Cigarbutt

I would tend to agree with you. In fact, I am trying to define some kind of simple formula, to help trustees deal with funds when I'm gone, that would follow +/- Mr. Buffett's 90/10 rule but, at the same time, would prescribe a way to deploy funds.(to try to avoid what you describe) Very long term though, common stocks remain the way to go even with bad timing. Nice studies and reports have shown that, even if your entry was at the worst possible time, long term results of investing in a basket of inflated nifty-fifty stocks are quite satisfactory. (not in the first years though) I would add also that, if you follow the "be always fully invested in stocks" mantra, and if you maintain cognitive coherence, you should have no problem plowing a large amount like an inheritance into common stocks in one single shot. Long term, things get easier but investing is not easy. The goal is to do better than the index. Isn't it?

I would add that Mr. Buffett has cultivated his public image and, despite the folksy manners, is a really shrewd negotiator and investor. Also, he has used strategies to diminish taxes at the corporate level and has been critical of holdings (think Kraft) that did not devise tax effective transactions. However, my opinion is that he is sincere about personal tax reform that would include higher income tax rates for the very rich. http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html

Came across this. https://www.advisorperspectives.com/articles/2016/02/01/now-is-the-time-for-value-to-outperform-growth Includes this quote from Mr. Steve Jobs: "I'm convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance." Perseverance or stubbornness? Grey area.

The answer to the question may depend on what exactly you are talking about ie personal funds managed by himself, funds managed by fiduciaries or other. The relevant answer maybe is: From 2013 annual report, "My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers." I also seem to remember that he advised, based on the above concept, to adapt the withdrawal rule to retire funds from the bond side when stock markets did not do well. My understanding too though is that he probably personally favored 100% stock allocation all/most of the time. Unless (that part remains somewhat fuzzy). I would like to politely underline that the cash pile at Berkshire has grown at an incredibly high pace in the last few years. Mr. Buffett's money tends to be where his mouth is. No?

Fair enough. The competitive landscape may change. But, it could go both ways. Disclosure: biased with cycles and reversion to the mean mentality.

Planned to fish at the bottom for ideas this morning, trying to spot the "pockets" of value left. Will share if applicable. My net mostly comes out empty these days. Maybe not looking at the right places. Will keep trying. But got again distracted by an article that I think is not benign and suggests that maybe excessive (?) central bank interventions and attempts to manage the economy have introduced some serious distorsions in asset values. http://viableopposition.blogspot.ca/2017/08/ And then they say that markets are efficient. :o

I really respect Mr. Chou and have followed what he has written, bought and sold. However 5 and 10 year periods are sufficiently long to evaluate performance and smooth statistical fluke. The tide may change but survival is about adaptation. I submit though that the oration being spelled out may be too severe as it reminds me of the death of equities mentioned in some 1970's headlines. Value investing is not dead. The best days are ahead. Past performance is not indicative of future returns and I suggest that Mr. Chou's returns will be relatively better.

Trying to follow here versus the present opportunity cost of holding cash. Opportunity cost can be a forward looking concept. With inflation, bond yields and earnings yield being so low, historically speaking, why would the opportunity cost of holding cash be considered high now? There must another explanation than fear of missing out? No?

It also depends where you are in the underwriting cycle. https://www.canadianunderwriter.ca/insurance/m-best-projects-combined-ratio-100-3-u-s-industry-2017-1004108128/ http://www.insurancejournal.com/news/national/2017/06/29/456156.htm But reaching for yield seems to be prevalent these days and, given the unavoidable volatility sometimes down the road, industry players with a sufficient margin of safety on the asset side are likely to benefit. Time to work on the watchlist.

Thought provoking. What comes to mind: -Thinking like a private investor may help. -What Mr. Charlie Munger has said: http://www.valueinvestingworld.com/2013/11/charlie-munger-on-his-experience-in.html https://www.cnbc.com/2017/02/15/stock-pickers-beware-charlie-munger-thinks-youre-in-big-trouble.html To be a contrarian value investor is nice challenge. You have to be different AND right. Passive investing is certainly "winning" now.

Good points investmd. Unfortunately, it may boil down to your investing style or even personality. I am not sure I would be able to, in a secular downturn, sell securities at a loss in order to take advantage of other opportunities. Maybe? Your arguments are convincing but, for perspective, I would add the following paragraph from a recent commentary by Frank Martin: " Benjamin Graham once noted, “You don’t need to know a man’s exact weight to know he’s obese.” In an early 1929 exchange between Graham and Bernard Baruch, both agreed that the market had advanced to such “inordinate heights, that the speculators had gone crazy, respected investment bankers were indulging in inexcusable hijinks, and that the whole thing would have to end up one day in a major crash.” Several years later Graham lamented, “What seems really strange now is that I could make a prediction of that kind in all seriousness, yet not have the sense to realize the dangers to which I continued to subject the account’s capital.” Baruch, in writing the foreword to the 1932 edition of Extraordinary Popular Delusions and the Madness of Crowds, expressed sentiments others will feel again should this current episode in financial folly end badly. " I am quite optimistic in general, but my opinion is that we live in an unusually benign period. An investor I respect a lot, Irving Kahn, spent literally decades investing in securities with a fairly consistent value attitude. He started short selling though. This is not an easy question and even Fairfax seems to be struggling somehow with this aspect. When you manage portfolios for others, it gets even more complicated. For now, I will stay on the sidelines and will do more thinking. Thank you for the comments.

It's an old book (1997) and it is a balanced auto-biography by Gordon Cain. Got the idea indirectly from this Board. I enjoyed it and thought it was still relevant. The financial highlight of his life was the successful accomplishments of several leveraged buyouts using junk bonds in the 1980's. Much has been said about the junk bond era and reading Barbarians at the Gate certainly offered another perspective. I understand that Gordon Cain was able to buy chemical plants at the bottom of the cycles, restructure them and create a tremendous amount of value. Unlike many other participants who may act as greedy vultures in these circumstances, it seems that he was able to integrate honesty and fairness into the process. The book is well written and includes perhaps too much information about his life before his main accomplishments. His vocation as a deal maker occurred relatively late in his life. He was clearly a contrarian who could detect and uncover value. He was patient and expectant when necessary but could focus and inject a "clarity of purpose" when needed. Value investors may appreciate. He offers his own pearls of wisdom. What comes across is that he was an apostle of free markets and wished less encumbrance by the government. However, he seemed humble and open to different and opposing views. He attributes at least some of his financial successes to these qualities. He was a pragmatic man who was "not interested in social theory" but always tried to optimize factors under his control. He was critical about many regulations and various government agencies. However, he also underlined positive aspects of unions and various government interventions. He wished that the government could go through a restructuring just like he did with the acquired firms. Mr. Cain was results oriented and understood incentives. He liked and applied the works of Deming concerning efficiency and productivity. He was not entangled in a dogmatic conceptual framework. He felt that there was a major problem with "the inertia and bureaucracy of large institutions". The book contains chapters dedicated to certain transactions which could be treated as case studies. A major aspect of his "deals" was that, in addition to himself, managers and workers benefitted as well in a fair way. He encouraged share ownership and put in place profit sharing programs. So, interesting for value investors, people involved in restructurings and/or corporate financing and just for those who believe that individuals can make a (positive) difference. Everybody wins!

The GMO paper deals with equities. A lot can be said about the bond markets too. I know, the link provided is coming from a site often tainted by doom and gloom but the graphs are food for thought. European junk bonds spreads gravitate towards US treasuries. (!) Some of these CFA equations that I still use from time to time really give weird answers these days. http://www.zerohedge.com/news/2017-08-10/italian-junk-bonds-yield-less-treasurys-insanity-bond-market-4-charts

In the aggregate, the opportunity set appears to be challenging. Likely many valuable pockets left and who knows how long this tailwind will last. Sometimes doing nothing and sitting on your ... may be OK? Thanks for the link.

Thank you John Hjorth for the article. The Korean War which finished in 1953 was not really finished. China became massively involved and forced an armistice with the US, reaching some kind of equilibrium. This North Korea clash is really about super powers as China is testing the waters. Let's hope for a bilateral retreat but the Korean Leader and Korea's geo-political importance is at a completely different level versus Libya or Iraq. This is about balance of power and shifts. Tectonic shifts can be immaterial in the grand scheme of things but are unpredictable. I don't like the present scenario. http://sam.gov.tr/wp-content/uploads/2013/06/Namrata_Goswami.pdf

You then need humble souls looking for compromise. Good luck. Poison pen ranters nourish themselves on confrontation. The Supreme Leader won't abandon. Expect more stars to fall and more slathered worlds. One has to remain optimistic but humans are what they are.

I would submit that we should look also at graphs that show margin debt as a % of GDP. Graphs are less impressive/scary but this specific variable certainly points to some complacency. Thank you for the letter. I am mystified too by the extremely low levels of volatility. However (only a personal/subjective opinion), I find it presently feels like when one stands in the eye of a hurricane/tornado. I worry about rogue winds. I'll stay in the basement for a while.

I'm fairly new but somehow got into the article on the relevance of remaining fully invested. This is work in progress for me. Racemize, your article has made it to my reference base for this topic. Thank you. I will look at the rest.

In the long run, we will all be fine (or dead), I know. Still interesting to evaluate potential pathways, in terms of reaching destination. https://assets.realclear.com/files/2017/06/609_NYC.pdf https://www.fool.com/investing/2017/06/17/1-chart-may-change-everything-you-know-about-achie.aspx In terms of financial independence (and flexibility), perhaps, many private and most public pension schemes should get inspiration from Mr. Money Mustache.

Thought I could bump this up with a new link that I found interesting and relevant. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2853538 Takeaways: -expected returns are too optimistic. -savings rates need to be raised. -increased life expectancy is a significant secular trend. -for some firms with significant pension assets and liabilities, I would expect "adjustments" going forward as the liability will tend to be stickier than the assets.

This is another bias that I try to neutralize. When things (investments) don't turn out the way they were expected, many outcomes are possible in terms of feedback. One way is to re-write history and to do selective information recall. The "I knew it all along" line when, in fact, this was not the case. This is a common and largely unconscious bias that "helps" to prevent blame and "helps" to promote the ego. May lead to false conclusions and unfortunately to over-confidence. Dangerous game. When I look back at the 2007-9 episode, I happened to be on the right side of many trades. Part of my thinking wants to attribute most of this to rational analysis. Wrong. After the 2007-9 period, I felt that the debt overhang would cause high yield debt spread to spike and remain elevated in a deleveraging environment. https://fred.stlouisfed.org/series/BAMLH0A0HYM2 -click MAX Wrong again. I need to look at alternative explanations. Also, sometimes, you may be "right" for the wrong reasons and "wrong" for the right reasons. Investing is fascinating. Isn't it?

"Controlled detonation". I like that. If (and that's a big if) markets start to falter, expect finger pointing. The Fed would do all it can to escape criticism, would even try to "manage" expectations. Usually, I don't spend much time on this macro stuff but some aspects are fascinating. After all, we are going through the greatest monetary experiment of all times. For those who are interested, a recent speech by Mr. J. Bullard, who has said in 2010 (7 long years ago) that he was concerned that the US could become "enmeshed" in a Japan-style deflationary outcome. https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/2017/Bullard_Keio_University_26_May_2017.pdf?la=en Recent deflationary trends definitely represent another conundrum that will eventually require an explanation.

Also Value Investing does not work anymore: https://www.bloomberg.com/news/articles/2017-06-08/goldman-sachs-mulls-death-of-value-investing-after-losing-decade And stock picking is out: http://www.cnbc.com/2017/06/13/death-of-the-human-investor-just-10-percent-of-trading-is-regular-stock-picking-jpmorgan-estimates.html I'll stick to fundamentals.

Thanks for the reminder. For BH now, numbers are really big. My comment also had to do with our own individual assessments of specific circumstances versus leverage and opportunity set. Mr. Buffett is the Master. As individuals, we adapt (try to) to circumstances which are fluid. From my perspective, in 2007, I had zero investment leverage or otherwise. In 2008-9, I had a lot. And now it feels like 2007. Maybe it's all bias. I have looked at recreational properties around my area. The price to value is in correlation to all assets in general. Maybe, it's all because of low interest rates. But I wouldn't bet on it.

Time for quantitative tightening? It may be harder to put the paste back in the tube.