How does Buffett do it?

[achilles28]

Quote from stockeroo:

The question is why them and not everyone else, not who is better.

Markets are primarily driven by a school of economic thought not widely taught or accepted by academics. That's why nearly all Economic professors/CTA's/Fund Managers are wage-slaves and can't predict market bottoms and tops with any useful regularity. Think about how ridiculous that is. On the other side, a handful of *astute* investors ventured outside the box and succeeded. Soros and Buffet understand what drives broader macro currents but leverage them in different ways. From my understanding, Buffet takes over poorly-managed companies with strong fundamentals, replaces management with his own guys, then rides the stock for a big gain. Essentially, plays managerial arbitrage in bull markets. I remember a WSW episode where a small-cap hedge fund copied Buffets strategy, for poorly-run micro-caps.

One of the best axioms for success: take advice from people who are where you want to be in life.

 

[stockeroo]

Quote from Baron:

If you really want to get a feel for how Buffet got started and what he did along the way, I suggest you read "The Snowball".

Baron and Gabfly, thanks for the advice. Have any of you read Cunningham's Essay's of Warren Buffet? I was wondering if the second edition and first edition are substantially different or I could just go with edition 2 (i.e. are the essays the same with some extras or they are very different)?

Thanks!

 

[Trader666]

Read:

1) This by Warren Buffett:
http://www.valueinvesting.de/en/superinvestors.htm

2) The Intelligent Investor (especially chapters 8 & 20)

3) The Snowball

Quote from stockeroo:

Considering that:

1.) There has NEVER been a trader/speculator (not investor) that has made hundreds of millions of dollars CONSISTENTLY for 30+ years without blowing up God knows how many times (in any market).

AND

2.) Virtually all the best investment firms/funds stocked with the brightests minds in the world (analysts, economists, mathematicians, traders, investors) in the LONG RUN (30+ years) fail to beat the market average by a margin about equal to their operating expenses

THEN

How does Buffett and literally no more than 5-10 others in the ENTIRE WORLD and history of investing manage to beat these odds and make hundreds of millions consistently over decades and beat the market average time and time again?

If you invested $60K with Buffet 30+ years ago, you'd have over $80 million right now. WTH???

 

[rew]

Quote from Scataphagos:

That's only 27%/year.

Any trader worth his salt should be making that much PER WEEK!

Methinks Scataphagos does not actually trade for a living, and probably not even as a hobby. 27% per week? Consistently? Thus turning an initial $10,000 into $960,000,000 in 48 weeks? No trader has ever done that.

 

[Gabfly1]

Quote from Trader666:

...The Intelligent Investor...

Good book. I have it. But just try and apply it at face in today's market.

 

[Trader666]

On the contrary, the 2008-2009 crash was the opportunity of a lifetime.

Quote from Gabfly1:

Good book. I have it. But just try and apply it at face in today's market.

 

[Ghost of Cutten]

Quote from stockeroo:

Ghost, I'm not trying to be critical, just curious to try and learn, can you point me to actual evidence Soros used price action.

And I agree w/ Gabfly, Soros would be part of those 5-10 incredible investors, so no need to argue which is best, they both did it. The question is why them and not everyone else, not who is better.

Yes, he mentions it numerous times in his books and interviews.

I agree with your second point. Every professional investor pores over Buffett's sayings and any writings on him - yet they don't replicate his performance, for the most part. A boxer can study Muhammad Ali tapes all day long, that doesn't mean he can fight like him.

 

[piezoe]

Quote from stockeroo:

Considering that:

1.) There has NEVER been a trader/speculator (not investor) that has made hundreds of millions of dollars CONSISTENTLY for 30+ years without blowing up God knows how many times (in any market).

AND

2.) Virtually all the best investment firms/funds stocked with the brightests minds in the world (analysts, economists, mathematicians, traders, investors) in the LONG RUN (30+ years) fail to beat the market average by a margin about equal to their operating expenses

THEN

How does Buffett and literally no more than 5-10 others in the ENTIRE WORLD and history of investing manage to beat these odds and make hundreds of millions consistently over decades and beat the market average time and time again?

If you invested $60K with Buffet 30+ years ago, you'd have over $80 million right now. WTH???

You made your point 2. correct with the word "virtually" However, there are firms (JPM, GS, for example) that have long histories of making huge trading profits consistently for far more than 30 years.

The key to their trading success seems to have come from being able to: 1. trade on inside knowledge; 2. use their "analysts" in coordination with the media and their access to large amounts of capital and credit to move the market in a direction favorable to their positions; 3. use their capital in legal ways to purchase political favors that will help them avoid regulatory hurdles; 4. hire the best and brightest financial minds and have astounding good "luck" when friendly, former employees are appointed to, or hired into, government positions helpful to their trading operations.

Also, status as a market maker has been helpful in achieving profits, and certainly JPM's status as a Federal Reserve shareholder is not without its benefits.

It seems your point 2 is strictly true only for broadly based, large, long-only, mutual funds. Indeed these, so far as I am aware, have not been able to beat the market consistently over long periods. Some other types of managed funds, though, have been able to do this. The managed, large, long-only, sector fund known as the Vanguard Health Fund comes to mind. (My guess would be that that fund's success is due more to the government-protected cartel structure of American medicine than it is to the fund's managers' skills. Nevertheless it has done better than other same-sector funds.)

 

[Gabfly1]

Quote from Trader666:

On the contrary, the 2008-2009 crash was the opportunity of a lifetime.

Although I hold it in high regard, It has been years since I have opened that book. How did market valuations compare to book value during the period to which you refer?

 

[Hook N. Sinker]

Quote from stockeroo:How does Buffett and literally no more than 5-10 others in the ENTIRE WORLD and history of investing manage to beat these odds and make hundreds of millions consistently over decades and beat the market average time and time again?[/B]

Mr. Buffett explains how he does it in his letters to shareholders at http://www.berkshirehathaway.com/letters/letters.html.

I notice billionaire J. Paul Getty, also reported to be one of the richest people in the world about year 1962, uses similar guidelines in his investment and acquisition decisions: "How To Be Rich", by J. Paul Getty ISBN # 0-872-16613-9.