innerscorecard
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Posts posted by innerscorecard
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Key- man risk is much lower in Berkshire than in a lot of corporations.
Apple stock has done well after Jobs died. I am not worried about Berkshire after Buffett.
I don't think Berkshire and Apple are comparable in this regard. Apple is a very focused company, despite now being so large, both in terms of how much business it does and how many employees it has. It only really has one mission, which is to bring to market computing devices including the ecosystem supporting them. Berkshire is a conglomerate with each business unit having different aims. You could say that this makes the key man risk less with Berkshire, which may be true. But it also could be true that this actually makes Buffett's role even more important and thus idiosyncratic, which would cause a much larger disruption to Berkshire than Apple upon losing the key man. I really don't know one way or the other, and I think it is unknowable until the rubber actually hits the road. Everyone always look prepared before the bad event actually happens.
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I think I might be confusing it with the millionaire next door. I didn't actually read rich dad but I bet just from the title that taleb's criticism would still apply.
Rich Dad, Poor Dad, by all indications, was fictionalized to the point it should probably be considered a novel. It recommends illegal or questionably legal activity and promotes reckless behavior. It's one of the first finance-related books I read when I was a teen, and I thought it was great at the time.
That reminds me of a herman hesse quote: "History's third dimension is always fiction." And he was talking about serious history, so it can get a lot worse than that
The Millionaire Next Door is in no way like Rich Dad Poor Dad. Actually, the underlying ideologies are completely different.
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In other news I think I've found the formula to gain friends online. Go on the message board and bash the person it's named after....
I might have to turn in my value investor certification soon. I just hope I don't run into any value investors in a dark alley after that. I can't imagine being hit over the head with the 1968 Moodys manual...
You can start calling yourself a value investor again after you have finished building up the oddballstocks cult of personality, giving talks at Columbia Business School and being mentioned weekly on valuewalk.
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We have evidence that index funds are near impossible to beat
It's not correct to give the statement like this. Market-cap weighted index funds are very hard to beat for mutual fund managers, net of fees and costs. The considerations are different for disciplined, trained and skilled individual investors.
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‘Crowd’ Sites Let Startups Tap Small Investors’ Cash
http://www.wsj.com/articles/crowd-sites-let-startups-tap-small-investors-cash-1423446571
"The moves are a sign of the intense desire among small investors to try to cash in on the technology industry’s gold rush. Rather than wait for up-and-coming firms to go public, these investors are pouring money in much earlier, hoping for supersize returns if a company becomes a hit."
How to profit from this bubble before the burst? ;D
Plenty of signs it burst last March
I didn't notice.
I talked to a VC about a year ago about selling a tech company. He said that valuations had fallen through the floor and I could only expect 10x sales compared to 20-30x sales a year earlier.
To stodgy old value investors 10x sales is probably considered high. But when valuations fall 60% or more I'd say that's significant. Keep this in mind, valuations are much different for young and growing companies verses a larger stable mainline company. A startup might have 50% YoY sales growth, something you're not going to see at KO.
On a ski lift I spoke to someone who was ranting and raving about the 'second tech bubble'. He is an engineer at a mega-corp, very stable job, risk adverse type. He lived in SV during the first bubble and was visibly frustrated that his friends who went into tech became rich through options and IPO's whereas he never did. All he got to do was attend the parties. He felt like this was even worse. To me it sounded like someone who missed out and wanted everyone else to suffer.
In the 90s the market was ahead of itself. There were companies with no profits on the back of unproven business models. We wanted things like WebVAN to work, but it wasn't feasible, the infrastructure wasn't in place. Now 15-20 years later we're seeing companies implement some of the ideas we had back then. There's a difference, these companies now are profitable and are growing. Clearly the market is excited about them and has given some high valuations, but there is the potential to grow into them whereas Pets.com never was going to.
Maybe a poor analogy but look at the chemical companies in the 60s (I think). They were the high tech bubble stocks of back then. All sorts of promises of a better future. They were clearly a bubble. Then 20 years later in the 80s those dreams were implemented and you had a second wave in many ways. But the companies in the second wave grew into the dreams everyone had from the 60s and earned their valuations.
Rather than worrying about tech stocks being in a bubble I think value investors should be looking at tech stocks and wondering which new companies are doing to destroy their old mainline blue chip shares. A few years ago no one would have thought that the taxi business could be disrupted, and suddenly here we are. It's when industries such as the taxi industry are disrupted that one realizes we're on the edge of a true transformation. Step into many businesses today and you'll realize that they're tech companies with an old fashioned facade.
Why do that when you could just throw it all on the "too hard pile" and take solace from social proof from all the other posters here who use the same phrase? ::)
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This is a great question.
I see 2 main effects of a greater percentage of money in index funds:
1. Less "free float"
2. Greater Non-value based buyers.
Let us imagine that indexing goes from 0% to 99% of all funds - an extreme example.
I think with less free float there could be additional volatility creating more opportunity for those who are value oriented.
In addition there should be a lot less competition as the number of true investors researching absolute value goes down.
Probably good for the remaining active value investors. Tricky though.
The other thing I have recently realized is that some huge percentage of people don't really know what the index they are buying is worth. I am talking about long term oriented investors too. I have seen it too many times now. Reits and small caps are very expensive now and people are piling in. They don't know the value at all.
Regular index investing is premised on the efficient-market hypothesis. It should be completely value-agnostic. The idea is that you don't know whether a bubble will keep on going, and you don't want to miss out, so you just keep on dollar-cost-averaging in. In the long run, this will work out, as you also keep steadily buying in during market declines.
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Maybe these guys are like two English professors debating a good book over a pint at a pub, I don't know, it's possible.
In my experience with academics, they really, really hate disagreement. Especially if they are at elite institutions. They like people who quibble with their minor points, and point this out to show how enlightened they are in fostering debate, but they generally can't stand real disagreement.
It's the same way almost everyone in the world actually is.
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In my experience, when anyone tells you they want you to disagree with them and tell them, they don't want you to really disagree in a big way.
I wonder if it is truly different with people like Ray Dahlia, who says that Bridgewater is built on that principle not being true. I wonder if they only pay lip service to that, or truly operate in that fashion. It is so contrary to human nature.
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You write many interesting things on your blog, Innerscorecard. Thanks for sharing your thinking.
This is pretty close to my thinking:
http://www.innerscorecard.co/blog/2015/1/18/aiming-low
I also enjoyed the Marry Poppins post. I probably should watch that film at some point (saw parts of it when I was very young, but I don't remember much except flying umbrellas).
Glad you enjoyed it! My blog is from a position of ignorance and inexperience, as someone like Kraven would obliquely and mercilessly mock me for, but maybe that's useful too.
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Yeah, I know it didn't include everything. Even the Morningstar chart is pretty close considering what most people would expect one of the smartest value investors to be able to do in 10 years. I'm not saying he won't overperform over time, and that his holdings aren't much cheaper and lower risk than the average company in the SP500 or anything like that. Just pointing out that this is still a close race even when measured in the decade+ scale.
I think the best way to evaluate a fund manager is over one of more full market cycles. If you look at closer to bull market peak or a bear market bottom, you get quite different results. Or a second best way would be to look at multiple independent multi-year periods. Otherwise performance is too sensitive to starting and end point levels.
Vinod
Agreed. I wasn't "evaluating" Bruce. I know he's good, and I expect him to beat the SP500 over time, and he has a good process. I was just saying that 10+ years is still a long time, and that someone who bought FAIRX 10+ years ago and never touched it might not feel quite as philosophical about measuring only over full cycles.
It was just a random thought. Don't read too much into it. Though it's still true that most people should probably just buy a low-cost index.
Most people don't intuitively get what value investing is, so they would have no reason to stick with a value manager when things look bad.
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That was a good interview. Francis is a smart character and doesn't pull punches. I am surprised the interviewer got him to speak as much as he did.
I believe it was reader questions e-mailed to FC. He then chose to answer all of them through copy and paste. Gurufocus also interviewed Greenblatt in a similar format, but Greenblatt only answered some of the questions.
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I really enjoyed this. Chou's thinking was clear. I like how he went out of his way to answer every question, even the repetitive ones, through giving repetitive copy and pasted answers.
I have not really previously studied Chou or do I know his record very well.
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I see these articles as very trite, smug and late. I would take them more as contrarian indicators than anything else.
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Based on what has happened so far, as well as the way that policymakers and society think, I think that midway scenario is the most likely.
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www.youtube.com/watch?v=kaM411ryCxs
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I disagree on a few level, but don't really feel like getting into it since it kinds of come down to how much we think we know these people (to be able to take educated guesses at their motivations, talents, etc).
I think many people just can't accept that some people are just more able than others. They have to find ways to chip away at that.
It also boils down to your definition of "better". I think there's a widespread adolescent tendency of focusing tunnel-vision-like on what can be measured (the best guitarist is the one who does the fastest solos, the best programmer is the one who's code routines runs fastest or have the fewest number of bugs or whatever). I used to care about that kind of stuff when I was younger too, but now I don't so much. I'll take a coder who comes up with the idea for the Google algorithm (PageRank) or the hyperlink over the coder who can do fancier math, more complex code and optimizations, and knows more languages but will never do much original or important work in a lifetime.
Some people's output is just thousands of times more valuable than others, if not millions, even if pedants will call them "worse" at the mundane parts of whatever field they're in... I'm sure lots of physicists and mathematicians were better at all kinds of math than Albert Einstein or Richard Feynman were, but that's missing the point.
Ha, understanding the Apple thesis will do that to your thinking! You should have seen the posts in the IBM thread talking about how IBM was an innovative enterprise as they produce so many patent filings every year! (I'm no bullish or bearish on IBM and haven't done the research - but that claim was just so patently absurd.)
I actually first typed out "better" in my post that you quoted, but I changed it before I submitted it to "more able." I think it's a big distinction. I actually just wrote about this whole issue of "better," here (where I also just wrote a lengthy comment): http://www.innerscorecard.co/blog/2015/1/18/aiming-low
(Parsad or anyone else - if it's not okay to post a link to my own website here please let me know and I'll edit it out.)
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I disagree on a few level, but don't really feel like getting into it since it kinds of come down to how much we think we know these people (to be able to take educated guesses at their motivations, talents, etc).
I think many people just can't accept that some people are just more able than others. They have to find ways to chip away at that.
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The actually usable benefit is that the transfer of money is hard to regulate. You can evade currency transfer restrictions. Such as in China. I'm surprised you are such a Bitcoin bull and haven't thought about that at all.
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So it's obviously ok to tell others to buy a stock for no reason at all, but it's not okay to talk about why.
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I would ask why he says he doesn't want to talk about his holdings and then has a "stock tip" to "make his neighbors rich" as his license plate.
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I purchased some bitcoin for the first time last week. I bought 2 BTC at about $185 each. Speculation, of course. I'm just going to sit on them and see what happens. Maybe buy a few more if the price drops significantly from here. I used coinbase.com.
My theory is that in 25 years 1 bitcoin is going to either be worth the equivalent of $1M 2015 USD with people using nanobitcoins for most transactions (people will get paid in bitcoin, buy everything in bitcoin, oil and stocks will be traded in BTC, etc)... Or it is going to be worth $0 and be long forgotten. It is either going to catch on in a huge way or die out completely. I don't see any other mid-way scenario being possible.
If Bitcoin becomes the dominant technology for transferring money, why would holding the instrument make you fantastically wealthy? It's like what Buffett said comparing Bitcoin to checks. Checks were a great way to transfer money as well. Does that mean you should buy checks in the hope they will appreciate in value?
That said, I have a few USD worth of Bitcoin that I received as tips on reddit. I'm not in a hurry to sell them.
(Edited for a spelling typo only.)
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I think frugality and even more so extreme frugality and efficient living are significant structural advantages as an individual investor.
- You are more tax-efficient than someone who earns a lot and spends a lot.
- You compound faster due to decreased personal expenses.
- You avoid having to sell assets that have temporarily depressed prices, in order to maintain a certain lifestyle.
I know I need these advantages. I don't really have any others. Perhaps behavior, in the sense that behavior is tied to one's financial position.
- You are more tax-efficient than someone who earns a lot and spends a lot.
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I like both MMM and ERE very much. To me, MMM is more a concrete template that actually will work (not too hard, not too much deprivation) for a typical middle class family if applied exactly, whereas ERE is really an evergreen philosophy and a much more challenging way to look at the world. The ERE book is really good.
My spouse and I are fully on-board the plan. We don't make a lot of money, so lifestyle efficiency is a must to have enough money to invest to allow us to be financially independent while we're still young enough to enjoy it.
Life is Crazy or Ask Scott About Life
in General Discussion
Posted
I agree with a lot of what you say on a deep and philosophical level. There's a lot of overlap here with the early retirement and financial independence community, especially the more interesting (ie not just hoard middle class money) segments, that are interested in things such as van-dwelling and freeganism. Such as me.
One thing that was unclear from what you wrote. One of your sentences seems to say that you just left the Motley Fool, but then another seems to say that you're still there, and were recently promoted? I think there's some misunderstanding on my part, right?