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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (54682)	1/2/2015 12:45:56 PM
From: Grommit	Respond to of 78618

I'll repeat what Buffett said: that he could do 50% annualized if he was managing small sums of money. I believe that 20% a year is definitely achievable by good investors. If he could do it it would be due to (or easier to do due to) his access to good deals. If the dice were to re roll, I do not think that it is a given the buffet would have done as well as he has. And impossible (very very very very improbable) for good investors to achieve 20% annual long term. I agree that most people cannot achieve 10%, since it requires more than just index fund selection and asset allocation. 10% would be hard, but it is possible to beat the dealer by fund selection alone -- sector funds. picking stock sectors is more important than picking stocks. just ask energy investors today.

To: Jurgis Bekepuris who wrote (54682)	1/2/2015 12:48:43 PM
From: Paul Senior	Respond to of 78618

"I'll repeat what Buffett said: that he could do 50% annualized if he was managing small sums of money." I've heard it and have wondered about the context in which it was said. In the old days, he made money scouring annual reports and esp. the S&P monthly booklet with the metrics on thousands of stocks to give him companies to consider. These days with stock metrics compressed that doesn't seem possible with any safety. (i.e. not putting all investable dollars in just a couple of stocks). Or is it that he has a Rolodex of experts and business acquaintances he can call up and get company info on? Or that he has read so many annual reports that he just has the skill set and knowledge and experience to pick winners? (Say for example, among insurance stocks -- where I assume he is expert in understanding their arcane accounting.) It seems to me he is unique and can't be replicated. I guess obvious -- how many people both claim in advance and then actually achieve 50% gains? I guess someone buying the right stock - BRK (or my sister with AAPL) - and holding on would do very well and meet/surpass 20% gains per year on average. How many people actually do that though? - These maybe rare situations were available to everyone (with money to invest), yet so few take or took advantage of them by focusing on them and essentially going all in on them as predominant or sole investment. For me, as I've said many times, I look to what works for the average person. That seems to be, or at least to include, holding a diversified portfolio of stocks. We have and had guys on the thread who say they make 20% or more per annum. And they probably have or do. To me though, suspicious as I am, there seem to be some "buts" to what they do. We've seen people just starting off with a very small base (Burry was not more than what, $25K?); or they've done it for a few years only - and only the recent past years; or they are subtly talking about their "risk stock market money" only -- not their family's total IRA/taxable acccounts; or they deal with risk in ways I don't understand -- e.g. stock drops 8%, they're out, or they become suspicious of the market for any reason, they go to mostly/all cash -- (which I guess works for them, but it doesn't seem like "investing" to me).

To: Jurgis Bekepuris who wrote (54682)	1/2/2015 12:54:19 PM
From: mopgcw	1 Recommendation Recommended By Mattyice Read Replies (1) \| Respond to of 78618

Jurgis, I might suggest you not consider throwing in the towel quite yet. fwiw, i think you are under-estimating your skills, the value of your additional return and over-estimating a perceived return Buffet et al. can achieve. 1. Consider as you note yourself, stocks average 7%. Your 10-year return is 10%. those 300 bps are extremely valuable to you. Why give them up because you had a couple bad years. As an investor, you do need to look at the longer horizon. Granted I am assuming you have another 10 years of quality living to look forward to. 10% is in no way a low hurdle to achieve. 2. Your perceived hurdle of 15% to 25% might be unrealistic. Buffets recent record isnt nearly as good as his early years, and what he does get is driven by access to deals you and I will rarely see -- GS preferred with a 10% coupon?? And his risk/reward trade is different using other people's money than his own. he can afford to take risks you might not be able to afford and not blink at the loss. Look at the risk/reward tradeoff needed to get those types of returns. Are you at a stage in your life to take those risks to earn those rewards? 3. one needs to be quite careful and considerate in choosing the timeframes (and historical bias) for such analysis as well. True, one could have bought BRKa and made money, or apple and made more. is that true going forward as well? maybe. maybe not. same risk/reward trade off analysis you would do for any other company at any other time. not really passive. true buying the S&P, some bond index, a TIPS fund and perhaps a smattering of emerging market index is best for most everyone in the market and is easy. but then again, looks to me like you will lose 300bps... nonetheless, just some thoughts to perhaps consider. thanks for putting that out that for consideration and discussion. it is interesting to say the least. And I for one would miss your insights and thoughts should you choose to go "passive" on us. all the best. george

To: Jurgis Bekepuris who wrote (54682)	1/2/2015 1:00:55 PM
From: E_K_S	1 Recommendation Recommended By Mattyice Read Replies (1) \| Respond to of 78618

Jurgis - There is also the question of tax efficiency too. I keep all of my gains inside my portfolio. I have stocks that continue to meet my value expectations (as well as dividend & growth requirements) but do peel off shares from time to time to off set losses I may take from other mistakes. Index funds are not tax efficient. Buffet's investments are very tax efficient especially some of his larger ones: converted his Gillette holding into PG shares that were exchanged for the Duracell division. A totally tax free exchange. He also is able to re-invest his cash into private placement preferreds (like he did w/ the buyers of Burger King). Then he also demand warrants to be attached to those deals (remember BofA) that he converts into stock (no tax impact until he sells). Therefore, comparing what Buffet does for his returns is not equivalent for the individual investor and/or index fund. The closest I get is just holding my great value buys (loaded up on GLW in 2002 @ $5.50/share, el paso pipeline in 2001 later bought by Kinder Group) but these only occur infrequently and you have to be ready to commit money and hold for the long term (not months but decades). As one gets older, it hard to have this long term time horizon unless you plan to leave a legacy portfolio to your children or foundation. Even if your average holding period is a few years, you are paying a minimum Federal tax of 20% (and a State tax like in CA of 10%) on your capital gains. Buffet does not have these tax expenses and neither the individual investor that keeps his capital gains inside their portfolio. If you sold your house every three years, you would be underwater w/ all the expenses, fees and taxes. Therefore it is a bit unfair to compare the returns of these assets classes (Buffet, real estate etc) w/ equities especially when considering taxes and expenses. I have started to put 35% of my assets into MLPs (now over 2 years) which can be pretty tax efficient. I do this mainly for the income but do think the forward growth (in US shale region) is a once in a generation thing too. I just could not find the significant under value large cap equities any more like pre 2005. I did find good value in the pharma sector in 2010 building large positions in PFE and MRK. I continue to hold those mainly for their dividend. It's possible that the Oil sector could be one of those buying opportunities late 2015 but for now, I continue to build my cash reserves, add more MLP shares and have several small cap "niche" value plays. FWIW, I have two buys in distressed Bonds SVU 8/2016 8.75% bought (7/2012) at a 20% discount to PAR (60% were recently called at PAR providing a 23% gain in 30 months or 11% annual return + 8.75 annual coupon) and Swift 2018 7.75% bought (12/2014) at a 45% discount to PAR. Each represent a 1% portfolio position. Therefore, value can be found in many different areas. I also bought some distressed real estate (all cash) in 2009 representing 20% of the portfolio after fix-up. I use no margin and carry no debt. But as an investor, I am always searching for value deals. When it is no longer fun or is stressful, then I will just move to more cash and let the portfolio(s) & income property keep generating income. I will just take longer hikes w/ the dog, visit friends & family (when they are not working) or take an earlier nap. Even when I take time off from investing, I always seem to keep turning over other stones to find those "value" deals. Happy New Year and good investing. EKS