Good blog post on FFH

[frommi]

But, Tom, most of those people you refer to have only the illusion to know what they are doing! And that illusion is kept alive by nothing more than a market which went up 30%+ in a year! You really think everyone can jump in and out of a lot of different businesses, only because someone like Packer is successful in doing that?! I am sure I cannot!!

 

 

I was always under the impression that you can learn from the good investors like Kraven, Packer, Nate or Schloss. You could do it when you really would like to, but you just gave up before you tried it and learned nothing in the end. Perhaps an index fund is the right decision for you. :)

Why not look exactly what these investors do and imitate it with a small part of your money?

[giofranchi]

I was always under the impression that you can learn from the good investors like Kraven, Packer, Nate or Schloss. You could do it when you really would like to, but you just gave up before you tried it and learned nothing in the end. Perhaps an index fund is the right decision for you. :)

Why not look exactly what these investors do and imitate it with a small part of your money?

 

On the contrary, I read almost everything Packer, Kraven, Eric, and others post. And I think I have learned a lot form them!

But I am a business owner. And I run three different businesses. Of course, I am involved in strategic decisions, and little in day by day operations, but it takes time anyway. Therefore, it would be most impractical for me to try to imitate them.

An index fund would be fine indeed. But I guess it would be difficult to grow my company’s BV at 15% annual, relying solely on operating earnings + the returns from an index fund. Instead, I think the strategy of partnering with great entrepreneurs might give that little boost to my company’s portfolio returns, in order to achieve my goal of capital compounding.

If I remember well, you also are a business owner, and you should be able to understand what I mean. ;)

 

Gio

 

[giofranchi]

To be clear: it is exactly because I read almost everything they post that I am convinced Packer, Kraven, Eric, etc. are outliers, and those who think they can imitate them are wishful thinking. With probably the only exception of Kraven, though I read what they post, I still don’t clearly understand how they manage to do what they do… I wouldn’t imitate them, even if I had the time to do so. Because, though their methods work fabulously for them, I never do anything unless I think I understand it quite well. ;)

 

Gio

 

[original mungerville]

Frommi,

 

No need to start recommending index funds for Gio. I was watching Gio pick up a stock two weeks ago at a level that will likely provide him with 15% annualized over the next 5-10 years regardless of where the market goes from here.

 

Now, if Grantham is right, the US stock market will deliver something close to zero real over that time. But lets not believe Grantham and pretend the US stock market gets 7% returns over that time from these quite high levels. Gio would have to be more than 50% cash, to equal that 7% index return (which itself is probably about 5% annually over GMO's projections which we are not giving weight to).

 

I am very sure Gio will do far better than an index fund.

 

Has anyone asked Gio how much cash he is holding? I don't think so.

 

Further, he is also not the only good investor on this board liking cash. 

 

Last time I checked, Uccmal had "Cash" as one of his recommended top holdings for 2014 - and he does a not too shabby 25-35% return annually for the past decade. So far that "Cash" seems to be working this year relative to small caps?

 

Also, as far as I can tell Ericopoly basically does nothing with most of his portfolio, then takes a portion like 10-20% and goes all in with that into LEAPs referencing his notional or a multiple of his notional. So, he seems to be all cash until he finds something big and uses a barbell type approach to limit downside risk. Eric seems to have a lot of cash at many times.

 

That said, I agree that cash can be a big drag if held too long particularly if your alpha is super high.

 

Gio is far from needing to index. 

 

 

[giofranchi]

Gio is far from needing to index.

 

Way too kind, original mungerville! :)

 

Thank you very much,

 

Gio

[racemize]

I guess this all comes down to this--if there is a strategy where holding cash works based on anything other than running out of opportunities, then please show that it outperforms (and I'm referring to anything, there are constant macro posts, CAPE posts, Grantham posts, Hussman posts, etc.--if those ideas can result in higher returns, then I'm all for it, I just haven't found anyone showing that they actually do.  I have found lots that say that they don't.).  I don't see how one can stand behind strategies without proving that returns are better than when not using them.

 

Could you share your experiment/model/study work as Hussman has? Or show how his work is in error?

 

Aligning Market Exposure With the Expected Return/Risk Profile

 

http://www.hussmanfunds.com/wmc/wmc130506.htm

 

http://www.hussmanfunds.com/wmc/wmc131118.htm

 

James, thanks for posting this.  It will take me a while to digest this material, and I'm not sure if I'll be able to remodel it (hopefully I can approximate it) over a longer time period.  So far, what I've found is 1) no one takes into account the effect of taxes on the switching strategy, which normally obviates the excess returns (if there are any); and 2) nothing has worked out of sample.  In this case particularly, the model is fairly complicated--it uses CAPE, a particular moving average (how sensitive is it to using a different moving average), and investment sentiment index.  When strategies get to that level, they usually do not perform well out of sample.  I reproduced a paper earlier which used the spread between S&P yield and bond yields which worked beautifully from 1970-2000 (and even worked 1970-2014), but failed horribly over a longer term (1871-2014). 

 

With regard to posting my work, I very much intend to; however, while everything I've done points to the same conclusion so far, I'm still verifying and haven't started writing the actual essay.  I'm happy to explain all the experiments I've done so far, but so far, no one has seemed interested enough to bother with the in-detail explanation.  Moreover, this is one reason I keep posting on the topic, I'm hoping to be proved wrong or at least verify my results against data/arguments from the other side.

 

Edit: Here is an interesting paper on timing using SMA:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2242795

[racemize]

I don't think Buffett and Munger recommend holding cash for the sake of holding cash.  Instead, they invest in businesses that are cheap.  I haven't seen anything from Buffett that indicates he would hold more cash because CAPE was high or anything of that nature.  Perhaps we are just talking past each other at this point, however.

 

FIRST:

Charlie and I believe in operating with many redundant layers of liquidity, and we avoid any sort of obligation that could drain our cash in a material way. That reduces our returns in 99 years out of 100. But we will survive in the 100th while many others fail. And we will sleep well in all 100.

--2012AL

 

Besides, look at the numbers at 2013 year end: $48 billion of cash, or 21% of equity; $29 billion in bonds, or another 13% of equity; they also have businesses that bring in almost $24 billion of new cash each year, or 11% of equity.

Have you ever tried to put together a portfolio that yields 11% in cash and still can grow in value over time? I have! And have come to the conclusion that without leverage it is almost impossible!

 

When people say “I am in Buffett’s camp”… My first reaction is to think: “No! You most definitely are not!” ::)

 

Well, again, I don't think this is a fair comparison to an individual investor.  Buffett has a huge amount of money, an insurance business that requires holding a lot of bonds and cash, and simply does not have the opportunity set that we do.  Moreover, have you looked at Brooklyn Investor's comments on Buffett and market timing?  Even further, we have all of these quotes from Buffett as well as his behavior while running the investment partnerships:

 

“If I was running $1 million today, or $10 million for that matter, I’d be fully invested.  Anyone who says that size does not hurt investment performance is selling.  The highest rates of return I’ve ever achieved were in the 1950s.  I killed the Dow.  You ought to see the numbers.  But I was investing peanuts then.  It’s a huge structural advantage not to have a lot of money.  I think I could make you 50% a year on $1 million.  No, I know I could.  I guarantee that.” 

-Warren Buffett on June 25, 1999 (Business Week)

 

SECOND:

In business I experience quite often that it is much better to do nothing, rather than to embark in any venture that presents itself at any time. In business there is certainly no such thing as “a constant flow of good opportunities”… I have just an extremely hard time to believe that the stock market, which is a market of businesses, works so much differently from business itself, and always has to offer some good opportunities. ???

 

Well, my point is not to always be 100% invested, it is to not hold cash as a matter of principle if the opportunities are there.  For example, if I have an opportunity that I think it going to return 15%, and I'm at my last 20%/15%/10%/5% of cash, is there a particular reason not to use it for this investment opportunity?  If not, what is the reason?  How do you decide when to deploy or not to deploy if you are not willing to invest when your investment threshold is met?  Does that reasoning result in outperformance or not?  This is generally the question I'm trying to answer. 

 

Pabrai has an increasing investment bar, based on which percentage of cash remains.  However, this is also a tricky way to do things, because it depends on how often the cash gets deployed.  For example, if your threshold is so high that you never deploy the last 5%, and you could have gotten say, 15% on that last 5%, then it would have been better to deploy it than to not.  In other words, that strategy is very sensitive to the particular threshold being set.  Let's say Pabrai has ideas that normally give him 15%, and he could put his whole portfolio in that set.  (Given his long term performance (after fees) is around this number, I think this is reasonable).  Let's say that he doesn't invest the last 5% unless it will return 100% per annum, by his estimation.  The question then becomes--how often do those opportunities come up and how often do they actually return that high of returns?  If they aren't often enough (about once every 5 years, by my testing), then the strategy doesn't work.  If the threshold is lower (say 50% per annum), then they need to occur much more often (e.g., once every 2 years or so).  I generally like this strategy, but it is very dependent on idea generation, and you risk the case of losing out on the good ideas you have if the even better ones don't materialize.

 

Most other strategies are based on the macro environment.  Here, I think Buffett is clear (turning back to the previous point), he does not hold cash based on the macro factors.  Pabrai said this explicitly, after talking with Munger about it.  I think that is what people generally mean by "I'm in Buffett's camp".  This is also why I've been testing various strategies against historical data, and everything I've tested so far has failed.  Most papers that claim outperformance are all "risk-adjusted" and not actual outperformance.  Hussman's, posted above, is the only one I know about I need to look at further, but I'm generally dismayed about the complexity of his variables (it must not be simple if it requires CAPE, a particular moving average (how sensitive is it to that 39 week average?), and investor sentiment) as well as it not comparing results after taxes.   

 

THIRD:

Presently I run a very concentrated portfolio: FFH, LRE, ALS, and BH. They have all come down and I think they all are cheap. Yet, VRX and ENDP, which I like, have come down much harder and are approaching my target price for buying more and do so aggressively. If you were in my shoes, would you prefer to have some cash on the sidelines to purchase VRX and ENDP, or be forced to sell some of my 4 investments, even though they also have come down and I think they are cheap? ;)

 

Gio

 

Yes, this is a very tricky question, and one that I struggle with as well.  I think this is also why having a cash generating machine (e.g., a business or, say LRE) is extremely important.  It gives the cash you need at the bottom and when new investments arrive.  Otherwise, we end up in the sliding scale issue discussed above with Pabrai.  I tend to think that the problem can be addressed by:

1) having a cash generating machines (job, business, etc.) that can generate meaningful amount of cash for investments when needed;

2) using a sliding scale (but be very careful that you don't hold cash all the time!); or

3) accept the fact that the opportunity cost of cash is why you are fully invested and that there will be times when the best opportunities are not available (e.g., if fully invested in a market crash)--this is why I've done the ex-cash returns for various investors, and usually 3) is the answer that gives the highest returns over time (although 1 is hard to test). 

[racemize]

My take from Joel's analysis is the on average there is an opportunity cost for holding cash.  In other words market timing doesn't work.  Right now I think it happens to be very high versus before the financial crisis.  Before 2008 10-yr treasury rates were seldom below 4% and was typically above 5% late in market rallies.  Now we are at 2.6% for the 10-yr treasury or 2.2% for BND (a diversified mix of bonds).  So in previous times you went from stocks to something that would retain purchasing power or grow slightly.  Now you have a situation where cash is a decaying asset where it is being debased every year.  Over short periods of time this is fine but if you hold cash for multiple years you are going backwards.

 

Packer

 

If you expect US High Quality to return only 2.1%, the opportunity cost is very low.

 

https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IIDZrv0FZiZbpIB3l3m%2fhybvfBpUIeImpq8f72rdLvXx7f3CjhzC9Q%2bpmRQspgkX63FM7bVF3Dp6phYxicYC3kOpmUyxo6d05eU%3d

 

The issue here is, even when those yields get very low (and I agree they likely are), there are lots of times where the market just keeps going up anyway.  Getting out of the market is very expensive as it is not predictable (take last year, where it went up 30%).  Generally, you have to be very lucky about getting the gains and missing the drops, and these expected return numbers don't have a good record of actually yielding higher returns when used.  That is why I've been doing modeling of various tests that people advocate (yield spreads, CAPE, etc.).

[frommi]

Gio is far from needing to index.

 

Way too kind, original mungerville! :)

 

Thank you very much,

 

Gio

 

Yes, i am sorry. I apologize for my harsh comment.

[james22]

In this case particularly, the model is fairly complicated...

 

A simpler model, racemize:

 

Here's a historical fact that I don't recommend as a timing tool or investment strategy, but is true nonetheless. Had an investor sold the S&P 500 index anytime it reached a price/peak earnings ratio of 19 (i.e. 19 times the highest level of earnings achieved to-date), and then simply sat in Treasury bills, possibly for years, reinvesting in stocks only when the S&P eventually declined to 14 times earnings, that investor would have captured the entire historical return enjoyed by S&P 500, with substantially lower volatility and risk exposure.

 

Even easier, suppose that an investor sold the S&P 500 at 19 times record earnings, and just sat out of the market until the S&P 500 eventually dropped 30% from its prior highs (say, on a weekly-closing basis). Nothing more. Just sell at the first point of overvaluation and then sit around waiting for a plunge. That strategy would have placed an investor out of the stock market nearly 30% of the time, yet would have produced total returns of 13.03% annually since 1940 (versus 11.90% for a buy-and-hold approach), and 13.67% since 1970 (versus 12.96% for a buy-and-hold).

 

http://www.hussmanfunds.com/wmc/wmc060508.htm

[Packer16]

How do you know he is not data mining?  Based upon the performance of his funds, this may part of the issue with his historical data.  Folks have been trying to this for years but the underlying parameters of valuation change over time so this strategy rarely works with out of sample data.

 

Packer

[james22]

The issue here is, even when those yields get very low (and I agree they likely are), there are lots of times where the market just keeps going up anyway.  Getting out of the market is very expensive as it is not predictable (take last year, where it went up 30%).  Generally, you have to be very lucky about getting the gains and missing the drops, and these expected return numbers don't have a good record of actually yielding higher returns when used.  That is why I've been doing modeling of various tests that people advocate (yield spreads, CAPE, etc.).

 

Oh, I agree.

 

And why I am fully invested in my Roth IRA and taxable accounts where I can still find opportunities (I'll be buying LUK Monday).

 

But my 401k is essentially limited to TSM/TIM and TBM indices. At today's (or last year's) valuation, I'd think it unlikely I'd keep any TSM/TIM gains.

 

Edited to add:

 

“Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.

 

“He thinks of cash differently than conventional investors,” Ms. Schroeder says. “This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.”

 

It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.

 

Suddenly, an investor’s asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?”

 

http://www.businessinsider.com/cash-as-a-call-option-2012-9

[james22]

How do you know he is not data mining?

 

Because he's demonstrated his research chops in another field?

 

http://management.fortune.cnn.com/2011/04/26/john-hussman-cracking-the-autism-code/

 

 

[Packer16]

Autism and science in general is very different than the markets.  Science can have a right answer and the reality (prices in markets) is not constantly changing.  The "physics" envy I think is one of the biggest problem with academic finance.

 

Packer 

[james22]

I think it evidence Hussman is unlikely to be data mining (or curve fitting).

[writser]

I think he is data-mining: he even says so himself: "This is a historical fact, not recommended as a timing strategy.". Data mining is pretty much the only thing you _can_ do. How did he come up with the 19/14 numbers otherwise? Not by writing a mathematical proof.

[james22]

Do you not think it fair to assume an economics professor is not making a data mining error?

 

(If you think this time is different, reject reversion to the mean, complex and adaptive systems unknowable, etc, that is another argument.)

[Sportgamma]

In retrospect, when I weight the time and effort I´ve spent in trying too understand macro, timing or anything concerning the general market, I´m convinced that the benefits in terms of idea generation and investing performance has carried far less benefit than the time and effort spent, in my case. My best decisions have come from studying individual companies.

 

The way I see it, if I were only to focus on the biggest exchanges in the US, Canada and Europe I would still have a choice of thousands of listed securities. Currently I am invested in 17 securities and I have never been as diversified. A substantial portion of those securities are small/micro cap. Does it really matter if the general market is under- or overvalued? What is the likelihood of all of those securities being overvalued at once? If my method is to is to identify cheap securities and sell them when their value approximates fair value, do price ratios for the general market matter? I just does not seem to have that much relevance to me and my particular style.

 

If all of my investments were in private securities, it would sound strange if I would use the Russell 2000 index (or any other) to determine wether I would want to hold or divest any particular private investment. In fact, I make an effort not following price ratios of indices.

 

[racemize]

In this case particularly, the model is fairly complicated...

 

A simpler model, racemize:

 

Here's a historical fact that I don't recommend as a timing tool or investment strategy, but is true nonetheless. Had an investor sold the S&P 500 index anytime it reached a price/peak earnings ratio of 19 (i.e. 19 times the highest level of earnings achieved to-date), and then simply sat in Treasury bills, possibly for years, reinvesting in stocks only when the S&P eventually declined to 14 times earnings, that investor would have captured the entire historical return enjoyed by S&P 500, with substantially lower volatility and risk exposure.

 

I just tested this on a yearly basis from 1890, and it dramatically underperformed.  As mentioned by other posters, while it is a historical fact, it is based on the characteristics of the prior returns and should not be used for prospective returns (which Hussman is basically stating in his post).  Moreover, I doubt he considered the effects of taxes on his original test, which is an issue, since timing the market would introduce some amount of churn.

 

Even easier, suppose that an investor sold the S&P 500 at 19 times record earnings, and just sat out of the market until the S&P 500 eventually dropped 30% from its prior highs (say, on a weekly-closing basis). Nothing more. Just sell at the first point of overvaluation and then sit around waiting for a plunge. That strategy would have placed an investor out of the stock market nearly 30% of the time, yet would have produced total returns of 13.03% annually since 1940 (versus 11.90% for a buy-and-hold approach), and 13.67% since 1970 (versus 12.96% for a buy-and-hold).

 

http://www.hussmanfunds.com/wmc/wmc060508.htm

 

My data set that I'm using is on a yearly basis, but again, this dramatically underperformed.  And again, he didn't consider taxes, which would particularly have an impact if there were any short term gains.  I could retest this on a monthly basis with some work, but even he doesn't seem to think this is a good model going forward.

 

[giofranchi]

Well, again, I don't think this is a fair comparison to an individual investor.  Buffett has a huge amount of money, an insurance business that requires holding a lot of bonds and cash, and simply does not have the opportunity set that we do.  Moreover, have you looked at Brooklyn Investor's comments on Buffett and market timing?  Even further, we have all of these quotes from Buffett as well as his behavior while running the investment partnerships:

 

“If I was running $1 million today, or $10 million for that matter, I’d be fully invested.  Anyone who says that size does not hurt investment performance is selling.  The highest rates of return I’ve ever achieved were in the 1950s.  I killed the Dow.  You ought to see the numbers.  But I was investing peanuts then.  It’s a huge structural advantage not to have a lot of money.  I think I could make you 50% a year on $1 million.  No, I know I could.  I guarantee that.” 

-Warren Buffett on June 25, 1999 (Business Week)

 

Well Joel, when I say “you are not in Buffett’s camp” I mean exactly that!

We all have different situations: some of us are private investors who work only for themselves, others are private investors who work for themselves and their families (big difference!), others manage money for themselves plus a bunch of friends, others manage money for themselves and a lot of other people (big difference!), some of us are business owner, and some must be involved in the day by day operations of their businesses, others enjoy the luxury of only be involved in strategic decisions, once again a big difference! Etc.

You see? You simply cannot come out with a quote by Mr. Buffett and infer that is the best way to do business, because that quote is true only in the context it was uttered: that is to say from the perspective of one among the most successful stock pickers of all time! Do you feel to be among them? Have you a family to care for? Have you clients to care for? Have you a business to care for? How much of your time those cares consume? If the answer to question 1 is YES, to question 2, 3, and 4 is NO, and to question 5 is ZERO, then I agree with you: you need no cash!

But you see? It just depends too much on the circumstances… Everything else is just theory. Models and spreadsheets might be elegant, but I have never found them very useful.

 

Well, my point is not to always be 100% invested, it is to not hold cash as a matter of principle if the opportunities are there.  For example, if I have an opportunity that I think it going to return 15%, and I'm at my last 20%/15%/10%/5% of cash, is there a particular reason not to use it for this investment opportunity?  If not, what is the reason?  How do you decide when to deploy or not to deploy if you are not willing to invest when your investment threshold is met?  Does that reasoning result in outperformance or not?  This is generally the question I'm trying to answer. 

 

Pabrai has an increasing investment bar, based on which percentage of cash remains.  However, this is also a tricky way to do things, because it depends on how often the cash gets deployed.  For example, if your threshold is so high that you never deploy the last 5%, and you could have gotten say, 15% on that last 5%, then it would have been better to deploy it than to not.  In other words, that strategy is very sensitive to the particular threshold being set.  Let's say Pabrai has ideas that normally give him 15%, and he could put his whole portfolio in that set.  (Given his long term performance (after fees) is around this number, I think this is reasonable).  Let's say that he doesn't invest the last 5% unless it will return 100% per annum, by his estimation.  The question then becomes--how often do those opportunities come up and how often do they actually return that high of returns?  If they aren't often enough (about once every 5 years, by my testing), then the strategy doesn't work.  If the threshold is lower (say 50% per annum), then they need to occur much more often (e.g., once every 2 years or so).  I generally like this strategy, but it is very dependent on idea generation, and you risk the case of losing out on the good ideas you have if the even better ones don't materialize.

 

Most other strategies are based on the macro environment.  Here, I think Buffett is clear (turning back to the previous point), he does not hold cash based on the macro factors.  Pabrai said this explicitly, after talking with Munger about it.  I think that is what people generally mean by "I'm in Buffett's camp".  This is also why I've been testing various strategies against historical data, and everything I've tested so far has failed.  Most papers that claim outperformance are all "risk-adjusted" and not actual outperformance.  Hussman's, posted above, is the only one I know about I need to look at further, but I'm generally dismayed about the complexity of his variables (it must not be simple if it requires CAPE, a particular moving average (how sensitive is it to that 39 week average?), and investor sentiment) as well as it not comparing results after taxes.   

 

This is also imo only theory. First of all, let me ask you a question: now I have 4 ideas that I think are great. In this market 4 ideas are not bad at all! To be fully invested, I’d put 25% in each idea… And what if my full position in idea n.3 and n.4 is just 15% of managed capital? How should I behave, if I don’t feel comfortable to invest in idea n.3 and n.4 more than 15% of my firm’s capital?

Second, let me be very clear about this point: if someone is fully invested now, he will most probably be fully invested forever! My experience is that if you WANT to find “great bargains”, you will always find a way to justify them. I still remember Value Line that in November 2007 gave the highest mark on Safety to BAC, forecasting Annual Total Returns of 13% - 17% for the next 5 years… the stock was then trading at $46.27!! (See file in attachment)

Look, when I see complacent behavior and greediness, I raise my cash reserve. Period.

 

You know what I find extremely funny about “macro”? That I invest in LRE, which most probably will do very fine no matter what the economy in general does, and nonetheless I like to keep my eyes open and observe what happens around me. Instead, those who invest in BAC, which is a “systemically important institution”, and therefore is intrinsically and deeply connected with the US and the global economies, and therefore will surely suffer if the US and the global economies suffer, insist they don’t care about “macro”…

 

Gio

BAC_-_Value_Line_-_23_nov_2007.pdf

[giofranchi]

Yes, i am sorry. I apologize for my harsh comment.

 

No problem at all, frommi!

I don’t see anything bad in participating in a vibrant economy like the US through the use of an index fund! And I am sure the combination of that simple strategy with the earnings of my operating businesses might keep me wealthy for a very long time, running almost no risk. It is a great combination that you have suggested!

But, as I have told you, I am a little bit more ambitious… and I have the goal of compounding capital at 15% annual. That’s why I am trying a different strategy. But it surely is riskier. And which one will prove to be better in the end is still an open bet! ;)

 

Gio

 

[Liberty]

Who? Mr. Franklin? Mr. Vanderbilt? Mr. Sage? Mr. Baker? Mr. Mellon? Mr. Templeton? Mr. Getty? Even Mr. Buffett and Mr. Munger? No, I don’t think I am assuming anything… They have been the richest and most successful entrepreneurs in history. Period.

I certainly don’t know if studying their methods and imitating them might lead to the highest returns possible over the long term… But I am confident enough those returns will be satisfactory. ;)

 

Gio

 

Well Joel, when I say “you are not in Buffett’s camp” I mean exactly that!

We all have different situations: some of us are private investors who work only for themselves, others are private investors who work for themselves and their families (big difference!), others manage money for themselves plus a bunch of friends, others manage money for themselves and a lot of other people (big difference!), some of us are business owner, and some must be involved in the day by day operations of their businesses, others enjoy the luxury of only be involved in strategic decisions, once again a big difference! Etc.

You see? You simply cannot come out with a quote by Mr. Buffett and infer that is the best way to do business, because that quote is true only in the context it was uttered: that is to say from the perspective of one among the most successful stock pickers of all time! Do you feel to be among them?

 

Gio

 

Gio is... a formidable opponent!

 

http://www.leftjabradio.com/wp-content/uploads/2012/10/Colbert.jpg

 

;)

 

I'm just kidding, Gio. I know what you mean. You must learn from all the greats, but you have to see if things apply to your situation and if you think you are up to doing what they recommend doing (which might not always be easy, depending on the specific advice). Can't blindly follow advice, etc. I just thought the superposition of "I just follow what the greats did/You can't just follow what the greats did out of context if you're not of their level!" was funny :)

[giofranchi]

I just thought the superposition of "I just follow what the greats did/You can't just follow what the greats did out of context if you're not of their level!" was funny :)

 

Liberty,

I get your point! And it is funny. ;D ;D

The truth, though, is simply I see those methods as tools, nothing else. Would you prefer to have them at your disposal or to have them not?

Then, when they are at your disposal, it is up to you to decide how to use them. And you must know your own situation and its needs to make the best decisions possible. ;)

 

Gio

 

[Liberty]

I just thought the superposition of "I just follow what the greats did/You can't just follow what the greats did out of context if you're not of their level!" was funny :)

 

Liberty,

I get your point! And it is funny. ;D ;D

The truth, though, is simply I see those methods as tools, nothing else. Would you prefer to have them at your disposal or to have them not?

Then, when they are at your disposal, it is up to you to decide how to use them. And you must know your own situation and its needs to make the best decisions possible. ;)

 

Gio

 

Absolutely. I do the same thing as you, and I certainly don't consider myself on the level of any of the people I try to draw inspiration from.

[giofranchi]

I just thought the superposition of "I just follow what the greats did/You can't just follow what the greats did out of context if you're not of their level!" was funny :)

 

Liberty,

I get your point! And it is funny. ;D ;D

The truth, though, is simply I see those methods as tools, nothing else. Would you prefer to have them at your disposal or to have them not?

Then, when they are at your disposal, it is up to you to decide how to use them. And you must know your own situation and its needs to make the best decisions possible. ;)

 

Gio

 

Absolutely. I do the same thing as you, and I certainly don't consider myself on the level of any of the people I try to draw inspiration from.

 

One more thing, and this must be very clear: by “the best decisions possible” I mean the ones you are most comfortable living with. Not necessarily those that will maximize your returns in the long run…

Between a 15% annual + peace of mind and an 17% annual + anguish, I go for the first choice anytime! ;)

 

Gio