I have given up value investing

[Spekulatius]

I started learning value investing since 2009 and was lucky to make some money during this great bull market, though I am probably not beating the market.

I have decided to give up value investing because it doesn't fit my personality.

There are several flaws that's probably most likely related to my personality.

1. I always over analyze and paralyze. Fear to buy. (Could this go down more?) Fear to sell. (Could this go up more?)

2. My analysis has serious flaws and later earnings turn out to be bad and it turned out that if I know more about it and do more research, I could have figured it out and avoided it. (Rear view mirror always clearer)

3. Too nervous and keep checking the stock price. When it goes against me deeply, I feel depressed and can't concentrate on work or family anymore.

4. I have always thought if I started investing in 2007, how would I fair in 2008-2009 crash. I have no answers. I know friends who lost 75% in that bear market and felt distress from both self and family, but eventually made back and more after 2009. Can I psychologically withstand that? I don't think I can.

 

There are more ways to make money than value investing. I am currently exploring those.

 

It dawned on me that Muscleman never stated that he would seitchnto indexing. As stated already before, indexing really doesn’t solve above problems. MM also outperformed in 2018 (+10% ) so it’s doesn’t seem to be a matter of underperforming recently either. He had some multibaggers in 2018 (SLMR) that don‘t look like traditional value stocks. I would be curious to know what he is going to be up to.

[John Hjorth]

Spekulatius,

 

Please also see my post #8 in this topic which sheds some light on muscleman's new investment approach.

[Hielko]

Spekulatius,

 

Please also see my post #8 in this topic which sheds some light on muscleman's new investment approach.

Yeah, I highly doubt that that's a good decision. Giving up on value investing sure, most people can't beat the market, and the sooner you realize you aren't one of them the better. But I think the conclusion of Muscleman that "value investing" doesn't work, but perhaps something else does, is 100% the wrong conclusion. If you can't handle value investing, arguable one of the easiest ways of active investing!, I doubt an alternative active approach is a wise step. Especially since all the point why his value investing doesn't work also apply at basically anything else. Some of them even at passive investing! If you can't psychologically handle the risk and the losses that are inherent to stocks it doesn't matter what your strategy is, your problem isn't going away.

[Dazel]

https://www.marketwatch.com/story/how-to-light-up-your-brain-like-warren-buffett-2014-07-17

 

 

Buffett is wired for the game...everyone sees what he does time and again but are unable to follow. As Mr. Munger says “anyone who says investing is easy is an idiot.” He also says tell me where I am going to die so I will never go there”.

Lastly, they both think some of the most important words in investing are fear and greed.

 

Most importantly, though, is what you own and whether or not you are capable of assessing the assets you own. Ie if you are wired like Buffett and able to buy in maximum fear it better be a good investment! This where the real value counts...

 

Contrary to what The public says about Buffett’s index advice is that he does not say buy the index and go to sleep...he says buy the index over time. So you will buy low at times like 2007-2009...he can’t tell you to lighten up when the market is nose bleed high but he would if he had time. (Take a percentage out at high levels and simply reinvest in again over time and when the market is down allocate a higher percentage to your weekly investment plan.

 

Value investors deal with corrections and bear markets all the time...GE....that is definitely not for everyone and nor it should be...if it makes you nervous you “WILL SELL” at exactly the wrong time. You have to know yourself and that is the “Most important” thing (City Slickers for anyone old enough).

 

Muscleman here is what most people do....and for you to think about...everyone wants to stop investing forever, in a correction and more so in a bear market. They say I just want to get back to even where I was before and will never do this again! Fear subsides as the markets recover everyone feels better....Buffett makes another killing...all seems good so they repeat the process they buy in again make money for awhile until fear returns repeat. That IS the market....to beat it you most be wired to handle both fear and greed...otherwise buy the market overtime as the smartest investor of all time told you to do Mr. Buffett and your wealth creation will beat most other options.

 

However, the best advice Mr. Buffett ever gave is invest in yourself only you know what your greatest strengths are.

 

Best of luck!

 

Dazel

[John Hjorth]

Wikipedia : City Slicker. Do I understand your phrasing right now after reading that, Dazel? [lol -you never learn if you don't ask, right?]

[sleepydragon]

You shouldn’t be quitting it because you can’t make money.

I invest myself instead of indexing fund because I just love doing it. If I am really suck I will just do less while trying to get better, but no way I can stop.

I  never get why some people let others manage their money and pay for that. If someone offer to manage money for me I will ask them pay me a big fee

[gfp]

Its an American comedy movie called "City Slickers" John - Dazel references "Your One Thing"

http://www.collierbiz.com/Articles/OneThingCitySlickers.htm

 

Wikipedia : City Slicker. Do I understand your phrasing right now after reading that, Dazel? [lol -you never learn if you don't ask, right?]

[John Hjorth]

Thanks, gfp!

[Foreign Tuffett]

As long as you still have those ripped abs, bulging biceps, and huge pecs you'll be fine.

[Vish_ram]

I started learning value investing since 2009 and was lucky to make some money during this great bull market, though I am probably not beating the market.

I have decided to give up value investing because it doesn't fit my personality.

There are several flaws that's probably most likely related to my personality.

1. I always over analyze and paralyze. Fear to buy. (Could this go down more?) Fear to sell. (Could this go up more?)

2. My analysis has serious flaws and later earnings turn out to be bad and it turned out that if I know more about it and do more research, I could have figured it out and avoided it. (Rear view mirror always clearer)

3. Too nervous and keep checking the stock price. When it goes against me deeply, I feel depressed and can't concentrate on work or family anymore.

4. I have always thought if I started investing in 2007, how would I fair in 2008-2009 crash. I have no answers. I know friends who lost 75% in that bear market and felt distress from both self and family, but eventually made back and more after 2009. Can I psychologically withstand that? I don't think I can.

 

There are more ways to make money than value investing. I am currently exploring those.

 

 

There are so many things folks can learn from your post. BTW I don't consider myself as a value investor on a strict low P/E stuff, but try to ascertain value based on cash flows.

 

1) first you didn't say you were practicing value investing, you said you were learning.

  Lesson 1: You probably have unrealistic expectations. Maybe you were trying to beat Buffett's partnership returns. Name a high profile value investor who has performed well in last 5 years?

 

2)  " though I am probably not beating the market."

  There is no rule or law that says practicing value investing will beat the market returns in any given period. You may under perform the market for 10 years and then outperform. The father of value investing Graham made bulk of his money on Geico.

 

3) The worst instinct an investor can have is to try to buy at the technical bottom and sell it at the top. I stopped beating myself up for leaving money on the table by selling it early.

 

4) Buffett has been great in giving investment advice. His worst advice probably is the concentration of portfolio. God knows how many financial lives have been ruined by this advice. Bless his heart.

 

Money + portfolio concentration + caliber & temperament less than that of Buffett's = DISASTER & RUIN.

 

If I have to offer you one advice, it will be to have 4 buckets.

1) Bucket 1: Non-trading assets - land, rental income from properties, etc

2) Bucket 2: Passive index funds, target life funds, QQQ, IBB etc

3) Bucket 3: High quality stocks/sectors: (20 punch card portfolio) MA, V, BRK, BAC, AMZN, APPL, MCO, SPGI...

4) Bucket 4: Speculative stocks, practice your value investing here.

[NewbieD]

Spekulatius,

 

Please also see my post #8 in this topic which sheds some light on muscleman's new investment approach.

If you can't psychologically handle the risk and the losses that are inherent to stocks it doesn't matter what your strategy is, your problem isn't going away.

 

Sympathize with not having enough time for proper fundamental analysis with kids around. Sure is harder to get enough time to have a well researched opinion on a well-diversified portfolio.

 

Agree that finding a new strategy per se is not going to solve the problem. However, learning and experimentation is always good. Don't know the specifics here, but maybe OP will have an easier time to exit trades - part of the fear may come from feeling so committed to well-researched positions and knowing that they might cause psychological pain over the long run since his strategy dictates not to sell them? To me this would be a logical follow-on from when someone prone to analysis-paralysis has eventually commited. Technical trading will train the sell button to be more frequently used if nothing else. Sure OP will get to use his fundamental skills in some respects while practicing his new strategy - it's not black and white after all.

 

Also, if fear of different kinds is the problem it might be worth practicing stoicism and specifically 'going without' and negative visualization. I.e. sit for 5 five mintues every day visualizing that you or loved ones get cancer. Or that your kid gets run over by a car, or whatever would really make you hurt. Then (potential) stock movements won't feel so bad afterwards.

 

Going without can be things like denying yourself a meal or warm enough clothes every now and then, taking a 5 min cold shower etc.

[SharperDingaan]

I started learning value investing since 2009 and was lucky to make some money during this great bull market, though I am probably not beating the market.

I have decided to give up value investing because it doesn't fit my personality.

There are several flaws that's probably most likely related to my personality.

1. I always over analyze and paralyze. Fear to buy. (Could this go down more?) Fear to sell. (Could this go up more?)

2. My analysis has serious flaws and later earnings turn out to be bad and it turned out that if I know more about it and do more research, I could have figured it out and avoided it. (Rear view mirror always clearer)

3. Too nervous and keep checking the stock price. When it goes against me deeply, I feel depressed and can't concentrate on work or family anymore.

4. I have always thought if I started investing in 2007, how would I fair in 2008-2009 crash. I have no answers. I know friends who lost 75% in that bear market and felt distress from both self and family, but eventually made back and more after 2009. Can I psychologically withstand that? I don't think I can.

 

There are more ways to make money than value investing. I am currently exploring those.

 

The best 'investment' one can make is in 'knowing' oneself.

Going forward I see no reason why you shouldn't do well, and with a lot less angst that is currently the case.

 

To enjoy a worthwhile retirement, one has to 'invest' in it over ones working lifetime.

Invest does not ‘just’ mean the size of a bank account; it also means are your debts paid off? (mortgage, car, others, etc.), family, reinvention (one isn't the same person at 65, that they were at 45), and having something to 'retire' to? (bucket list, new venture, new direction, etc.). Most people are not very good at it.

 

Most people also think only of the ‘S&P500’, ‘Dow Jones’, 'TSX', etc. when they hear ‘indexing’, and stop.

Of course, what is meant, is the multitude of instruments that are indexes on ‘sub-components’ of the bigger S&P, Dow Jones, TSX, etc.  If you think oil/gas will become a good space, buy an oil/gas index versus individual oil/gas shares, and sleep peacefully. ALLOCATE/RE-ALLOCATE capital every 6-12 months to where the puck is going (not where it is today), choose the index funds with the lowest fees, and get out of your own way.

 

Good luck!

 

SD

 

[Jurgis]

Best of luck to muscleman, but to me this feels like exactly the wrong time to give up on active value investing...

 

This has been said every year for the last 7 years or so.

 

It also has been claimed that value investors will outperform when market goes down.

Which has pretty much shown to be wrong in the years like 2018 when market went down.

(Yeah, I know there's a ton of superinvestors on CoBF who outperform every year. More power to them.)

[SHDL]

This has been said every year for the last 7 years or so.

 

Others may have said so, but definitely not me!

 

Anyway, here are my two reasons why I believe what I said:

 

One is, there are mechanical reasons why (classical/quantitative/mechanical) value investing tends to underperform when interest rates go down in a big way [1].  And interest rates are now starting to go up.

 

Two, broad market indices like the S&P are now priced at a level where it’s pretty unrealistic to expect great future returns over, say, the next 10+ years [2, 3].  I don’t think that’s true at the moment for many individual stocks.

[Sportgamma]

What is value investing anyway? This term has been so widely defined that it wouldn't even surprise me to see two renowned value investors at the opposite end of a trade.

 

I also have a limited understanding of the discussion on value investor performance across cycles. If an analyst underperforms for a decade, I doubt that he underperformed because he is a value investor.

 

One mistake that I think we here on this board repeatedly make is that we tend to get drawn into these public situations that have loads of coverage and data, but were we have no edge whatsoever. If Walter Schloss was 29 today and investing, what would he be doing? My guess is that he would be dumpster diving somewhere in the OTC markets and he would do perfectly fine across market cycles.

 

But hey, I think Warren Buffett already laid this to rest 27 years ago. There is no value investing, only investing:

 

" But how, you will ask, does one decide what's "attractive"? 

In answering this question, most analysts feel they must choose

between two approaches customarily thought to be in opposition: 

"value" and "growth."  Indeed, many investment professionals see

any mixing of the two terms as a form of intellectual cross-

dressing.

 

    We view that as fuzzy thinking (in which, it must be

confessed, I myself engaged some years ago).  In our opinion, the

two approaches are joined at the hip:  Growth is always a component

in the calculation of value, constituting a variable whose

importance can range from negligible to enormous and whose impact

can be negative as well as positive.

 

    In addition, we think the very term "value investing" is

redundant.  What is "investing" if it is not the act of seeking

value at least sufficient to justify the amount paid?  Consciously

paying more for a stock than its calculated value - in the hope

that it can soon be sold for a still-higher price - should be

labeled speculation (which is neither illegal, immoral nor - in our

view - financially fattening)."

 

[Jurgis]

This has been said every year for the last 7 years or so.

 

Others may have said so, but definitely not me!

 

Anyway, here are my two reasons why I believe what I said:

 

One is, there are mechanical reasons why (classical/quantitative/mechanical) value investing tends to underperform when interest rates go down in a big way [1].  And interest rates are now starting to go up.

 

Two, broad market indices like the S&P are now priced at a level where it’s pretty unrealistic to expect great future returns over, say, the next 10+ years [2, 3].  I don’t think that’s true at the moment for many individual stocks.

 

Well, we'll see. But I think it is a common fallacy to say that active investing will do better this time or that time or based on this factor or whatever. You may not have said anything like that earlier and maybe you gonna be the person who picks the (passive investing) top this time, but I would not bet on you or anyone doing it consistently. I've seen too much claims that have been made that were total bunk and the same people come over year(s) later and make new claims without acknowledging that they were wrong and that they are just making WAGs. And not only CoBF people. We can pick on professional investors doing the same.

 

It has been shown that a large majority of active investors underperform long term whatever the factors are. And expecting this to change is wishful thinking IMO.

 

Of course, you can always cherry pick data like Spekulatius did and show how index did really poorly from some market top that is known only post-factum.

 

Anyway, we all know that CoBF investors are special and  they outperform .

[SHDL]

Yes, we'll see.  I'm happy to bet $5 that Berkshire will outperform the S&P over the next 10-20 years. 

[Jurgis]

Yes, we'll see.  I'm happy to bet $5 that Berkshire will outperform the S&P over the next 10-20 years.

 

I'll take that bet.

 

But since I take that bet I'll also observe the tendency of value investors to use BRK and Buffett as a crutch. I.e. Buffett is the only example that consistently outperformed and a lot of other investors performance is based on holding large BRK positions. You may not be doing this in your portfolio, but your bet totally falls into that category.

[SHDL]

Okay, let's revisit this thread on 1/17/2029.  ;)

[mikazo]

I decided a few months ago to transition away from value investing and toward index investing. I simply don't have the time required to research value ideas. It makes me feel better to see others have come to the same realization.

[mwtorock]

Seen some comments about indexing and somehow imply that is passive investing. I think there is a huge difference. Indexing is a tool that you can use for passive investing. How many of you or the people you know actually gone through market cycles without getting in or out index funds? Ask all the equity fund outflows in december 2018 - it is pretty hard.

 

If you try to get in or out of markets using index funds, to me it is not really passive investing. Real passive investing like buying BRK for years and not selling is very very hard.

[Jurgis]

Seen some comments about indexing and somehow imply that is passive investing. I think there is a huge difference. Indexing is a tool that you can use for passive investing. How many of you or the people you know actually gone through market cycles without getting in or out index funds? Ask all the equity fund outflows in december 2018 - it is pretty hard.

 

If you try to get in or out of markets using index funds, to me it is not really passive investing. Real passive investing like buying BRK for years and not selling is very very hard.

 

IDK what's so hard. I have my 401(k) at fixed allocation and I haven't changed the allocation/contribution/etc for X years I have been in current job. And BTW my allocation is OKish, but not great. It includes 20% bonds and 40%/40% US/international funds. And international funds have returned way less than US market index funds. (I should rebalance, but I don't, since I treat this more of an experiment of what the end result will be with fixed allocation).

 

But yeah, there's a lot of people who just don't do it. Even worse, they don't do anything. Like missing 100% gains that they could get by just doing X% contribution into 401(k) and getting X% company match (yeah that's 100% gain immediately). Or missing on guaranteed Y% gains by buying Y%-discounted ESPPs.

 

Anyway, sorry that's kinda OT.

[CorpRaider]

A "technical heavy approach" sounds much worse than value investing and much, much, much worse than indexing.  I brought in the index thing (sorry, as it seems to have derailed the thread).  Unless he's just talking about systematic trend following using cheap index products in a tax advantaged account or something.  In any case, best of luck.

[Guest cherzeca]

investing is simple, but it isn't easy...in fact, it is damn hard to do well.  muscleman gets it.  all best

[rkbabang]

Best of luck to muscleman, but to me this feels like exactly the wrong time to give up on active value investing...

 

This has been said every year for the last 7 years or so.

 

It also has been claimed that value investors will outperform when market goes down.

Which has pretty much shown to be wrong in the years like 2018 when market went down.

(Yeah, I know there's a ton of superinvestors on CoBF who outperform every year. More power to them.)

 

I disagree that value investors, as a group, largely outperform on years when the market goes way down.  When fear dominates it causes a sinking tide which lowers all boats (for the most part).  But value investors start buying when everyone else is selling, so they do outperform when the market goes back up.  By the time everyone else starts pouring money into the market in a big way you are more than halfway to the next top.