Warren Buffett recently wrote and article for Forbes where discussed his decision to turn down Ben Graham on an offer to take over his company. Instead, he decided to move to Omaha.
The thing is, when I got out of college, I had $9,800, but by the end of 1955, I was up to $127,000. I thought, I’ll go back to Omaha, take some college classes, and read a lot—I was going to retire! I figured we could live on $12,000 a year, and off my $127,000 asset base, I could easily make that. I told my wife, “Compound interest guarantees I’m going to get rich.
In today’s dollars that $127,000 would be about $1 million. Could you live off $1 million today in your investment account?
Not in the current interest rate environment. If you want to be sure you can sustain yourself, just look at buying Munis. You’ll earn about 3.5% right now. Can anyone live off of $35,000 a year? Ew.
Even if we stretched, because, you know, we’re all super awesome at investing, and said we could earn 12% a year. $120k/yr forever? Nope.
Of course I could, if I started learning to invest at age 7, did little else until age 25 / 26, studied under the best value investors in the business, lived in a time when the internet didn’t exist and professional investors were substantially less sophisticated, creating a much less effiicient market, and then got the early stages of a raging bull market that ran with few interruptions for a multi-decade period.
If you got back to 1950 with a 2012 brain, I bet you can make a lot of money. The problem is that 1950s people had 1950s brains. It’s not reasonable to assume that you would have a post-1950s brain if you were in the 1950s.
You’re talking about being able to come up with unique investment ideas/techniques/themes. Obviously, it was easy to trailblaze in the 1950’s compared to today. Fewer investors, less access to information, fewer investment philosophies developed.
Of course it was easier back then. And 60 years from now it’ll be harder still.
I’m not saying it wasn’t easier on an absolute scale. The problem is that people were more stupid back then. If you and I were in 1950, we would be very ignorant compared to 21st century people. Due to this ignorance, easy things would appear harder than they would today.
it was easier to find net nets back than…but notice that buffet changed his style (sign of a gifted practitioner) as net nets disappeared…dont’ discredit his effort by any means…he is one of a few who made it on the back of being truly a gifted investor…
Yeah back then we didnt have internet access to every financia/sec filings in 3 clicks like we do today. Buffett used to go to the moody’s building to read shit. We don’t need to do that today.
It’s like taking a test graded on a curve. If it’s an easy test, it’s easy for everyone else as well, and if it’s a hard test, it’s hard for others too…so we can’t make an objective comparison across eras. In Buffet’s case, he was taking a pretty hard test, whereas today we have it much easier. The only judgement that we’re able to cleanly make is where does he stand with respect to his competitors in his era?
I think that technology has made it more difficult to excel in the way Buffet did in the 1950s (and Keynes, since we have that article on Keynes’ investment record too). So the method works, but, as Frank said, it’s harder to find net-nets.
We have computers scouring the internet and EDGAR that can pick off the obvious net-nets that don’t require tremendous adjustments to balance sheets, so to find them, you need to look for things that simple algorithms won’t find but that you will… I think there’s a lot more luck in that… which is not to say that skill doesn’t matter, but that it takes a lot more work and hunting around for something that you can actually apply your skill in a way that adds value and is actionable.
Im finding that I spend a lot of time trying to figure out what are things that a computer can do better and what are things that a human being can do better, and that we either have to focus our energy on building better algortithms or we have to focus our energy on those things that computer algorithms cannot uncover (which tends to shrink over time). And if you don’t know which route you are taking, you are lost (although you can switch from one to the other, as long as you are doing it consciously).
I always wondered why “technical analysis” was called “technical,” because quantitative analysis seems more technical, and fundamental analysis seems fairly “technical” (in the non-financial sense of the word).
Then you go back to the early and mid 20th century, particularly after the 1920s bull market, and you realize that building charts and analyzing them, by hand, without computers (or even calculators, though I think they had adding machines then)… well, that was pretty “technical” back then, compared to the other people who were just floating stories about how GM was going to rule the world, etc…
It’s not that stupid. Yes, getting to the top in a competitive field is hard work in almost any environment, but what it takes to succeed in a field and where the opportunities are change over time with the economic, social, and technological environment. Without skill, it’s hard to build lasting success, but even with skill, timing and luck come into play. Buffet himself says this: he was lucky enough to be born in a time where the set of skills he has is rewarded. Were he born just 100 years earlier, he very likely would have been something like a cobbler or a lawyer, or been killed in the Civil War. Had he been born today, maybe he would not have discovered enough net-nets to attract an investor base. None of this means that he doesn’t have talent or that his success should be poo-hooed, but this is not religion and he is not the messaiah (nor does he claim to be).
It is worth looking at how the landscape changes decade by decade and which principles are universal and which principles are applicable only in certain epochs. Markets may not be efficient today, but they were certainly less efficient before. Before 1975 it was not even possible to invest in an index fund unless you personally bought a little piece of everything and rebalanced it yourself.
If it’s not even possible to invest in “the market” as a whole, you can bet that there are going to be enormous mispricings all over the place. With today’s investment vehicles, computing technology, communications, and market structure, mispricings still likely exist, but they are not nearly as easy to find.
This is not apples to apples. Today we are faced with a looming economic disaster that is the result of a massive national debt and a Fed that prints money with no reguard for long term cosequences. In the early 1950’s we had debt as a % of GDP of 90% and falling. Today we have debt as a % of GDP of 90% and growing seeming LOG.
1MM would not be near enough today because one would expect the fiscal and monetar policis of the US to create either run away inflation or a total economic melt down. From the 1950’s one would have been able to reasonably expect solid economic growth and low inflation in the future; in fact that is what they did see for around 2 decades.
Sweeden of 1990 is the US today…on the verge of a brick wall
complete rubbish…its always uncertain…always seems like there is something out there…
back in the 50s you were entering a cold war…that’s worst and more intense than anything today…
the argument that things were easier back then is stupid…buffet was successful cause he was good…how many of you made the kind of money he did when he turned 30?