Speculation mistaken for Reasoned Analysis

[FxTrader]

I think if we are discussing Warren buffetts ability as an investor and calling into question how valid his opinions are we need to look at the actual performance of the investments he is making inside berkshire rather than berkshires stock price.

Here is a comparison of Berkshires earnings compared to the sp500.


.........................Change in..............S&P 500............. Difference
.........................per share..............Including.............each year
........................book value ...........Dividends


1998 . . . . . . . 48.3 ................ 28.6 ................... 19.7
1999 . . . . . . . 0.5.......................21.0 .................... (20.5)
2000 . . . . . 6.5.......................(9.1) ......................15.6
2001 . . . . . . (6.2)....................(11.9).......................5.7
2002 . . . . . . 10.0.....................(22.1)......................32.1
2003 . . . . . . 21.0 ....................28.7.......................(7.7)
2004 . . . . . . 10.5 .....................10.9......................(0.4)
2005 . . . . . . 6.4 ...................... 4.9.......................1.5
2006 . . . . . . 18.4.....................15.8....................... 2.6
2007 . . . . . . 11.0..................... 5.5....................... 5.5
2008 . . . . . . (9.6)...................(37.0)......................27.4
2009 . . . . . 19.8.....................26.5 ......................(6.7)
2010 . . . . . 13.0....................15.1.......................(2.1)

Compounded Annual Gain – 1965-2010 . . berkshire 20.2% pa........... ps500 9.4% pa
Overall Gain – 1964-2010 . . . . . . Berkishire 490,409%......... sp500 6,262%

As we all know, past performance is no guarantee of future performance or returns. Quoting changes in the book value or the performance of BRKA over the last 45 years is just more obfuscation from yet another Buffett devotee. As I said before, recent share price and business performance (13yrs in the case of BRKA) is more significant to potential and current investors than its performance 20,30 or 40 years ago.

Berkshire is a mature, long standing business and the market has had plenty of time to "weigh" the value and price of BRKA and bring them into alignment. BRKAs share price performance for the last 13 years is woeful and quoting changes in book value or BRKAs share price 20-40 years ago is of cold comfort to BRKA's investors over the last decade.

There can be no disguising or whitewashing BRKAs poor share price performance over the last 13 years (+40%), the stats are there for everyone to see. In contrast, had you invested in say BHP over the last 13 years what would your return have been... 900%! BRKA is a dog by comparison over this more relevant time period. Investing your money with Buffett has been a bad idea for more than a decade, plain and simple.

 

[bob99]

The disappointing aspect of opening up this discussion is that the Buffett junkies have jumped in to save his lack of credibility. Christ, I am surprised I haven’t been bash over the head yet for describing Apple products as inferior, however I think that is still coming.

Want some interesting facts on Buffett? Pick up a copy or find the article by John M Green in the Fin Review on 21 July. There’s a great start at someone dissecting the last few yrs of the 'god like status' that has been given to him.

Honestly, I don’t care if Buffett claims no responsibility by saying he doesn’t profess to know all the answers, the fact is he has little care, and takes no responsibility for his comments.

As for the optimism approach, I like it, yet no disrespect just because I pray to win the lotto doesn’t mean I will, it’s all chance. Hence a win is not based on being positive, or my pray, or a theory, or a pattern, or a "system", its chance, optimism might give you the extra boast not to become disillusioned and hence you will cough up the $10 next week, yet when the odd's are against you no matter how much optimism you have, it will not ... matter.

What my org. post was all about was the personal responsibility that people must take. Sure, the individual must take responsibility, however for the avg. investor who has very little invested, has even less of a clue as to how everything works, then they rely on the voice of others who are deemed to be respected. However with that respect (earned) there should be some responsibility. I'm sorry so many of you respect this man so much you can’t see past his self-serving tactic's.

He has shareholders, and should he come out tomorrow and denounce the US then what will happen to his stock, and the market in general? So while the optimism might be nice, the truth is often better. Otherwise how can anything every be fixed?

The same is for many who are seen as being respected. Someone closer to home is Alan Kohler and his Eureka Report, I have never read more self-serving, factually incorrect and bias tripe in my life, however so many people follow the word.

As said previously, an avg, investor doesn’t have the money, skills, or resources to investigate the market on a daily basis, and hence rely on these sorts of 'expects' and thus - and to their own detriment - admonish their responsibility to 'respected' commentators and what they have said.

This is the point, no matter how much Buffett et al. proclaim to be ord. people with a view then it would take an incredibly arrogant person to also say my words mean little when it’s quite obviously untrue. Take the farce of the "lunch" with Buffett. I don’t care about the money going to charity, why not just give it anyway? Hell, Buffett could give 1000 times what was paid and still have 5 or 6 or 7 times that left. So the charity part is just a con to make some feel better.

CNBC should be strung up for the pedestal they put him on - they seem to be a great cause of his 'god like status', yet it’s hard to find any critical analysis of his commentary, which is at the heart of my posting. Just because Jobs says Apple has a new device and its great doesn’t make it so, yet it’s become an lexicon in our society now where the 'cool' crowd are actually in and anyone else is not "in". Say something bad about Apple, or Jobs, or its devices or its Micro-soft style “take-over” of the world approach and you will be lucky to escape with your life.

If you stifle debate and argument (whether reasoned or not) then you lose sight of the bigger picture. You cannot have a level playing field if the field is constantly being manipulated by those who have the means.

I don’t expect much from the 'press' yet a little less regurgitation of "statements" as fact and a little more "reporting" would be preferable.

I am sure the Buffett groupie set will have something to say, yet the discussion is not how great you think he is, or how humble he is, it is about responsibility for your actions - esp. when those actions have a wider influence.

 

[FxTrader]

Want some interesting facts on Buffett? Pick up a copy or find the article by John M Green in the Fin Review on 21 July. There’s a great start at someone dissecting the last few yrs of the 'god like status' that has been given to him.

Here's a link to the same article I think you're referring to...

http://www.theaustralian.com.au/business/opinion/warren-buffets-time-in-the-sun-may-have-passed/story-e6frg9if-1226078818619

This article just reinforces what I have said previously in this post, investing with Buffett has been a bad idea for over a decade. Green sums it up this way...

"So on a variety of criteria, his performance this century suggests we can stop giving each of his words and actions a god-like reverence and start to treat him as a highly respected, yet still mere mortal. Yes, it does seem that the times have changed."

Exactly!

 

[waimate01]

I share a healthy skepticism for people who claim to have some inside running on all the answers.

Whenever I see someone spruiking the secret formula to success, I always ask myself, "if you *really* knew the answers, how come you're not fabulously wealthy?".

I'm looking at you, Alan. And you Roger. Marcus, don't smirk.

Equally, I take note that they make money by selling the formula to their secret sauce, not by actually using it.

There's some obvious differences between Buffet and these wannabes.

He's also a significantly more successful investor than I am, and for that I am reluctant to chuck rocks.

 

[Tysonboss1]

As I said before, recent share price and business performance (13yrs in the case of BRKA) is more significant to potential and current investors than its performance 20,30 or 40 years ago.

Berkshire is a mature, long standing business and the market has had plenty of time to "weigh" the value and price of BRKA and bring them into alignment. BRKAs share price performance for the last 13 years is woeful and quoting changes in book value or BRKAs share price 20-40 years ago is of cold comfort to BRKA's investors over the last decade.

I do not own Berkshire stock, So Berkshires share price means nothing to me, But offcourse I am interested in some of the core principles that have been part of berkshire and allowed it to grow it's net worth over time.

Yes, I aggree that past performance is no indicator of future performance, and that just because a "safe and sound value approach" has worked in the past does not mean it will work in the future, But there is also no reason to think that it won't.

As I have already stated, the reason I quoted the change in book value is because that is tha acutal return that berkshire is earning on the funds they hold, which has prooved to be a very sound result, even through the the gfc.

This prooves that what he is doing is working, and his advice has some merit.

But I am not trying to sell anyone berkshire shares, nor am I suggesting investing in berkshire is a sure way to riches, just that the underlying principles of berkshire are sound.

 

[Tysonboss1]

. Take the farce of the "lunch" with Buffett. I don’t care about the money going to charity, why not just give it anyway? Hell, Buffett could give 1000 times what was paid and still have 5 or 6 or 7 times that left. So the charity part is just a con to make some feel better.

Buffett has already signed his fortune away to charity,

 

[Tysonboss1]

Bob99,

You seem to be very passionate in your opinions on Warren Buffet, Is there anything in particular he has done or said that makes you feel this way.

If you don't mind can you bring up a few examples of the things he has done or said and then give some rational dispassionate arguements as to why you think he is wrong.

 

[FxTrader]

Yes, I aggree that past performance is no indicator of future performance, and that just because a "safe and sound value approach" has worked in the past does not mean it will work in the future, But there is also no reason to think that it won't.

A clever use of phrase meant to spruik Buffett's brand of value investing as "safe and sound", let me add though not safer than bank interest which his company has underperformed against for the last 13 years and counting.

Has Buffett's value investing approach worked well for investors in his company? For the last 13 years no, prior to that yes. Investors invest in a company to make money, not because they admire the soundness of its fundamentals for years with little or no ROI to show for it.

As I have already stated, the reason I quoted the change in book value is because that is tha acutal return that berkshire is earning on the funds they hold, which has prooved to be a very sound result, even through the the gfc.

Whatever the ROE over the last decade, the end result for his investors has been dismal and definitely not a "sound result".

This prooves that what he is doing is working, and his advice has some merit.
But I am not trying to sell anyone berkshire shares, nor am I suggesting investing in berkshire is a sure way to riches, just that the underlying principles of berkshire are sound.

Again it matters little to the investor if the "underlying principles are sound" but the company can't produce a result for investors half as good as bank interest for 13 years.

 

[Tysonboss1]

As said previously, an avg, investor doesn’t have the money, skills, or resources to investigate the market on a daily basis, and hence rely on these sorts of 'expects' and thus - and to their own detriment - admonish their responsibility to 'respected' commentators and what they have said.

Here is the advice warren gives to the average investor, Pretty much the same advice here has been giving to the average investor for the last 50years and ben graham gave the same advice before him.

.

 

[Tysonboss1]

A clever use of phrase meant to spruik Buffett's brand of value investing as "safe and sound", let me add though not safer than bank interest which his company has underperformed against for the last 13 years and counting.

Has Buffett's value investing approach worked well for investors in his company? For the last 13 years no, prior to that yes. Investors invest in a company to make money, not because they admire the soundness of its fundamentals for years with little or no ROI to show for it.



Whatever the ROE on funds over the last decade, the end result for his investors has been dismal and definitely not a "sound result".



Again it matters little to the investor if the "underlying principles are sound" but the company can't produce a result for investors half as good as bank interest for 13 years.

Again this discussion is not about the performance of berkshire share price or berkshire share holders. It is about the soundness of warren comments and advice.

As I have already said I don't own berkshire shares, nor would I ever own berkshire shares.

 

[Tysonboss1]

let me add though not safer than bank interest which his company has underperformed against for the last 13 years and counting.

.

Again let me state that warren has greatly outperformed bank interest and the SP500based on the returns he has generated. So he is good at allcating capital and obviously has alot of skill and knowledge. So his opinions do carry weight

So even though the share price of berkshire may not have out performed in the short term, it does not mean his principles are not valid and that we can not use some of the lessons in our own portfolios.

Also, as you rightly mentioned past results do not determine future results, and that fact that Berkshires share price has underperformed in recent times, may point to the fact that significant capital gains may flow in coming years from a correction.

 

[bob99]

Firstly, I would like to apologise that this discussion seems to have lost its direction, as many discussions seem to.

I will also state I havent bothered reading all your comments Tyson as there is no point. Your position is very well understood, nor do I have any desire to enter into more discussion about a non event other than to say the following:

I don’t care about your god-like faith in Buffett, nor do I care what figures you claim to support your god-like faith you have in him.

So please, start a discussion on how great Buffett is, just hit the Start Topic button. E-mail Becky Quick and set-up a fan club and be done with it. Maybe call it “Swooner’s Anon”

Why must the zealots be so offended when their faith barer is tainted by another.

Let me spell this out in a way that anyone over the age of 5 can understand, and equally with an IQ of greater than the said age.

THIS IS NOT ABOUT BUFFETT OR YOUR LOVE FOR HIM. ITS NOT ABOUT BUFFETT, ITS NOT ABOUT HIM!

Is that clear enough? Christ I hope so.

This is about Buffett et al. (do you know what that means?) Good. Who spruik their beliefs as being fact and have consequences that are significantly more far reaching than the average person's and in turn can shape/affect the course of markets/stocks with a single word - NO MATTER how many fact’s to the contrary there are. See my point?

Why have you not stood up for Alan Kohler? Do you agree that the nonsense of his "report" is just that, self-serving nonsense? Do you agree with the comments about Steve Jobs? Do you agree with all the comments about others who have a position and a market to protect? Read into that their ego and more so their wealth is greatly associated with the “public” following they have.

Just take the blinkers off - albeit very hard - to forget about Buffett and concentrate on the text and the meaning, not the offence you seem to have conjured up.

Ohhh, and no I don’t have a personal belief one way or the other about Buffett, nor has he harmed me. He is a very good example, that’s all, an example. And, and apt one at that.

 

[FxTrader]

Again this discussion is not about the performance of berkshire share price or berkshire share holders. It is about the soundness of warren comments and advice.

Well not really, that may be where want to steer the discussion but it seems more about the God like reverence the media and some like yourself have for Buffett (and other media favorites like him) and his advice, performance and comments and whether such reverence and worship is currently warranted or justified (certainly not over the last decade as pointed out in the Green article.)

Frankly though, since you are a tireless evangelist for Buffett and value investing, frequently posting vids on him or value investing in the forums (as you have done in this thread as well) I did not expect any objectivity from you on this subject. No doubt you would like to use this thread to yet again give everyone here a dissertation on value investing Buffett style but that is not the subject at hand.

Again let me state that warren has greatly outperformed bank interest and the SP500based on the returns he has generated.

Not in the last 13 years for investors in his company.

So he is good at allcating capital and obviously has alot of skill and knowledge. So his opinions do carry weight.

So even though the share price of berkshire may not have out performed in the short term, it does not mean his principles are not valid and that we can not use some of the lessons in our own portfolios.

I have never implied that Buffett's "principles are not valid and that we can not use some of the lessons in our own portfolios." I have simply provided (as does Green) evidence that the oracle of Omaha has not been producing results for his investors over more than a decade and hence does not currently deserve the continued star status and reverence he gets from the media for his investment performance for his shareholders.

Buffett makes mistakes and to his credit has acknowledged some of them but his biggest mistake to date has been the U.S. centric focus of his investment activity that has delivered such poor returns for his investors over the last decade. I think we shall see that investing in the U.S. economy has and will continue to be an underperforming proposition for investors including Buffett.

 

[Tysonboss1]

1, I don’t care about your god-like faith in Buffett, nor do I care what figures you claim to support your god-like faith you have in him.

2, ITS NOT ABOUT BUFFETT, ITS NOT ABOUT HIM!

3, Why have you not stood up for Alan Kohler? Do you agree that the nonsense of his "report" is just that, self-serving nonsense?

4, Do you agree with the comments about Steve Jobs?

5, Just take the blinkers off - albeit very hard - to forget about Buffett and concentrate on the text and the meaning, not the offence you seem to have conjured up.

6, Ohhh, and no I don’t have a personal belief one way or the other about Buffett, nor has he harmed me. He is a very good example, that’s all, an example. And, and apt one at that.

1, I don't have god like faith in him, I only made comments and showed figures directly related to things said by you and fxtrader.

2, I am sorry, but you mentioned Buffett directly in your opening comment on this thread.

3, I have no idea who Alan Kohler is, and have never read his report, So have made no comment on him

4, I know very little about steve jobs, I do own an iphone though:

5, there will always be market commentaters both bull and bear who get it wrong, you specifically singled out buffet, My comments were just trying to point out that out of all the commentators of varying experiance, Buffett is probably the most qualified to give judgement and he often gives the most conservative advice, No need to hose him.

In the coming years you may well find out all the hard core Bears who told people to load up on Gold and guns have probably given the most injurious advice.

6, then why mention him at all.

 

[mazzatelli]

C'mon Tyson - we all know you have a massive man crush on "The Buff" :

 

[Tysonboss1]

I have simply provided (as does Green) evidence that the oracle of Omaha has not been producing results for his investors over more than a decade and hence does not currently deserve the continued star status and reverence he gets from the media for his investment performance for his shareholders.

I know thats what you are saying, You keep repeating yourself and forcing me to repeat myself. (which after this post I will not do).

Yes the share price of Berkshire hathaway has not outperformed the market in general over the recent years, However the Performance of Berkshires investments Has.

All that means is that the market has not priced in the value buffett had generated in the recent passed, or perhaps it was over valued at the begining of the 13 year period mentioned.

But as I previously stated if you are judging Warrens ability you need to measure his actual investment returns not his companies share price.

 

[freddy2]

The ignorance displayed in this thread is truly astounding.

Buffett has an excellent track record applying the value investing principles he learned from Ben Graham and others to selecting quality businesses to purchase.

Buffett has done far more than just investing in "undervalued companies" including such things as:
-merger arbitrage
-corporation action arbitrage
-warrent and convertible hedging
-writing options
-on the run/off the run bond arbitrage
-currency speculation (eg bet against USD)
-metals speculation (eg silver)

He is intelligent but not a genius and has been primarily U.S. centric in his investment focus.

I don't know what you consider a "genius" but given what Edward Thorp (IMO a genius himself) wrote about meeting Buffett I suggest that you are wrong (see Articles 21 and 22 http://edwardothorp.com/id9.html). And if you don't know who Edward Thorp is you are even more ignorant about investing than I thought.

Problem is that the media prod Buffett to comment on areas outside of his expertise such as macro economics - he's not, never has been or ever will be qualified to comment on macro economics. He's essentially a business analyst/investor who buys entire businesses that fit his criteria with some (like Sees Candy) being terrific long term performers. His U.S. centric focus though has not been visionary in light of the rise of Asia and the drastic decline in the U.S. economy.

Again wrong, read some of the early 2000's annual letters where he explains why he was betting against the US dollar on which he made billions.

If you had invested in BRKA in Sept 1998 and held until Feb2009 you would have had no capital gain or dividend income over a period of 10.5 years! In fact, since 1998 BRKA is up a modest 40% (+$33,000 on an initial investment of $80k) to date, 13 years.

Let's assume that you would have achieved an average of 5% annually (very conservative estimate) in bank interest on that $80k investment over 13 years. Your profit would then have been +$73k in interest. That's a whopping $40,000 more than the same investment in BRKA over the same period. So just how wonderful is your investment with Warren Buffett and Co (value investor extrordinaire) over more than a decade, half what you would have earned in bank interest.

In addition to the fact you cherry-picked the 1998 high, you ignore the fact tax is paid on interest while unrealised capital gains are untaxed.

Also, the article you linked to in The Australian also is highly statistically flawed. For example the writer compares BRK performance over the last 8 years against today's ASX top 40 instead of the ASX top 40 as it was 8 year's ago. Did he stop to consider that the ASX top 40 stocks today would by definition be among the top performing stock (ie a biased sample)? It seems you and the author are unaware of the dangers of performing post hoc analysis.

 

[ENP]

you need to measure his actual investment returns not his companies share price

Exactly.

The investment returns the business itself makes can be dramatically different from what the share price is doing. The returns the business makes are facts that cannot be changed. The share price is people's general opinions on what the stock is worth and changes constantly.

 

[AlterEgo]

Exactly.

The investment returns the business itself makes can be dramatically different from what the share price is doing. The returns the business makes are facts that cannot be changed. The share price is people's general opinions on what the stock is worth and changes constantly.

Amazing!

So if the share price were going down the toilet, that wouldn't matter, as long as the book value were going up? Silly me thought that we were in the market to make money, not to admire how great the balance sheet looks. If the increase in book value doesn't move the share price up, then what's the point of it? You can't spend the book value in your retirement. Ultimately the share price is what matters, as that's the price you'll get for it when you sell it.

 

[FxTrader]

Buffett has done far more than just investing in "undervalued companies" including such things as:
-merger arbitrage
-corporation action arbitrage
-warrent and convertible hedging
-writing options
-on the run/off the run bond arbitrage
-currency speculation (eg bet against USD)
-metals speculation (eg silver)

I did not use the term "undervalued companies" I said quality businesses. This is what he is best known for and what other contemporaries like Roger Montgomery focus on, business analysis and selecting quality businesses to invest in. I know full well he invests in other instruments but that's not how he has distinguished himself or how Berkshire built its businsess empire. Your point here is a therefore a useless one.

Again wrong, read some of the early 2000's annual letters where he explains why he was betting against the US dollar on which he made billions.

Buffett's derivative exposures and hedging have not done much for the share price of his company over the last 13 years have they. He's not an economist nor does he profess to be one and has always been primarily U.S. focussed in his investment activity with a few exceptions. These are simply facts, no debate about this is necessary or useful.

In addition to the fact you cherry-picked the 1998 high, you ignore the fact tax is paid on interest while unrealised capital gains are untaxed.

LOL, what a joke. No cherry picking just quoting statistical facts that you and the other Buffett worshipers here find inconvenient. BRKA has underperformed bank interest over the last 13 years, simply a fact. Silly comments intended to cloud the issue about the tax implications of earned interest do not support your argument here.

Also, the article you linked to in The Australian also is highly statistically flawed. For example the writer compares BRK performance over the last 8 years against today's ASX top 40 instead of the ASX top 40 as it was 8 year's ago. Did he stop to consider that the ASX top 40 stocks today would by definition be among the top performing stock (ie a biased sample)? It seems you and the author are unaware of the dangers of performing post hoc analysis

Still more nonsense and waffle from a blinkered Buffett fanatic. BRKA has significantly underperformed a large basket of ASX listed stocks over the last 8-10 years but the CEOs of these companies are not an object of your worship, do the research yourself. The only bias evident here is your slavish devotion to everything Buffett.


Bob, my apologies for indulging the biases, twisted logic and fanaticism of the Buffett worshipers here, it's time to stop. They have hijacked this thread as they tend to do when their idol is mentioned in any thread. I get what you've been trying to say here even though its been suffocated by Buffett's religious legion now.