Article on WEB in the New York Times

[netnet]

There is a mildly interesting article on Buffett in the the New York Times:

http://www.nytimes.com/2014/04/06/business/the-oracle-of-omaha-lately-looking-a-bit-ordinary.html?hp&_r=0

 

Unfortunately, the article is based on what I think are two somewhat flawed  posts in the blog , Statistical Ideas, written by the sharp statistician, Salil Mehta, who know statistics and Wall Street, but still is a bit like the turkey predicting that the week before Thanksgiving is like every other week.

 

It is interesting to compare the (both) blog posts to the article, one on alpha, the other on Buffett.  I think that NYT article over states the blog and the blog make some errors, such as yearly performance measures are per se significant and understates the difficulty of managing the amount of cash that Buffett has to manage.  And the blog post specifically about Buffett really mostly is a critique of Buffett's statements about years of under performance.

 

 

Here is his blog post on alpha, which is a bit better than the Buffett blog post

 

http://statisticalideas.blogspot.com/2014/02/forever-elusive-alpha.html

 

Here is the post on Buffett:

http://statisticalideas.blogspot.com/2014/02/forever-elusive-alpha.html

[karthikpm]

Such a ridiculous article. The inherent flaws in all these arguments that Buffett is losing his "alpha" ignores what the starting point is.. I think even WEB's goal of beating the S and P 500 over every 5 year period is arbitrary . With such large amounts of capital, it is hard to compound at the same rate as an Index that conveniently drops and eliminates underperformers. Additionally, the S and P was recovering from a generational low. Extend that horizon to a 10 year period and the argument is gone.

[Guest longinvestor]

Such a ridiculous article. The inherent flaws in all these arguments that Buffett is losing his "alpha" ignores what the starting point is.. I think even WEB's goal of beating the S and P 500 over every 5 year period is arbitrary . With such large amounts of capital, it is hard to compound at the same rate as an Index that conveniently drops and eliminates underperformers. Additionally, the S and P was recovering from a generational low. Extend that horizon to a 10 year period and the argument is gone.

 

All right, I'll wager that you are completely wrong in that the opposite is most likely to happen and that over the next 10 years BRK will outperform the S&P handily. Willing to negotiate the wager, please PM me if you are up for it!

[Valuebo]

Such a ridiculous article. The inherent flaws in all these arguments that Buffett is losing his "alpha" ignores what the starting point is.. I think even WEB's goal of beating the S and P 500 over every 5 year period is arbitrary . With such large amounts of capital, it is hard to compound at the same rate as an Index that conveniently drops and eliminates underperformers. Additionally, the S and P was recovering from a generational low. Extend that horizon to a 10 year period and the argument is gone.

 

All right, I'll wager that you are completely wrong in that the opposite is most likely to happen and that over the next 10 years BRK will outperform the S&P handily. Willing to negotiate the wager, please PM me if you are up for it!

 

I'm quite sure he is saying the same. ;)

[karthikpm]

Longinvestor,

 

I was making the same case. My argument was that no business has grown BV faster than the SP in the last 5 years, which was recovering from a generational low. The article ignores the fact the BRK did much better than SP in 2008 when BV dropped by 9 % compared to the market's decline of 37%.  Extend the time horizon beyond this anomalous 5 year period and BRK outperformed  the index.  I am not certain that BRK will outperform the index ( but I suppose and hope it will) and I don't care that much to "beat" the index. I am fine owning a well run group of businesses managed by a great(est) capital allocator. [since all of these are based on probabilistic assumptions- certainty is a dangerous word in this game]

 

I am long BRK and its 11% of my portfolio.. My wager is the same as yours- its on Berkshire !

 

Cheers

:)

[karthikpm]

I should add no "large" business, I am sure plenty of small companies have

[sleepydragon]

in my opinion, spx is essentially a momentum strategy. you are always buying yesterday's winners. it will work well as economy gets better.

brk is more like a strategy that benefit from short term reversions. the big four will be able to buy more stocks if the market dips, and web can buy more stocks at low. brk's company will also have large sums in capex when other companies can't invest when market is not good. it's like a version of Graham's dollar averaging method. over the long term it will surely beat the market.

 

[karthikpm]

http://www.forbes.com/sites/eamonnfingleton/2014/04/06/why-the-ny-times-is-wrong-about-warren-buffett-he-is-not-over-the-hill/

 

Here is an article refuting the original article

[Guest longinvestor]

Longinvestor,

 

I was making the same case. My argument was that no business has grown BV faster than the SP in the last 5 years, which was recovering from a generational low. The article ignores the fact the BRK did much better than SP in 2008 when BV dropped by 9 % compared to the market's decline of 37%.  Extend the time horizon beyond this anomalous 5 year period and BRK outperformed  the index.  I am not certain that BRK will outperform the index ( but I suppose and hope it will) and I don't care that much to "beat" the index. I am fine owning a well run group of businesses managed by a great(est) capital allocator. [since all of these are based on probabilistic assumptions- certainty is a dangerous word in this game]

 

I am long BRK and its 11% of my portfolio.. My wager is the same as yours- its on Berkshire !

 

Cheers

:)

 

Ok, got it. I misunderstood, was reacting to BRK=Index Investing . There are many headlines and posts than start with this as a foregone conclusion. But your reason for investing 11% in BRK, the well run business(es), is mine as well, only I am holding 80%, the significant buying happened during 2006-2009.