“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

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