Fundamental vs. Technical

[Value Collector]

I have been thinking about Warren's success over the last few days (been under the weather and laid low for the last few days). I think he has created the most successful fund because neither he nor Charlie syphon off profits from their investments for themselves or their shareholders, they never paid dividends, and all the profits were re-invested year after year. The companies they hold pay dividends which remained in the company, time and inflation increased the value of the holding companies as well which then reflected in BH bottom line. I think his success is basically the Rule of 72 more than any great fundamental analysis. I am convinced a lot of his success comes from inside information as well.

I have passed on your message but no guarantees. The Captain has had over forty years of experience sailing the markets and has a lot of knowledge if one sits quietly and listens. I am thrilled he has started to post on ASF regularly, he is a gem with a wealth of knowledge.

Yes, retaining all earnings has allowed those earnings to compound, but it’s their ability to average over 20% per year returns for 60years that has allowed those retained earnings to grow.

Unless you are earning a high investment return, retaining earnings won’t help you, and that is a big part of buffets success, he is a great capital allocated, he knows which of his companies he should be sucking money out of and which he should be pumping money into.

 

[divs4ever]

Yes, retaining all earnings has allowed those earnings to compound, but it’s their ability to average over 20% per year returns for 60years that has allowed those retained earnings to grow.

Unless you are earning a high investment return, retaining earnings won’t help you, and that is a big part of buffets success, he is a great capital allocated, he knows which of his companies he should be sucking money out of and which he should be pumping money into.

his success isn't as easy as it sounds , since he often has a big war-chest of available cash he sometimes does complex deals like preference shares with attaching warrant or options , something like MacQuarie Bank would do when loaning to a troubled company ( at the time )

 

[Value Collector]

his success isn't as easy as it sounds , since he often has a big war-chest of available cash he sometimes does complex deals like preference shares with attaching warrant or options , something like MacQuarie Bank would do when loaning to a troubled company ( at the time )

Firstly I didn’t say his success was easy, it takes a lot of work and knowledge, and I high degree of emotional stability and self confidence.

But, these days he has a big war chest, but he didn’t start with one, he started out with a couple of thousand dollars saved from childhood jobs.

In fact his investment returns in the early years before he had billions have been better than that of the latter years, as Berkshire has grown larger the investment returns have decreased, but have still averaged over 20% over his 60 year career.

 

[Value Collector]

If you want an idea of how small Warrens fund was when he started, check out this 2 min video clip of a former neighbour of Buffett’s talking about how Warren came to him and asked him to invest right at the start.

The Neighbor was Don Keogh who years later became the President of Coca-cola, but you can tell he regrets turning Buffett down and not investing when Warran asked.

 

[systematic]

...and if you strip everything away (leverage, private companies, companies he wholly owns etc) and only look at his stock picking...it still shows he was brilliant at it...along with having the discipline and tenacity to never waver through decades of ups and downs (i.e. he conquered the biggest mountain of all, IMO; his own behaviour)

 

[divs4ever]

Firstly I didn’t say his success was easy, it takes a lot of work and knowledge, and I high degree of emotional stability and self confidence.

But, these days he has a big war chest, but he didn’t start with one, he started out with a couple of thousand dollars saved from childhood jobs.

In fact his investment returns in the early years before he had billions have been better than that of the latter years, as Berkshire has grown larger the investment returns have decreased, but have still averaged over 20% over his 60 year career.

no you didn't , but some fund managers clearly imply it was

and yes he would do a lot of research and discussion with Charlie and crunch plenty of numbers like any good fund manager but when you have $US 50 billion ( plus ) in available cash you can put on the eye-shade and sleeve garters and behave like a corporate banker

you can do some things when you are investing one or two thousand that you can't do when trying to park a million , but investing one million opens doors that a small investor will never even see let alone enter

( for example $US 50 billion would buy Twitter , but Warren and Charlie aren't the slightest bit interested in it )

and return levels come and go the next big winner could be walking into reception now or still 10 years away

only Bernie Madoff made regular returns like clockwork

 

[divs4ever]

If you want an idea of how small Warrens fund was when he started, check out this 2 min video clip of a former neighbour of Buffett’s talking about how Warren came to him and asked him to invest right at the start.

The Neighbor was Don Keogh who years later became the President of Coca-cola, but you can tell he regrets turning Buffett down and not investing when Warran asked.

i suppose Don was lucky Warren didn't carry a grudge ( Warren probably held enough Coca-Cola stock by the time Don was appointed President to block the nomination )

 

[Value Collector]

i suppose Don was lucky Warren didn't carry a grudge ( Warren probably held enough Coca-Cola stock by the time Don was appointed President to block the nomination )

No actually Don was already President in the 80’s when Warren started buying shares, there is another video where Don talks about how he was noticing a lot of purchases coming from Omaha, and suspected it might have been his former neighbour (Don had moved to Atlanta by this stage), so he called Buffett and said “Hi Warren, you wouldn’t happen to be buying a share or two of Coke are you”, Buffett said he was and the rest is history.

 

[Value Collector]

no you didn't , but some fund managers clearly imply it was

and yes he would do a lot of research and discussion with Charlie and crunch plenty of numbers like any good fund manager but when you have $US 50 billion ( plus ) in available cash you can put on the eye-shade and sleeve garters and behave like a corporate banker

you can do some things when you are investing one or two thousand that you can't do when trying to park a million , but investing one million opens doors that a small investor will never even see let alone enter

( for example $US 50 billion would buy Twitter , but Warren and Charlie aren't the slightest bit interested in it )

and return levels come and go the next big winner could be walking into reception now or still 10 years away

only Bernie Madoff made regular returns like clockwork

Yep of course, but the point is you don’t go from $10,000 to $50 Billion by being one of the Muppets, Buffett has grown and developed his knowledge and skill and succeed at every level along the way.

So people that say things like “he only does well because of big Billion dollar private deals” or “he only does well because he buys whole companies” etc etc are simply dead wrong, he has done well from the start.

One moment of thought on the subject shows that you won’t ever get to making deals in the Billions or millions unless you master the lower levels first, which he clearly did.

That is a key part of his success, he has taken simple fundamental ideas, and continually grown and found ways of applying them as he continued to go up through the levels from school kid to global magnate.

 

[divs4ever]

Yep of course, but the point is you don’t go from $10,000 to $50 Billion by being one of the Muppets, Buffett has grown and developed his knowledge and skill and succeed at every level along the way.

So people that say things like “he only does well because of big Billion dollar private deals” or “he only does well because he buys whole companies” etc etc are simply dead wrong, he has done well from the start.

One moment of thought on the subject shows that you won’t ever get to making deals in the Billions or millions unless you master the lower levels first, which he clearly did.

That is a key part of his success, he has taken simple fundamental ideas, and continually grown and found ways of applying them as he continued to go up through the levels from school kid to global magnate.

so did i in the first 10 years ( do pretty good ) ( starting early in 2011 was a BIG help , rather straight talent , i admit ) but the big difference between Warren and i is , i don't have another 50 years of investing in me to catch up and match trading records

so far 2022 hasn't been a disaster ( but could turn into one later in the year )

actually from what i have read on Buffet ( and i haven't read close to everything ) his best deals were cash injections to deeply distressed companies ( that the big banks probably wouldn't have touched ) stuff like warrants and preference shares ( with attached options ) when a standard share placement would probably fall short ( he didn't buy the whole company but enough to put a director on the board to make sure issues were resolved .. a bit like Australia's Millners )

 

[Value Collector]

so did i in the first 10 years ( do pretty good ) ( starting early in 2011 was a BIG help , rather straight talent , i admit ) but the big difference between Warren and i is , i don't have another 50 years of investing in me to catch up and match trading records

so far 2022 hasn't been a disaster ( but could turn into one later in the year )

actually from what i have read on Buffet ( and i haven't read close to everything ) his best deals were cash injections to deeply distressed companies ( that the big banks probably wouldn't have touched ) stuff like warrants and preference shares ( with attached options ) when a standard share placement would probably fall short ( he didn't buy the whole company but enough to put a director on the board to make sure issues were resolved .. a bit like Australia's Millners )

The cash injections were good, but they weren’t until 2008, he had been kicking goals for 48 years before that, as I was saying it’s easy for people to point to things like that and say that’s why he is successful but that’s far from what made him, he was a big deal before that.

But investing such a large sum into the banks when the rest of the world is fleeing the market in droves certainly shows his ability to go with the long term fundamentals rather than the fear and greed emotions of the market.

 

[Value Collector]

This is a great documentary on Warrens life and investment style.

(They make one mistake though $1000 invested into buffets fund would be worth $50 Million not $5M like they said)

 

[Captain_Chaza]

Great Doco and many thanks

Is he a FA'er Or a TA'er?

You must always remember that this doco is 8 years old
Crikey!
That could be 1 or 2 Booms and Busts ago

That's what you get if you waste time reading Sweet FA Yahoos and Sweet FA Twits
IMHO Tread Carefully is my advice with these modern intelligentsia

Don't get me wrong
I publish the chart of Berkshire Hathaway with great respect
and ask
Is he an FA'er or a TA'er?

And I Ask Sea-Cadet gg does this remind you of AMP?

 

[divs4ever]

Great Doco and many thanks

Is he a FA'er Or a TA'er?

You must always remember that this doco is 8 years old
Crikey!
That could be 1 or 2 Booms and Busts ago

That's what you get if you waste time reading Sweet FA Yahoos and Sweet FA Twits
IMHO Tread Carefully is my advice with these modern intelligentsia

Don't get me wrong
I publish the chart of Berkshire Hathaway with great respect
and ask
Is he an FA'er or a TA'er?

And I Ask Sea-Cadet gg does this remind you of AMP?

View attachment 141887

i would say Warren tilted to the fundamentals side , although fundamentals as an investor would see them ( rather than say a trend or momentum trader )

cheers

 

[Captain_Chaza]

i would say Warren tilted to the fundamentals side , although fundamentals as an investor would see them ( rather than say a trend or momentum trader )

cheers

Please Note
He had no staff!

Go Figure!

 

[divs4ever]

The cash injections were good, but they weren’t until 2008, he had been kicking goals for 48 years before that, as I was saying it’s easy for people to point to things like that and say that’s why he is successful but that’s far from what made him, he was a big deal before that.

But investing such a large sum into the banks when the rest of the world is fleeing the market in droves certainly shows his ability to go with the long term fundamentals rather than the fear and greed emotions of the market.

from memory apart from the high profile stocks ( like Coca-Cola ) Warren invested a lot in railways , and that is an interesting investment theme if you start at the right time in the cycle , they make nice core-holdings and probably a sensible counterbalance to the insurance company investments

i WAS using power companies like that until they were taken over recently ( i just can't find a good price on AZJ , so they are unlikely to be a substitute )

the hard part on being a new(ish ) investor and looking back at early Warren is visualizing the companies he invested in ( WHEN he invested in them ) take a company like GE it is massively different to the 1970 GE

 

[divs4ever]

i would say Warren tilted to the fundamentals side , although fundamentals as an investor would see them ( rather than say a trend or momentum trader )

Please Note
He had no staff!

Go Figure!

neither do i unless i start paying some members here

BUT the newspapers might have been more accurate with their reporting and THAT would have been a big help

and cynic might argue that Warren's staff ( he has now ) are detracting from his current performance , a good computer software program can do the basic screening now days , but i suspect general market over-valuations are actually the real reason Warren is less eager to buy in the current climate ( and that would impact of gains )

 

[Captain_Chaza]

WARREN just sold WFC and Bought C

What sort of tack is that?





That's like selling NAB and Buying ANZ

What sort of tack is that?

 

[divs4ever]

am not overly familiar with US banks , but i would guess Citi has promised to clean up it's act OR taken a better growth path than Wells Fargo had the switch been a year earlier , i would have said corporate governance was a factor

( i assume the change was shares into cash , into shares and not some special placement , because Warren should still have around $US 50 billion in cash reserves , so wouldn't NEED to sell Wells Fargo )

PS i assume the US government would ( discretely ) bail out either if need be . ( if NOT that would be a BIG factor )

 

[Captain_Chaza]

am not overly familiar with US banks , but i would guess Citi has promised to clean up it's act OR taken a better growth path than Wells Fargo had the switch been a year earlier , i would have said corporate governance was a factor

( i assume the change was shares into cash , into shares and not some special placement , because Warren should still have around $US 50 billion in cash reserves , so wouldn't NEED to sell Wells Fargo )

PS i assume the US government would ( discretely ) bail out either if need be . ( if NOT that would be a BIG factor )

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