The Mistakes Made in Value Investing By The BigWigs and Ourselves

[Graham Osborn]

I think one big mistake is this tendency to invest in poorly returning stocks. Good example is BRK.B. Even the bulls on BRK say they expect a 8-9% return, which is a really anemic bull case IMO. Could say the same things about IBM or KO. I think to actively invest, you really need to be setting your sights a lot higher.

 

(1) Because 8-9% is too low for the effort; OR (2) 8-9% is too low to compensate for mistakes?  That is, the 9% bull case can't compensate for a mistake elsewhere so you'll end up lower?

 

The fact that people spend hundreds of hours evaluating Berkshire's financial statements just blows me away.  Over the past 5 years the S&P has returned about 60% and BRK has returned 70%.  Frankly, I wonder whether the time invested justifies the excess return at this point in Berkshire's life cycle.

[KCLarkin]

Are you/other investors here running insurance firms?

 

At my tax rate, BRK at 8-9% is probably equivalent to a bond yielding 15%.

[Jurgis]

The fact that people spend hundreds of hours evaluating Berkshire's financial statements just blows me away.  Over the past 5 years the S&P has returned about 60% and BRK has returned 70%.  Frankly, I wonder whether the time invested justifies the excess return at this point in Berkshire's life cycle.

 

The fact that people spend hundreds of hours evaluating financial statements of various companies (and even worse on macro or TA) and still don't outperform just blows me away. Perhaps they should just buy BRK. :P  ::)

[Palantir]

Are you guaranteeing a return over 8-9% with your picks?

 

I don't believe anybody is guaranteeing any type of return.

[oddballstocks]

The fact that people spend hundreds of hours evaluating Berkshire's financial statements just blows me away.  Over the past 5 years the S&P has returned about 60% and BRK has returned 70%.  Frankly, I wonder whether the time invested justifies the excess return at this point in Berkshire's life cycle.

 

The fact that people spend hundreds of hours evaluating financial statements of various companies (and even worse on macro or TA) and still don't outperform just blows me away. Perhaps they should just buy BRK. :P  ::)

 

This hits on a deeper point.  What always drew me to value investing, or the concept of it was you could find things egregiously undervalued on a simple basis.  A company with $100 in cash selling for $30.  You don't need to be able to model the future to know that something is wrong.  My philosophy has been to continue to buy $100 for $30, even if the $100 is wrinkled, partially shredded and has been crapped on with the idea that it's probably worth $100, and if condition means anything maybe I get $50 or $60 and I'm still happy.  This is how I still run my portfolio, simple situations, no need to be a business guru or determine the future, just buying cheap assets and something cheap earnings (but at a bigger discount).

 

I think the realization is there aren't many people doing this.  The comment by Buffett that there is no such thing as value and growth is true.  With the proliferation of modern business school everyone is buying growth, it's just shades of growth.  Look at almost any thread on this board.  People are saying BAC will do $2.5 in EPS in 2017 so it's cheap now.  Maybe that's value, who knows.  But how is that different from some guy on CNBC saying the same thing? 

 

Here's the problem as I see it.  If you go to school for finance and you work in a large finance company...(hedge fund/mutual fund/bank) you can't get away with picking some low P/B stocks and then sitting on your hands the rest of the year.  Much of what goes on is make-work, these giant reports about things that are unknown and everyone seems and feels smart.  But a part-time investor just picking raw cheap things and then going on with their life has as good of a chance if not a better chance of out performing.

 

Everyone is so down on indexing, but doesn't anyone realize that Berkshire has essentially created an index fund for the US economy?  Maybe their companies are better (it's debatable, not sure what competitive advantage DQ has over the local ice cream joint, but I digress) and they earn a few bps above everyone else, but that's it.  In this thread people are arguing about BRK earning 8-9%.  Graham had a formula in Security Analysis that said the largest companies can basically earn GDP + inflation + productivity gains + multiple expansion = return.  So we're looking at 2% GDP growth, 2% inflation, maybe 1% of productivity gains and we're saying we'll get a 3% multiple expansion premium.  The math seems to make sense, maybe they have an extra 1% in there because they're 'better', so the multiple expansion is 2% or so, I'm just speculating here.

 

If you want outsized returns start your own business.  Or go fishing in small niches that no one else is.  But this insane amount of brain power trying to predict the future, or find companies that will compound at outsized rates is crazy.  I think the veil has finally been lifted, although it will just take another 5-10 years before this is en-vogue again.

[Jurgis]

Good post oddball. I guess the only place where I disagree with you is that you make it sound easy to do the niche egregiously undervalued investing. I've tried this and it did not work for me. So I just buy BRK.

 

Furthermore, even when I look at some people who are supposed to be good at niche egregiously undervalued investing, I don't see them being very successful either ( not implying you here - I don't know your returns ;) ).

 

Still a good post and it might work for you and some other people. ;)

[Guest Grey512]

Some of my mistakes/lessons

 

1. Ignoring corporate governance. E.g. invested in Ukraine, China; overpayed. Oversized.

 

2. Taking too many flyers. I've bought equities in Greek banks thinking that they were nice call options. I overestimated the probability of success and they went to (almost) zero.

 

3. Too much faith in 13Fs. Especially when it comes to financial engineering-oriented activist theses. I bought stock in WAC and M without doing proper DD; used the activist theses as a shortcut for my own work.

 

4. FX speculation. I shorted CNH vs USD outright in the spot market. Paid exorbitant costs to do that. The lesson is to seek asymmetric ways to do that (buy options; but that is tough; see point 5 below)

 

5. Making money by buying options is hard. It is not easy to time an options purchase properly to not overpay for volatility. I've also usually taken big, immediate losses on pretty wide bid-ask spreads (lesson: large cap, liquid stocks are better than midcaps and smallcap stocks). Time decay is also an issue. I've learnt the hard way that a single option should not be much more than 1% of the portfolio (unless it's one of the best opportunities that I've seen in my lifetime). Oversizing an options purchase will kill hard-earned returns on the portfolio year-to-date.

 

6. Making money by buying options is hard (part 2). I have a fairly decent (almost 60%) batting average for stocks. But buying options changes my mental dynamic; I have to mentally balance the probability of a 0 vs a 3x-20x return in a positive scenario. It's not easy and it screws things up for me internally. I am not great at estimating 'bimodal' probabilities.

 

7. Scale into positions gently . I've learnt that putting on full-size positions immediately generally does not work as well as gradual steady buys. Always undersize. Always undersize.

 

8. Stay out of the spotlight . If a stock is attracting 100s of comments on SeekingAlpha, it's held by weak hands. Avoid.

 

9. Keep it simple . I do better with simple theses that I can explain in 3 sentences, on a napkin.

[oddballstocks]

Good post oddball. I guess the only place where I disagree with you is that you make it sound easy to do the niche egregiously undervalued investing. I've tried this and it did not work for me. So I just buy BRK.

 

Furthermore, even when I look at some people who are supposed to be good at niche egregiously undervalued investing, I don't see them being very successful either ( not implying you here - I don't know your returns ;) ).

 

Still a good post and it might work for you and some other people. ;)

 

These are good points.  For my own returns I've beat any relevant index while I've been doing this, but I purposefully don't post returns.  I posted returns once, they were great and I was fending off "can you please management my money" questions for months, it wasn't my goal.  I'd rather post about ideas and process and let the results speak for themselves.

 

But I also appreciate the idea that maybe what's easy for me isn't easy for others. 

 

I like to run, I ran cross country in high school and have continued to run since then.  I was never fast, I had to work like crazy to get a halfway decent time.  There were a lot of guys on the team who just showed up on Saturday after a night of drinking and ran minutes faster than I did.  I never understood it, but as I'm older I do.  They were just good at running, they didn't do anything, they just 'got it', it was natural.  I don't want to be boastful or anything, but it has crossed my mind that maybe I'm like those better runners in some way with business analysis or investing.  It's possible that there's something that I get that others don't, but since it's impossible to be objectively introspective about ourselves I myself don't understand what I'm doing that others aren't.  I've passed on a number of dud companies that others have invested in.  The problem is I can't quantify why I passed.  I looked at the data and decided it wasn't a good investment.  I think that's what's maddening about this.  I didn't follow some repeatable 5-step method that eliminated an investment, I just looked at some data, had some gut feel after thinking about it and walked away.

 

This is tangentially related.  I've never liked books about success because of what I mentioned above.  I think success is objective, some things work for some people and not for others.  But I LOVE books about failure.  Failure is 100% repeatable.  If you take something that's working and engage in a series of steps you can ensure failure.  In a lot of ways I like to study failure, then look for ways to avoid it.  By avoiding failure I work to increase the odds of success.

 

Since we're baring our hearts here.

 

My failures:

 

-Failure to hedge currency.  Just sold a Japanese net-net that doubled, but with currency depreciation I only had a gain of 18%.

-Hanging on too long to companies that I should have sold.  I own one 'moat'/'niche' play, it has done poorly and I still hold it thinking maybe it'll be better in the future.  I need to sell.

[Jurgis]

oddball: yeah, what you are saying makes sense to me. :)

 

Couple comments:

 

- Re "dud companies" - yeah, some "dud companies" are easy to avoid for me too and I wonder why others get into these traps. But then I buy something that's a dud and probably someone else says "oh, that was obvious dud, why would anyone buy it". :)

 

- Holding too long. Yeah, that's one of the issues why "niche egregiously undervalued investing" does not work for me. With so-so mediocre companies, I have no good feeling when to hold, when to fold, etc. Somehow this seems easier with "great" companies, though perhaps I'm just deluding myself. ;)

 

Another example of mistake of omission from some time ago. Bought UVIC - pretty OK shareholder-friendly microcap. Got Baker Street hedge fund manager on board. They hit a rough patch after I bought. Cut divvie. They had patent royalty agreement with B&L that was expiring in couple years with possible loss of a bunch of free money. I held couple years. They renegotiated the agreement, started investing into new product lines, but numbers were not budging up. Baker Street got out through a "sweetheart" deal - company bought their shares. I looked at the numbers, decided to sell too. A year or so after I sold, price went up 3x-4x and it was finally sold to Valeant (B&L really, but Valeant owned B&L by that time).

 

It's easy to say that this was not a mistake that the process was right, but OTOH I still wonder if it really was. And this was a large position for me comparatively speaking. Also not-that-mediocre company, so I can't write this down completely to "niche egregiously undervalued investing" not working for me.

[Patmo]

Big mistakes: Not enough focus on portfolio management. Fishing in the wrong places. Trying to be cute/sharp instead of KISS. Overpaying for comfort.

 

These are the mistakes I avoid the most so that I stack the odds on my side enough that whatever mistakes I make turn profitable in the long run

 

 

[moneyball]

Still new to this, but a huge gap I've noticed is trying to separate between buying more of something when it's cheap vs. the notion of  timing the market.

[Read the Footnotes]

 

 

 

This is tangentially related.  I've never liked books about success because of what I mentioned above.  I think success is objective, some things work for some people and not for others.  But I LOVE books about failure. [Emphasis added] Failure is 100% repeatable.  If you take something that's working and engage in a series of steps you can ensure failure.  In a lot of ways I like to study failure, then look for ways to avoid it.  By avoiding failure I work to increase the odds of success.

 

 

Oddball, do you have favorite books on failure you'd like to recommend?

[oddballstocks]

 

 

 

This is tangentially related.  I've never liked books about success because of what I mentioned above.  I think success is objective, some things work for some people and not for others.  But I LOVE books about failure. [Emphasis added] Failure is 100% repeatable.  If you take something that's working and engage in a series of steps you can ensure failure.  In a lot of ways I like to study failure, then look for ways to avoid it.  By avoiding failure I work to increase the odds of success.

 

 

Oddball, do you have favorite books on failure you'd like to recommend?

 

Billion Dollar Lessons, anything about Enron, When Genius Failed, The Match King, Invisible Giants (Van Sweringen Brothers book, very off the radar, engaging book)

[StevieV]

I think one big mistake is this tendency to invest in poorly returning stocks. Good example is BRK.B. Even the bulls on BRK say they expect a 8-9% return, which is a really anemic bull case IMO. Could say the same things about IBM or KO. I think to actively invest, you really need to be setting your sights a lot higher.

 

(1) Because 8-9% is too low for the effort; OR (2) 8-9% is too low to compensate for mistakes?  That is, the 9% bull case can't compensate for a mistake elsewhere so you'll end up lower?

 

What's the effort?

 

I don't know what StevieV means regarding effort, (he could mean the effort of actively managing money), but the point is that 8-9% is a mediocre rate of return to target for an investment.

 

Yes, I meant the effort.  I think it requires some effort to get up to speed on Berkshire.  I certainly would not invest in Berkshire or any other company without investing some time.  Jokes aside, I would imagine that Longinvestor and others have spent some significant time on the company.

 

I actually own BRK and wanted to address some of the things said here.

 

(1)  I don't think the bull case is 8-9%.  I would say that is the base case.  Bull case may be 9-11%.

 

(2)  The entry price matters a good bit when talking about returns.  A 10% 10-yr return was a lot more likely at the sub-$130 prices offered a month ago.

 

(3)  What I like about BRK, and why I own it, is I think that the compounding of value of the company is easy to see and understand.  BRK is worth more than it was a few years ago if not for any other reason than they now own a significant stake in Kraft-Heinz and they own PCP.  Those were bought out of profits, not stock issuances or debt (for the most part).

 

On the negative side:

 

(1) I think there is some 1-stock risk even with Berkshire.  I think BRK is treated as though it does not have such risk.

 

(2) I am not necessarily enamored with some of the main business lines - e.g., rails, utilities, maybe car insurance.

 

(3) Warren's stock picking has not been awe inspiring as of late.

 

Sorry if this post is too BRK-centric for this thread.  I just wanted to respond to the posts here.

[JBTC]

Some of my mistakes/lessons

 

1. Ignoring corporate governance. E.g. invested in Ukraine, China; overpayed. Oversized.

 

2. Taking too many flyers. I've bought equities in Greek banks thinking that they were nice call options. I overestimated the probability of success and they went to (almost) zero.

 

3. Too much faith in 13Fs. Especially when it comes to financial engineering-oriented activist theses. I bought stock in WAC and M without doing proper DD; used the activist theses as a shortcut for my own work.

 

4. FX speculation. I shorted CNH vs USD outright in the spot market. Paid exorbitant costs to do that. The lesson is to seek asymmetric ways to do that (buy options; but that is tough; see point 5 below)

 

5. Making money by buying options is hard. It is not easy to time an options purchase properly to not overpay for volatility. I've also usually taken big, immediate losses on pretty wide bid-ask spreads (lesson: large cap, liquid stocks are better than midcaps and smallcap stocks). Time decay is also an issue. I've learnt the hard way that a single option should not be much more than 1% of the portfolio (unless it's one of the best opportunities that I've seen in my lifetime). Oversizing an options purchase will kill hard-earned returns on the portfolio year-to-date.

 

6. Making money by buying options is hard (part 2). I have a fairly decent (almost 60%) batting average for stocks. But buying options changes my mental dynamic; I have to mentally balance the probability of a 0 vs a 3x-20x return in a positive scenario. It's not easy and it screws things up for me internally. I am not great at estimating 'bimodal' probabilities.

 

7. Scale into positions gently . I've learnt that putting on full-size positions immediately generally does not work as well as gradual steady buys. Always undersize. Always undersize.

 

8. Stay out of the spotlight . If a stock is attracting 100s of comments on SeekingAlpha, it's held by weak hands. Avoid.

 

9. Keep it simple . I do better with simple theses that I can explain in 3 sentences, on a napkin.

 

It's a great list, thank you.

 

[randomep]

I hear lots of specific cases of what went wrong, but a person cannot beat himself up over each facet of his decisions in hindsight.  Everything has risks and virtually every bad scenario is possible. 

 

I think we should ask what is the common theme in the mistakes, and I continually come back to one thing: excessive risk-taking.Ben Graham harps on margin of safety and I don't see any MOS in many investments.  Pabrai touts Graham and yet he is looking for a 3 to 4 bagger in very investment. In doing so he leaves himself very exposed to 100% loss. There are several of those besides Horsehead.

 

Ackman, Bill Miller are others who take very concentrated bets on large caps. They impose tremendous pressure on those companies to achieve unrealistic gains, and it is no surprise that Valeant, Enron, Nortel happen.  And these bigwigs pressure themselves to achieve outstanding returns consistently.  It is one thing like Seth Klarman to jump on CDS on mortgages when the opportunity arises, it is another to try to achieve 20% returns like Ackman or sequoia with billions AUM and at a time of global deflation and the S&P trading at 20x multiple.

 

 

[Guest JoelS]

 

 

 

This is tangentially related.  I've never liked books about success because of what I mentioned above.  I think success is objective, some things work for some people and not for others.  But I LOVE books about failure. [Emphasis added] Failure is 100% repeatable.  If you take something that's working and engage in a series of steps you can ensure failure.  In a lot of ways I like to study failure, then look for ways to avoid it.  By avoiding failure I work to increase the odds of success.

 

 

Oddball, do you have favorite books on failure you'd like to recommend?

 

Billion Dollar Lessons, anything about Enron, When Genius Failed, The Match King, Invisible Giants (Van Sweringen Brothers book, very off the radar, engaging book)

 

 

 

I'd add "Fools Rush In" as a great case study of the disastrous Time Warner/AOL merger. The personalities are fascinating.

[JBTC]

I hear lots of specific cases of what went wrong, but a person cannot beat himself up over each facet of his decisions in hindsight.  Everything has risks and virtually every bad scenario is possible. 

 

I think we should ask what is the common theme in the mistakes, and I continually come back to one thing: excessive risk-taking.Ben Graham harps on margin of safety and I don't see any MOS in many investments.  Pabrai touts Graham and yet he is looking for a 3 to 4 bagger in very investment. In doing so he leaves himself very exposed to 100% loss. There are several of those besides Horsehead.

 

Ackman, Bill Miller are others who take very concentrated bets on large caps. They impose tremendous pressure on those companies to achieve unrealistic gains, and it is no surprise that Valeant, Enron, Nortel happen.  And these bigwigs pressure themselves to achieve outstanding returns consistently.  It is one thing like Seth Klarman to jump on CDS on mortgages when the opportunity arises, it is another to try to achieve 20% returns like Ackman or sequoia with billions AUM and at a time of global deflation and the S&P trading at 20x multiple.

 

+1

 

God grant me the serenity when I see nothing intelligent to do

the courage to do something when I see an opportunity

and the wisdom to know the difference

 

[Jurgis]

Ackman, Bill Miller are others who take very concentrated bets on large caps. They impose tremendous pressure on those companies to achieve unrealistic gains, and it is no surprise that Valeant, Enron, Nortel happen.  And these bigwigs pressure themselves to achieve outstanding returns consistently.  It is one thing like Seth Klarman to jump on CDS on mortgages when the opportunity arises, it is another to try to achieve 20% returns like Ackman or sequoia with billions AUM and at a time of global deflation and the S&P trading at 20x multiple.

 

And what do you propose they should do? If they don't make concentrated bets, they pretty much have no chance of outperforming SP500. (Well, maybe Klarman outperforms without concentrated bets, but he's likely an exception).

 

It might be easier for smaller investors. They might be able to outperform while still maintaining MOS. I think that's what Oddball suggests with his "niche egregiously undervalued investing". I'm still not sure that works for a lot of people. Not that concentrated bets on large caps work for a lot of people either.

 

Calling common theme to mistakes "excessive risk-taking" might be correct, but I am not sure if it's helpful. Yes, MOS, right. "It was excessive risk taking, there was no MOS". Sure I can say this about every situation that went wrong, but is that really helpful? Isn't this like trying to fit a hammer to every screw, nail, joint and rope there is?

[randomep]

 

Calling common theme to mistakes "excessive risk-taking" might be correct, but I am not sure if it's helpful. Yes, MOS, right. "It was excessive risk taking, there was no MOS". Sure I can say this about every situation that went wrong, but is that really helpful? Isn't this like trying to fit a hammer to every screw, nail, joint and rope there is?

 

Jurgis, what your saying is so wrong I don't know where to begin.  There is risk and unknowns for all of us. We have to act with very incomplete information.  As a result we can say much of what happens is luck.  Suppose you get AA in texas holdem. You go in knowing your 80% fav against any hand preflop.  Going in is the right thing to do and no matter what happens in the hand. Nobody says oh man I should've known better that my AA would get sucked out.

 

Same as investing. My hero Walter Schloss typically had a hundred cigar butts in his portfolio. I am sure every year one or two goes bankrupt. Does he go I had a good 15% year but damn it I make a mistake with so and so bankrupt company. I am going to change my strategy?  His success as well as his flops are the result of his strategy, if it works to get 15% he should keep it up!

 

Now someone like Pabrai, he fundmentally takes too many risks trying to hit them out of the ball park. If he is wise I would think he would tone it down a bit and be less risky. If so, then there you have it! Someone can learn to invest with more MOS.

 

It's a simple thing MOS is an actionable goal.

 

[doughishere]

If you guys are so good...then why are you still on COBF?

 

 

Without looking it up. Can anyone tell me the difference between accrual and cash basis accounting?

[Uccmal]

I hear lots of specific cases of what went wrong, but a person cannot beat himself up over each facet of his decisions in hindsight.  Everything has risks and virtually every bad scenario is possible. 

 

I think we should ask what is the common theme in the mistakes, and I continually come back to one thing: excessive risk-taking.Ben Graham harps on margin of safety and I don't see any MOS in many investments.  Pabrai touts Graham and yet he is looking for a 3 to 4 bagger in very investment. In doing so he leaves himself very exposed to 100% loss. There are several of those besides Horsehead.

 

Ackman, Bill Miller are others who take very concentrated bets on large caps. They impose tremendous pressure on those companies to achieve unrealistic gains, and it is no surprise that Valeant, Enron, Nortel happen.  And these bigwigs pressure themselves to achieve outstanding returns consistently.  It is one thing like Seth Klarman to jump on CDS on mortgages when the opportunity arises, it is another to try to achieve 20% returns like Ackman or sequoia with billions AUM and at a time of global deflation and the S&P trading at 20x multiple.

 

+1

 

God grant me the serenity when I see nothing intelligent to do

the courage to do something when I see an opportunity

and the wisdom to know the difference

 

+1 to both of you.  I think you meant "..grant me the serenity to do nothing when I see nothing intelligent..." but anyway that about sizes it up.

 

These very public blowouts weve observed recently show us how much people Dont or Cant know when it comes to investing. 

 

Those who believe they know anything or have some sort of circle of competence are delusional.  The same applies to Gurus.

 

When I think about it the mistakes I have made have never been because I missed a big piece of the balance sheet or the finances.  I just assume I dont know all of what is going on and handicap for that by not buying stuff like Valeant that is just way too complex and dynamic.  My mistakes involve too large concentration on things where I have placed too much "HOPE".  Hope for higher oil prices ; hope for better pulp prices; hope for better Blackberry sales in the face of a global onslaught of competition. 

 

I am trying to train myself to deal with what is, rather than what I hope things to be. 

 

 

 

[Jurgis]

 

Calling common theme to mistakes "excessive risk-taking" might be correct, but I am not sure if it's helpful. Yes, MOS, right. "It was excessive risk taking, there was no MOS". Sure I can say this about every situation that went wrong, but is that really helpful? Isn't this like trying to fit a hammer to every screw, nail, joint and rope there is?

 

Jurgis, what your saying is so wrong I don't know where to begin.  There is risk and unknowns for all of us. We have to act with very incomplete information.  As a result we can say much of what happens is luck.  Suppose you get AA in texas holdem. You go in knowing your 80% fav against any hand preflop.  Going in is the right thing to do and no matter what happens in the hand. Nobody says oh man I should've known better that my AA would get sucked out.

 

Same as investing. My hero Walter Schloss typically had a hundred cigar butts in his portfolio. I am sure every year one or two goes bankrupt. Does he go I had a good 15% year but damn it I make a mistake with so and so bankrupt company. I am going to change my strategy?  His success as well as his flops are the result of his strategy, if it works to get 15% he should keep it up!

 

Now someone like Pabrai, he fundmentally takes too many risks trying to hit them out of the ball park. If he is wise I would think he would tone it down a bit and be less risky. If so, then there you have it! Someone can learn to invest with more MOS.

 

It's a simple thing MOS is an actionable goal.

 

There are couple issues with what you are saying:

 

1. I still believe that reducing everything to MOS is not helpful. It seems you are saying that buying overpriced stock is bad because of MOS, buying possibly fraudulent stock is bad because of MOS, buying commodity business is bad because of MOS. Sure, you can do it, but these are three different things that you should analyze and deal with separately instead of just pushing them all into a single MOS pile.

 

2. Investing is not poker. Sure, once again you are right that investors can try to figure out probabilities. But like I said in point 1, reducing everything to MOS only hinders your calculation of probabilities. You are much better of looking at company and saying "well, this has X% chance to be a fraud" than saying "well, this has Y% chance to have MOS". In fact, if you only look at business numbers and run some kind of formula to calculate MOS, then you're more likely to miss the other parts like fraud, cyclicality, commoditization, business changes, etc.

 

So once again, in general I agree that investors should consider MOS, but I disagree at piling every single mistake into "there was no MOS" pile. And instead of addressing concrete issues like fraud/commodities/etc. just saying "MOS is an actionable goal".

 

Anyway, I think part of the issue with this discussion is that it's too abstract. We might agree on concrete situations (e.g. ZINC or VRX or whatever), but we likely look at these things differently on the abstract level.

 

Good luck.

[tede02]

Oddball, very good comments.  I agree with much of what you said. 

 

One of my biggest mistakes (like others) have come from following the BigWigs without doing enough of my own due diligence.  I've learned you have to form your own opinion because I've had the big guy I followed sell, then I'm sitting there holding the bag wondering what to do (buy more or sell). 

 

I've also found that I have a tendency to get caught up in the "story" of a business or investment thesis.  Once that happens, its so easy to forget the entire margin of safety/margin for error (whatever you want to call it) concept. 

 

I've also learned that if one of your objectives is simply to not lose any money, you think about things differently.  Otherwise the gambling mindset is basically there is some fashion. 

 

Building a position gradually is also something I've learned to do.  My mindset going into anything is that its virtually certain that it will decline in price after I take a position (that's just the way it goes).  It's helped to keep dry powder. 

 

Those are just a few thoughts.  Interesting thread.  Kind of funny to see how many people make the same types of mistakes.  Demonstrates the blind spots in the brain. 

[muscleman]

If you guys are so good...then why are you still on COBF?

 

 

Without looking it up. Can anyone tell me the difference between accrual and cash basis accounting?

 

Good question. I start to think we need a CoBF bar raiser program to improve the quality of the threads here.  :)

The quality of the threads are getting lower and more posts filled with "Oh Bruce added 100000 shares today". Or "Oh Prem Watsa said he expected a huge upside"