Cha2,
After mulling over the discussion for the last 24 hrs, here's what I've learned:
1. I think Merlin's approach (which is similar to BB's approach) is very sensible: use some kind of theoretical framework as a filter, do lots of DD on sectors and companies to decide which you want to own, use valuation metrics to help pick entry points, and then LTB&HHHHH until the fundamentals change. I must say, the fact that even the valuation experts say they at the end of the day they can't use such knowledge to trade successfully is sobering. Having a spouse who makes you go to cash during tops is also a good idea.
2. I think Cha2's reasons for why individuals might be able to pick stocks successfully make sense, especially if you have the appropriate skill set. I suppose it is only logical to conclude that something similar might be true for trading and market timing, if one feels confident that one has a good sense of market dynamics, investor psychology, and the like. Different strokes for different folks, in other words, so it's not surprising that the subject produces flame wars. Merlin and, say, Voltaire are different people, with different skills, and should follow different approaches.
(BTW, I picked up an amusing book on such topics today for $1.05 and recommend it for light reading: Peter Brimelow's The Wall Street Gurus: How You Can Profit from Investment Newsletters [Washington: Minerva Books, 1986]. It is a travelogue through the various attempts at market-beating over the years.)
3. I think I was wrong to demand hard statistical proof of ability to beat the averages. On further reflection, I think that numbers are both a blessing and a curse for these kinds of discussions. A blessing, because they can establish a clear bottom line and benchmark for evaluation; a curse because they lead one to overvalue quantitative methods as opposed to qualitative ones.
The more I think about it, investing is to economics as policy work is to political science: an applied discipline that builds on the underlying field's insights but is as much art and craft as it is mechanical activity. I would never expect many political scientists or policymakers to "beat the average" consistently, but I bet I could pick a dozen or two who would, relying on their skill, judgment, temperament, and theoretical approach. So Merlin's evidence may be anecdotal, but--especially if it can be matched with comparable evidence from others and carried forward into an uncertain future--it may still be admissible.
4. I think that in the future I will tend towards a more explicit two-tier account: mostly (~75%?) G&K LTB&H, under strict lock and key, and the rest (~25-50%?) managed a bit more actively. (I am sure this will continue to evolve as I incorporate more lessons from painful experiences down the road.)
5. I think we are all very lucky to have discovered both the gorilla game, which gives us a theoretical edge on the market, and this thread, which enables us to thrash these kinds of things out in a mature, friendly, sincere, and knowledgeable way. Perhaps some day we'll all be lucky enough to be discussed in a future essay on "The Superinvestors of G&Kville," appended to later editions of the manual.
6. Just so there's some substance here, you should all know that JDSU, ITWO, and ORCL (along with some others) have been added to the WIRED Index of "companies driving the new economy." Details in the June issue, out on newsstands but not, as of yesterday at least, online yet.
cheers,
tekboy/Ares@maximustheinvestor.org |
