK-A obliterates the Russell 2000.  BRK-A performs vastly, vastly better.   The Russell 2000 isn't even in the same zip code. 

As you say, the test is where the rubber meets the road.  Well, there you go.  Do you want outperformance for five years or 30 years? 

And for the record, none of what I'm what saying in an argument against small caps.   It is an argument against cherry picking data.   











Lexaholik

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Re: Buffet says he buys through downturns - calls market timing "crazy"
« Reply #25 on: March 01, 2016, 06:52:36 PM »
Many of the accounts of the "legendary" investor / hedge fund managers that have risen to the top of the financial media, have involved "oversized" bets placed on single positions. Buffet's history of portfolio management doesn't represent a prudent, well diversified ( and even consistent ) process. In 1987, he had a majority of asset in 3 stocks. From there he added and built up an oversized position in KO ( with other positions such as Wells Fargo, WFC ), which produced a lot of his performance "alpha" in the 90's.
In the late 60's, he was prescient in that he abruptly closed up shop and returned money to investors because he thought the market was overvalued and didn't present any "opportunities".   
In early 2000's he used a large allocation and shorted the U.S. dollar ( which didn't work out ).     
A continued positioning into WFC through the financial crisis has had average to flat performance and a position taken on Conoco Phillips COP at the top of the oil spike in 2007 has shown negative performance.   


Buffett isn't just a portfolio manager, he also runs a business.   The business is the part we need to focus on.  The business of BRK is using leverage (mostly float from its insurance companies) to invest in other businesses.    And yes, he got "lucky" with positions in companies like KO, which saw its stock to go absurd levels (and back down, too).  But is incorrect to say stocks like KO were the engine driving BRK's price.

As of 2015 BRK's earnings had increased by 19.2% a year over the previous 50 years.  The stock price had increased by 20.8%  a year over the same time period.   That's just as you'd expect, earnings are driving the stock price.  Earning and price don't always align, and indeed can be wacky in either direction for uncomfortable periods of time, but price always comes back to earnings, eventually. 

Speaking of which, BRK is pretty cheap at the moment compared to the earnings.   One could do worse than buying a few shares.

This. Everyone likes to talk about Buffett's stock picking abilities but the reason the only reason why he's famous is because he has structured his businesses in a very specific way.

The key to Buffett's wealth as Telecaster points out, is his insurance companies' float. It's basically an enormous super-margin account with better features. (For example, there are no margin calls, and you don't have to post more collateral when asset values decline.) As we all know, when you borrow money to buy an asset, your returns are magnified. So while Buffett is a good portfolio manager, his monster returns over the years are the result of those magnified returns--and importantly, NOT just the result of good investing skills.

This may all seem abstract but there are actionable lessons for the individual investor. Spending your time thinking of ways to have more capital to invest is almost certainly a better use of your time than spending time thinking of ways to squeeze out a couple of percentage points on your returns. Find ways to earn and save more money. The more you have available to invest, the more money you'll gain through your returns. With $88 billion in available float, Berkshire could eke out a paltry 1% return this year and still put $800 million in its shareholders' pockets. A hedge fund with $800 million under management would need to generate 100% returns to match that.

I don't know why we don't hear more about this in the media. My guess is that brokerage companies want you to believe that you can be like Buffett and invest your way to massive wealth, so you'll pay all that money in transaction fees. But I dunno, maybe I'm just cynical.