frank, its not about arrogance its about finding what makes the most sense. And disagreement is healthy, its what makes our styles and portfolios different and also makes us revisit our philosophy from time to time. If we wanted to agree we’d all then just ending up owning MSFT and Apple in our portfolio.
i agree, but we’re still arrogant …bchad is a decent guy who would share his girlfriend with you if it came down to it…
There is no God but Value and Warren is his prophet. Ben Graham = Old Testament The teachings of his disciple Warren = New Testament The legendary deeds of the prophet are recounted in his annual reports, by which we interpret his words.
i want to meet charlie munger…
Uh, no. I would not share my girlfriend. Swap, maybe, but only if everyone is into it. 
Buying a stock as if you’re buying the whole business is the most sensible way to approach stock selection in my humble opinion. I take it one step further and read 10-qs and 10-ks and pretend the board and top executives are talking to me (their boss) directly. I find that it helps me be a more informed shareholder, like Graham encourages shareholders to be.
We know that there are many more human participants (and even a few computers too) involved in the markets nowadays - however the markets still consist of humans which are prone to emotions. There are plenty of securities out there that are unloved and offer a substantial risk/reward for those with a value investment inoculation - I would know as I have to worked bloody hard to find them and I love the challenge!! Those Super Investors most definitely could out perform in today’s markets - the process they followed is timeless
welcome new value ppl…
There are two things about risk-adjustment. The first is to figure out whether all that time hunting and sifting through news, 10ks and qs is actually doing any good. If, after a while, I find that all my value investing effort has the same risk adjusted return as an index fund, then I’ve been completely wasting my time, even if I have higher absolute returns. And anyone who says, “I’m an awesome value investor, look at my higher returns” is just full of it if they aren’t actually generating a higher risk-adjusted return. If there isn’t a higher risk adjusted return, it means that what I should be doing is simply levering up an index fund to whatever my risk tolerance says I can handle. Then, since my investment results will be pretty much the same over the long term, I’m supposed take all the time I had been spending on investment research and use it to bang my wife and buy her some really nice things that will make her happy. The other thing about risk adjusted returns is that even if value investing does work, your portfolio needs to be scaled to what your tolerance for volatility can handle. You may select stocks well, but unless you can fully see the future, you can still have too much of any one stock in your portfolio. Your hard work in detecting undervalued stuff reduces the risk, yes, and that means that you should have more in your portfolio than the market portfolio, but that doesn’t mean your portfolio should have as much of it as you have available capital. You never want to risk so much that you can’t be around for the next holding period. I think the dogmatic value investors are probably the ones that think that investing ends with security selection. The portfolio construction part is important too.
I wonder if a sociopath would make a good investor? The Dexter Fund LLC.
I’ve often felt that the finance community has a much higher proportion of sociopaths of various sorts. Certain kinds of obsessive-compulsive behavior can be really useful on the portfolio management side and certain [lack of] boundary issues can be useful on the sales side. These guys get rewarded and promoted early on, when the costs of the behavior are primarily personal while the benefits accrue to the company. Over time, they build up war chests, and then figure that all that money proves that their behavior is the best possible way to live their lives forward.
Actually, this article might be interesting On Economists and Psychopaths http://timiacono.com/index.php/2012/01/24/on-economists-and-psychopaths/ Argues that economists missed warning signals of the crisis because they didn’t understand how the finance industry is full of psychopaths. As a result, the industry couldn’t “self regulate” as economists had thought. (It also bashes economists for “needing to get out more.”)
if you can’t stand volatility, you don’t have the temperament to be investing…i guess if you want a nice steady portfolio that does average by all means… i don’t care to even calculate my risk adjusted returns…anybody that I help I tell them, be prepared to lose 50% in any given year… my portfolio construction is straight forward after the decision to allocate x amount to safe/risk free assets…don’t put more than 20% in any one stock…i don’t necessarily care for sector diversification either…diversification is not something I like to do but I do realize i’m an idiot so some sort of rule of thumb is used…
I agree that you allocate between [relatively] risk less and risky assets according to your ability to stay in the game, and then allocate your risky portion as sensibly as possible. There are plenty of reasons to invest with low volatility. You say you’re a Charterholder, so you should know what they are. It’s pretty silly to say that in order to invest, you have to be a volatility-lover. There are situations where that’s appropriate and situations when it’s not. As for portfolio construction I start from the opposite point of view, though, which is that your default allocation ought to be as diversified as possible. You become undiversified only once you’ve identified better alternatives to the market as a whole. The market will still deliver positive returns on average, because there is a risk premium for holding risky assets, and because corporate profits will tend to expand over time in response to technological progress and productivity improvements. So until you’ve found a better alternative to the market as a whole, there’s no need to hold just cash. Why not hold something with a positive expected return. (The exception is when I have a short-term bearish macro view, usually based on what I see in the political environment.) Concentrated portfolios are ok. I’m not dogmatic about that. But they do presuppose extreme confidence in your analysis. You might think that with a 15% discount rate, there’s a large margin of safety in your analysis, but then you have to ask yourself why is something so highly discounted, and what will be the trigger/catalyst for the discount to disappear, and why is it that only you are able to see this. For me, I know that I’m smart, but I also know that there are a lot of other smart people with more resources and access to people and data and teams playing against me, so I am never so certain of my analysis that I would feel good having just a few stocks concentrated in one sector as my investment portfolio, and so I often have a fair amount of the market index in my portfolio, using something like a core-satellite structure.
holding cash when you don’t have great ideas is crucial for the following reason, i normally buy when markets are down, so that would sugggest i would need to cash out on losses before I take a position. i keep transactions down to a minimum to the best of my abilities. I try and do some homework on my companies, so if its down, i normally know the reasons and I say, “nope, not true”. my margin of safety is provided through 15% discount, but the bulk 80%of it is through understanding the qualitative factors. i don’t subscribe to the conventional view that you knock off x% and you got some safety. safety comes from certainty in my view. i don’t remember most of the CFA stuff unless it makes intuitive sense to me. i have a background in econ too and trust me, i try and do forget most of that nonsense as well…
Cast away these false idols, “beta” and “diversification” and “volatility” and “portfolio construction”. You will be smote by a vengeful god. However Value is most forgiving, and if you return, you will be granted many hot classy babes in Paradise.
I completely agree with Frank. This is turning out to be an odd day…
Palantir, do i have to strap a bomb and blow myself up for this classy babes paradise? if so, i see some solid value there…
Thanks FrankArabia!