Nomad

Didn't he also say that Japan was a "time bomb" and that JGBs were all but certain to imminently default a decade ago? He's the Elaine Garzarelli of this generation.

I recall reading in one of the Buffett biographies that WEB knew Ben Graham was ready to hang it up when Graham told investors to buy AT&T, the fully-valued large cap stalwart of its day. After reading the 2019 letter, I'm left wondering: Has Buffett himself reached a similar point? This is not intended as criticism of WEB, who I admire very much and whose public statements and writings have been invaluable to me as an investor and a human being. But recent developments do make me wonder. In the last couple of years WEB has: - Recommended market-cap-weighted indexing for most retail investors (not a bad approach IMO, but curious given his famous "Superinvestors of Graham and Doddsville" article from the 1980s and also possibly a route to heartbreak given recent market valuations and popularity of the strategy) - Made several purchases, including AAPL and some VC-style investments, in the very technology sector he once considered anathema (these are probably the work of Todd and Ted but nevertheless reflect a marked change in approach for Berkshire) - Written increasingly short letters to shareholders (50th anniversary edition notwithstanding) - Told investors that the market value of Berkshire, not the book value, is the preferred valuation metric going forward (2019 letter) The last of these was the most shocking for me given how much emphasis Bufffett has placed on the compound growth rate of Berkshire's book value over the past decades. Granted, in the long run, the market is a weighing machine, blah blah blah, but in the long run we're also all dead, as Keynes pointed out. Buffett has spent what seems like an eternity warning us about the vagaries of Mr. Market and how he can under-price companies for years at a time, only to suddenly switch gears and rely on Mr. Market's appraisal of Berkshire as the primary indicator of its intrinsic value. Am I reading too much into things? It's true that recent accounting changes, the rise of intangible assets, etc. make book value a less accurate indicator of value today than it once was, but to throw it out entirely in favor of the market's appraisal of Berkshire seems bizarre to me given everything I know about WEB. It's certainly possible that this shift is a function of Berkshire's massive size, increasingly efficient capital markets, the sheer number of Munger's cod fishers casting nets in depleted waters, and frustratingly high equity valuations. But could it instead be an indicator that Buffett is content to slowly transition the reins to Todd and Tedd during his later years while remaining the public face of Berkshire? In any event, I'm curious to hear the thoughts of the smarter, wiser folks on this board because I'm legitimately baffled by the seeming shift in Buffett's approach to investing.

I'm reminded here of the possibly apocryphal quotation from Zhou Enlai when asked about the impact of the French Revolution: It's too soon to tell. That being said, I do think there has been too much focus on the interest rate normalization and less focus on the arguably more important process of balance sheet run-off. I think there now appears to be a general consensus among central bankers that quantitative easing tends to create significant distortions in asset prices. And they're probably right - unfortunately, much of the cash that has been pouring into the system since the financial crisis has not been used for productive investment. Just look at all of the companies buying back their stock instead of making capital expenditures and funding R&D. This spending does nothing to increase the size of the company's pie; it merely reshuffles who gets the forks. Meanwhile, on the ground, wage and productivity growth continue to be weak by historical standards. I think the Powell et al would rather see short term pain in asset prices if it results in greater long-term stability for the system as a whole and have been tightening accordingly. In my personal opinion, that is probably the right calculation, but as with anything in markets, nobody knows.

I think the Santa Claus rally gone off the wheels (reins?) and become the Christmas Crash of 2018. I hope that sleigh has airbags! ;D

I'm not even sure you could consider it a very good book for its time. Everything in Klarman's book - including the the title - was lifted straight from Benjamin Graham, who expressed the essence of value investing much earlier and more eloquently in The Intelligent Investor. There is little to be learned from Klarman if one has even a passing familiarity with Graham's work.

Having attended in person this year, I have to third this sentiment - many of the questions were downright cringeworthy. From the "family office" question to the "they call me the Warren Buffett of fertility" doctor to the Chinese man who asked about a World War redux between the US and China, idiocy abounded. And of course there had to be New York parents who flew in their eight-year old daughter to read a "question" from a script they had obviously pre-written. Do people actually fall for this stuff? Also, having stood in line outside the CenturyLink Center, I have to say that I observed all kinds of attempts to jockey for position and cut in line. I suppose it's a function of the growth in the meeting size and the large foreign presence, but it seems like the basic norms of civility shown to fellow shareholders hit a nadir this year. Although I always love to go to Omaha, I'm considering live-streaming the meeting in 2019.

I recently checked this book out from the library and found it to be worth the price I paid for it. Not much in the way of actionable insights, but if you're into amusing levels of narcissism, the book delivers in spades. It serves as a great illustration of the "Shoe Button Complex" identified by Buffett and Munger.

Are we so sure that the top value investors, as a group, have alpha? Take a look at the following "collective" portfolio based on the 13-Fs of the top value minds: http://minesafetydisclosures.com/collective-portfolio. Sort by the 'percentage of total portfolio' in descending order. What do you see? WFC - 13.7% AAPL - 12.1% BAC - 9.9% BRK.B - 8.4% AXP - 7.8% MSFT - 6.8% The names that are driving this portfolio of the "best and the brightest" are American large-caps found in the S&P 500. How much are you willing to bet that this portfolio outperforms the S&P over the next decade? And more importantly, if it does outperform, what do you think the degree of outperformance will be in relation to the transaction costs, time spent researching, etc. that were involved in its creation? I don't pretend to know the answers to these questions, but I am genuinely curious. It seems like it could be very tough to beat the S&P by simply adjusting the weights of the large caps that are mostly found in that very same S&P, especially after transaction costs. If there isn't likely to be a significant degree of outperformance, I would probably be better off sticking my money in a vanilla S&P index fund and going to the beach. Agreed?

It's still relatively early in the indexing game. Less than half of the US market is in passive strategies, so as of today there are still plenty of active investors who are driving price discovery. What happens if/when that indexing number gets to something like 70% or 80% is the interesting question. Just how many active participants does a market need to be considered relatively efficient? On an unrelated note, the ubiquity of the VTSAX / "100% equities" cheerleaders these days may be a great contrary indicator, if you put stock in such things. ;D

This is a very salient point. S&P indexers are right when they say that over time, they will match the returns - minus fees - generated by a broad cross-section of American business. The problems arise when we start asking: (1) what those returns are likely to be; and (2) how long the "long run" is. The first is inherently unknowable and subject to dramatic secular shifts, as you point out. For instance, what happens if Piketty is right and we have reached a secular turning point where returns on capital will be markedly lower going forward? What if the years of fiscal and economic mismangement in the developed world finally come home to roost and businesses find themselves in a vicious macro environment for 30 years? There are many, many more scenarios one could envision. On (2), the long run: Consider the perspective of a Japanese investor in 1989 - if you bought a Nikkei index in December of that year, you would still not even be close to your nominal cost basis decades later. One can also think of Russian investors in 1917, Chinese investors in 1949, and holders of a basket of Confederate States of America bonds in 1865. The long run can be very long, and there is no guarantee that there will even be a "long run." That being said, I still hold a portion of my portfolio in indices. It is a low-cost, low-effort strategy, and if I am wrong about my ability to generate alpha - which I very well may be - then I am hedged against my own arrogance and stupidity.

I do think, for the average person, that indexing is probably the way to go if one understands its purpose and limitations (which, admittedly, few do). To paraphrase Churchill, for the man on the street, buy-and-hold indexing is probably the worst form of investing - except for all the other forms that have been tried.

Over the next 50 to 100 years? Probably. But I suspect that most of us, lacking the genetics of Metusaleh, do not have that time horizon. They are, in my opinion, making the classic mistake identified by Ben Graham: Mistaking a conventional investment for a conservative one.

In the past year or two, it has become a common refrain at financial independence blogs and related fora to push a 100% allocation to VTSAX, the Vanguard Total Stock Market Index. Most of these 'pushers' are Millenials who weren't even around for the crash of '08, much less the collapse of the late 1990s tech bubble or the 16 year (16 year!) S&P bear market from 1966 to 1982. The members of the 100% equities/VTSAX club believe that they will win out in the long run (they naturally decline to define "the long run") because US equities have always gone up. But as investors in 1929 and the mid 1960s discovered, the "long run" can be very long indeed.