Oh yes, so true!
Sorry to OP for being off topic. Would love to start a thread on this topic, but too scared.
Nun: Sorry, edited my post slightly to reduce wording...
What criteria must be met before you buy a stock?
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Oh yes, so true!
Sorry to OP for being off topic. Would love to start a thread on this topic, but too scared.
Nun: Sorry, edited my post slightly to reduce wording...
Timmy
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Not really. Attitude plays a very big role. If you think you can't, you wont.
Taleb's books should be read & understood, regardless. IMHO.
But even prior to that people need to know their own goals before trying to invest like Buffett or like anyone else, or even trying to figure it out themselves. Kennas post brought this up.
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You accuse me of just bandying around what i read in books and not knowing what im talking about, Yet what im saying is you shouldn't just do what are in books, because of survivorship.
You are wrong about what you say about following a strategy with the same success. Even if you do clone what they do you won't have the same success, if you follow Buffetts rules exactly you won't have the same success, same story with if you follow the turtles rules, or anything else from a book. You might have some success, but it will be limited by luck.
Doesn't it seem strange that people have come close to replicating Buffetts formula for intrinsic value, but not had the same success? You can't just copy what's in a book and expect to make money.
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Timmy im going to disagree with this
I don't think attitude has anything to do with it. If i think my trades will be profitable will they? If you have a clearly defined set of rules (such as following them from a book) and actually follow them, attitude won't make much of a difference. If you are talking discretionary trading, then i agree.
Presumably, if you use the same rules as Warren Buffett, you will end up exactly where he is. Maybe not the wrinkled skin. Maybe not the Cherry Coke addiction. (Then again, maybe wrinkled skin and Cherry Coke addiction is a necessary by-product). But certainly financially well off over a long time horizon.
The bet should really be on whether you know his rules as well as you think you do. And whether you have the fortitude to follow them as well as he has. And I doubt very much that many people can attest to either - myself included.
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I disagree 100%.
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you may need to read my post again
my posts verify what you have just repeated
this IS what i posted !
You initially asked if there was any proof that:
To which Timmy stated that Warren Buffett was an apt example.
Warren Buffett has a set of rules he uses to choose which stocks he buys by calculating what he believes is the intrinsic value of the business and buying at a price that is competitive relative to that value. And to my knowledge, nobody knows what precise metrics he uses to calculate intrinsic value. How does one value the competitive advantage of Coke? How does one value the aptitude of management? etc.
Anyway, while I can agree that you will not end up exactly where he is. I'd be interested to hear if you disagree 100% that you will be financially well off over a long time horizon.
And, whether you agree of disagree and by whatever percentage, a reason for your position would be nice too.
Timmy
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Beamstas, you questioned the use of buying below intrinsic value (post 12), asking for proof that it works. In a nutshell (and grossly simplified), this is a core part of Buffett’s methodology. I propose that Buffet’s results are proof that his methodology ‘works’. I cannot think of better proof, in the field in which we participate, than billions upon billions in the bank. You may have some better idea of proof, but I will stick with results.
Your post (#16) then proposes a bet that following his methodology will not have you ‘end up’ where he is. The next line says people should read Talebs books before deciding to invest like Buffet. I might have misunderstood your post, it is vague, but I assume you are referring to Taleb’s idea of being fooled by randomness – are you saying that Buffet’s results are a manifestation of randomness? I assume you are, but your post is vague, so if my assumption is wrong then apologies and I welcome a clarification.
I would contend that buying anything below intrinsic value increases the chance of its price appreciating and then being sold at a profit. This is what used-car dealers, for example do. They will buy a used car below their calculation of value, and most of the time then on-sell that car at or above value. Do this with stocks, in big quantities (this is a gross simplification of Buffets methodology, but close enough) and profit should be the result. While the extent of Buffet’s success may well have a random component, the core methodology is actually a defence against randomness; it is a methodology used by many, many, successful ‘dealer’-type businesses.
My discussion of attitude more refers to what appears to be a knee-jerk dismissal of the methodology by yourself, a dismissal of something that you don’t appear to understand. I must admit I am puzzled by your attitude. Elsewhere you quite rightly pointed out that there was more than one way to skin a cat, but on this thread you have rejected another way without, apparently, understanding it. I am probably being a bit blunt, apologies for that, but I like the idea of there being alternative ways of getting results and perhaps being able to incorporate some of the positives from those methodologies in my own approach.
Your post (#16) then proposes a bet that following his methodology will not have you ‘end up’ where he is. The next line says people should read Talebs books before deciding to invest like Buffet. I might have misunderstood your post, it is vague, but I assume you are referring to Taleb’s idea of being fooled by randomness – are you saying that Buffet’s results are a manifestation of randomness? I assume you are, but your post is vague, so if my assumption is wrong then apologies and I welcome a clarification.
I would contend that buying anything below intrinsic value increases the chance of its price appreciating and then being sold at a profit. This is what used-car dealers, for example do. They will buy a used car below their calculation of value, and most of the time then on-sell that car at or above value. Do this with stocks, in big quantities (this is a gross simplification of Buffets methodology, but close enough) and profit should be the result. While the extent of Buffet’s success may well have a random component, the core methodology is actually a defence against randomness; it is a methodology used by many, many, successful ‘dealer’-type businesses.
My discussion of attitude more refers to what appears to be a knee-jerk dismissal of the methodology by yourself, a dismissal of something that you don’t appear to understand. I must admit I am puzzled by your attitude. Elsewhere you quite rightly pointed out that there was more than one way to skin a cat, but on this thread you have rejected another way without, apparently, understanding it. I am probably being a bit blunt, apologies for that, but I like the idea of there being alternative ways of getting results and perhaps being able to incorporate some of the positives from those methodologies in my own approach.
There maybe well be many ways to skin a CAT
But they all end up with a Dead Cat with it's skin off..
Same you can really only make money
By ONE ESSENTIAL WAY
when buying And selling ( Trading ) shares.
There are really NOT many ways of doing essential things
Just correct and incorrect
more or less ideal
eg OK Taleb
If you say his thesis is correct
Then easy to apply correct strategies
Key with Taleb is to know what you know ( really know , maybe nothing ? does that matter )
and what no one knows ( Just as important... Who knew the market would rally so hard ? someone ? no one ? under which case was it easier to profit from the move ? IF everyone knew ?
If you buy something it needs to go higher
NO OTHER WAY to win
OK I posted 25 rules ( They are in fact TALEB BASED -- But see
people just talk words like TALEB but do nothing about it )
One was the importance of disconfirmation ( compared to confirmation --THAT IS WHAT THE BLACK SWAN AS IDEA IS )
So look for what is ending or stopping
before you look for beginnings and starting
There are only a very few CORRECT PRINCIPLES
when acting with uncertainty
when no one knows--> That is where participation will produce largest gains
OF course if you really know something ( BE HONEST )
Do not be fooled by randomness
But then realize that there are non random things as well
Focus on these
and profit from them
That trends exist
and that there are turning points
both exist because people Don't Know
( But that SOMEONE knows something eg Buffet knows when he is buying )
Use good tools to identify Both TRENDS
and THEIR TURNING POINTS
That the present is built from the PAST and that the Future unfolds from the present and as pre existing goal
That BULL markets lead to Bear Markets and BACK
That EVERYTHING is FLUX and CYCLES
But APERIODIC not in terms of TIME
But of SCALE
It is always HOW BIG the sandpile is ( in various aspects )
not how long the clock tics
motorway
But they all end up with a Dead Cat with it's skin off..
Same you can really only make money
By ONE ESSENTIAL WAY
when buying And selling ( Trading ) shares.
There are really NOT many ways of doing essential things
Just correct and incorrect
more or less ideal
eg OK Taleb
If you say his thesis is correct
Then easy to apply correct strategies
Key with Taleb is to know what you know ( really know , maybe nothing ? does that matter )
and what no one knows ( Just as important... Who knew the market would rally so hard ? someone ? no one ? under which case was it easier to profit from the move ? IF everyone knew ?
If you buy something it needs to go higher
NO OTHER WAY to win
OK I posted 25 rules ( They are in fact TALEB BASED -- But see
people just talk words like TALEB but do nothing about it )One was the importance of disconfirmation ( compared to confirmation --THAT IS WHAT THE BLACK SWAN AS IDEA IS )
So look for what is ending or stopping
before you look for beginnings and starting
There are only a very few CORRECT PRINCIPLES
when acting with uncertainty
when no one knows--> That is where participation will produce largest gains
OF course if you really know something ( BE HONEST )
Do not be fooled by randomness
But then realize that there are non random things as well
Focus on these
and profit from them
That trends exist
and that there are turning points
both exist because people Don't Know
( But that SOMEONE knows something eg Buffet knows when he is buying )
Use good tools to identify Both TRENDS
and THEIR TURNING POINTS
That the present is built from the PAST and that the Future unfolds from the present and as pre existing goal
That BULL markets lead to Bear Markets and BACK
That EVERYTHING is FLUX and CYCLES
But APERIODIC not in terms of TIME
But of SCALE
It is always HOW BIG the sandpile is ( in various aspects )
not how long the clock tics
motorway
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I understand how Buffett does what he does, my question earlier was a loaded question, I wanted proof, not that it worked for Buffett, but that it can continue to work. Buffett may or may not have had probability on his side on his rise to greatness, i don't care about that becuase even if he did, history is history and it won't change where he is now.
Just a quick rundown.. He gets an "intrinsic value" for a company, and then takes it over. His methods are a tough comparison because he isn't simply "buying shares" like the average mom and dad investor, so following his method might be foolish if you can't do the same thing.
You can contend the point of buying stocks below intrinsic value all you like. I cannot prove that it can't work, you can only prove that it does. I would argue that buying stocks under intrinsic value does nothing to the probability of the stock price going up, but i am not prepared to research this because i don't care.. (i mean that in a nice way, i do not consider fundamentals)
You are focusing on Buffett and his success, but what about all the people who have tried it and failed? We know Buffett succeeded, but what if 9,999 other people tried this and failed? (The number is probably alot greater than this, i'd argue that the majority of poeple who use his techniques failed during the recent GFC). That means that by using Buffetts way of doing things, you'd have a 0.01% chance of being successful.. Not great odds and certainly not something that i'd arm my bow with.
I anticipate your reply, timmy, as im open to new ideas too.
Brad
Just a quick rundown.. He gets an "intrinsic value" for a company, and then takes it over. His methods are a tough comparison because he isn't simply "buying shares" like the average mom and dad investor, so following his method might be foolish if you can't do the same thing.
You can contend the point of buying stocks below intrinsic value all you like. I cannot prove that it can't work, you can only prove that it does. I would argue that buying stocks under intrinsic value does nothing to the probability of the stock price going up, but i am not prepared to research this because i don't care..
(i mean that in a nice way, i do not consider fundamentals)You are focusing on Buffett and his success, but what about all the people who have tried it and failed? We know Buffett succeeded, but what if 9,999 other people tried this and failed? (The number is probably alot greater than this, i'd argue that the majority of poeple who use his techniques failed during the recent GFC). That means that by using Buffetts way of doing things, you'd have a 0.01% chance of being successful.. Not great odds and certainly not something that i'd arm my bow with.
I anticipate your reply, timmy, as im open to new ideas too.
Brad
Julia
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Good points, Beamstas. When many people say they are taking a Buffet approach they overlook the fundamental fact that mostly he just bought the company, put his own management team in, and turned it around to profitability.
To suggest that the ordinary buyer of shares in an 'undervalued' company which has not been taken over and rejuvenated by a Buffet like new owner can expect a Buffet-like level of success just makes little sense to me.
The philosophy of buying these so called undervalued companies (imo they're often where they are for a pretty good reason), and then holding indefinitely in the hope the market will recognise what fantastic businesses they are is a very unappealing strategy.
To suggest that the ordinary buyer of shares in an 'undervalued' company which has not been taken over and rejuvenated by a Buffet like new owner can expect a Buffet-like level of success just makes little sense to me.
The philosophy of buying these so called undervalued companies (imo they're often where they are for a pretty good reason), and then holding indefinitely in the hope the market will recognise what fantastic businesses they are is a very unappealing strategy.
Timmy
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I anticipate your reply, timmy, as im open to new ideas too.
Brad
Really nothing more to add beamstas.
Except to say no cats were harmed in the making of this thread.
Most important things for Buffet
is that he can see steady sustainable GROWTH
at an ATTRACTIVE PRICE
He is not a "VALUE BUYER" in a sense most use it
he does not want a Dung Heap at half price
But real diamonds at a reasonable price
Also he uses tremendous leverage ( at no or little cost -> that is His Gamble )
and Yes he can exert control ..
motorway
From what I've read, and I stand to be corrected...
Buffett does very little management overhauls and business turnarounds. He may buy the whole company instead of packets of shares in companies, but he prefers to leave capable management to do what they were doing before he came along. I think he tried with Berkshire Hathaway (as a textiles company), but mostly he's left management alone.
If you had bought Coke when he did, or Gilette, Amex, Washington Post, when he did and you could have (unless, like me, you weren't born yet), you would have done tremendously well. I believe that the philosophy is not of buying "so called" undervalued companies, but in buying actually undervalued companies which run fantastic businesses.
I think Peter Lynch did it too. Except that if Buffett was a sniper, he was more of a flak cannon.
That all being said... and back to the topic: I don't think I actually have a set of criteria that must be met before I buy a stock other than that I can, one way or another, divine (read: convince myself) that the share price will go up - mostly technical entries. I don't have the patience for fundamentals, I don't have the time for business analysis. And I really can't wait until I'm 50 to hit my first billion.
Buffett does very little management overhauls and business turnarounds. He may buy the whole company instead of packets of shares in companies, but he prefers to leave capable management to do what they were doing before he came along. I think he tried with Berkshire Hathaway (as a textiles company), but mostly he's left management alone.
If you had bought Coke when he did, or Gilette, Amex, Washington Post, when he did and you could have (unless, like me, you weren't born yet), you would have done tremendously well. I believe that the philosophy is not of buying "so called" undervalued companies, but in buying actually undervalued companies which run fantastic businesses.
I think Peter Lynch did it too. Except that if Buffett was a sniper, he was more of a flak cannon.
That all being said... and back to the topic: I don't think I actually have a set of criteria that must be met before I buy a stock other than that I can, one way or another, divine (read: convince myself) that the share price will go up - mostly technical entries. I don't have the patience for fundamentals, I don't have the time for business analysis. And I really can't wait until I'm 50 to hit my first billion.
I'm going to chime in here. Investing and most situations are about more than a set of rules. You have to look at the macro environment. Eg, what is happening in the world around you? What is trendy? Where are the opportunities?
What may have worked for Buffet may not work now, due to different surrounding circumstances.
Also, a certain amount of success is attributable to the people around you. Unless you can replicate exactly the people around Warren, their states of mind, and the macro environment (which is virtually impossible), i don't think you could use his rules to exactly replicate his success.
prawn_86
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Well then Beamstas in order to answer your "does it work" question (i didnt use Buffett as an example as he is in a unique position of being able to take majority interests), you need look no further than many members here at ASF.
I hope they dont mind me singling them out, but people like ROE, Kennas, Julia etc all use some form of fundamental 'intrinsic valuation' (either solely or in conjunction with other ideas) and they seem to have done well for themselves.
The way i look at it, (and i stress this is for longer term purchases, not short term trading) is that each investment decision i make is like financeing a project. What is the expected rate of return? What is the payback period? etc etc As with any project evaluation there are going to be things that need to be forecast, but that is the nature of the game, with experience comes more accurate forecasting (hopefully).
Or you can simply say stocks make you the owner of part of a business and if you could, would you buy that business and not make any changes to it? If yes, then buy some shares.
I hope they dont mind me singling them out, but people like ROE, Kennas, Julia etc all use some form of fundamental 'intrinsic valuation' (either solely or in conjunction with other ideas) and they seem to have done well for themselves.
The way i look at it, (and i stress this is for longer term purchases, not short term trading) is that each investment decision i make is like financeing a project. What is the expected rate of return? What is the payback period? etc etc As with any project evaluation there are going to be things that need to be forecast, but that is the nature of the game, with experience comes more accurate forecasting (hopefully).
Or you can simply say stocks make you the owner of part of a business and if you could, would you buy that business and not make any changes to it? If yes, then buy some shares.
Yes. I have since requalified my statement. It was a mistake to use the word "exactly", as I was looking to then contrast this with his wrinkles and Coke addiction.
While I agree that a certain, limited, amount of success is attributable to the people around you, your example of what is happening in the world around you... what is trendy... where are the opportunities... Those are the types of qualitative factors that WB looks for in determining intrinsic value.
He identified that Coke's formula had universal appeal (opporunity), that Amex could capitalise on the spread in the use of consumer credit (trends) and that Washington Post was operating in an effective monopoly (macro environment). And he continues to do so, presumably with deals like the ones he did with Goldman Sachs and Burlington Northern.
Warren's success aside, I think its not unreasonable to use identification of intrinsic value as a method of finding profitable investment ideas (as opposed to, but not precluding, becoming the second richest man in the world).
Timmy
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Frogacle, are you not paying attention?
Don't worry about results.
Buffet's approach doesn't work, some dude on the internet told me.
I have seen the light.
tech/a
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And as such there isnt a person on this forum who can trade like Buffett.
Ducati ran an exercise in this futility not long ago. (Attempting to find "Value" stocks and trading them to a profit.)
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Thanx for all the input to those who posted........some great banter........and yes agreed alot to learn here that is why we post....and if we get one get idea from a thread, usually many though.....lol in fact too many sometimes........we note it and work it through our heads.....
Cheers
Cheers
