Warren Buffett

[noirua]

Buffet's so called 'buy and hold forever' strategy is a poor description of his methodology. I can recall a number of times over the last 15 or 20 years when he was said to have retreated to 70 - 80% cash.
Also, he apparently invests staggering amounts of money into markets other than stocks....metals, currencies, commodity futures etc.[/I]

That's the problem in having too much money to invest. If he has $1 billion in a stock he can only increase or reduce as everyone appears to know soon after he makes a move. Some investments are in private companies and convertibles that may never receive a market quote.
It's a matter of opinion as to whether it would be a point of greatness to do so well at investing as to be able to move markets.

 

[condog]

Thank you for your explanation, condog. Good that you're so happy. I gather you don't engage with charting at all?

Im very familiar with charting and have used it lots in the past... the thing is though the longer I invest the more I realize its the pure fundamentals that drive price upwards more then anything else and charting only helps identify entry and exit points...

I guess what Id like to get across is that charting is great but only do it on good fundamental stocks....

The other aspect is, I used to want my trading to consume my free time, now I want my investing to free my time up, so I can spend it doing things I enjoy, while still earning.....Fundamental investing does just that.....You can buy confidently and in most cases walk away and come back on most days and your way ahead.... I do incorporate a bit (just Elliot waves to keep an eye on things and RSI for buy sell triggers on entry and exit points when needed).

Im not sure of the experience or size of the portfolio of most in this thread, but I think as a huge generalization you will find most early and small investors have a preference for charting while most bigger experienced investors get sick of the work load and look for an easier way to make sure their money is working. Clearly there'd be some huge portfolio chartists, but as a rule I think charting allows new / small investors to feel they have some more control then they actually have...

Also for me investing is all about increasing your leverage (not borrowing) just leverage..... The more shares or property I own the more chance I have of asset prices and earnings going up ........(see rich dad poor dad for detail) and the easier it gets...

 

[Mr J]

It hasn't averaged those sort of returns for a long time though. Here's a graph of Berkshire Hathaway shares off Yahoo Finance. Note the flattening of the graph since '98/'99. If we drew a trend line from the peak in '98 through to the peak in '07 before the crash, that works out to an compounded annualised return of around 6.5%. Also note that the low this year is equal to the high back in '98, so no gains made in 11 years to that point. In fact, practically no gains were made in the period from '98 through to '05 either. Peak in 1998 - current works out to a compounded annualised return of approx. 2%.

Linear graph:

 

[Julia]

The other aspect is, I used to want my trading to consume my free time, now I want my investing to free my time up, so I can spend it doing things I enjoy, while still earning.

OK, I understand that. Level of capital invested also makes a considerable difference.

Im not sure of the experience or size of the portfolio of most in this thread, but I think as a huge generalization you will find most early and small investors have a preference for charting while most bigger experienced investors get sick of the work load and look for an easier way to make sure their money is working. Clearly there'd be some huge portfolio chartists, but as a rule I think charting allows new / small investors to feel they have some more control then they actually have...

Interesting view. It hasn't been my impression of people on this forum on the whole. Others may like to comment on this?
I'd have thought rather it was simply a preference for some people to take a technical approach.

If you read this thread:
https://www.aussiestockforums.com/forums/showthread.php?t=17861
where the OP suggests the market has been 'stagnant' over the last ten years, it's an example of why some people become disenchanted with fundamental investing. Clearly you do use charts for timing purposes to overcome the problem described.

Also for me investing is all about increasing your leverage (not borrowing) just leverage..... The more shares or property I own the more chance I have of asset prices and earnings going up ........(see rich dad poor dad for detail) and the easier it gets...

Sure. Goes to my remark above about levels of capital.

Thanks for interesting post.

 

[condog]

It hasn't averaged those sort of returns for a long time though. Here's a graph of Berkshire Hathaway shares off Yahoo Finance. Note the flattening of the graph since '98/'99. If we drew a trend line from the peak in '98 through to the peak in '07 before the crash, that works out to an compounded annualised return of around 6.5%. Also note that the low this year is equal to the high back in '98, so no gains made in 11 years to that point. In fact, practically no gains were made in the period from '98 through to '05 either. Peak in 1998 - current works out to a compounded annualised return of approx. 2%.

With volatility like that you can pick a lot of scenarios like that to try and mount arguments that its fantastic or pathetic....

Similarly someone could mount arguments about how stunning a 10 year return was if they picked another time period....

The best way to judge a stock like that is to draw a line through it with maximum contact points ... we could argue about tops, bottoms, middles etc....

But reality is find the trend line and use it as your benchmark....... then do what buffet would do..

Right now on face value $100K looks about $20K below its long term average.... and roughly $20-60K below its intrinsic value depending on which methods your using.

And on intrinsic valuation http://www.creativeacademics.com/finance/IV.html it would appear even further undervalued... This is only one calulator available...I suggest using several...

If he was you and looking to buy BH......he would be doing it right now while its out of favour and while everyone else cannot see its value.

 

[bunyip]

I guess what Id like to get across is that charting is great but only do it on good fundamental stocks....
Im not sure of the experience or size of the portfolio of most in this thread, but I think as a huge generalization you will find most early and small investors have a preference for charting while most bigger experienced investors get sick of the work load and look for an easier way to make sure their money is working.

An investor who gets 'sick of the workload' of charting can expand his time frame which will in turn contract his workload.
It's a commonly believed fallacy that charting necessitates hours each day glued to your screen.

A Forex trader has the choice of gluing himself to his screen, watching 5 minute or 1 minute charts, or trading from end of day data and spending just 10 or 15 minutes or so each day studying his charts, placing his orders, and managing his trades.

A stock trader or investor has the choice of spending hours each day watching his charts update in real time, or he can spend just half an hour or so each day by downloading his data at days end, running his analysis over the stocks of his choice, and placing his orders for next day.

Or if he really wants to lighten his workload, he can use the completely workable and profitable approach advocated by people like Stan Weinstein and Alan Hull, and spend just an hour or so each weekend checking his charts, placing his orders, and managing his existing trades.

If you want to add some basic fundamental analysis to the mix, and incorporate it with your charting, then well and good.
But to assume that charting is, by necessity, very time consuming, is completely wrong. Yes, it can be very time consuming if you let it be, but alternatively you can take most of the work and time out of it if you go about it a different way.
The way I use charting, it creates far less workload than fundamental analysis.

 

[bunyip]

Here's a useful link for anyone who thinks charting creates a heavy workload.
And for those who know it doesn't.

http://www.youtube.com/watch?v=wEypGm5ahCI

 

[Tradesurfer]

it is true a common misconception about technical analysis is that it is only for those trading very short term or daytrading.

In fact- if one use monthly charts and a simple moving average of 20 periods, investors/traders would have captured the bull and bear trends over the past 20 years and been quite successful.

 

[bunyip]

it is true a common misconception about technical analysis is that it is only for those trading very short term or daytrading.

In fact- if one use monthly charts and a simple moving average of 20 periods, investors/traders would have captured the bull and bear trends over the past 20 years and been quite successful.

So true.
People often say things like 'TA is great if you want to catch short term moves'.
or
'TA is great if you want to make a quick buck'.

Well they're partly right, but they're only telling half the story.
Yes, TA is great for short term players. And the other half of the story is that it's also good for longer termers who want to ride the big trends to completion.

TA will get you an early entry into most trends.
How long you stay in the trend thereafter depends on the duration of the trend, and the suitability of your methodology to trend-riding.

Anyone whose read Stan Weinstein's book from cover to cover will be aware that he has two methods of trailing his stops.....one for traders and the other for longer term investors who are chasing the bigger moves.

Something as simple as a trailing stop on a 100 day EMA goes a long way to capturing the bigger trends.

I remember something said by Ivan Krastins, author of 'Listen To The Market', during his presentation to an ATAA meeting one night....."If you want to catch the bigger trends, go to a longer timeframe'.

 

[Wysiwyg]

Something as simple as a trailing stop on a 100 day EMA goes a long way to capturing the bigger trends.

Always interesting to discover trading techniques but on this suggestion with BHP there would have been an exit no less than 8 times from 2003 to the ATH in 2008. The 100 day EMA.

 

[bunyip]

Always interesting to discover trading techniques but on this suggestion with BHP there would have been an exit no less than 8 times from 2003 to the ATH in 2008. The 100 day EMA.

Yep - nothing is perfect.....every technique we care to name works fantastic sometimes, not so good other times.
Even so, the 100 day EMA as an exit system would have captured several sizeable chunks of profit from BHP if you'd re-entered in the direction of the trend each time you got stopped out.

I notice the words 'novice trader' below your name. When you have more experience you'll realise there's no holy grail....there's only strategies that work reasonably well more often than not.

 

[condog]

there's no holy grail....there's only strategies that work reasonably well more often than not.

So Ture.....

And this is exactly why Im predominently a value investor..... because after trying multiple strategies over many years, its as close to the holy grail as I have "yet found".....with the minimum workload, lower risk and great returns.....

Theres a lot of strong arguments in here for both sides. They both have a role and are oth fantastic tools and educators... Personally i feel a successful stock investor will use both in an over lapping style.....

But now after experiencing and using both, I would never be caught without fundamental, where as I could comfortably choose to use technical as well or not...

As the saying goes "When the tide goes out, we will see who is swimming without any pants......." Inevitably it will be those who are investing in stock that are fundamentally poor....

 

[bunyip]

So Ture.....

And this is exactly why Im predominently a value investor..... because after trying multiple strategies over many years, its as close to the holy grail as I have "yet found".....with the minimum workload, lower risk and great returns.....

Theres a lot of strong arguments in here for both sides. They both have a role and are oth fantastic tools and educators... Personally i feel a successful stock investor will use both in an over lapping style.....

But now after experiencing and using both, I would never be caught without fundamental, where as I could comfortably choose to use technical as well or not...

As the saying goes "When the tide goes out, we will see who is swimming without any pants......." Inevitably it will be those who are investing in stock that are fundamentally poor....

I don't doubt it.

But investors who bought WDC five years ago because it was a fundamentally sound stock at attractive values have also been caught without any pants.

The mistake I see investors making over and over again on this forum is buying stocks which they consider are fundamentally sound, but whose price is going nowhere or down.

Buying a fundamentally sound stock while the price is going nowhere or heading south is just downright silly, when you could instead buy good, well managed companies whose sound fundamentals are being confirmed by their rising stock price.

The primary aim of investment should be to keep our money constantly growing. The best way of achieving this is to buy performing stocks, rather than tying up our money for years in non-performers.
By all means add the proviso that they must have decent fundamentals. But above all else their stock price must be performing.

I once subscribed to a newsletter that rated stocks according to the consensus opinion of 20 different fundamental analysts.
If 14 of the 20 analysts liked stock A and only 10 liked stock B, stock A got the higher rating of the two.
Each edition of the newsletter listed the ten stocks with the highest rating.

My plan was to use technical analysis to pick timely entries into the highest rated of these much admired stocks.

My plan didn't work. Why? Because almost every one of the highly rated stocks in the newsletter was heading south with a vengeance....nobody in his right mind would have bought them unless he was wanting to lose money.
And they continued heading south for quite some time afterwards.

I say again.....Buying a fundamentally sound stock while the price is going nowhere or heading south is just downright silly, when you could instead buy good, well managed companies whose sound fundamentals are being confirmed by their rising stock price.

 

[Calliope]

If Philip Adams is against him, Buffett must be doing something right;

An ominous story in the business press: Warren Buffett has just bought one of America's largest freight railways. Not because he believes in public transport but because the company hauls coal - like that endless procession of coal trucks I see trundling through the Hunter Valley. Buffett sees zero risk to coal profits. He says coal will remain the main source of power generation for the next 50 years.

Buffett if right because there is no affordable or practical alternative.

http://www.theaustralian.com.au/news/opinion/saddle-up-for-the-coal-war/story-e6frg7fx-1225798569915

 

[motorway]

Always interesting to discover trading techniques but on this suggestion with BHP there would have been an exit no less than 8 times from 2003 to the ATH in 2008. The 100 day EMA.

yes... That is because a 100 day moving average or a Day anything means ZIP.

DISTRACTION --- FALSE SIGNALS
OBLIVION --------MISSED SIGNALS

LONG TERM INVESTOR ?

maybe a simple 3 box reversal chart with a BOX size to follow the MAIN TIDE =PRIMARY TREND

SOME simple orthodox use of 45 degree lines

Only Take Signals with the TREND

In at The Bottom
Out at the TOP
and IN again at the Bottom

The coastline of PRICES
offers profits at every SCALE
Because there ARE REAL TRENDS

Once you get rid of TIME FRAMES



This is at obvious INVESTOR SCALE...

and no attempt to finesse entry eg at the LOW POLE

For Discussion

Set this on auto alert
and you need to look three times in 6 YEARS

Such approach is for ALL TIME HORIZONS


Motorway

 

[Timmy]

Came across an article from Bill Gross that explains Buffett’s purchase in terms of Buffett expecting low returns in coming years. It is a long article, but worth persevering with; if not, here are probably the most relevant points in the article re the Burlington Northern purchase:

Almost all money market accounts – totaling over $4 trillion dollars, shown in Chart 1 – yield close to nothing, so close to nothing that I mistakenly did a double take when reviewing my monthly portfolio statement. "Yield on cash," read the buried line on page 15 of the report, ".01%." …

OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? …

Two suggestions. First ... the New Normal is likely to be a significantly lower-returning world. Diminished growth, deleveraging, and increased government involvement will temper profits and their eventual distribution to investors in the form of dividends and interest. As banks, auto companies and other corporate models become more regulated and therefore more like utilities and less like Boardwalk and Park Place, they will return less.

Which brings up the second point. If companies are going to move toward a utility model, why suffer the transformational revaluation risk of equities with such a low 2% dividend return? Granted, Warren Buffet went all-in with the Burlington Northern, but in doing so he admitted it was a 100-year bet with a modest potential return. Still, Warren had to do something with his money; the .01% was eating a hole in his pocket too. … why not just buy utilities if that's what the future American capitalistic model is likely to resemble. Pricewise, they're only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%!
Source: http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Dec+Gross+Anything+but+01.htm

ps. Gross is not your run-of-the-mill market commentator.
Wikipedia article: http://en.wikipedia.org/wiki/William_H._Gross

 

[Aussiejeff]

Even He is not immune from the general malaise...

Feb. 4 (Bloomberg) -- Warren Buffett’sBerkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp.

Berkshire, which is taking on debt to fund the $26 billion takeover, was cut one level to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade comes the same day Berkshire filed to sell $8 billion of notes to fund the Burlington Northern purchase, and concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCZQMYAzx8ts&pos=3

 

[Wysiwyg]

Because Trading is much more akin to gambling than it is to Investing. Traders make money through share price speculation, they hope to make money by second guessing the market and make assumptions on what the share price will be hours or days later, this is pure speculation.

Investing is the opposite of trading, an investor looks to the asset itself to generate the return over time where traders look to other traders hoping some one will come along and pay a higher price in the short term.

http://www.youtube.com/watch?v=LH03WyBpgjU&NR=1

Watch this video from the 1 minute mark, warren does a much better job of explaining it than i do.

Thank you so much for this video series. Four things I noticed about Warren Buffett in the interviews is his modesty, humbleness, lightheartedness and giving. However like many people I feel no desire to create such great financial wealth and have no desire to try and emulate his methodology. I would probably fail with the desire for profiting in the near term.

These canny investors are rare because as Charles Munger said along these lines, 'if we were interested in cars and women then we wouldn't be great investors'.

 

[CanOz]

Warren is very good at what he did, and continues to do. A truly intelligent, intuitive investor.

One in a million.



CanOz

 

[MrBoJangles]

I'm 3/4 way through the book written by his daughter-in-law, Mary Buffett, "Buffettology" - an easy and interesting read IMO.

Mr Bo