Sionnach

While I agree that it is difficult to beat the index, investing is also a meritocracy unlike many corporate jobs as your hard work and luck rather than petty politics determine the rewards. Also being an active investor is worth it just for the fun and learning from it that is put to good use in future investing and other fields of life. As long as the snowball is rolling and collecting snowflakes (Buffett) and you go to sleep a little smarter than when you woke up (Munger) who cares... +1. Investing on the side is a phenomenal way to learn about business. Can't tell you how much it's helped me in other careers. Most investors are very introspective, as well, so it's helpful in terms of just understanding yourself and your emotions better. As you said, its a meritocracy. There are no rules for achieving success. Look at Allan Mecham. The guy didn't graduate college and is managing a Bil'. Of course, the goal isn't to have the greatest number of assets (its a nice side benefit), but these guys are extremely proud of their track record because they work hard, love the challenge, and would do it even if they didn't get paid

I'll just put this here.... 8) https://www.bloomberg.com/news/articles/2015-07-30/warren-buffett-s-family-secretly-funded-a-birth-control-revolution If anything he's referring to how he had to woo susie with his ukulele (half joking) maybe it should be "If a lady says no, play the ukulele"

What you are saying is that alpha is zero sum game (in closed system). This is true. What do you mean by "closed system" by the way?

What you are saying is that alpha is zero sum game (in closed system). This is true. However, this in no way relates to the claim that "on a dollar weighted basis half of investors have to outperform an index." Not sure if you wanted to relate to that claim or not. 8) Maybe the claim "on a dollar weighted basis half of investors have to outperform an index." was supposed to express that alpha is zero sum game. Maybe it was supposed to say: "in dollars outperformers outperform by the same sum as the underperformers underperform". But that's not what it said. 8) Here's the quote from the Sharpe paper that proved it: "Over any specified time period, the market return will be a weighted average of the returns on the securities within the market, using beginning market values as weights. Each passive manager will obtain precisely the market return, before costs. From this, it follows (as the night from the day) that the return on the average actively managed dollar must equal the market return. Why? Because the market return must equal a weighted average of the returns on the passive and active segments of the market. If the first two returns are the same, the third must be also." Tbh I haven't completely wrapped my head around it, but i'm not sure i'd go around disagreeing with Sharpe and Mauboussin, who are both miles smarter than I am. I think my single transaction example works pretty well for me. If that's replicated for each transaction then on a dollar weighted basis (as the night from the day) half would outperform and half would underperform before fees

Invitation homes recently IPO'd. The company is a product of Blackstone's single family home acquisition spree in mid-2012. They now have a portfolio of 50k single family rental homes. For those who don't remember, back in early 2012 Buffett said in early 2012 that if he could be investing his money anywhere it would be in single family homes. Here's a thought experiment: Let's say in another dimension Buffett DID acquire 50k homes after the crisis. What do you think he would be doing now? Sell it to invitation homes? Use the cash flow from rental income for other acquisitions? Sell the homes in the market? Keep it as a sustainable business? What do you think and why?

I think a better example would be to look at a single transaction: If every investor is equal weight and two investors trade a single share (one buys, one sells). The buyer then becomes overweight that security relative to the index and the seller becomes underweight the security. Therefore one investor will have positive alpha equal to the negative alpha of the other investor.

Value ventures - I was in your exact spot basically two years ago. This is a very interesting question. I'm not sure I have the answer yet, but I can tell you what I've learned. I'm a value investor born and raised, but decided to go to Wall Street and do equity research out of school. Every stereotype about wall street is absolutely true: all conversation was about macro/interest rates, next quarters earnings, or the stock chart. Never did I hear the words "economic moat" or "long-term". What Dingaan said was exactly right: its a sales role. Analyst would often downgrade a stock, knowing they would upgrade it a few weeks later, simply for the purpose of generating headlines, which means more trading from clients, which means commission $$$$$! So basically, it was an unethical joke with no social purpose (as Dingaan said). I went into management consulting for a year and found it to be equally BS. I'll get to the point - I honestly think active management of public equities is essentially dead. Very few can/will beat the market. So much capital is chasing so few publicly traded companies, passive is the way to go for most institutional investors. Buffett would agree (see annual letter). For you, this means there's very limited opportunities for a career in value investing in the public markets. Here's what I think: the future of careers in value investing is in alternative assets, i.e. Real Estate, Infrastructure, Private Equity, and High Yield or Distressed Debt. There is still plenty of opportunity for active managers to add value in these areas. I've noticed Apollo, Oaktree, and Brookfield, most notably, apply the Buffett/Graham philosophy to different areas of alternative assets. I recommend watching some Milken Institute youtube videos on the dynamics of the private equity industry. Even Buffett is getting into LBO's, whether he will admit it or not (See Kraft/Heinz). So I would say, see what you find most interesting in alternative assets (maybe Real Estate), or find a firm you think is interesting (maybe Oaktree), and get a job there. Public Equities are not the only avenue through which you can apply the value investing philosophy.

+1

"The world ain't all sunshine and rainbows. It's a very mean and nasty place, and I don't care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain't about how hard you hit. It's about how hard you can get hit and keep moving forward; how much you can take and keep moving forward." Charlie must've seen rocky

I agree with other comments - I excitedly printed out this whole PDF only to find the majority of it was useless. The important insight I gained from it was the importance of the outside view and having greater humility when it comes to the inside view. This was helpful to me when looking at FOGO which has supposedly attractive economics (inside view) within a brutally competitive and low barrier-to-entry industry (outside view).

I don't quite get why people are so negative on Performance Sports. Bauer is a dominant brand in hockey equipment. If you know hockey, you know Bauer. Likewise with Easton and baseball. Sports equipment manufacturing isn't a beautiful business, but it's certainly no cigar butt. From what I've gathered, they went under because of high debt and poor management, not necessarily poor economics. I haven't looked at either company extensively, but I'm not sure why this would be so different than Brooks shoes, which is owned by BRK, for instance.

I'll read and reflect on the interview and get back to you on that, but I am a avid admirer of Mecham. I was lucky enough to meet him a few months ago and he is a genuinely nice and down-to-earth guy. Thanks, again!

You're the man! This is awesome, thanks! :D

Excerpt from the Mecham Interview: http://latticework.com/an-insight-from-allan-mecham-on-understanding-industrial-distribution-companies/ Always interesting to hear his thoughts. Would it be possible to get the rest of the interview posted here? Thanks!

You're making this question a lot more difficult than it needs to be. If the market projects the cash flows of a business will be $0 for 364 days and $107 on the 365th day, and $0 thereafter, the present value of that business at t=0 is $100 using a 7% discount rate. In 1 year you'll have $107 in cash if the markets projection is correct. Your return will be 7% even though the market accurately predicted the cash flows. I absolutely agree I think the answers talking about demographics etc. are missing the point of the question. Demographic growth would be factored into the stock price in the form of future cash flow growth. The question is asking why do stocks go up even with all future expectations factored in? The reason is because those future cash flows are discounted at a rate greater than inflation