Author Topic: beating the market - not what it used to be  (Read 7770 times)

james22

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Re: beating the market - not what it used to be
« Reply #10 on: May 09, 2018, 08:47:48 AM »
BRK has beat the market if measured by book value growth.

The market has simply become more expensive.





Jurgis

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Re: beating the market - not what it used to be
« Reply #11 on: May 09, 2018, 11:11:37 AM »
If you look at https://www.reddit.com/r/SecurityAnalysis/comments/8b631d/q1_2018_letters_reports/ , a lot of these people are outperforming. If you look at CoBF annual performance numbers, there's a bunch of people who outperform.

OTOH, it's still not clear how much of that is selection bias. And how much of outperformance remains after fees and taxes.

People here may believe it when they say that it's easy to outperform if you do XYZ (buy cheap large caps, buy cheap small caps, buy international, buy special situations, buy cheap great companies, buy jockeys, buy oil, etc.) and/or that the time of value investors will come (when market crashes, when there's inflation, when there's deflation, when there's recession, etc.). IMO even if we take CoBF population (which is already top 0.1%? top 0.01%? of investors), majority of CoBF population does not outperform and will not outperform even if they try to follow the helpful suggestions above. This is mostly substantiated by 5-year/10-year performance polls I had here accounting for survival and selection bias ( see http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/performance-vs-index-5-years/msg260236/#msg260236 and http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/performance-vs-index/ )

Disclosure: I have not outperformed. Please do not listen to anything I write here.  8)

P.S. I should link to racemize's http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/update-of-evaluating-performance-essay/msg330465/#msg330465
« Last Edit: May 09, 2018, 11:27:02 AM by Jurgis »
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Hielko

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Re: beating the market - not what it used to be
« Reply #12 on: May 09, 2018, 12:02:53 PM »
What makes you think that COBF is top 0.1% of investors? I guess there are a lot of people on this board that spend a decent amount of time, thinking and talking on investing. I don't think that necessarily translate into better investors, in some cases you just make things worse... (e.g. if you are not a good investor but trade a lot you become an (far) below average investor while you could have been average by buying some ETF's). It could very well be that the average COBF investor is (because of that reason) a below average investor. It wouldn't surprise me...

Jurgis

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Re: beating the market - not what it used to be
« Reply #13 on: May 09, 2018, 12:30:16 PM »
What makes you think that COBF is top 0.1% of investors? I guess there are a lot of people on this board that spend a decent amount of time, thinking and talking on investing. I don't think that necessarily translate into better investors, in some cases you just make things worse... (e.g. if you are not a good investor but trade a lot you become an (far) below average investor while you could have been average by buying some ETF's). It could very well be that the average COBF investor is (because of that reason) a below average investor. It wouldn't surprise me...

Clearly I don't have data to prove this. Just to be clear when I said top 0.1%, I meant "top 0.1% of total human population of investable age". Or "top 0.1% of total US/Canadian population of investable age". And I still think that's true. I think CoBF membership is likely better investors than 999 out of 1000 random people. But then if 50 or 100 of these 1000 random people just put money into market-cap based fund, then they might outperform half of CoBF... So perhaps my claim is actually wrong. 8)

Another way would be to look at how good CoBF members are compared to active investors. But that's probably not very useful because of two reasons: 1. the number of active investors is likely quite small (unless you count all the people who are forced-active investors since they have to choose funds in their 401(k); 2. even if CoBF members are good compared to other active investors, that does not say much if passive investors outperform them.

In any case, you make a good point.  8)
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villainx

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Re: beating the market - not what it used to be
« Reply #14 on: May 09, 2018, 12:40:05 PM »
As well, BRK specifically would have performed better with a rational repurchase policy, more so with an outsider policy, instead of Buffett's blindspot for being the guardian of shareholder partners.

james22

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Re: beating the market - not what it used to be
« Reply #15 on: May 09, 2018, 09:27:17 PM »
I believe I'm a better investor today than 2000, but I sure couldn't prove it by recent year returns.


Schwab711

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Re: beating the market - not what it used to be
« Reply #16 on: May 10, 2018, 05:23:32 AM »
If there is a gap between today and some arbitrary point in the past, I'm not sure the gap is as wide as you'd think. It's pretty tough picking individual stocks right now, but that is not the only asset class in the world. Risk-free interest rates are at 3% and various recent special situation opportunities have provided >3% in a few weeks or months.

I think what makes investing (stocks or whatever) so hard is the breadth of skills needed to process a tremendous amount of information, so that you can make accurate comparisons across stocks, then compare those expected returns (for given risk profiles) to other asset classes. It takes a lot of information and personal characteristics to have an idea of what kinds of industries to look at and when to look at bonds over stocks and so on. Sometimes folks get lucky if they were pre-pointed in the right direction to start, but to win over long periods you have to know how to read a compass.

We also have computers that are magnitudes faster than any time in the past, free or cheap software tools, an EDGAR with a lot of functionality, and all the other stuff out there that provides a willing person the information and tools to build out solutions to track all info they can handle. In 2000, this was not a possibility. As we move farther back in history, it's very likely your unknown unknowns would include a lot of seemingly trivial information you take for granted today.

I have a hard time believing folks would have any greater advantage at any point in history relative to today. Even if you know the right people or had money to buy information, you would almost certainly be competing against a much smaller pool of competitors.  The cost of information then was ~$250-$400 per S&P or Moody's manual. One for financial companies, one for regular. Trading fees were ~$25-$50 each way.

This game was meant to be hard since it consists solely of people trying to make more money than what is more freely available to them. Same as it ever was, imo.

rpadebet

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Re: beating the market - not what it used to be
« Reply #17 on: May 10, 2018, 06:09:11 AM »
We need to differentiate a bit here between outcome and process:

Beating the market is an outcome.
This game is far more enjoyable if the focus is on efficient capital allocation i.e. if you enjoy understanding businesses, their competitive dynamics, the environments they operate in, how they generate revenue, how they spend and how they invest, it is far more fun in my own opinion. This is true irrespective of the market conditions and price where it is trading at.

As investors we are only serving as cogs in that wheel trying to move money to the best utilizers of capital given prevailing prices. If we keep doing it right, eventually we might beat the market, as good capital allocations must necessarily triumph over bad allocation. Hopefully we are not doing it only to beat the market, that would just make us keep staring at the scoreboard.

Agree with Schwab in that the game seems to be as hard as it ever was. The tools have changed, but everyone has access to similar tools.
You can't connect the dots looking forward you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something: your gut, destiny, life, karma, whatever.
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rb

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Re: beating the market - not what it used to be
« Reply #18 on: May 10, 2018, 02:35:43 PM »
We need to differentiate a bit here between outcome and process:

Beating the market is an outcome.
This game is far more enjoyable if the focus is on efficient capital allocation i.e. if you enjoy understanding businesses, their competitive dynamics, the environments they operate in, how they generate revenue, how they spend and how they invest, it is far more fun in my own opinion. This is true irrespective of the market conditions and price where it is trading at.

As investors we are only serving as cogs in that wheel trying to move money to the best utilizers of capital given prevailing prices. If we keep doing it right, eventually we might beat the market, as good capital allocations must necessarily triumph over bad allocation. Hopefully we are not doing it only to beat the market, that would just make us keep staring at the scoreboard.

Agree with Schwab in that the game seems to be as hard as it ever was. The tools have changed, but everyone has access to similar tools.
I agree with most of the above.

I'd also like to add that I think we're seeing a bit of a crisis of the soul/confidence about beating the market. I think this is brought on by the environment over the past few years of low volatility and increased correlation of stock prices. In such an environment it is indeed harder to beat the market. If stock prices are highly correlated you mathematically can't beat it. So if you think that this time is different, that we've had a paradigm shift and this environment will continue into the future. Then yes, you should sell your stuff, buy some vanguard idexes and go to the beach.

But, coming back to the idea of the process and what you actually do - I call it making money for the right reasons vs making money for the wrong reasons. There are still great companies and crappy companies out there. Over time the IV of the great companies will outperform the IV of the crappy companies. But if their stock prices move in tandem. Then the great companies will become very cheap compared to the crappy companies. Eventually this will be recognized and the cycle will be broken. Then good process/investing will be rewarded and bad process will be punished. Then the crisis of the soul will dissipate.

Cigarbutt

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Re: beating the market - not what it used to be
« Reply #19 on: May 10, 2018, 07:16:34 PM »
I believe I'm a better investor today than 2000, but I sure couldn't prove it by recent year returns.

To openly question one's performance is commendable.
Before capitulation, it may be helpful to revisit the Graham and Doddsville's list:
https://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984.pdf

Beside Mr. Buffett who is truly unique, most "successful" investors "suffered" relative under-performance for many years (often consecutive years).
What may be interesting is that, if you are right and have a strong inner score card, the periods of under-performance are often preceded, and followed by, remarkable out-performance.

Hope that helps.