Author Topic: Buffett's 50% per year on small sums  (Read 48665 times)

samwise

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Re: Buffett's 50% per year on small sums
« Reply #140 on: July 22, 2020, 02:19:18 PM »

I think "god-mode" on a long-only equity portfolio with no margin/leverage probably maxes out in the high 25-29% range over 5 years in average markets (ie, +15-20% better than the equity benchmarks). 

wabuffo

This study supports your conclusion about "God-mode". (But notice the -75% drawdown!)
https://alphaarchitect.com/2016/02/02/even-god-would-get-fired-as-an-active-investor/

It is large caps though (top 500), and weighted to large caps even within that. So scorpion is probably right that smaller caps might allow more than 30%.


LanceSanity

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Re: Buffett's 50% per year on small sums
« Reply #141 on: July 22, 2020, 08:46:37 PM »
Lance, do you have any letters or writings about their thoughts on market, portfolio selection etc?

They don't have public writings, so not much to go on. From their website:
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What Abdiel does
Abdiel generally invests in publicly traded companies that are likely to gain market share over long time periods. We prefer businesses that have recurring revenue and that are managed by people with a large share of their net worth in the stock. Our ten largest investments frequently comprise more than 75% of invested capital. We started in 2006.

What we want for our investors
Returns that are good on an absolute basis and that outperform the market, measured over 3-5 years.

How we value companies
We estimate the return a company’s cash flows would deliver to someone who bought the entire business at the available stock price and held it permanently.

What we look for “under the hood” of companies
The same thing we look for in our own. Leaders who care viscerally about the quality of the products they sell. A corporate culture in which people thrive. Coincidence or not, in our experience we make more money with companies we admire than with those we don’t.

What we want Abdiel to add to the world
Work done well and with pleasure. The craftsman is a better person for his efforts, and so is anyone who notices. Moreover, good investment analysis helps companies raise the world’s standard of living. Enterprises work best when they have access to capital priced to reflect the value they can create. Index funds, by the way, do not price capital; they only mimic the actions of those who do.

whalewisdom estimates Abdiel's performance to be 53%/yr for the past 5 years. It's definitely gone up since they added more FSLY, and their stocks appreciated a lot since q1.

netnet

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Re: Buffett's 50% per year on small sums
« Reply #142 on: July 31, 2020, 02:38:52 PM »
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For successful companies like Google, Apple, Microsoft the ultimate TAM is way bigger than what you expected when you invested. E.g. if you bought Apple for iPod TAM, it was overpriced (likely), but then came iPhone TAM. Same with Microsoft (DOS -> Office -> Windows, etc.)

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Imagine Microsoft O/S that is growing well (30 years ago). If you value MSFT purely on O/S you will see that it is very expensive.

No and No!
I have to disagree here.

Although it was(somewhat) hard to see at the time, and perfectly obvious in hindsight, Microsoft was not expensive on just the O/S in 87.  It was order of magnitude 200 million and it was a 'tax' on a rapidly growing market--OS sales on the PC. 2 billion market cap was relatively easy to see, as these things go.  (It would of course help if you were in the industry.)

coc

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Re: Buffett's 50% per year on small sums
« Reply #143 on: August 14, 2020, 07:28:23 AM »
This thread is an amazing document to show the dominant ideologies of the moment. Some of the posts remind me quite strongly of the "New Era" in the late 60s and the Internet Mania of the 90s.  I have seen one investor after another "convert" to the New Era style (buy companies with "disruptive" nature almost regardless of price as long as a theoretical DCF justifies it).

"TAM is all that matters"
"Earnings are for LOSERS"
"Value investors have to learn to pay for growth"
etc. etc.

This time really always does seem different. We shall see!