20 punchcard poll

[Jurgis]

Purchase or sale is counted as 1 punch.

We could go more liberal and count purchase+sale as 1 punch.

I doubt that's gonna make much difference.

 

I expect huge majority in "Not following punchcard strategy", but interested in people who follow it or somewhat follow it.

 

Comments from both sides welcome. :)

[TwoCitiesCapital]

I certainly think there are merits to the buy & hold strategy, but I've been a far bigger believer in the market cycles philosophy of secular bull/bear markets depending on the trend in inflation/rates.

 

I think the punchcard philosophy makes a lot of sense if you're in a secular bull market (where it pays to hold on for 20 years) or just really, really good at identifying the companies that will outperform over the 20 year period.

 

For everyone else, I think it makes sense to buy what is cheap and sell what is expensive. I have core holdings I imagine that I will hold for years, but if the market offers me an opportunity to exit at prices I think are unreasonably high, I'd be a seller of any one of them and punchcard be damned.

 

I imagine a lot of Buffett's advice is for "average" investors though. Just like none of us are going fully passive in index ETFs and bonds, I don't expect many of us to really follow the punchcard philosophy either.

 

[netnet]

The punchcard is a great mental tool. What it does is make you only things that scream out at you.

 

Buffett did not follow it, not that any of us are even a meager approximation of the great one. (But note that Graham-Newman made a majority of their money from Geico! which implies that even the master's teacher, Graham, might have profitably used the punchcard.)

 

 

[Guest Schwab711]

I try to loosely follow this strategy. I'm pretty careful about what I buy and I tend to hold for longer periods. I've gone well over a year without buying/selling anything.

 

TCC is probably right, I have not found many other folks that try to do a similar strategy. Although, I've only been doing this for 5 years so I have plenty of time to go off-course or become discouraged. I don't think I've found a fund of material size that uses this strategy in anything other than claim.

 

I think it's worth noting that there is nothing special about the punchcard strategy. It will certainly amplify your mistakes. I think the importance of batting average for buy-and-hold is under-discussed. You really need to be shooting for 100% imo. There are a lot of ways to find value though. Do what fits you. I have learned as much or more from friends that have polar-opposite strategies to mine as I have learned from friends that think like me. I just want to make money and I try not to worry about much else.

[Uccmal]

I certainly think there are merits to the buy & hold strategy, but I've been a far bigger believer in the market cycles philosophy of secular bull/bear markets depending on the trend in inflation/rates.

 

I think the punchcard philosophy makes a lot of sense if you're in a secular bull market (where it pays to hold on for 20 years) or just really, really good at identifying the companies that will outperform over the 20 year period.

 

For everyone else, I think it makes sense to buy what is cheap and sell what is expensive. I have core holdings I imagine that I will hold for years, but if the market offers me an opportunity to exit at prices I think are unreasonably high, I'd be a seller of any one of them and punchcard be damned.

 

I imagine a lot of Buffett's advice is for "average" investors though. Just like none of us are going fully passive in index ETFs and bonds, I don't expect many of us to really follow the punchcard philosophy either.

 

Yeah, its just a buffetism for average investors.  He also debated using the results of the Schloss partnership which was the exact antithesis of the punchcard method.  Its like market timing.  Most people shouldn't engage in it because they get it ass backwards, but there are exceptions among those self trained in buy low/sell high. 

[james22]

I do subscribe to the punch card strategy, but more so with respect to the general market than individual companies.

 

Aligning Market Exposure With the Expected Return/Risk Profile

 

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

[vinod1]

My understanding and belief is that Buffett did not mean this literally. It is a general approach that

 

1. Promotes long term thinking. This way you are forced to look at the earnings power 10 years or more down the lane. Those are good businesses with moats. Businesses you can understand, etc.

 

2. Restricts investments to things that are less likely to blow up. If you can have confidence in something to hold long term, it must be in businesses that are not likely to undergo rapid change.

 

3. Forces you to really research the idea in detail.

 

4. Reduces tax drag.

 

And many other such good investing qualities. As long as you are really doing that, it does not matter if it is 20 punchcard or 100 punchcard.

 

Are we not reading too literally his comments? Just like the 500 page a day reading habit. :)

 

If you are literally trying to implement this 20 punch card type portfolio, you need to know the like rate at which opportunities arise, how long your investment career is likely to last, etc. It really does not make a lot of sense.

 

Sometimes the opportunities may be in a group operation like Buffett did in Korean stocks or arbitrage opportunities.

 

Contrast this with the alternative approach, where you research an idea a little bit, price looks ok and you take a  0.5% or 1% position. Soon you have a portfolio of stocks that all look interesting and you have no conviction. Any stock that goes down, maybe you average down once or twice, it goes further down you sell out.

 

Vinod

 

[rb]

I do think that the the punchcard approach is a good framework to use and I do have some core positions that I've held for a long time. Call them punchcard positions. However I'm more driven by the value in the market. There are at time some good companies that are not perpetual compounders that are cheap so I'll buy those and sell them when they trade at full value.

 

Other times I have to reassess one of the punches. For example TD is a punchcard position for me. It's a large position and I've held it for a long time and it's done very well. However with what's going on in the Canadian real estate market I'm considering selling because I fear that it's overvalued given what's going on.

[Guest longinvestor]

Interesting poll result. I'm one of the 3 at the top of the list, the inactive cohort. Don't make any claims, will admit that I'm an average investor with low expectations.

 

For the others in my cohort (that'll be 2 for now) and in the the next two cohorts(6 more currently), would love to know your approach, thought process etc. You can post a reply here or PM me if you like that route. There is such a thing as a "buddy" system on CoBF, would like to add you to that to follow your ongoing posts. 

[rb]

I'm a guy in bucket 5 but I can trade thought on punches with you.

[Jurgis]

I'm not a punchcard guy.

 

That said, I'm interested in punchcard portfolios: what did you guys buy/when, what did you sell/when?

How concentrated do you get?

 

Selling is very interesting part for me in punchcard portfolios. Do you ever say "time to sell" and why? Can't be just simple overvaluation if you only have limited number of punches?

 

 

[rb]

Ok, i'll talk a bit about punches.

 

Sometimes yes a punch should be sold just for overvaluation. Such as Coke in 1998. At the time Buffett was complaining that coke was expensive. A couple of years later he said that he should have been selling instead of complaining. The money that Buffett works with restrict his movement a lot in respect to entering and exiting positions not to mention headlines and other significance. I don't have those limitations. I can move in and out freely. For example BRK is one of my punches. I like it a lot. But should BRK go to 300 or 400 per class B you bet ur ass I'd sell it.

 

Now let's move to a more practical example that's happening right now for me. That is TD bank. I really like it. heavy retail focus. Lots of deposits, no fancy derivatives book. I started buying it in 2001. Kept on buying along time. No purchases since 2009. Has been a top position in the portfolio. It has done really well for me I'm considering selling it. Reasons?

 

1. Not reason, just more info. I didn't really get sour on the dynamics of the company nor has it had a a big change in direction.

 

2. It's a Canadian bank and there is a housing bubble in Canada. While I think they handled the environment better than other banks (they pulled back on RE lending years ago) they are still a big player and when shit will hit the fan they will probably fare better than other banks i don't think they'll be spared the carnage.

 

3. It's a bank with a retail focus and the Canadian consumer is way over levered so future growth is likely to be limited. Growth right now is on borrowed time.

 

4. It has a very large US operation and there is a valuation differential. TD is trading at 1.57 book.  I believe that Wells is a really good comp for TD and and Wells is at 1.11 book. If you were to back that out the Canadian part is trading at a crazy multiple especially given the environment.

 

5. This isn't that big but Ed Clark is no longer the CEO. Ed Clark was the CEO of Canada Trust which was kind of like a Canadian S&L, very big for and S&L but small compared to the banks and excellently run as a retail banking operation. TD bought it in 2000, before that TD was kind of a shit bank. Then they bought Canada Trust, sacked (retied?) the TD CEO and put Ed in charge. He then proceeded to remake TD into Canada Trust image and TD went from last among the big 5 banks to a close second. Now I think that he's been in charge long enough that the company had a permanent cultural change and have no reason to believe that the new CEO (who was a big general to Ed) isn't up to snuff but the previous guy was really that good that i think it's really hard to emulate.

 

I know it's a long reply but that's how punches are, like a part of the family. Held it for more than 15 years and now I'm thinking of cutting it. Not sure if I should exit completely or I should just pare back. But I think this is the process of exiting a punch. Either your initial thesis was wrong, or the fundamentals of the company significantly changed either by internal factors or external conditions (as in the case of TD), or the valuation has gotten out of control.

 

I would encourage others to post about their punches at length. Most importantly so I can steal your ideas  :) but also so we can learn from each other. I would much prefer to own punches rather than trades. I hope other contribute, but if you guys want I can post another. I'll take requests.

[ScottHall]

I feel like the idea of punch card investing is another thing taken way too seriously, and was said by Buffett to say things in a way middle America can understand.

 

I suspect he did not mean it literally, but it's a close enough approximation. I do think long term holding period is a critical factor in returns, and most people trade in and out of companies too frequently.

 

Buffett is a world class thinker, and his marketing shtick of being a good midwestern boy has worked. He has everyone spinning yarn on him and from him; to earn a living standing on his coat tails, which he almost surely doesn't mind, as it only enshrines him deeper within the investing zeitgeist, from which he reaches with his tentacles only when ready to strike and gain greater influence and prestige.

 

I respect Buffett and think he has much to teach us about the world. One of my all time favorites. But these things he says, I think are more of metaphors for Joe the Plumber and developing a more marketable character. See also that one time Bruce Berkowitz gave an unbelievably good analysis of Wells Fargo in the early '90s, to becoming the guy who says he "counts the cash."

 

All of this is a form of marketing, Buffett as P.T. Barnum.

 

Get with the program and learn from this man, but don't copy his style point-for-point. I would take it all as more of a guideline about how to build your own. Styles work for some people, and not for others.

 

I invest in a lot of high growth, high multiple companies. It's worked out very well for me. But it's not for everyone; has its own set of ups and downs, and just unpalatable to some people. It doesn't matter if it works for me if it fails when you try it because you can't build a portfolio in a style that clashes with your personality.

 

And another thing to keep in mind, is that this isn't like at UFC 1 anymore with Ben Graham playing Royce Gracie. The world has changed a lot and traditional value is not the only style that works anymore. Some people are incredibly successful with traditional value. I love the work of some of the online value investing community; Oddball Stocks is great. Nate Tobik is kind what I would call a more traditional value guy, who does very well by it.

 

One of my former employers, David Gardner, was excellent with growth investments but wasn't a very good value guy, just didn't work for him if I recall right. Still made a killing with his growth style, even through the crash; has a >100x on an Amazon stake now that he's held for decades.

 

The point is that different people have different styles, and different people can achieve success using many different types of styles. You don't need to run a pure style, either. I have a lot of high growth names, but also some really deep value plays and community banks. The key thing to understand is, you can have different styles in investing, but in each of those bags... you have investments that are situational in nature. And each situation is unique; one 100x P/E company isn't necessarily another 100x P/E company. One company trading for less than net cash isn't the same as another company trading for less than net cash.

 

Whatever type of investor you identify as, or whatever type of style you practice, I think it's important to consider that investments are situational! Whatever style bag you place a situation in, you have to remember that some of the situations in all of the style bags are just lousy. There might be a greater percentage that are lousy in one style bag over the other at any given time, but some will always be bad. And some will always be good.

 

If you can train your nose to hunt for these situations that might be good, even though you're outside of your own style bag, you can make some pretty good money and improve your own analytical skills over time. In my case it helped me completely transform my style from traditional value-exclusive to primarily "growth" oriented.

 

I will say Buffett is a good starting off point for thinking about this, as he basically changed how value investing was strictly defined. All of us, in a sense, are value investors. I know no growth investor who willingly overpays for shares of a company; they just have different concepts and ideas about the value of a company than many.

 

But beyond that loose definition, Buffett moved value quite a bit away from a lot of the more rigid stuff Ben Graham talked about. I think this really created two camps, the more traditional value people, and and the new aged Buffett people who, let's call them sort of GARPy, focusing on moats, whatever.

 

I hate to say it, but there are a lot of the traditional value people (Graham value hounds) who are not really accepting of other forms of investing, including Buffett value, and often do view anything outside of the hard numbers as intellectually circumspect.

 

Not all traditional value guys are like this, far from it. But there are more to my eye than in the other styles of investing. Just sort of seeing the history and how the family tree of value investing split is a good example of the evolution of investing concepts through time; Graham more-or-less created the craft, Buffett improved on Graham, and then... ?

 

Seems like there aren't a lot of value people who have radically improved on the Buffett style, in the same mold. The Buffett style is good, but is it so good to assume that it shouldn't be improved upon? To me, the answer is obviously that we should try to improve upon it by taking what we can from the other styles of investing.

 

If Buffett "knew" how to invest in tech, look how much better Berkshire's portfolio would have done over the past 10 years. I think you can take the same sorts of concepts that Buffett discusses about investing generally - moats, for example - and learn how they fit in technology. You could have seen Google coming, and probably been more likely to see past the sky high IPO P/E and invest anyway. Or certainly after a couple years of public market time, to then get on board.

 

That is one that that can be improved on in Buffett's style that I see; being able to use a more modern perception of the world to aid in the relative "unpredictability" of tech and other high-growth stocks. I have no doubt there are more.

[Guest 50centdollars]

Ok, i'll talk a bit about punches.

 

Sometimes yes a punch should be sold just for overvaluation. Such as Coke in 1998. At the time Buffett was complaining that coke was expensive. A couple of years later he said that he should have been selling instead of complaining. The money that Buffett works with restrict his movement a lot in respect to entering and exiting positions not to mention headlines and other significance. I don't have those limitations. I can move in and out freely. For example BRK is one of my punches. I like it a lot. But should BRK go to 300 or 400 per class B you bet ur ass I'd sell it.

 

Now let's move to a more practical example that's happening right now for me. That is TD bank. I really like it. heavy retail focus. Lots of deposits, no fancy derivatives book. I started buying it in 2001. Kept on buying along time. No purchases since 2009. Has been a top position in the portfolio. It has done really well for me I'm considering selling it. Reasons?

 

1. Not reason, just more info. I didn't really get sour on the dynamics of the company nor has it had a a big change in direction.

 

2. It's a Canadian bank and there is a housing bubble in Canada. While I think they handled the environment better than other banks (they pulled back on RE lending years ago) they are still a big player and when shit will hit the fan they will probably fare better than other banks i don't think they'll be spared the carnage.

 

3. It's a bank with a retail focus and the Canadian consumer is way over levered so future growth is likely to be limited. Growth right now is on borrowed time.

 

4. It has a very large US operation and there is a valuation differential. TD is trading at 1.57 book.  I believe that Wells is a really good comp for TD and and Wells is at 1.11 book. If you were to back that out the Canadian part is trading at a crazy multiple especially given the environment.

 

5. This isn't that big but Ed Clark is no longer the CEO. Ed Clark was the CEO of Canada Trust which was kind of like a Canadian S&L, very big for and S&L but small compared to the banks and excellently run as a retail banking operation. TD bought it in 2000, before that TD was kind of a shit bank. Then they bought Canada Trust, sacked (retied?) the TD CEO and put Ed in charge. He then proceeded to remake TD into Canada Trust image and TD went from last among the big 5 banks to a close second. Now I think that he's been in charge long enough that the company had a permanent cultural change and have no reason to believe that the new CEO (who was a big general to Ed) isn't up to snuff but the previous guy was really that good that i think it's really hard to emulate.

 

I know it's a long reply but that's how punches are, like a part of the family. Held it for more than 15 years and now I'm thinking of cutting it. Not sure if I should exit completely or I should just pare back. But I think this is the process of exiting a punch. Either your initial thesis was wrong, or the fundamentals of the company significantly changed either by internal factors or external conditions (as in the case of TD), or the valuation has gotten out of control.

 

I would encourage others to post about their punches at length. Most importantly so I can steal your ideas  :) but also so we can learn from each other. I would much prefer to own punches rather than trades. I hope other contribute, but if you guys want I can post another. I'll take requests.

 

I have the same issue RB. Actually my issue is worse. I work for one of the banks (not TD) and 99% of my RRSP is in the stock. I was planning to hold my shares until I retire in 25 years but I don't think it is smart to do that anymore.

[rb]

I have the same issue RB. Actually my issue is worse. I work for one of the banks (not TD) and 99% of my RRSP is in the stock. I was planning to hold my shares until I retire in 25 years but I don't think it is smart to do that anymore.

 

Not sure why your issue is worse, but yea, depending on the size of your position it may be smart to pare down your holding especially since it's not TD. I like the others a lot less.