Lethargy bordering on sloth - the psychology of holding for the long term

[randomep]

I'm glad a few of you enjoyed my message. I also think some of the other recommendations here are excellent. For example, the recommendation to get involved with a real private business, whether starting your own or investing in one. I've never met anyone who's done that and ended up saying to themselves "Man am I a worse investor now!" It's a no brainer if you have the opportunity to do so.

 

I also like the recommendations by "Libs" and by "petec" to help develop a historical sense of any company you're investing in, to the best of your ability. I think that puts you in the mindframe of a business person, rather than a stock trader. I love looking back and seeing what Fastenal or Danaher or some other admirable company has achieved. Are they usually mispriced? No. The market is pretty good. Fastenal deserves to trade at 30x earnings. But you'd be surprised how often clearly superior businesses trade at oddly low prices. (Was Berkshire rationally priced at $70 (B shares) a few years ago?) Markets do weird things. And you don't need that many in a lifetime if you have the will to seize them.

 

To answer the inevitable retort that there are great stock traders, asset players, arbitraguers, formula-users etc. out there, you're absolutely right. But it's been my experience that those are few and far between, and some of the ones that are successful don't correctly diagnose their own success. So there's survivorship bias. And many of the good ones have eventually run into lots of trouble. We're talking very, very smart, able, people.

 

Let me give a brief example. I have heard that "momentum works." I assume this refers to studies that have proven some statisically significant momentum effects, and evidence of a few traders who have pulled it off. But we're investing through the windshield, not the rearview mirror. Has anyone studied to what degree momentum still "works" now that hordes of 170 IQ engineers from Cal Tech have designed computer algorithims to trade billions of dollars on that principle? Are we sure it's going to hold up? What do I do when my momentum stocks go down 50%? (You can apply that question to all kinds of approaches, by the way.) 

 

So I think, above all, any investing strategy has to start with a degree of intellectual honesty and honest self-appraisal. There's a reason Charlie Munger quotes the physicist Feynman all the time (don't fool yourself) -- it's extremely important.

 

And I think success in the "bread and butter" sort of investing I've described is attainable by someone with average intellience and ability, a good mental disposition, and a reasonable head for business and accounting. If you choose a more esoteric path, I wish you luck. I don't begrudge anyone getting rich faster if they can do it soundly.

 

Exactly!

 

WEB's greatest contribution IMHO, is to teach us that we don't need IQ, education, inside information to get above average returns. He has demonstrated, educated and preached that point for 30yrs.

 

The world is creating more and more millionaires by the day. Most of whom did not get it through value investing. All the more power to them. But I am also very skeptical that someone can trade short term and make above average returns consistently. The literature has documented ordinary folks who have accumulated many millions in the IRA (or equivalent). We even have our own in this forum: Ericopoly. I wish someone can point me to a person who accumulated 5million dollars in their IRA through momentum trading, if not, I am going to assume that it can't be done.

 

Or name a fund manager that makes billions using that strategy. Well..... there is  Raj Rajaratnam, and Steve Cohen, but they are in jail or going to jail soon, I meant someone who does this legally....

 

 

[Guest longinvestor]

I've owned BRK for 15 years, and it's been >50% of my holdings most of that time.

 

What has helped me enormously - since it feels like watching grass grow sometimes - is to manually write in each quarter's results in a spreadsheet.

 

It's starting to look like papyrus, it's so old...but I love it.

 

In fact, I went back and filled in numbers going back to 1990!

 

I do the same thing with WFC.

 

I'm not sure why this works, but it prevents me from making an emotional, quick trading decision. When you see that operating income has gone from $1.8 B in 2000 to $15 B in 2013, it's harder to sell BRK to buy that chemical mfg. turn-around.

 

One other thing...concentrating  $$ into the positions in which it's very hard to shake your conviction. f

 

I search long and hard for opposing view points. (This is another way to 'fill up time.'). When it's real hard to kill your idea, that's a very big deal.

 

When you read something on Seeking Alpha that makes you sweat, you probably need to re-think what you're doing with that stock.

 

COC: A++ man!

 

Good for you. I'm doing those exact things, concentrating in BRK, but only started in earnest since 2006. Given that you started in 1990, your investing habits are, true habits perhaps. You are correct, seeing what BRK is doing in just about any financial metric is what keeps the twitchy fingers off of other ideas.

[Guest longinvestor]

I'm glad a few of you enjoyed my message. I also think some of the other recommendations here are excellent. For example, the recommendation to get involved with a real private business, whether starting your own or investing in one. I've never met anyone who's done that and ended up saying to themselves "Man am I a worse investor now!" It's a no brainer if you have the opportunity to do so.

 

I also like the recommendations by "Libs" and by "petec" to help develop a historical sense of any company you're investing in, to the best of your ability. I think that puts you in the mindframe of a business person, rather than a stock trader. I love looking back and seeing what Fastenal or Danaher or some other admirable company has achieved. Are they usually mispriced? No. The market is pretty good. Fastenal deserves to trade at 30x earnings. But you'd be surprised how often clearly superior businesses trade at oddly low prices. (Was Berkshire rationally priced at $70 (B shares) a few years ago?) Markets do weird things. And you don't need that many in a lifetime if you have the will to seize them.

 

To answer the inevitable retort that there are great stock traders, asset players, arbitraguers, formula-users etc. out there, you're absolutely right. But it's been my experience that those are few and far between, and some of the ones that are successful don't correctly diagnose their own success. So there's survivorship bias. And many of the good ones have eventually run into lots of trouble. We're talking very, very smart, able, people.

 

Let me give a brief example. I have heard that "momentum works." I assume this refers to studies that have proven some statisically significant momentum effects, and evidence of a few traders who have pulled it off. But we're investing through the windshield, not the rearview mirror. Has anyone studied to what degree momentum still "works" now that hordes of 170 IQ engineers from Cal Tech have designed computer algorithims to trade billions of dollars on that principle? Are we sure it's going to hold up? What do I do when my momentum stocks go down 50%? (You can apply that question to all kinds of approaches, by the way.) 

 

So I think, above all, any investing strategy has to start with a degree of intellectual honesty and honest self-appraisal. There's a reason Charlie Munger quotes the physicist Feynman all the time (don't fool yourself) -- it's extremely important.

 

And I think success in the "bread and butter" sort of investing I've described is attainable by someone with average intellience and ability, a good mental disposition, and a reasonable head for business and accounting. If you choose a more esoteric path, I wish you luck. I don't begrudge anyone getting rich faster if they can do it soundly.

+100

Looking through the windshield, a certain investor, needless to say, through hard work, clever fishing etc. is clearly able to see 20, 30, or larger returns for themselves. They are so damn sure of this, while also quick to relegate buy & hold in BRK to mediocre returns. Time will tell, and I hope to debunk this every year with my own performance.

[elevensecsrt4]

There are lots of great ideas and techniques in this thread....many thanks...being inactive in the market is one of the hardest things to learn it seems.

[Cageyone]

Great topic and terrific insights - thanks to everyone!  I adopted the buy and hold approach 30 years ago mainly because I was too busy with work and family to be an active investor!  Overall I'm up north of 10 percent per year - but mainly because of three positions - FFH, BAM & TRP which now total over 70% of my portfolio.  However, now I'm going to have to force myself to be more active because the tax man will soon be forcing me to raise cash and I'll need to start figuring which "core" and/or "non-core" positions to start selling down!

[JAllen]

Sloth just sucks.

 

Get involved in a production start-up - & it'll quickly take care of the problem ;)

 

SD

 

+100  Starting a company has been able to fill up all of my extra time and then some.  Checking stock quotes too often, fixed.  Not worrying about day to day developments, fixed.

 

 

Ditto, especially when the markets are quite high, but there are just enough cheap stocks still available to be mostly fully invested, or there are ones I want to hold for 10+ years that aren't classically cheap but will grow like weeds for decades.