Buffett could be our greatest investor in our generation. Being said, some of his preaching may not be applicable in today's market.
I checked his Berkshire's performance from Yahoo!Finance which has two years for easy choice. He beats S&P500 by 2% in last two years. However, after adding the dividends (about 3.5% total), he does not best S&P500 with dividends added.
He makes a lot of money for himself but not for the stock holder of Berkshire in last two years. Just buy SPY for better diversity and less volatility for the last two years. If he is a hero in picking stocks, every one who beats S&P is a better investor hero. We need to distinguish the term hero and past hero.
Many have been brain washed by many books written on him. You have to think even reading a good book and whether the same strategy applies today.
When the Magellan Fund headed by Peter Lynch lost his touch, I got my money out, but most did not due to the huge capital gain taxes. The result is many years of below average return for them. Hence, his mediocre performance in last three years matters and it could be a canary to his future performance.
Debunking some of his preaching as follows while many are still very good and not to be debunked at least not today. I just want to seek the truths from the facts in today's market. It seems very dumb on my part to argue with success. Let me know if I were wrong.
* 'Never sell'.
Buy and hold is dead since 2000. Most books and comments praising buy and hold are based on data before 2000.
He made big money in Coke company for the first 10 years, but not a lot in the next 10.
I prefer to turn my portfolio to reflect the current market conditions and companies' fundamentals that could have changed. His ownership in Washington Post is good then, but too risky now if their paper does not go on-line.
* 'Only buy the company whose products he understands'.
He must have missed a lot of great companies like Apple. It is better try to understand their products and the potential profits, and make your decision accordingly. He should depend more on his resources and his many analysts.
* 'Rule #1. Do not lose money. Rule #2. Do not forget rule #1.'
If every stock you buy is risk-free, your return cannot be that good like buying treasury bills.
I prefer to own larger number of stocks than most to diversify and spread some risk. One bad apple would not cost me a good sleep, but we need to learn from some losers. Losing money is part of the learning experience, as long as we can control and limit our losses. If you cannot handle loses financially and mentally, most likely investing is not for you.
* 'Margin of safety'.
There will be not too many stocks to buy if every one treats margin of safety as his first priority. It is the herd mentality I posted. However, it should work if less folks concern about the margin of safety.
We use the right strategy that is applicable to current market conditions. To me, today is value and cash waiting for opportunities to buy. In the next phase of the market cycle, it could be momentum and growth which do not care about margin of safety.
* 'Own the stock like owning the business.'
As a stock owner, I do not have to run it like a business. I do not fire employees, do not have legal obligations, make day-to-day decisions... I can sell the stock with a click of the button with no emotion attached. Running a business is different from investing in same company. My objective in investing is to make a profit with least risk.
If you own 30 stocks, do you have time to run 30 companies?
* His portfolio is not diversified enough. When he trades, he pays extra due to the huge volume. Day traders will take advantage of Uncle Warren.
* Insurance is a good business and so is re insurance. However, it depends on how the policy protects his company. It could be a black swan event waiting to happen.
* He has connections and sweetheart deals that most of us do not have access to.
* When he retires, Berkshire stock will lose 5% in one day - my educated guess.
Hope I do not bore you in this lengthy post. All I want to say is: Do not follow any investing hero blindly. Buffett still is my investing hero in our generation.
-------
(c) TonyP4 2012. Written in 1/12/12. Last updated in 1/12/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Subscribe to:
Post Comments (Atom)
This comment has been removed by the author.
ReplyDeleteIs Dr. Ruth a past hero? :)
ReplyDeleteChancer said:
ReplyDeleteBuffet has been wrong about a lot more than housing.
Buffet was wrong about his first choice of a successor.
Buffet was wrong about advocating higher Federal income taxes and higher CA property taxes. As many have said, Buffet should write a check to voluntarily pay more taxes by donating to the Treasury.
Buffet was also deliberately dishonest by failing to explain the facts in the tax code that cause his tax rate to be less than his "secretary." He distorted the argument for his own purposes to support higher tax rates on the "rich". His comments just muddied the waters and added nothing to thoughtful discussion. He was a foil for Obama and got the proposed tax increase named after him: the Buffet tax.
Buffet like a lot of rich liberals wants everybody else to pay more taxes, because he already got his (wealth). But he also said that he can give away (redistribute) his money more efficiently than the Federal government. So Buffet wants rules for everybody else that exempt the elite rich liberals like himself.
Buffet should stick to business investing and keep quite about public policy.
There is nothing a Republican hates more than a billionaire who tells it at it is, thus becoming a traitor to his class. Many rich people are limited in their goal to make even more money, damn everybody else.
ReplyDeleteBuffet is wiser. Yes, he makes mistakes, but that's part of the game, part of life. On the average he has done quite well, for himself and his investors. Implying that he is some form of a dummy, or dishonest only reflects badly on the one making that implication.
Buffet understands that he is not going to be around forever, more money is not going to do any good for him. Making more money is his creative pursuit and an obligation to the investors that have put his trust in him. He is giving all of it away, to be managed by a younger person, Bill Gates who is doing the same with his money. Two billionaires who have gotten it.
I understand why you would prefer Buffet to "keep quite [sic]". When you believe in pursuing a policy that is mean and gives more political power to those who already have more power and money, you hate having it pointed out to everybody else by someone who knows, from personal experience, how these things work.
Open your eyes and heart.
When you include political party, you're biased and you make me biased against your thoughts evem some are quite good.
Delete