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Just How Wise is the Sage of Omaha? (The Daily Beast)


mrvlad0
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Guest deepValue

Very few people -- especially hedge funds -- actually invest like Buffett. I know of fewer than five, only one of which manages a hedge fund. It's amazing to me that so many hail Buffett as the greatest, yet so few actually adopt his style.

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Very few people -- especially hedge funds -- actually invest like Buffett. I know of fewer than five, only one of which manages a hedge fund. It's amazing to me that so many hail Buffett as the greatest, yet so few actually adopt his style.

 

Who are the fewer than five?

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Guest deepValue

Very few people -- especially hedge funds -- actually invest like Buffett. I know of fewer than five, only one of which manages a hedge fund. It's amazing to me that so many hail Buffett as the greatest, yet so few actually adopt his style.

 

Who are the fewer than five?

 

One is Geoff Gannon (here and here). The others do not have publicly-available thoughts/portfolios.

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  • 2 weeks later...
Guest valueInv

Very few people -- especially hedge funds -- actually invest like Buffett. I know of fewer than five, only one of which manages a hedge fund. It's amazing to me that so many hail Buffett as the greatest, yet so few actually adopt his style.

 

Who are the fewer than five?

 

One is Geoff Gannon (here and here). The others do not have publicly-available thoughts/portfolios.

 

Geoff Gannon is nothing like Buffet.

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haha,

 

This is hilarious its article/thinking like this that guarantees people who follow the value investing principals will beat the market.

 

it make me happy people still think this way :)

 

hy

 

Yes this article makes me feel a little better with regards to my chance of life long outperformance. Also reminds me of this :)

 

"There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world if anything has backed away from the teaching of value investing of the last 30 years. It's likely to continue that way. Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper."

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Just to play devil's advocate for a minute, how many people are really profiting substantially from value investing these days?  By profiting I mean achieving results over long periods of time (say 10+ years) that are say 5%+ over the S&P 500.  Don't get me a wrong, I believe in it and practice it myself but I often think the value crowd gives it more credit than it is worth and when I approach it scientifically I find the evidence is a little weak that value investing (obviously this is a very broad term so excuse my generalizing) gives you a large advantage.  I tend to think it gives an advantage but a small one.  Looking on the website guru focus there are a large number of guru's who only beat the market by ~2% a year over long stretches.  For instance, tweedy brown who I believe are value investors, have beat the market by 5.3% cumulatively over the past decade, or 0.5% annually.  Obviously these are still good results especially when you consider that they have taken expenses out already.  Believe me I am not trying to knock these guys at all.  I will be quite happy if I beat the market by 1% per year over my investing career.  I just wonder if we don't give ourselves a little too much credit with value investing and this concept that going against the herd produces crazy results.  I also wonder if the market isn't becoming more efficient and making it harder to find these dollars for 50 cents.

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Guest wellmont

Just to play devil's advocate for a minute, how many people are really profiting substantially from value investing these days?  By profiting I mean achieving results over long periods of time (say 10+ years) that are say 5%+ over the S&P 500.  Don't get me a wrong, I believe in it and practice it myself but I often think the value crowd gives it more credit than it is worth and when I approach it scientifically I find the evidence is a little weak that value investing (obviously this is a very broad term so excuse my generalizing) gives you a large advantage.  I tend to think it gives an advantage but a small one.  Looking on the website guru focus there are a large number of guru's who only beat the market by ~2% a year over long stretches.  For instance, tweedy brown who I believe are value investors, have beat the market by 5.3% cumulatively over the past decade, or 0.5% annually.  Obviously these are still good results especially when you consider that they have taken expenses out already.  Believe me I am not trying to knock these guys at all.  I will be quite happy if I beat the market by 1% per year over my investing career.  I just wonder if we don't give ourselves a little too much credit with value investing and this concept that going against the herd produces crazy results.  I also wonder if the market isn't becoming more efficient and making it harder to find these dollars for 50 cents.

 

The last 10 years have not been a great  time to be a value investor handling large sums. I will leave it to the reader to deduce what that might mean for the next ten.

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That is really encouraging to hear hyten1!  Personally I am around 2% / year over the S&P for the past decade, not great but enough to keep on slugging.  Even then, there are 2 stocks which make up the entire outperformance so I am not sure if it is luck or not. 

 

I do wonder what the impact is of trying to manage these large funds,  seems a lot of these guys get fantastic returns and then switch over to mediocre at some point.  Makes me think I should be exclusively focusing on small caps.

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Guest deepValue

Just to play devil's advocate for a minute, how many people are really profiting substantially from value investing these days?  By profiting I mean achieving results over long periods of time (say 10+ years) that are say 5%+ over the S&P 500.  Don't get me a wrong, I believe in it and practice it myself but I often think the value crowd gives it more credit than it is worth and when I approach it scientifically I find the evidence is a little weak that value investing (obviously this is a very broad term so excuse my generalizing) gives you a large advantage.  I tend to think it gives an advantage but a small one.  Looking on the website guru focus there are a large number of guru's who only beat the market by ~2% a year over long stretches.  For instance, tweedy brown who I believe are value investors, have beat the market by 5.3% cumulatively over the past decade, or 0.5% annually.  Obviously these are still good results especially when you consider that they have taken expenses out already.  Believe me I am not trying to knock these guys at all.  I will be quite happy if I beat the market by 1% per year over my investing career.  I just wonder if we don't give ourselves a little too much credit with value investing and this concept that going against the herd produces crazy results.  I also wonder if the market isn't becoming more efficient and making it harder to find these dollars for 50 cents.

 

Just because someone describes himself as a "value investor" does not mean he has the temperament or discipline to really execute the strategy. If you look at the gurus on GuruFocus, most have dozens of stocks in their portfolios. This isn't to say that extreme diversification cannot be a part of a value strategy -- Ben Graham himself was a proponent of this -- but at a certain point you own so many stocks that you can't really do that much better than the market.

 

I know of one investor who routinely owns more than 50 stocks and has absolutely crushed the market over the last two decades. I'm sure there are others like him. But I also know a handful of investors who hold no more than five stocks at once. These 'concentrated' value investors tend to do as well as the market during bull markets and much better than the market during bear markets. Of course, they have the discipline to select only the 'obvious' investments and the temperament to ride out poor short-term results. This method makes more sense to me than Graham's extreme diversification approach, but I think each investor will earn his highest possible return by implementing the value strategy in the manner in which he understands it best; the concentrated investors, however, seem to beat the market more often and by a greater margin than the diversified ones.

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I know of one investor who routinely owns more than 50 stocks and has absolutely crushed the market over the last two decades. I'm sure there are others like him.

 

Would you care to share a little more about how he did this?  Does he use much leverage?  Does he short?  Is it more qualitative decision making or does he just buy baskets of net nets or something along those lines?

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Guest deepValue

 

I know of one investor who routinely owns more than 50 stocks and has absolutely crushed the market over the last two decades. I'm sure there are others like him.

 

Would you care to share a little more about how he did this?  Does he use much leverage?  Does he short?  Is it more qualitative decision making or does he just buy baskets of net nets or something along those lines?

 

Check PM.

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I am up about 20% over the S&P over the past 10 years with alot of mistakes (27% per year vs. S&P 7% per year).  I think what has helped is not being diversified and selecting the spots were others are not.  For example my top 5 positions are 60% of my portfolio and the top 10 85%.  This performance has not come with a small amount of volatility.  I purchased LEAPs and warrants so there is some non-recourse leverage involved. Over 10 years, I have has 4 in excess of 50% (5 in excess of 40%) with one down more than 50% (so I am not sure how many folks would be comfortable holding a portfolio like this).  What I find incredible are some of my losses.  If only I could remove them but I have tried to reduce my exposure to situations that I am attracted to that have caused most of these losses, Lodgenet is a recent example of getting out before it was too late but Freddie Mac pfds was an example of the opposite.  Just some thoughts.

 

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