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Excess Returns - Vanhaverbeke


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Thanks for this.  Sounds like a good book, and I plan to read it.

 

Nevertheless, how much of it breaks new ground?  Did you learn anything truly earth-shaking, or was it merely, as you put it, "useful."

 

Like all similar books profiling the methods of legendary investors, it starts with that subset of legends (from my cursory look via Amazon), and looks at their attributes and practices, assuming those attributes/practices are critical, and that the unsuccessful investors were missing many of these traits.  Even Buffett's famous essay on The Super-Investors of Graham-and-Doddsville suffers from being a retrospective analysis of only the successful.

 

I'd like to see a historical prospective study of the entire class of value investors who already possess the critical attributes/practices, and find out what percentage of them beat the index by 5%+, and what particular factors are associated with the laggards.  I would presume this study would be much, much harder, maybe impossible, but it would truly break new ground.

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Thanks for this.  Sounds like a good book, and I plan to read it.

 

Nevertheless, how much of it breaks new ground?  Did you learn anything truly earth-shaking, or was it merely, as you put it, "useful."

 

Like all similar books profiling the methods of legendary investors, it starts with that subset of legends (from my cursory look via Amazon), and looks at their attributes and practices, assuming those attributes/practices are critical, and that the unsuccessful investors were missing many of these traits.  Even Buffett's famous essay on The Super-Investors of Graham-and-Doddsville suffers from being a retrospective analysis of only the successful.

 

I'd like to see a historical prospective study of the entire class of value investors who already possess the critical attributes/practices, and find out what percentage of them beat the index by 5%+, and what particular factors are associated with the laggards.  I would presume this study would be much, much harder, maybe impossible, but it would truly break new ground.

 

I share your question on does it break new ground.

 

While I understand your point on Buffett's essay, I am not sure it is fair.  It was given in 1984.  I think he would have used nearly the same subset (Schloss, Munger, Ruane, Guerin) 15 years earlier.  Ruane was his recommendation in 1970 when closing the partnership and was one of three trustees for his personal funds should he die at that time (1970).  I guess it is possible that Buffett might have included additional names if he had given the talk 15 years earlier who would not have not beat the market subsequently, but none spring to mind from his biographies. 

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I guess it is possible that Buffett might have included additional names if he had given the talk 15 years earlier who would not have not beat the market subsequently, but none spring to mind from his biographies.

 

Yes, that's precisely my question:  survivorship bias.  How many value investors in the entire world did Buffett actually know?  Did he know only the wildly successful ones, because the unsuccessful ones fall under the radar and thus we have no idea of how large the denominator is?  Out of 100 value investors, how many are successful long-term (beat the index or whatever)?  Is it as high as 60%?  Or is it as low as 10-20%?  No one knows.  Regardless, the essay is wonderful and influenced me immensely.

 

This book Excess Returns has a table with names like Richard Dennis, Bruce Kovner, Michael Marcus, and Paul Tudor Jones, traders who use a lot of technical analysis, with compound annual returns ranging from 26% to 120%(!) (these guys trade commodities and are levered, so not really an apples to apples comparison to stock traders) for periods extending from 10 to 30 years.  Ranking lower in the table is Buffett, at a "measly" 23%, albeit for 54 years.  If you pitted 100 value investors vs. 100 technical stock traders, I would like to think that a higher proportion of value investors win compared to the traders, but I could be wrong.  But will such a study ever be done?

 

 

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What I think isn't clear without actually reading it is that it isn't a narrative.  There is no "story" here.  It's more of a reference book written in (long) outline form.  It's "nothing but the facts, ma'am". 

 

I can't imagine the amount of work that went into collecting, dissecting and organizing the material here.  It's recommended for anyone who wants the equivalent of an investing desk manual.  Not in the "how to" sense, but in the sense of an encyclopedia of investing and related approaches. 

 

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I wouldn't say that it breaks new ground other than presenting a number of outstanding investor concepts together (like concentration for example) and give actual quantitative citations associated with these citations (like Templeton's 50 percent cheaper switch rule).  He does focus on value investors and only briefly discusses more macro or quant investors.  This is more of an encyclopedia of ideas but I have never seen in one book the presentation in this way.  Another example is the discussion of the use of DCF and how it is rarely used (which I agree with) due to the large number of inputs and you do not need to do this to determine if a stock is cheap (multiples can provide that) and he dives into what is the appropriate way to use multiples including the implicit assumptions with each type of multiple.  He also does a good job of describing asset approaches such as reproduction cost and going concern and growth asset approaches.  I have enjoyed it and an still digesting pieces after ready most of the book.  I think it is well worth the price.

 

As to investors who have beaten the market by 5 percent or more, those are hard to find these days as competition from factor investors have driven up prices for much of the traditional value fare.  From what I have seen this is probably the place where you have most of them and they appear to be in personal accounts not effected by outside asset flow.  It would be nice to have a narrative of some of these folks but I think we will have to wait for Sanjeev's book for that.

 

Packer

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Thanks packer, was a nice weekend read and something that has its place as a reference on my desk. Its one of the few books that gives concrete formulas on how to value companies.

What i found interesting is that he wrote that most of the investors were not fully invested all the time, so this buy and hold forever or be 100% invested at all times is a little debusted here.

 

I now have to find a book on the turtle traders :).

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Thanks packer, was a nice weekend read and something that has its place as a reference on my desk. Its one of the few books that gives concrete formulas on how to value companies.

What i found interesting is that he wrote that most of the investors were not fully invested all the time, so this buy and hold forever or be 100% invested at all times is a little debusted here.

 

I now have to find a book on the turtle traders :).

 

http://www.amazon.com/Way-Turtle-Methods-Ordinary-Legendary-ebook/dp/B000SEGDDQ/ref=sr_1_2?s=books&ie=UTF8&qid=1411433380&sr=1-2&keywords=turtle+investing

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Wow.  Perhaps it's my engineering mindset where I love "just the facts" and no elaboration, along with lots of structure and organization, but so far this book is just great.  I wish all books would get to the core points as quickly as this one does!

 

(And now I kind of want to meet Frederick.  I think he and I would get along just well.)

 

The Springer-esque binding is a nice touch as well.

 

Thanks for recommending Packer!

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