Buffett 20% annualized gains over 45 years
- Thread starter turkeyneck
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http://www.dailyfinance.com/story/d...orth-fluctuates-based-on-his-feeling/1548958/
MY NET WORTH FLUCTUATES BASED ON HOW I FEEL ITS WORTH... ROFL COMMON...
I was talking about this guy not being worth what he says he is...
.....
Selling the idea that you know what your doing even when you dont refers to warren talking about investing and stock picking... he is not a stock picker the dude can come in with large sums of money and make deals we can not.. its no reason its 20%.. but he is not what he says he is.
Warren Buffett's investment results are heavily skewed in his favor for one very simple reason -- he does not have to account for idle cash.
Let's run through an example. Mutual Fund Manager Bob has redemptions and deposits on a continuous basis and has to either buy or sell stock, or keep a certain amount of cash idle to invest in opportunities that arise or Bob has to sell holdings -- and pay taxes as a result -- to purchase opportunities that have arisen.
Buffett, on the other hand, does not have this problem. His returns are calculated from the point where he buys a stock to the point where it sits at some time in the future. He doesn't have to worry about redemptions and deposits because his funds are funneled through BRK. Any idle cash that he has sits on BRK's balance sheet as an asset, not in his investment portfolio. Idle cash is a huge drag on performance. That gives him an advantage that Mutual Fund Managers could only dream of.
That being said, Buffett's performance over the past 45 years has been terrific but if you want to compare apples to apples there are managers out there who are equally as good.
Let's run through an example. Mutual Fund Manager Bob has redemptions and deposits on a continuous basis and has to either buy or sell stock, or keep a certain amount of cash idle to invest in opportunities that arise or Bob has to sell holdings -- and pay taxes as a result -- to purchase opportunities that have arisen.
Buffett, on the other hand, does not have this problem. His returns are calculated from the point where he buys a stock to the point where it sits at some time in the future. He doesn't have to worry about redemptions and deposits because his funds are funneled through BRK. Any idle cash that he has sits on BRK's balance sheet as an asset, not in his investment portfolio. Idle cash is a huge drag on performance. That gives him an advantage that Mutual Fund Managers could only dream of.
That being said, Buffett's performance over the past 45 years has been terrific but if you want to compare apples to apples there are managers out there who are equally as good.
the1 - do you mean that the insurance aspect of the business is a sort of tax free investment plan for him, which allows some deals the average investing public wouldn't, and therefore, higher returns than most mutual funds over the years?
Possibly meaning - that his grows his investments himself through the extra capital hanging around from his funds, or that hes able to withstand liquidity crunches that occur in the Markets over time, and every couple of years, through access to business, asset classes, crises, etc?
Possibly meaning - that his grows his investments himself through the extra capital hanging around from his funds, or that hes able to withstand liquidity crunches that occur in the Markets over time, and every couple of years, through access to business, asset classes, crises, etc?
Not exactly. Think about it this way. You manage a mutual fund with $1B in assets. You hold positions in 20 stock and you think the market is overvalued so you keep some free cash idle to take advantage of those stocks that fall if the market falls. In the meantime, your performance has been pretty good so you have inflows coming into your fund so your idle cash position can grow and shrink depending on what opportunities you are presented with. Now flip the coin and say your performance has been not so good for whatever reason and you begin to get redemptions. To meet those redemptions you need to sell stocks, which triggers capital gains taxes on the end of the fund. So your returns get dragged down by whatever amount of money you have sitting idle and dragged down by positions you have to pay capital gains taxes on when you sell them. You can probably see what challenges you're facing here.
Now let's look at Buffett and to reinforce the point let's throw Eddie Lampert in there as well. Let's say Buffett owns 20 stocks and Lampert owns 5. Their performance will be measured on the up or down movement of those stocks, and only those stocks. Cash isn't sitting around waiting for opportunities. Why is that? The answer is because any cash that they would use to invest in future opportunities sits on the balance sheet of either BRK or SHLD and does not drag down the performance of their stock portfolio. They get a freebie. Their performance isn't counted on inflows from investors buying into a mutual fund. They pull cash from their respective cash cows and buys stocks when the opportunity presents itself but in the meantime the cash position is credited to the balance sheet of other firms.
Now granted, when you look at the performance of BRK and SHLD over the years you would have made out quite handsomely but when the returns of these guys are cited they aren't citing the returns of the corporations they own. They are citing the performance of the stocks they own. Put Buffett in a Mutual Fund format and I can guarantee you his performance would be significantly lower than it is now. Kudos to him for recognizing that early on in his career.
Now let's look at Buffett and to reinforce the point let's throw Eddie Lampert in there as well. Let's say Buffett owns 20 stocks and Lampert owns 5. Their performance will be measured on the up or down movement of those stocks, and only those stocks. Cash isn't sitting around waiting for opportunities. Why is that? The answer is because any cash that they would use to invest in future opportunities sits on the balance sheet of either BRK or SHLD and does not drag down the performance of their stock portfolio. They get a freebie. Their performance isn't counted on inflows from investors buying into a mutual fund. They pull cash from their respective cash cows and buys stocks when the opportunity presents itself but in the meantime the cash position is credited to the balance sheet of other firms.
Now granted, when you look at the performance of BRK and SHLD over the years you would have made out quite handsomely but when the returns of these guys are cited they aren't citing the returns of the corporations they own. They are citing the performance of the stocks they own. Put Buffett in a Mutual Fund format and I can guarantee you his performance would be significantly lower than it is now. Kudos to him for recognizing that early on in his career.
^^ The ROI calculation to an investor is the same fucking thing whether it's for 1 share of BRK, mutual fund, painting or rare comic book.
If it were that easy how come more money managers are not "doing a Buffett" and buying & running insurance or cashflow rich cos?
Because most funds are run for the benefit of the money managers primarily in the form of management fees
If it were that easy how come more money managers are not "doing a Buffett" and buying & running insurance or cashflow rich cos?
Because most funds are run for the benefit of the money managers primarily in the form of management fees