Archive through April 16, 2008

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ody

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Monday, April 14, 2008 - 11:22 pm:

Resillent: CNN futures

Not "always". On Mondays, it seems. I think you had to correct me on this once before, and that then too it was a Monday problem - i.e. their quoting historical info which confused me. So: thanks. This is the first time I forgot about that curious defect, but I do recall your sorting it out at the time.

For some reason I thought it was Tuesday.

Bloomberg has more modest figures, which is good. I presume, at least, that they are more up to date! They are still negative, though, and given the move of markets worldwide, I doubt that Wall Street will come on strongly.

lafee

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Monday, April 14, 2008 - 11:29 pm:

Resillent,

I think it is in one of his books. I will check which one for you.

Cheers Lafee

Don't ask an academic if what he does is relevant

lafee

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Monday, April 14, 2008 - 11:44 pm:

The book is "Practical Speculation".

Chapter 6 is titled: Benjamin Graham: Mythical Market Hero

Cheers Lafee

Don't ask an academic if what he does is relevant

ody

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Monday, April 14, 2008 - 11:55 pm:

FIRST WALL STREET RESULTS

Will be interesting to see further!

http://money.cnn.com/2008/04/14/markets/markets_newyork/index.htm

ody

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Tuesday, April 15, 2008 - 12:06 am:

BARUCH QUOTES

Many very good ones ...

I like this one particularly:

"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong."

http://www.brainyquote.com/quotes/authors/b/bernard_baruch.html

ody

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Tuesday, April 15, 2008 - 08:42 am:

AND SOME BUFFETT ...

For the fans, there is an interview with him on CNN. The following is part of that:
----------------------------------------------------------
[Asked whether it will be a long time before we 'turn the corner':]
-----------------------------------------------------------
I think so. I mean, it seems everybody says it'll be short and shallow, but it looks like it's just the opposite. You know, deleveraging by its nature takes a lot of time, a lot of pain. And the consequences kind of roll through in different ways. Now, I don't invest a dime based on macro forecasts, so I don't think people should sell stocks because of that. I also don't think they should buy stocks because of that.
-----------------------------------------------------------

Well, at least I'd agree with him that "it looks like it's just the opposite". But, of course, so do quite a few people, or else Wall Street would be stronger. Last night, though of course the Monday figures for CNN were indeed wrong, Bloomberg's did prove to be more indicative, and Wall Street did go down again, though not by much - compared with the rest of the world.

Buffett means, of course, that people should not base their buying or selling simply on the basis of the thought that it will take a long time for the market to go up again. Famously, he would want one - essentially at any time - to differentiate, when choosing stocks, between PRICE and VALUE, and to buy value.

I have been pondering this once again, and asking myself why for many this in practice does not seem to work.

1. It is a very difficult thing to do anyway, and not many people are very good at it.
2. It was probably easier to do - especially: easier to set oneself apart from "the crowd" - at a time that news did not get around nearly as quickly. With the advent of the computer for large numbers of people in the market, it has become much harder to discover what others haven't already discovered or are discovering at the same time.
3. I would predict - now here is a real thesis! - that it will be MUCH harder to do it, especially in the US, than when Buffett was a young man. The twentieth century was indeed "the American century" in that it led the world. I would think not many of us are expecting it to be nearly as successful in the years to come. Indeed, it is clear that a lot of wealth-making capacity is shifting away from the US. If that is so, then probably the next Buffett at this time, if an American, is probably going to find it much harder to repeat Buffett's performance. The US simply does not have anything like the same scope for growth, and, as well, is not facing its own future impressively.

I say these things tentatively. I hope I shall be wrong. But perhaps these points are worth considering?

Just one further thing: elsewhere in the interview Buffett is clearly taking the growth of American wealth for granted, and points at growing productivity. In truth, though, in the US that has declined considerably relative to its earlier high levels of growth, so his statement may show that he is expecting the continuation of a development that may not actually be as impressive as he thinks. If so, that should surely make one wary of one of his basic assumptions for what's ahead. He would no doubt concede - and certainly should - that past results are no guarantee for the future.

ody

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Tuesday, April 15, 2008 - 09:21 am:

THE GROWING FOOD CRISIS ...

The sort of thing to leave one more depressed than any purely economic news - truly disturbing figures:

http://www.businessspectator.com.au/bs.nsf/Article/A-recipe-for-disaster-DPSMH?O penDocument

cat_lady

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Tuesday, April 15, 2008 - 09:46 am:

on MMC Contrarian: the failure of this particular stock has little to do with it's stated philosophy and more to do with the back room shenanigans. the guy who originally was meant to be their stock picker, Eric someone or other - name eludes me at the moment, was an ardent buffettologist and contrarianist. as the company was set up in the midst of a massive bull run there wasn't much out there to buy and he just wanted to sit on cash till opportunities arose (now would be a good time I suppose). 80% cash wasn't particularly attractive to most investors at that time. Anyrate, cut a long story short, Eric was either ousted or left, management restructred to get as much cash out as possibly with humungous fees and the only thing contrarian about MMC is their name.
cat lady

Without my morning coffee I might as well be a dog

cat_lady

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Tuesday, April 15, 2008 - 09:54 am:

on Buffett
IMHO I think one of the misconceptions about buffett is that he buys undervalued stocks. he may have done this initially, but he diverged from this theory years ago when he decided that he wanted to buy "quality" stocks at prices he found acceptable. I think it's his ability to assess risk and value companies which gives him the advantage. I remember reading a response he made when asked how he would feel if a company he was thinking of buying suddenly lost 10%. He said he would still buy it as he wasn't interested in what the market thought of the company, only in what "he" thought of the company.
cat lady

Without my morning coffee I might as well be a dog

ody

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Tuesday, April 15, 2008 - 10:03 am:

Cat Lady: MMC

What your story shows - and the leading personality was indeed the one you mention, whose name was Eric Metanomski - is that here was another Buffett fan who was going to do great things and didn't. That was exactly my point. If he had performed according to what was expected, then of course the "back room shenanigans" you refer to would not have been necessary. The fact remains that the stated philosophy WAS ardently Buffett-based, and that this was another investor in whose hands it failed. He had risen to prominence, incidentally, because during the dotcom period his approach worked well: he DID find "value" then, but claimed, indeed, that none was to be found once the bull market got underway.

resillent1

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Tuesday, April 15, 2008 - 10:12 am:

Ody

I like the Bernard Baruch quote

"Every man has a right to his opinion, but no man has a right to be wrong in his facts.

ody

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Tuesday, April 15, 2008 - 10:34 am:

CAT LADY: BUFFETT GENERALLY

A useful post, cat lady. You say (among other things): 'he [Buffett] may have done this [buying undervalued stocks] initially, but he diverged from this theory years ago when he decided that he wanted to buy "quality" stocks at prices he found acceptable. I think it's his ability to assess risk and value companies which gives him the advantage.'

I think that may well be right! Certainly the kind of consistent "value buying" that he has insisted on in theory has proved extremely difficult in the hands of many followers. If you ARE right in your view of him, then the problem may be that the acolytes do something that Buffett once could do with success because circumstances were different, and that they are actually out of synch with a market where that theory now no longer works nearly as effectively as it once did - EXCEPT during such periods as a late bear market just about to go bullish, when "value" stocks often do perform well. Amongst major fund managers Perpetual and Investors Mutual, for example, have shown that. That is also why Metanomski (an absolute theoretician with dogmatic Buffett views) "scored" then, and would not have done so afterwards.

But are you sure that Buffett demonstrably SEES himself as doing what you describe? If so, he is really in philosophy no different from many sensible investors. That is of course what a good fundamental investor SHOULD do: buy "quality" stocks at prices that are acceptable. The only argument (among fundamentalists) would then become whether you hold on to those companies at all times, as Buffett followers tend to argue, or handle them more flexibly, as people like Rudy and I do. Obviously, if you are exceptionally good in what you do in the way that Buffett is, then you are likely to succeed with that method, as he has proven.

I could not do what Buffett has been able to do, and personally I like the Baruch statement which I quoted earlier: you try to buy stocks as best you can, but you sell your losing positions quickly, even if that were to mean that only 3 or 4 stocks out of 10 are winners. By quick selling of losers (losing slight amounts), and holding stocks that are gaining - for as long as they actually do that - you greatly increase your wealth, in my view. The winners, by being kept for as long as they rise, BY FAR outstrip the small losses made by the losers.

Most people who adopt this policy, I would suggest, make a good deal more than someone who merely holds on to stocks regardless (unless you are in the league of Buffett). If the market offers you a chance to exploit the fact that prices go up, and to protect yourself against its downside, why not do so?

eblode

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Tuesday, April 15, 2008 - 10:50 am:

Speaking of Barnard Baruch.
In 1927 he told my parents over dinner in Monte Carlo to get out of the market.
He said that he was converting all his cash into gold bars and placing them in a safety deposit box in an Alaskan bank as he feared the worst market crash is imminent. Two years later it came. My parents didn't take his advice. His nickname in America was "Advisor To the Presidents" as he was very closely attached to the White House.

Eugenio

ody

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Tuesday, April 15, 2008 - 10:56 am:

Resillent: facts and opinions

I have no quarrel with either Baruch's statement (absolutely correct, of course), nor with the