Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Michael Burry who wrote (6560)	4/3/1999 2:29:00 AM
From: James Clarke	Read Replies (3) \| Respond to of 78648

Why is everybody looking for a shortcut? Is it so hard to read a 10-K and if you don't understand the business move on to something else? And if you can't handle financial documents what is wrong with a mutual fund? If you don't understand the business or the valuation, no formula is going to save you. A bull market may save you, temporarily. Formulas such as low P/E, low P/B, high ROE, and this bankruptcy black box are useful to screen all the securities out there for certain characteristics. But when it comes down to whether or not to invest in a specific security, I don't think there's any substitute for good old fashioned work, plus a lot of financial skill and experience. In a bull market the likes of this one, when people are tripling their money in internet stocks, it is easy to forget that, and many people who should know better have forgotten it. I am talking about people who run mutual funds. When I buy or sell a security, I try to think of who is on the other side of that trade. Somebody is selling it to me, thinking it is going to go down. Or somebody is buying it from me, thinking it is going to go up. Who is that person, what do they know that I don't know? If I don't believe I have more information than the guy on the other side of the trade, why am I betting against him? Its a zero sum game when you look at a single trade. On the other hand, if (as I think is very prevalent today) the guy on the other side of the trade is running some computer model while I have read all the financials on the company, crunched the numbers, understand the business and maybe even sat down for two hours with management, I can be pretty confident. And in the case of this bankruptcy model, if I have three years experience doing leveraged buy-out deals for a major Wall Street firm, I hope to God the guy selling the stock to me is acting on a black box model. Once again, there is no substitute for hard work. Ask anybody who's succeeded at anything. This is not directed at anybody on this thread, certainly not the guy who posted the bankruptcy model, because that may very well just be the start of his research. It is directed at a sense I get in the market today that many many investment professionals think they don't have to read financials or own a calculator if they have the right "black box". It is something I fight at my own firm. As a final thought, I ask you, when an index fund buys or sells a stock, I would think they would be at a disadvantage to somebody who does their homework, because any trade an index fund makes is by definition brainless. I can't for the life of me accept that index funds will outperform good investors in the future because of that one simple fact. The bigger index funds get, the more this fundamental weakness matters. I have a 25% gain in Berkshire Hathaway in three months solely because I bought it from an index fund when they had to sell it. Don't call me old fashioned. I'm only 30. JJC