The 5 Most Overrated Value Investors
Posted by: admin in VIDEOS, tags: Bill Miller, Ezra Melkin, investing, investment advice, investment ideas, Mohnish Pabrai, stock market, value investing, Warren Buffett“Buy and hold, Mr. Market will correct itself!”. If anyone out there tries to have a conversation with a value investing friends and it seems to turn into a religious or cult like debate. Send them over to watch this video.
Why did value investing fail so much this year? Why does it hurt so bad? Well, it only takes one horrific year to wipe out 5 years of “Mr. Market correcting to intrinsic value”. Why so much pain this time around? Well, how long ago did the baby boomers start retiring? Hmm…how about 5-7 years ago. Throw in the fact that the baby boomers are the most active retirement generation ever, they probably let their investments ride in “safe” managers like Warren Buffett, Mohnish Pabrai, Bill Miller, and Ezra Melkin.
I mean, if you buy something at a discount to intrinsic value, how much farther can it go down? The whole reason you are buying the stock is that it is already beaten down, so haven’t we limited our downside?
Problem #1. Mr. Market can take a very long time to correct
Problem #2 Time cost money, in order to stay with your value investments you need cash
Problem #3 What if Mr. Market doesn’t correct to historic valuation, but instead is efficient in telling you the company you just bought a discount, is at a DISCOUNT for a reason.
Problem #4 Value investors usually have a strict rule on when to sell, like a company reaching intrinsic value or once they get a 10% return on investment. They never usually “let it ride”. So when they have a year where they lose 45%, they don’t have the upside to get it back very quickly. Unlike sector funds like biomedical or technology funds, you may have a -34% on year, but the next could be up 40%.
I thought the song “When I’m Right….I’m Right” by Slotmachine was perfect for this video.
The song is used with full permission and was very enjoyable to the band!
Update on January 27th…
Just to let everyone know I am not the only bat in the bellfry..
http://seekingalpha.com/article/116331-berkshire-hathaway-failing-business-model-points-to-a-35-decline?source=front_page_short_ideas#comment-368064
Entries (RSS)
January 27th, 2009 at 3:41 am
Warren is Great because he understands compassion and charity. Look at his take home, I’ve certainle made less, but took a lot more than that! Warren’s strategy may be outmoded, which remains to be seen, but he has put in his time and made a better world of it that he was there. He can die sucessful, even if he ends up broke.
He won’t, of course.
January 27th, 2009 at 3:49 pm
I think Warren would admit to Becky on CNBC when the cameras are off that he didn’t see the serverity of this financial crisis coming. Just like everyone else, he got blindsided to the depth of this problem. His play on GS will take awhile to come back since leverage will be taken away from the brokerage houses. I am still trying to get a feeling for AMEX right now. They applied to be a bank holding company, got approved, and then release numbers today that say the “only” had a net income of $172 million…in the LAST 90 DAYS! How do you “cry uncle” with the left hand and then with the right hand you have a NET income of $172 million in 90 days. Granted, it was over 79% off from the previous year, but $172 million in net income is still nothing to sneeze at in these times.
The RR plays are going to be the next to go down the tubes for now. If you check out the WSJ on 1/27/09, section C1 there is a write up about oil and why RR profits are about to take a long hit. They say don’t be fooled by Norfolk Southern and the dividend raising, it is a lagging indicator due to oil prices.
I have become the new Doug Kass! Just kidding!
Will Warren be right? Yes. Will it take 10 years or so depending on 5000 factors. Maybe. If you have 10 years, great. If you have enough capital to allow BRKA to float around up or down 10% in price for a year or two, then you should be fine.
The one thing that still gets me a little crazy is hearing he doesn’t use a computer or calculator to do his investments. He has a nice size derivative position that has blown up on the balance sheet. How or why did he take this position if he doesn’t undertand these complex financial instruments. People with complex computers and calculators can’t figure out what they are worth. If he didn’t understand it, and ran through his rules of investing, why did he take them on and buy them?
He is much smarter and more sophisticated then he lets on during his interviews. He plays like Huck Finn in interviews, but he is way sharper in real life.
February 15th, 2009 at 4:12 pm