Buffett vs message board amateurs - the 5 year challenge

[sammybea]

Hey Cutten, I think this was a very interesting experiment that you put out there. No spin, no excuses.. just a straight up challenge that we can keep tabs on for the next 5 years.

I think if if im not mistaken, BRK.A is down 33% since your challenge, while the "dissenters," as you call them, are up roughly 20%. Its interesting that Buffet has actually done far worse than the S&P. While this doesn't prove anything, he would actually have to gain 50% over the next 4.5 years just to break even.

Does anyone have any thoughts about Buffet's buy and hold strategy? Cutten, do you still believe in the 5 year challenge? Interested to hear everyones thoughts.

Quote from Cutten:

I have noticed that since Buffett said he is going to be fully invested in stocks if they stay at these prices, a few people on here have criticized him for his move, saying he will go broke etc. I thought it would be appropriate to keep a record of this, for educational reasons, and bragging rights for the ET members if they turn out to be correct.

I will note the S&P or ES globex price that is trading when the ET member posts up his disagreement with Buffett, and then start a paper trade for them short the S&P from that level, versus Buffett's long-term buy & hold. We can check back at regular intervals to see the progress, and then in 5 years will will see whether Buffett was right, or the ET posters were smarter. The total net gain & loss per contract and in percentage terms will be calculated. We can then form a fair judgement of the ET members involved, and Buffett himself.

Current dissenters:

"itcanbedone" - short ES from 920 vs Buffett long
http://elitetrader.com/vb/showthread.php?threadid=141570

"NY_HOOD" - short ES from 928 vs Buffett
http://elitetrader.com/vb/showthread.php?threadid=141578


Any more dissenters feel free to post here and I'll add you to the list.

 

[Pekelo]

Are both parties supposed to hold it through the 5 years without cashing out?

What if we bottom at 600 and at the end of 5 years we are back at 950?? Who won then? Can the shorts move to cash at least?

 

[hughb]

Buffett has resources that most people do not have. He can buy preferred stock directly from a company's treasury and demand the terms he wants.

I'd be willing to bet that if you check the posting history of most Buffett bashers you will see that most of them are also Cramer bashers. CNBC bashers. Jack bashers. Professional sports team bashers. Athlete bashers. ET bashers. If an anonymous internet chatter can not earn respect on his own merits, he thinks he can earn it by attempting to diminish the status of others. However, that doesn't mean they are not permitted to bash or criticize. If you look at the top of this web page you will notice it is called a forum. A forum is here for discussion, and critics may discuss right along with everyone else.

EDIT to add - Kind of funny, right after I posted this I opened up my Wall Street Journal and there is a story about Buffett's letter to his shareholders that explains one of Berkshire's worst year's in it's history.

 

[Capablanca]

Buffett's investing acumen is to be respected, but he is still open to criticism. He has been very fortunate to be an American investing in America for the past half century. The U.S. hasn't truly experienced a very severe downturn in that time. Yes there were the 70s and yes the 2000 dot bust but he hasn't experienced the kind of downturn his mentor Benjamin Graham experienced in the Great Depression where even deep value stocks were hammered. Value investing in the Buffett style is more aggressive combining as it does Fisher's growth characteristics and consequently seems to have de facto buy on the dip tendencies. It's a great style for markets that experience growth with shallow recessions but is more exposed in markets that can fall off a cliff.

 

[Cutten]

Quote from Pekelo:

Are both parties supposed to hold it through the 5 years without cashing out?

What if we bottom at 600 and at the end of 5 years we are back at 950?? Who won then? Can the shorts move to cash at least?

If any Buffett critics cover their shorts and say now it makes sense to own stocks, they can "close" their side of the bet there, sure. I mean if the S&P hits 1 then I suspect even the most ardent bear would want to be long stocks, and definitely not short. However I will not judge Buffett's call until at least 5 years have passed, as that is IMO the earliest time horizon to judge a true buy & hold investment.

I would then measure the performance of their trading calls versus Buffett's buy & hold from S&P 920ish.

I measure Buffett's call by the S&P, NOT Berkshire stock. Berkshire is one stock and Buffett did not say "buy my stock", he said that stocks in general were a good buy.

S&P is currently 767, so the Buffett dissenters are either flat, or up by 17% if they went short; and Buffett's "buy & hold stocks" portfolio is down 17%.

I would also point out that I shorted the S&P since I made that post back in the Autumn, so I joined the bear side for now.

To keep the proper time perspective, it's probably best to update this once per quarter at most, and really once per year is probably best.