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Short of spending 60-80 hours a week analyzing companies and the marketplace
60 to 80 hours a week?? You make it seem like we're trying to discover dark matter hidden in the balance sheets. Try 60 to 80 MINUTES PER MONTH, if that. The universe of individual stocks that I follow currently numbers 22, and of that 22, I actually own 8 of them, and at cost levels significantly below current cost on all but my newest position, which is NSC. I buy on pullbacks, even if sometimes I'm actually averaging up a bit, and sell only when I feel a stock is wildly overvalued or the fundementals of the company are deteriorating. And of course, all dividends are reinvested. The limited time spent researching these stocks includes almost zero time analyzing "the market" - I'm only concerned with what's happening with the companies I own, and I could care less what "the market" is doing.
I don't have or need an army of analysts and fund managers to help me research my watch list, and am probably better off without them, given the track record of professional securities analysts these days. I look at basic criteria - competitve moats, strong balance sheets, consistent earnings and dividend history, and a margin of safety make up most of it, and it doesn't take a long time or lots of effort to figure it all out. Seriously, shut off CNBC and read some Benjamin Graham and Phil Fisher and it will all start to make sense. It's really much easier than most of you make it out to be.
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"It is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn't take at all. It's like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is. A fellow like Rick Guerin, who had no formal education in business, understands immediately the value approach to investing and he's applying it five minutes later. I've never seen anyone who became a gradual convert over a ten-year period to this approach. It doesn't seem to be a matter of IQ or academic training. It's instant recognition, or it is nothing."
-Warren Buffett The Superinvestors of Graham-and-Doddsville
To reliably beat the index - something which you clearly don't care about, despite vigorous protestations to the contrary, and something which chances are you won't do in the end, despite vigorous claims to the contrary.
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Originally Posted by treasurekidd
You make it seem like we're trying to discover dark matter hidden in the balance sheets.
Again: I challenge you to present research providing evidence of your magic. (Hint: Quotations aren't evidence. Normalized, peer-reviewed, reproducible research is evidence.)
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Originally Posted by treasurekidd
Try 60 to 80 MINUTES PER MONTH, if that.
And in return you can expect less returns than investing in the index.
To reliably beat the index - something which you clearly don't care about, despite vigorous protestations to the contrary, and something which chances are you won't do in the end, despite vigorous claims to the contrary.
First of all, you are correct, I DO NOT care about beating the index, because I do not bother to compare what I do against the masses or "the market". What does "the market" have to do with my companies? I made it a point to stress the fact that I don't care one bit about what "the market" is doing. Seriously, why should I sell my Berkshire, JP Morgan, or Norfolk Southern stock because the price of gold is going down, oil is going up, Bernanke's speaking before Congress or whatever the macro-economic disaster flavor of the day is? By following my research methods, practicing investment discipline and sticking to my plan, I KNOW I'm going end up with better than average results. Incidently, the S&P500 index shows as being up 18.90% YTD, and 25.83% over the last year. All but one of my positions, again NSC, is absolutley destroying that number. My 401K portfilio, which I have no choice but to invest in basic index mutual funds, is about even with the S&P. I sure wish I had more choices and freedom to manage that.
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Again: I challenge you to present research providing evidence of your magic. (Hint: Quotations aren't evidence. Normalized, peer-reviewed, reproducible research is evidence.)
I already told you what to do, but I'll repeat it, because it obviously was not "instant recognition" on your part. Shut off CNBC, and read Benjamin Graham's "The Intelligent Investor", and Phil Fisher's "Common Stocks And Uncommon Profits". Both books have been around for over 50 years, and if that's not peer reviewed and reproducible, I don't know what it. The magic you acuse me of practicing is within these pages.
Look, I don't expect you to suddenly agree with me and come over to the good side of the force, so just keep doing what it is that you do, but I'm telling you my way works for me, and has for as long as I've been investing, and is not nearly as hard as you make it out to be. Come on, don't be scared, pick up the books and give it a try.
First of all, you are correct, I DO NOT care about beating the index, because I do not bother to compare what I do against the masses or "the market".
So basically you've made clear that your comments are completely irrelevant to any discussions of the best investing strategies - which is actually what we were discussing with celcius.
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Originally Posted by treasurekidd
I'm telling you my way works for me
Good for you. That doesn't mean it always will work for you; it also doesn't mean it works for anyone else and it also doesn't mean that it is the best thing for your situation. That's all we're saying. All you needed to say in response is that you don't care about that - and now, message received.
All I've done is present a view of risk that to me is common sense. This isn't black and white.
Mutual funds suffer from herd mentality - they buy what's popular, over-diversify, trade too often, live and die by monthly performance, have conflicts of interest, and are forced by investor redemptions/purchases to make poor decisions.
I make no attempt to refute the raw evidence of their underperformance, but personally do not find such information useful. To infer they underperform because of selection is confirmation bias, since it ignores the qualitative. And if you don't play in their sandbox, they're not exactly your competition.
they buy what's popular, over-diversify, trade too often, live and die by monthly performance, have conflicts of interest, and are forced by investor redemptions/purchases to make poor decisions.
Some of those things are characteristics for which there are metrics, and you can use those metrics to separate out the funds that commit those sins and avoid them. Others are speculation and baseless accusations, as well as baseless personal opinion about what is and is not beneficial to returns.
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Originally Posted by celcius
And if you don't play in their sandbox, they're not exactly your competition.
And if your only argument against the best practice is that you don't like it, that's not exactly constructive insight.
You want to do your own thing. Message received. nuf sed?
As I've said before, comparing individual traders/investors to mutual fund managers is comparing apples to oranges. The goals, methods, restrictions, and capital involved are all very different.
And to state that one cannot beat the index without putting "60 to 80 hours per week" into studying individual stocks is really laughable. It assumes that all people are the same and they all trade/invest the same way.
Will the majority of people, when left to their own devices, beat the market? No. Do many people have an unrealistic, over-inflated opinion of their ability TO beat the market? I believe so. Does that mean we should assume these things of EVERYONE? No, that's silly.
I enjoy white papers as much as anyone, but they're typically broad generalizations, not absolute laws of the investing universe. Some of you take what you read way too seriously and way too far.
As I've said before, comparing individual traders/investors to mutual fund managers is comparing apples to oranges.
Repeatedly saying it doesn't grant your denial of the parallel validity.
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Originally Posted by LongArm
And to state that one cannot beat the index without putting "60 to 80 hours per week" into studying individual stocks is really laughable.
Sorry, let me revise: "... the research that others have referred to shows that such sub-selection will typically earn either lower or much lower returns, as compared to the index, depending on what you mean by 'high-quality'". I'm sorry if that conditional wasn't clear.
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Originally Posted by LongArm
Some of you take what you read way too seriously and way too far.
Some of you take what others are explaining to you too casually.
And repeatedly claiming that a significant one exists doesn't make it so.
Indeed. The research referred to above does that.
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