WEB:The Oracle of Omaha- Warren Buffett
- jbking
- Rande
- Rande
- DennisL
- KLR
- Rande
- Kirk
- Ja_Butt
- mdorsey
- DennisL
This archived discussion is "read only".
For the corresponding "live" discussions, post in the active topic forum here.
« Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next »
» jbking - Re: Buffett on Diversification
In response to message posted by Kirk:In a way I can see the logic of that. If you are making individual stock selections then why shouldn't you just take those top picks and not feel the need to hold other stocks just for the sake of being a drag. Of course a flip side to this is whether you want to be on top of your portfolio or someone that leaves their portfolio all alone for a while.
http://news.morningstar.com/doc/article/... has some interesting notes from Warren about Fund directors that is worth a look.
JB
-- posted by jbking
» KLR - Re: Re: Buffett on Diversification
In response to message posted by jbking:Dr. Farrell's 12-step program. Index and fugettaboutit!
Diversify. By now, every investor in America has heard of the virtues of diversification, especially if you had a large stake in technology the late 90s: "The truth is, even the experts find it tough to pick the right stocks most of the time. You don't stand a chance. So what do you do?" Diversify your risks with index funds. Remember, in 14 of the past 20 years, passive index funds, "which don't even try to pick good stocks," beat actively managed funds.
Keep your money working. Don't try to time the market, jumping in and out: "There is no bad time to buy solid investments in good index funds, which are essentially an investment in the American economy ... steady, consistent, regular, and planned purchases in a slice of America are what will make you rich."
Don't talk to anyone about your investing, and never listen to braggarts. The fact is, nobody -- including all the high-profile Wall Street gurus -- knows there the market's headed. Except that it will go up in the long run. Always does. And nobody knows what's best for you, except you. Nobody. Do it yourself.
-- posted by KLR
» Rande - From the quote collection:
From the quote collection:_With enough inside information and a million dollars, you can go broke in a year. (Warren Buffett)
_In this game, the market has to keep pitching, but you don't have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch. (Warren Buffett)
_The first rule is not to lose. The second rule is not to forget the first rule. (Warren Buffett)
_You try to be greedy when others are fearful, and fearful when others are greedy. (Warren Buffett)
_Buy a stock the way you would buy a house. Understand and like it such that you'd be content to own it in the absence of any market. (Warren Buffett)
Following from the "Chairman's Letter" in the Berkshire Hathaway, Inc. 1987 Annual Report (where he wrote of Ben Graham's "Mr. Market"):
_When investing, we view ourselves as business analysts -- not as market analysts, not as macroeconomic analysts, and not even as security analysts.
_The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs, or signals flashed by the price behavior of stocks and markets [i.e., magic models and/or technical analysis]. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the supercontagious emotions that swirl aout the marketplace.
-- posted by Rande
» Kirk - Buffett on the market
This is a VERY good story about Warren Buffett as he spends a great deal of time on "reasonable expectations for the market".http://library.northernlight.com/PN19991...
Notice that he makes a specific point that he is NOT a market timer...
Investors in stocks these days are expecting far too much, and I'm going to explain why. That will inevitably set me to talking about the general stock market, a subject I'm usually unwilling to discuss. But I want to make one thing clear going in: Though I will be talking about the level of the market, I will not be predicting its next moves. At Berkshire we focus almost exclusively on the valuations of individual companies, looking only to a very limited extent at the valuation of the overall market. Even then, valuing the market has nothing to do with where it's going to go next week or next month or next year, a line of thought we never get into. The fact is that markets behave in ways, sometimes for a very long stretch, that are not linked to value. Sooner or later, though, value counts. So what I am going to be saying--assuming it's correct--will have implications for the long-term results to be realized by American stockholders.
this comment on earnings is fascinating:
And there's still another major qualification to be considered. If you and I were trading pieces of our business in this room, we could escape transactional costs because there would be no brokers around to take a bite out of every trade we made. But in the real world investors have a habit of wanting to change chairs, or of at least getting advice as to whether they should, and that costs money--big money. The expenses they bear--I call them frictional costs--are for a wide range of items. There's the market maker's spread, and commissions, and sales loads, and 12b-1 fees, and management fees, and custodial fees, and wrap fees, and even subscriptions to financial publications. And don't brush these expenses off as irrelevancies. If you were evaluating a piece of investment real estate, would you not deduct management costs in figuring your return? Yes, of course--and in exactly the same way, stock market investors who are figuring their returns must face up to the frictional costs they bear.And what do they come to? My estimate is that investors in American stocks pay out well over $100 billion a year--say, $130 billion--to move around on those chairs or to buy advice as to whether they should! Perhaps $100 billion of that relates to the FORTUNE 500. In other words, investors are dissipating almost a third of everything that the FORTUNE 500 is earning for them--that $334 billion in 1998--by handing it over to various types of chair-changing and chair-advisory "helpers." And when that handoff is completed, the investors who own the 500 are reaping less than a $250 billion return on their $10 trillion investment. In my view, that's slim pickings.
Perhaps by now you're mentally quarreling with my estimate that $100 billion flows to those "helpers." How do they charge thee? Let me count the ways. Start with transaction costs, including commissions, the market maker's take, and the spread on underwritten offerings: With double counting stripped out, there will this year be at least 350 billion shares of stock traded in the U.S., and I would estimate that the transaction cost per share for each side--that is, for both the buyer and the seller--will average 6 cents. That adds up to $42 billion.
Move on to the additional costs: hefty charges for little guys who have wrap accounts; management fees for big guys; and, looming very large, a raft of expenses for the holders of domestic equity mutual funds. These funds now have assets of about $3.5 trillion, and you have to conclude that the annual cost of these to their investors--counting management fees, sales loads, 12b-1 fees, general operating costs--runs to at least 1%, or $35 billion.
And none of the damage I've so far described counts the commissions and spreads on options and futures, or the costs borne by holders of variable annuities, or the myriad other charges that the "helpers" manage to think up. In short, $100 billion of frictional costs for the owners of the FORTUNE 500--which is 1% of the 500's market value--looks to me not only highly defensible as an estimate, but quite possibly on the low side.
It also looks like a horrendous cost. I heard once about a cartoon in which a news commentator says, "There was no trading on the New York Stock Exchange today. Everyone was happy with what they owned." Well, if that were really the case, investors would every year keep around $130 billion in their pockets.
Let me summarize what I've been saying about the stock market: I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like--anything like--they've performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate--repeat, aggregate--would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that's 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more.
Short horses?
Well, I thought it would be instructive to go back and look at a couple of industries that transformed this country much earlier in this century: automobiles and aviation. Take automobiles first: I have here one page, out of 70 in total, of car and truck manufacturers that have operated in this country. At one time, there was a Berkshire car and an Omaha car. Naturally I noticed those. But there was also a telephone book of others.All told, there appear to have been at least 2,000 car makes, in an industry that had an incredible impact on people's lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, "Here is the road to riches." So what did we progress to by the 1990s? After corporate carnage that never let up, we came down to three U.S. car companies--themselves no lollapaloozas for investors. So here is an industry that had an enormous impact on America--and also an enormous impact, though not the anticipated one, on investors.
Sometimes, incidentally, it's much easier in these transforming events to figure out the losers. You could have grasped the importance of the auto when it came along but still found it hard to pick companies that would make you money. But there was one obvious decision you could have made back then--it's better sometimes to turn these things upside down--and that was to short horses. Frankly, I'm disappointed that the Buffett family was not short horses through this entire period. And we really had no excuse: Living in Nebraska, we would have found it super-easy to borrow horses and avoid a "short squeeze."
U.S. Horse Population 1900: 21 million 1998: 5 million
Brilliant man who has a way of looking at the complex and making it simple enough to figure out what to invest in. One of my most agressive investor friends, who has made and lost millions more than once and uses margin, keeps a few shares of BRKa [ http://finance.yahoo.com/q?s=BRKa&d=t ]in his portfolio as his "core" so he has something if his "exploring" gets him in trouble.
-- posted by Kirk
» Ja_Butt - Re: Buffett on Diversification
In response to message posted by DennisL:Ignorant dummies? no that is not what Buffet is aiming at. Buffet believes that we are rewarded by the quality of our investment decisions and that you are more likely to succeed with a small selection of well chosen investments. The point is that such choices are the result of a disciplined method of analysis that rests on a thorough understanding of the businesses themselves. I have spent over 15 years working as a professional investor around the world and the greatest lesson that the stock markets have taught me is how fallible the human being is. We have an astonishing capacity for overestimating our abilities and knowledge. Time and time again I have seen smart well-educated professionals, graduates of top universities from around he world, substitute gut feelings, trend following, macro-forecasting, and political analysis, for the patient investigation of the fundamentals of businesses available for investment. What passes for analysis is often focused on topical but inappropriate aspects of a business, often features which are of short term relevance to results. Raising the barrier of knowledge required, and confining oneself to a small "circle of competence" helps protect us from our own fallibility. Buffet has provided his prescription often enough, but to point to one example please read page 89 of John Train's Midas Touch for the parable of the water utility specialist.
But note, the converse is true -- i.e if you do NOT have the time or the inclination to specialise and develop your own circle of competence, then the SMART thing to do is to diversify or index -- Buffet and Munger would not argue against that in practice.
-- posted by Ja_Butt
» mdorsey - 8-Year Economic Slump
Warren Buffett Sees 8-Year Economic Slump, Business Week SaysBy William Selway
New York, Aug. 23 (Bloomberg) -- Billionaire investor Warren Buffett thinks the U.S. economy will remain in a slump for eight years, Business Week reported, citing unidentified people who have met with Buffett.
The chairman and chief executive of Berkshire Hathaway Inc. thinks the U.S. economy will remain in a standstill because of a ``hangover effect'' related to the swift pace of growth in the late 1990s, the magazine reported. Spokespeople for Buffett declined to comment on his forecast, the magazine said.
The U.S. economy grew in the second quarter at the slowest rate in eight years as business investment slumped. The Federal Reserve Tuesday lowered the benchmark U.S. interest rate a quarter of a percentage point, its seventh cut this year, and analysts expect lower borrowing costs to bolster spending later this year.
-- posted by mdorsey
» DennisL - Re: 8-Year Economic Slump
In response to message posted by mdorsey:This reminds me of something I posted on one of the threads here (I don't remember which one) awhile back. I had heard about a historical study of the lengths of bull and bear markets that concluded that in most cases, the bear market that followed each bull market lasted about 1/3 as long as the bull market. If this pattern repeats itself, the bear market in which we currently find ourselves will last about six years because the bull market that just ended lasted about 18 years (1982 - 2000).
Needless to say, I hope that the Oracle of Omaha's prediction is wrong and that the historical pattern does not repeat itself.
-- posted by DennisL
« Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next »
Please follow the guidelines set forth in the Suite101 Posting Etiquette when adding to the discussion.