james22 Posted February 12, 2015 Share Posted February 12, 2015 ...compounders are also boring to tears. Especially for active investors such as people frequenting this forum. There is no action - you just buy and hold. And hold. And hold. New money provides action enough. Link to comment Share on other sites More sharing options...
Valuebo Posted February 12, 2015 Share Posted February 12, 2015 It's much more exciting to analyze managements or find compounders This might be off topic in this thread, but compounders are also boring to tears. Especially for active investors such as people frequenting this forum. There is no action - you just buy and hold. And hold. And hold. That's why very few people ever held BRK or FFH (or for that matter MSFT, GOOGL, WMT, JNJ, IBM ) for 20+ years. And most of the people who did that are not "investors", but rather employees or in case of BRK old ladies from Omaha. ;) Even most self admitted Berkheads or Fairheads on this forum have traded in/out of BRK/FFH more times than they casually admit. Or at least kept a non-trivial amount of their portfolio in companies that were sold much more often than compounding would call for. ;) Unfortunately action is a drug. A very difficult drug to kick for active investor. Indeed, to quote Munger, quoting Pascal:" All of humanity's (or, in this case, an investor's!) problems stem from man's inability to sit quietly in a room alone." A lot of truth in that. One of my biggest 2014 mistakes, learned a lot from it. By coincidence, I'm having my best 3-month period ever (wasn't yet around in 2009) while making only 1 trade in the last 4 months and barely watching my account. I normally made a few trades per month. Very random data point of course but being rewarded certainly helps to build discipline and keep up good practices. Link to comment Share on other sites More sharing options...
scorpioncapital Posted February 12, 2015 Share Posted February 12, 2015 How about taking a middle of the road approach? Hold a set of long term, internal compounding investments with 50% of your capital and give them a time limit of say 5 years to demonstrate moving in the right direction. If they don't, reduce the stake. Meanwhile, the other 50% you do the shorter term, event driven, taking a profit scenarios. Link to comment Share on other sites More sharing options...
Packer16 Posted February 12, 2015 Share Posted February 12, 2015 The question I have for the compounders is there evidence that these can outperform a Tax Managed S&P 500 or world index fund? These companies have a tendency to be well researched and thus a higher probability of being priced correctly. I have yet to find an example. Packer Link to comment Share on other sites More sharing options...
Jurgis Posted February 12, 2015 Share Posted February 12, 2015 The question I have for the compounders is there evidence that these can outperform a Tax Managed S&P 500 or world index fund? These companies have a tendency to be well researched and thus a higher probability of being priced correctly. I have yet to find an example. Packer I don't understand your question. There is a survivorship bias of course, but BRK, FFH, Malone, MSFT for most of its history, KO for a very long parts of its history, WMT, COST for long parts outperformed S&P. So had AAPL, GOOGL, MA, V. Can you rephrase what you are asking about? Link to comment Share on other sites More sharing options...
Packer16 Posted February 12, 2015 Share Posted February 12, 2015 The question is can you identify today a group of these stocks that can out perform a tax managed index? I was surprised when I looked historically at portfolios of these compounding firms chosen by smart asset managers in advance did not beat the averages by a appreciable amount. Tom Russo is an example along with the book values of Markel and Berkshire and the Morningstar Moat Index. These are all talented managers but the amount of performance vs. the index has not been that impressive over the past 5 to 10 years. Packer Link to comment Share on other sites More sharing options...
Jurgis Posted February 12, 2015 Share Posted February 12, 2015 I think your question in unanswerable as posed. Some people can - possibly by accident though. E.g. they could buy FB or Whole Foods and demolish the index. If we are talking about asset-manager compounders, someone might buy FRMO and demolish the index. Or not. :) Most people won't. But most people won't demolish the index whatever they do. I don't think it's easy to say that micro-cap net-net trading or financial stock leap investment will outperform compounder portfolios in general. For some people it might. For some it won't. Personally, I have underperformed indexes last 3 years, so my current strategy is to get into compounders and let smart people (Watsa, Malone, etc.) manage my money. I hold FFH, Malone, FRMO, some ideas from this board: GDWN.L, TESB.BE. I also have oil co chunk of portfolio. So it's definitely not a pure experiment you are asking about. And even if I outperform, this won't provide you any actionable insights I think. Aside: Should I switch to index funds instead? Possibly. :) But hope springs eternal and all that. 8) Link to comment Share on other sites More sharing options...
KCLarkin Posted February 12, 2015 Share Posted February 12, 2015 The question is can you identify today a group of these stocks that can outperform a tax managed index? Mutual funds suffer from the constraints you list above but individual investors do not. Link to comment Share on other sites More sharing options...
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