Ted Weschler: 500 hours

[Mephistopheles]

Ted Weschler said that he spends a minimum of 500 hours researching a stock before investing in it. If he spends 10 hours/day only on one idea, this is a minimum of 50 days of research.

 

How much time do you spend? This doesn't count research you do after you have already invested.

 

I must confess that I probably spend only 10-20 hours before taking the plunge.

 

Of course, this should also include time you've spent indirectly on an idea. For example, if you've spent 500 hours on BAC, many of those hours should go towards C as well. In this way, Buffett has probably accumulated tens of thousands of hours on multiple industries and companies.

[ukvalueinvestment]

Does that include thinking time?  I probably thought about Emeco Holdings for 5 hours yesterday during the course of my day. 

[ukvalueinvestment]

Mephistopheles - why would you continue to do research after you've invested?  That implies you didn't do as much as you could have done before you invested.

[jouni1]

Mephistopheles - why would you continue to do research after you've invested?  That implies you didn't do as much as you could have done before you invested.

 

is the world not constantly changing? do you actually do zero research after investing? i couldn't sleep at night if i didn't do the basic research for my holdings once a quarter. i do a more thorough look up every year or so.

[jouni1]

i have no idea how long i spend on research. most of the stocks i have bought, i've been familiar with the business for a long time.

 

i wish i could go more pabrai-style, and just use buffett etc for idea generation, then buy if i feel like it. right now the portfolio is half own ideas, half stolen. on the stolen ideas i feel like the work brk(or whoever) has done on a holding means i don't have to be as thorough as on my own ideas.

[Kraven]

This is the equivalent to the reading 500 pages a day thread.  Unless he has set up a system and tracked exactly how long he spends on each investment, it's a symbolic figure.  "Well, I spend a lot of time, must have been something like 500 hours on each one."  It's not intended to be a benchmark for how long one spends.  The answer, of course, for how long one must research a stock is just long enough.  There are stocks I've bought after thinking about them for a long time and stocks I've bought after 2 seconds.  Position sizes differ.  It's akin to the famous Potter Stewart line about knowing it when you see it.  The more experience you have and the more you have a workable process the easier it gets to pull the trigger.

[yadayada]

how the hell do you research a stock 500 hours. Maybe that is a sign you need to look for easier investments? Or maybe he says that to get more investor money?

[jouni1]

how the hell do you research a stock 500 hours. Maybe that is a sign you need to look for easier investments? Or maybe he says that to get more investor money?

 

his track record is actually pretty good. no reason to change his style. he also has enough investor money for now, i think. would be easier with less, they say.

[StubbleJumper]

I don't believe that he actually spends 500 on each security that he purchases.  Just do the arithmetic backwards:

 

Total research time for a portfolio =

 

1) Time spent screening/scouting for ideas +

2) Time doing a coarse sort and discarding 90% of ideas +

3) Time wasted on securities that you throw on the too hard pile +

4) Time wasted on securities that are good, but not quite good enough +

5) Time that you spend deeply researching the few securities that you actually buy

 

 

Now, if he's saying that category #5 requires 500 hours for each security then he needs to reflect a little on how he spends his time.  What that means is that during a year you might work 50 weeks of 40 hours for a total amount of work of 2,000 hours.  If you are nuts, maybe pump that up to 60 hours per week for 50 weeks and that gets you 3,000 hours.  Dividing through, that would only enable him to actually purchase 4 to 6 securities annually, and it would require that he doesn't waste a bunch of time on research categories #1 to 4.

 

In my experience, I find that I spend an inordinate amount of time on categories #1 to 3 and probably don't invest enough time into #4 and #5.

 

 

SJ

[tng]

Good, good. So when I piggy back off his ideas and do an extra 3 hours of research, that is 503 hours into the investment.

[yadayada]

I think it is a bit like painting. I remember a quote by picasso. A woman asked him to paint a cat for her. He did it in like 15 minutes, and charged like 300$ for it. She looked at it a bit dissapointed and asked him, but it only took you 15 minutes, 300$?? He looked at her and said, no lady, it didnt take me 15 minutes, it took me a lifetime of practice to paint that cat.

 

It might have been another painter tho, but i think the gist of it is right :D

[Uccmal]

I didn't vote above because I cant answer the question.  Often times I will start with a small position with limited research.  I bought BAC warrants 4 years ago the first time, a small investment.  Over time, since, I have spent huge amounts of time on it.  My position size grew as my comfort level improved.  But there is no way I know as much about BAC's operations as the CFO and his team do. 

 

The same with seaspan which is my largest position now.  I have held since December 2008. 

 

Buffett did choose his deputees for their temperment.  It is very possible Mr. Weschler is spending 500 hours on an idea, if you include general industry research, phone calls, studying suppliers and customers, etc.  He probably narrows his list quickly, and focusses on a set of ideas.

 

The question really should be: Is it worth the time spent?  The second question should be 'What is the quality of the time spent?  I dont believe anyone can do that kind of work effectively for more than 4 or 5 hours per day.  Is he including "backburner" time? 

 

 

 

 

[Uccmal]

I think it is a bit like painting. I remember a quote by picasso. A woman asked him to paint a cat for her. He did it in like 15 minutes, and charged like 300$ for it. She looked at it a bit dissapointed and asked him, but it only took you 15 minutes, 300$?? He looked at her and said, no lady, it didnt take me 15 minutes, it took me a lifetime of practice to paint that cat.

 

It might have been another painter tho, but i think the gist of it is right :D

 

That about says it.  Nearly 20 years at this has taught me how to filter ideas much quicker. 

[ragnarisapirate]

I'd spend that on an idea if you count all the stuff I have done in the past, that has a cumulative effect...

 

For example, researching backlogs of companies in the past help me understand the backlogs of companies that I look at in the future... Maybe that is what he was getting at?

[Guest longinvestor]

I didn't vote above because I cant answer the question.  Often times I will start with a small position with limited research.  I bought BAC warrants 4 years ago the first time, a small investment.  Over time, since, I have spent huge amounts of time on it.  My position size grew as my comfort level improved.  But there is no way I know as much about BAC's operations as the CFO and his team do. 

 

The same with seaspan which is my largest position now.  I have held since December 2008. 

 

Buffett did choose his deputees for their temperment.  It is very possible Mr. Weschler is spending 500 hours on an idea, if you include general industry research, phone calls, studying suppliers and customers, etc. He probably narrows his list quickly, and focusses on a set of ideas.

 

The question really should be: Is it worth the time spent?  The second question should be 'What is the quality of the time spent?  I dont believe anyone can do that kind of work effectively for more than 4 or 5 hours per day.  Is he including "backburner" time?

In the only interview that Weschler, Combs, Britt and Buffett were on together on CNBC (think in Feb this year), this is exactly what Weschler said. He discards ideas quickly and focuses on the filtered idea. Also mentioned that reading is built upon a knowledge base on the subject built over years. He mentioned Dialysis is something he has been studying since the 70's (or 80s?). While we are talking about voracious reading habits, being a learning machine etc. only because we have a role model in Buffett, it is truly important to note that he has made far fewer than 100 decisions over his lifetime after all that reading. It is fairly easy to be a busybody with reading but very difficult to accomplish what Buffett has done, which is mostly to do nothing, most of the time. This is a rare kind of patience or "genetic predisposition to risk avoidance" as he puts it. We all know how much Munger helped Buffett with the additional filtering to help with the too hard pile,  wonder who will play Munger's role for Weschler and Combs? One another? Someone else? The Buffett/Munger combo is unlikely ever to be repeated.

 

 

[frommi]

I doubt that there is a link between time spend on an investment and return. And when there is one its probably the other way round, the longer i need to convince myself the worse the opportunity. When good things come around you know it the second you look at the numbers.

[rkbabang]

I voted 0-50.  I don't invest full time.  I will throw something in the too hard pile long before I spend 50 hours trying to understand it.

[watsa_is_a_randian_hero]

If it takes a minimum of 500 hours to generate alpha on a stock idea, count me out.

 

I doubt I've ever spent more than 20 hours researching prior to investing.  Usually a hour or so analysis; maybe a few hours of digging, and a couple hours of thinking would be typical for me.  It depends on the size of the position too.  For my largest positions (which don't always start as large), I'm doing a lot more digging prior to making additional investments, but I may have invested in those same securities too start at a smaller position with not quite the same level of due diligence.

[yadayada]

I doubt that there is a link between time spend on an investment and return. And when there is one its probably the other way round, the longer i need to convince myself the worse the opportunity. When good things come around you know it the second you look at the numbers.

yeah for sure, good investments are th eones you try to kill from the start, not the other way around.

[saltybit]

I wonder if the 500 hours includes scuttlebutt research, which Ted Weschler might hire additional people to help him do.

[BTShine]

The best part about this poll is that it validates how honest people are on CoBF.  Good to see there probably not much 'grade inflation' going on here. 

 

Vast majority (~80%) said 0 - 50 hours when I checked.

[Palantir]

So you would need to spend solid 5 hours in a day, everyday, for more than 3 months before you buy a single stock? I'm gonna do that from now on.

[yadayada]

depends on position sizing as well right. If you buy 20% stakes, then i would do a heck of a lot more research. But with like 2-5% stakes... Not as much. There the 80-20 rule counts.

 

Also scuttlebutt would take up the most time here. Building relationships, just making small talk with the CEO's of these company's. Reading up about them, maybe reading a book they wrote.

 

There was a good vid posted here a while back about some scuttlebut guy, where he described the process. I can see how that can take up 500 hours. But then you really gain a pretty deep understanding in the industry. Im not sure if that is really possible for us lowly retail investors tho.

[tng]

If it takes a minimum of 500 hours to generate alpha on a stock idea, count me out.

 

I doubt I've ever spent more than 20 hours researching prior to investing.  Usually a hour or so analysis; maybe a few hours of digging, and a couple hours of thinking would be typical for me.  It depends on the size of the position too.  For my largest positions (which don't always start as large), I'm doing a lot more digging prior to making additional investments, but I may have invested in those same securities too start at a smaller position with not quite the same level of due diligence.

 

For decade long investments, such as Weshler's investment in Davita, I would not be surprised if the hours add up to 500+. It didn't take me too long to invest in BAC two and a half years ago, but since then I've kept up with developments, read the annual reports, stayed active in the BAC thread on this forum, etc. If the BAC thesis plays out and it goes up to $25+ in the coming year or two, I would have to consider it as a potential "hold forever" (or until obvious overvaluation) type position due to the huge unrealized capital gains. Those hours add up over time.

[augustabound]

Good, good. So when I piggy back off his ideas and do an extra 3 hours of research, that is 503 hours into the investment.

 

That right there, is your margin of safety.  ;D