Now this (not the recent posts, but those from Friday) is what I came into the thread hoping for…. Real discussions on the deeper aspects on value investing... Ok, here we go!
(NB, kinda long post.. :-))
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< I didn't want to let this get by without somebody commenting. >
I’m glad you didn’t!
It’s always great to hear someone question the dogma of the credo. I’m not sure that I agree, but I don’t disagree completely either. I think that you make (or suggest) a highly important point between the lines as well: it is even more important to have faith in your own investment style than in the specific companies you chose to own. I feel like there are so many viable investment styles out there; super-in depth, intensive studies of a few companies – resulting in a concentrated, "non-diversified" portfolio – may suit some, while others prefer a more Lynch-like extensive approach. Also, if you’re very very quantitative, you could have a completely, 100 % quantitative strategy so that the words don’t matter at all, only the numbers – I feel like that could be a worthwhile approach too. Then you haven’t made any qualitative, subjective decisions––you just buy what the numbers tell you to buy––and that may be easier to stick to for some.
Whatever one feels most comfortable with.
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< then professional analysts and the fund managers should be able to demonstrate that consistently >
Well you know the reasons why they don’t… Not enough time, not enough $ incentive (and not enough personal, non-economic interest as well – remember, most people don't think these are very fun topics to discuss…). There aren’t very many people prepared to go through a large number of annual reports in detail on a consistent basis, I wouldn't think.
One example which illustrates that very clearly, à propos Burry, is from when he was interviewed on 60 Minutes on the role and responsibility of the rating agencies in the Financial Crisis:
Interviewer:
”To me, it seems like what you were doing, was the work that Moody’s and S&P were supposed to be doing”
M.B. [emphatically (instinctively defending the rating agencies, interestingly enough)]:
There’s no way they had the manpower to go through all those numbers.
Interviewer:
Yeah but you’re one guy!
M.B.:
[pausing for a second, thinking] You would think, that even if they just glanced at the numbers, they would get the idea...
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< Do you believe a small player can do better than the pro's with a deep dive into the financials and annuals >
I absolutely do, and I’ll use your own words to give the reasons why:
< We see a few analysts who've done well and moved into "great investor" category, but they seem to be very few. >
We all know the several reasons as to why almost all money managers and other ”professionals” fail to do better than their respective comparable indexes over a long period of time (say 20 yrs).
I for one feel like the little guy generally has a huge advantage over them, actually––just look at how extremely few, as you said, are able to do remarkably well—we can count them on two hands, almost, right? They just have too many aspects keeping them from doing well. Absurdly, the guys who, more than any others in the world, are paid exclusively to make (manage) money, have incentives that tell them to do just the opposite; to throw it away, basically. After all that is what they, on average, are doing: they charge a fee for managing your wealth, and then they diminish (in comparative terms) the worth of that wealth. They are not just meaningless; they are destructive and counter-productive – and not only to what they are paid to do, but to capitalism itself, allocating capital to precisely those places where capital should be withdrawn from and vice versa.
I find it deeply ironic that capitalism, supposedly the most effective system there is, have so many ”consultants”, money managers, analysts and the like, whose function (on average) are, at best, highly questionable. To me, in most cases, they seem to fill the same role as seers or astrologers – they are someone who makes us feel good, even if there isn’t really a rational reason why. We go to them and say ”please tell me that everything is okay” or ”please take my money” and they say ”well … sure!”
Most people just want to put responsibilities in someone else’s lap, so that they don't have to deal with the burden of making decisions themselves. But then the outcome, of course, will be––at best––average (that is, in this case, 'subpar' (not beating the market)). |
