"Think, Act, and Invest Like Warren Buffett" -- A Gem

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

"Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Taylor Larimore » Thu Feb 07, 2013 6:43 pm

Bogleheads:

Think, Act, and Invest Like Warren Buffett is Larry Swedroe's 12th book (and his shortest) to help investor's reach their financial goals. These are valuable excerpts:

"The sad truth is that, while Buffett is widely admired, the majority of investors not only fail to consider his advice but also tend to do exactly the opposite of what he recommends."

"Remember, Wall Street benefits from the higher fees and greater commissions generated by active strategies."

"We have long felt that the only value of stock forecasters is to make fortune-tellers look good." -- Warren Buffett

"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees." -- Warren Buffett

"Whenever I am asked about my forecast for the economy or the market, my answer is always the same: 'My crystal ball is cloudy.'"

"Inactivity strikes us as intelligent behavior." -- Warren Buffett

Rebalancing, or the process of restoring a portfolio to its original compositions, is integral to the winning investment strategy."

"The market price already reflects all publicly available information."

"Because surprises are unpredictable and instantly incorporated into prices, you are best served by ignoring the news."

"If I sell now, how will I know when it is safe to buy again? This is the big problem for those who sell during crises."

"While the surfer can wait a day or two for the ocean to calm down, there is never a green flag saying it is safe to invest."

"Investing is simple, but not easy." -- Warren Buffett

"Emotions, such as fear and panic in bear markets and greed an envy in bull markets, cause even well-developed plans to end up in the trash heap."

"In order to be successful you must have a 'system,' a plan that determines your asset allocation based on your unique ability, willingness, and need to take risk."

"Given the tens of thousands of professionals (and millions of individuals) engaging in the effort to beat the market, we should expect some to randomly succeed even over long periods of time."

"Fortunately, there is a large body of evidence on the inability of active management to deliver alpha: performance above appropriate risk-adjusted benchmarks."

"Intelligence does not translate into higher returns. The Mensa (the high IQ society) investment club under-performed the S&P 500 Index by almost 13 percent per year for 15 years."

"Investors are unaware of how poorly they are doing. A study on the subject found investors over-estimated their own performance by an astounding 11.5 percent a year."

"Morningstar found that expense ratios were a better predictor than its star rating."

"Evidence is overwhelming that passive investing is the winner's game. Active management is the loser's game because the odds of winning are so low that it is not prudent to try."

"To get to the net returns (before tax), we must subtract all costs: operating expenses, trading costs, bid-offer spreads, brokerage commissions, market impact cost, and the cost of cash."

"The old and wise saying holds true: 'Those who fail to plan, plan to fail.'"

"You cannot properly evaluate any single investment without considering how its addition affects the risk and expected return of your portfolio, and thus the odds of achieving the plan's objectives."

"Keep in mind that your investment horizon extends well beyond your planned retirement date. And it may even extend beyond your death if you are investing on behalf of your heirs."

'Have you saved enough? If so, why continue taking risk? Far too many investors fail to understand that the strategy to get rich is entirely different from the strategy to stay rich."

"It is important to develop a contingency plan in case your portfolio fails to deliver the returns that your plan anticipated."

"A written IPS (Investment Policy Statement) serves as a guidepost and helps provide the discipline needed to adhere to a strategy over time."

"When we are young, human capital is at its highest point. It is also often the largest asset individuals have when they are young."

"Unfortunately, far too many people follow Peter Lynch's advise to "buy what you know." The result is that they invest heavily in the stocks of their employers."

"A good rule of thumb is to have a reserve to cover six months of ordinary expenses."

"It is important not to take more risk than your stomach can handle. And besides, life is too short not to enjoy it."

"Your first decision is to determine how much of an allocation you will have to riskier stocks versus bonds."

"The higher expected returns of small-cap and value stocks are not a free lunch; they are compensation for accepting incremental risk."

"Since diversification is the only free lunch in investing, you might as well eat a lot of it."

"Bonds have two risk factors: term (number of years to maturity) and default (credit). The longer the term to maturity and the lower the credit rating, the greater the risk and expected returns."

"The central role of bonds in a portfolio should be to dampen the risk of the overall portfolio to an acceptable level."

"A common element of alternative investments (beyond stocks and bonds) is that Wall Street typically makes a lot of money as the purveyors of these products. The good news is that, with the exception of real estate and commodities, the academic research demonstrates that you should not even consider owning any of the other alternatives."

"Taxable investors should have a preference for holding stocks (versus bonds) in taxable account."

"Before investing any taxable dollars, investors should always first fund their Roth IRA and deductible retirement accounts. -- The one exception is the need to provide liquidity for unanticipated funding requirements."

"The risks of individual stock ownership can be easily diversified away by owning index funds that basically own all the stocks in an entire asset class/index."

"Investing in individual companies and only one or a few asset classes has more in common with speculating than it does with investing."

"Even when individuals invest in mutual funds, they typically do not diversify effectively because they make the mistake of thinking that diversification is about the number of funds they own."

"The lowly postage stamp does only one thing, but it does it exceedingly well: it sticks to its letter until it reaches its destination. You must also stick to your investment plan until you achieve your investment goals."

"The rebalancing process is simple, though not easy. This is because emotions can get in the way."

"Another benefit of rebalancing is that over time it will produce a bonus. The reason is that when you rebalance you will be buying at lower lows and selling at higher highs."

"Rebalancing may cause transaction fees to be incurred, and it may also have tax implications."

"A strategy to consider is to have distributions paid in cash, rather than automatically reinvested, and use the cash to rebalance."

"Consider delaying rebalancing if it generates significant short-term capital gains.-- Wait until the gains qualify as long-term"

"Portfolios should be checked regularly (at least quarterly) to determine if there are opportunities to harvest losses."

"Shares of a fund should not be purchased just prior to the date of record for dividend payments to shareholders."

"You should consider working only with a (advisory) firm whose investment strategy and advice is based on the science of investing, not on opinions."

"Remember that while good advice doesn't have to be expensive, bad advice almost always will cost you dearly, no matter how little you pay for it."

"Investors following an active management strategy spend much of their precious leisure time watching the latest business news, studying the latest charts, reading financial trade publications and so on."

"Investing was never meant to be exciting."

"Never invest in any security unless you full understand the nature of all of the risks."

"The more complex the investment, the faster you should run away. -- Simple is better."

"If the security has a high yield, you can be sure the risks are high even if you cannot see them."

"A well-designed plan is necessary for successful investing, but you must also have the discipline to stay the course, rebalance, and tax manage as needed."

"Do not treat the highly improbable as impossible or the highly likely as certain."

"The consequences of decisions should dominate the probability of outcomes."

"The safest port in a sea of uncertainty is diversification."

"Before acting on seemingly valuable information, ask yourself why you believe that information is not already incorporated into prices."

"Getting caught up in the mania of the 'new thing' is why 'the surest way to create a small fortune is to start out with a large one' is a cliche."

"If it sounds too good to be true, it is."

"Never work with a commission-based investment advisor."

"Hope is not an investment strategy. Base your decisions on the evidence from peer-reviewed academic journals."

There is nothing new in investing, just the investment history you do not know."

"My fondest wish is that this book has led you to the winner's game in both investing and, far more important, life."


Thank you, Larry Swedroe.

More Investment Gems

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby stemikger » Thu Feb 07, 2013 6:51 pm

Thank you Taylor. I will be sure to check out these Gems. I'm looking forward to purchasing this book.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby MathWizard » Thu Feb 07, 2013 6:59 pm

I liked these. My personal favorite was:

Don't pick up nickels in front of steamrollers.

Just such an image this evokes.

I think this was in reference to Long-Term Capital Manangment
(where I guess long term meant about 4 years total for this company).
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Thu Feb 07, 2013 7:16 pm

MathWizard
Not exactly the right reference. This refers to strategies that are the reverse of lottery tickets in terms of their distribution of returns. Lottery tickets have excess kurtosis (fat tail) and are positively skewed (the returns to the right of the mean are fewer but further than the ones to the left). The nickels in front of steam rollers refers to strategies that hit lots of singles (so high batting average) and then one day blow up and the losses wipe out all the gains and then some. LTCM got burned by way too much leverage and straying from their original arbitrage strategy and moved on to thinking they could make bets on outcomes.

What I am referring to are things like writing out of the money puts on the stock market. For many years you can make nice returns (especially if you leverage) and then one day the black swan appears and you are more than wiped out. The good news for the manager is he gets to keep those 2/20 fees he made all along but the investor is wiped out. There are other strategies that have that TYPE of characteristic/. One that comes to mind is the carry trade. Long/short momentum might be another. Doesn't mean they are necessarily bad investments but you must be aware of that fat tail risk which can show up at the worst of times


Best wishes
Larry
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Tonen » Fri Feb 08, 2013 7:57 am

"Remember that while good advice doesn't have to be expensive, bad advice almost always will cost you dearly, no matter how little you pay for it."


I wonder if that may be better put as "no matter how much you pay for it"? I think it likely more people are sucked into Wall Street's game by the general rule of thumb that "if its more expensive, it's probably better".
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Exeter » Fri Feb 08, 2013 10:06 am

Thanks! Great advice as always. I printed this, will post it in my home office and made myself a promise to read every one before making any decisions about my investments.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Stryker » Fri Feb 08, 2013 3:40 pm

How can I invest like Warren Buffett? He had an unfair advantage. In my thirty plus years of investing, I've never used leverage, and don't plan to start now. His mentor, Benjamin Graham used leverage in the late 20's and early 1930's and almost got wiped out. Ben never did that again.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Fri Feb 08, 2013 3:55 pm

styrker
That is stated in the beginning of the book, that you cannot invest exactly like him but you can follow his advice and his behaviors (in that way you can invest like him), like ignoring forecasts and not trying to time the market.

Best wishes
Larry
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Beagler » Fri Feb 08, 2013 3:58 pm

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

Warren Buffett
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby EternalOptimist » Fri Feb 08, 2013 4:08 pm

Thanks Taylor, which one is your favorite :?:
"When nothing goes right....go left"
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby foxfirev5 » Fri Feb 08, 2013 4:37 pm

Beagler wrote:"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

Warren Buffett

Interesting :?
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Stryker » Fri Feb 08, 2013 4:53 pm

larryswedroe wrote:styrker
That is stated in the beginning of the book, that you cannot invest exactly like him but you can follow his advice and his behaviors (in that way you can invest like him), like ignoring forecasts and not trying to time the market.

Best wishes
Larry


Hi Larry,

I've ignored market forecasts since 1981, when Joe Granville predictions were in vogue, and other fortune tellers were telling investors to load up on gold and other precious metals. As for market timing, I know I can't do it, so I don't bother even trying. The one thing I do know how to do is allocate capital, and that's usually to the asset class that's most neglected, much like in value investing.

By the way, I'm not ignoring your book, which I look forward to reading one day (just as soon as the library up here decides to order a copy).
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Fri Feb 08, 2013 4:55 pm

Beagler
That is one where I would disagree with Buffett, but then again I don't see Buffett when I look in the mirror
Best wishes
Larry
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Taylor Larimore » Fri Feb 08, 2013 5:07 pm

EternalOptimist wrote:Thanks Taylor, which one is your favorite :?:


I went back and read all the quotes. They are all so good that it is difficult to pick a "favorite." However, never one to knowingly avoid a question, I will pick this subtle "gem":

"Investing is simple, but not easy." -- Warren Buffett

Best wishes.
Taylor
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby dratkinson » Fri Feb 08, 2013 6:28 pm

(Removed old-PC copy issue.)

Wanted to say what a great collection of quotes. Never knew so much of BH philosophy was expressed by Buffett. Copied list to my the backup information supporting my IPS as my off-line BH tutorial.
Last edited by dratkinson on Mon Feb 11, 2013 3:08 pm, edited 1 time in total.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Beagler » Fri Feb 08, 2013 6:33 pm

Larry, I note the title of the book and the disconnect with the Buffett quote I posted. Most of us CANNOT invest like Warren Buffett. Doesn't Mr. Buffett "think" about the next acquisition or sale of a specific stock or company? Aren't his investment "actions" far different than a passive investor?
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby mike143 » Fri Feb 08, 2013 6:50 pm

"A strategy to consider is to have distributions paid in cash, rather than automatically reinvested, and use the cash to rebalance."

Can someone expand upon this quote and its reasoning?
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby foxfirev5 » Fri Feb 08, 2013 7:56 pm

Taylor Larimore wrote:
EternalOptimist wrote:Thanks Taylor, which one is your favorite :?:


I went back and read all the quotes. They are all so good that it is difficult to pick a "favorite." However, never one to knowingly avoid a question, I will pick this subtle "gem":

"Investing is simple, but not easy." -- Warren Buffett

Best wishes.
Taylor


Taylor,
I'm a little surprised at this quote. I agree that investing is simple, but wonder why it would not be easy. Of course this coming from a very fortunate investor who believes in diversification - ie someone who doesn't know what they are doing according to one of the above WB statements.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Taylor Larimore » Fri Feb 08, 2013 7:59 pm

mike143 wrote:"A strategy to consider is to have distributions paid in cash, rather than automatically reinvested, and use the cash to rebalance."

Can someone expand upon this quote and its reasoning?


Mike:

This article in our wiki should answer your question:

Whether to Reinvest Dividends in a Taxable Account

Best wishes.
Taylor
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby dharrythomas » Fri Feb 08, 2013 9:20 pm

Thanks Taylor and Larry.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Fri Feb 08, 2013 10:26 pm

foxfirev5
The winning strategy is simple. It's not easy because emotions like fear and panic during bear markets and greed and envy in bull markets and tracking error can cause even well thought out plans to end up in the trash heap of emotions. See it all the time.

Beagler
First, the choice of the title wasn't mine. In fact we use our own version with the title Playing the Winner's Game in Life and Investing. The publisher decides on the title and that is what they chose.
I address the issue you raised very specifically in the opening of the book and it then makes clear what Buffett is recommending YOU, the individual investor, do.

Quoting from the book

Before reviewing Buffett’s advice, it is important to note that he knows that you cannot invest exactly like he does. You cannot buy entire companies and incorporate them into Berkshire Hathaway, nor can you negotiate special deals during crises, when companies such as Goldman Sachs are willing to pay “top dollar” to have Warren Buffett invest. However, you can follow his advice as to the right investment strategy. As you read Buffett’s advice ask yourself if you have been practicing what he preaches.


And I spend a chapter teaching investors to do stage two thinking instead of stage one thinking, which is IMO one of the most important reasons Buffett has been successful, allowing him to buy when others are panicked selling (which investors can do simply by rebalancing).

Best wishes
Larry
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"Investing is simple, but not easy."

Postby Taylor Larimore » Fri Feb 08, 2013 11:09 pm

"Investing is simple, but not easy." -- Warren Buffett

Taylor, I'm a little surprised at this quote. I agree that investing is simple, but wonder why it would not be easy.


Firefox:

According to Larry and Mr. Buffett, the primary reason investing is not easy is because we let emotions get in the way.

It is estimated that Wall Street (financial firms and services, advisers and salepeople) spends millions, probably billions of dollars a year trying to convince us to change our portfolios and use their products and services. The result is that Investors are irresistibly drawn to the current hot performing funds, hot public offerings, momentum strategies and investment fads.

Marketers and our gambling instinct make it tempting to day-trade and perform technical analysis with readily available stock charts and elaborate spreadsheets. Brokers and advisers know it is to their advantage to make investing appear too complicated for investors to do themselves. Nearly every investment company, newsletter, book, TV commentator, magazine and what-have-you, tempt us with claims that they have a superior way to "beat the market."

Our mentor, Jack Bogle offers us his "Twelve Pillars of Wisdom". These are the first two Pillars:

Pillar #1: "Investing Is Not Nearly as Difficult as It Looks."
Pillar #2: "When All Else Fails, Fall Back on Simplicity.

Jack writes:
There are an infinite number of strategies worse than this one: Commit, over a period of a few years, half of your assets to a stock index fund and half to a bond index fund. Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infrequent and marginal adjustments as your circumstances change. When there are multiple solutions to a problem, choose the simplest one.

http://www.vanguard.com/bogle_site/april272001.html

Yes, Investing is simple--but it is not easy.

Best wishes.
Taylor
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Beagler » Fri Feb 08, 2013 11:15 pm

Larry, thank you for the explanation. I look foward to reading your new book.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby baw703916 » Sat Feb 09, 2013 4:12 pm

A few thoughts

All of us can invest like Warren Buffett--just buy BRK, in which WB has said he has over 99% of his assets. That doesn't mean we should though. He won't be running things forever, and we don't know who his successor will be or if that person will have the same degree of success.

I'm pretty convinced that investing is both simple and easy for WB, at least from an emotional standpoint. Didn't he write a column in early 2009 saying that it was an ideal time to invest in equities? "Be greedy when others are fearful", etc.

I guess my advice would be that rather than to emulate Mr. Buffett's particular investment approach, it would be more useful for most investors to adopt his emotional makeup, particularly about investing and risk. If you aren't willing to take risks, you will earn the risk-free rate, and no more.

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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Sat Feb 09, 2013 6:01 pm

Brad
That is basically what the two chapters in the book that discuss Buffett cover, including one on learning to think like him, the rest is focused on taking his advice on active vs. passive, timing the market and paying attention to forecasts. For example, Buffett states to avoid market timing but if going to do so buy when others are selling, which is exactly what you're doing if you rebalance.

Best wishes
Larry
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby hpowders » Sun Feb 10, 2013 2:25 pm

I choose to rebalance once a year. It's simple, even though it won't produce the best results. :happy
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby hpowders » Sun Feb 10, 2013 2:27 pm

Let me tell you, BRK will take quite a plunge on Buffett's demise. Who knows how much "Buffett Premium" is built into BRK? My guess is quite a lot!
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Bustoff » Sun Feb 10, 2013 3:38 pm

If Warren Buffett had a substantial amount of cash he wanted to deploy into the three fund portfolio, would Warren Buffett:
1) dollar-cost-average
2) lump sum right now
3) wait until others are fearful, then buy.
4) none of the above. He would call Swedroe and have BAM handle everything.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby MP173 » Sun Feb 10, 2013 4:06 pm

I believe he said something like "it is better to buy great companies at good prices than good companies at great prices."

Correct me if that is incorrect.

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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby hazlitt777 » Sun Feb 10, 2013 4:09 pm

Should we be dumping stocks too as he is, or at least lowering our allocation?

At least this article claims W. Buffett is.
http://www.moneynews.com/MKTNews/billio ... ce=taboola

I think Warren has inside information and isn't the best example for us to follow.

That being said, the quotes by Taylor seem solid...I especially like the friendly nod toward commodities, which makes sense since Buffet owned some silver, at least he did.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby baw703916 » Sun Feb 10, 2013 4:15 pm

I think it's unlikely Buffett would base any financial decisions on a news article he saw on the internet.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Munir » Sun Feb 10, 2013 4:28 pm

Beagler wrote:"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

Warren Buffett


How do you know that you "know" what you are doing?
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Why I diversify.

Postby Taylor Larimore » Sun Feb 10, 2013 4:33 pm

"Diversification is a protection against ignorance.


That's why I diversify. As Larry Swedroe would say, "My crystal ball is cloudy."

Best wishes.
Taylor
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Re: Why I diversify.

Postby Munir » Sun Feb 10, 2013 4:46 pm

Taylor Larimore wrote:
"Diversification is a protection against ignorance.


That's why I diversify. As Larry Swedroe would say, "My crystal ball is cloudy."

Best wishes.
Taylor


I agree. Taylor, as usual, cuts thru the "clouds".
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby cinghiale » Sun Feb 10, 2013 5:38 pm

First off, an excellent list of "gems" from what looks like an insightful and important book. Thanks to Taylor for picking out such a sweet selection and to Larry for the good work.

I liked this idea from GettingCloseNow:
I printed this, will post it in my home office and made myself a promise to read every one before making any decisions about my investments.

If you have read Kahneman's Thinking, Fast and Slow, you know the discussion on automatic and reflective thinking. To bring home these concepts, Kahneman uses the illustration of someone who is anticipating going to an evening affair. Said person has determined to (take your pick) not go for a second of helping of food or not have a second, or third, glass of wine. At home, making silent vows, hours before the event, is pure reflective thinking. It is a dispassionate appraisal of the past ("whoa... last time I ate so much that I couldn't move... I got a wee bit too tipsy... at one of these events") and a clear-eyed assessment of the near future ("therefore, I will fill one modest plate... limit myself to a single six ounce glass... and leave the party if I get tempted").

You know where this is going. At the party, the music, the conversation, the conviviality, the aromas, and the sight of everyone else enjoying themselves without restraint send the reflective mind packing and open the door to automatic thinking. All is spontaneity, enjoyment, passion, and pleasure. And, three piled high platters and four "heavy pours" later...

So, hanging out here in the forum is an exercise in wallowing in the reflective. Plenty of distance, objectivity, sound reasoning from Larry's pen, and the reinforcement of other like minds. But then next week, alone in front of the stock chart, looking at the lovely upward trajectory of the stock that cousin Benny keeps crowing about?

I like the idea of copying the gems, posting them over my laptop, and using them as a reality check if the urge ever hits and automatic thinking rears it's tempting head.

Now, time for a refill of vino rosso. :wink:
-- Cinghiale | | "We don't see things as they are; we see them as we are." Anais Nin
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Bustoff » Sun Feb 10, 2013 6:05 pm

Any pension funds using the 3-Fund portfolio ?
Seriously, why don't huge pension funds use a simple 3-fund approach. Are they smarter than us ?
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Taylor Larimore » Sun Feb 10, 2013 6:33 pm

Bustoff wrote:Any pension funds using the 3-Fund portfolio ?
Seriously, why don't huge pension funds use a simple 3-fund approach?

They should.
"If, over the past 10 or 20 years, you had simply held a portfolio consisting of one quarter each of indexes of large U.S. stocks; small U.S. stocks; foreign stocks; and high quality U.S. bonds, you would have beaten over 90% of all professional money managers and with considerably less risk." -- Bill Bernstein in Four Pillars of Investing

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Taylor
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby EyeYield » Mon Mar 18, 2013 7:28 pm

Seriously, why don't huge pension funds use a simple 3-fund approach. Are they smarter than us ?

If they did that, what would all those fund managers do for work? And all those brokers, in the full service broker branches that would have to close, what would they do?
Oh, of course, :oops: they could sell all those used yachts.......
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Mon Mar 18, 2013 8:55 pm

eyeyield
The problem is really that the pension plan managers have THEIR self interest at heart, not that of their employer or the taxpayers or the beneficiaries.
They need to promote active management as the winning strategy so there needs to be someone there to monitor the active managers!!!! Hire and fire them.
Recommending passive funds is committing economic suicide, something few people will do without a push (besides they would miss all the sporting events and dinners that the active managers treat them to)
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby Bulldawg » Mon Mar 18, 2013 9:13 pm

Larry,

What do you think of Buffett's " superinvestors of graham and doddsville " speech at Columbia many years ago ?
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby EyeYield » Mon Mar 18, 2013 10:29 pm

larryswedroe wrote:eyeyield
The problem is really that the pension plan managers have THEIR self interest at heart, not that of their employer or the taxpayers or the beneficiaries.
They need to promote active management as the winning strategy so there needs to be someone there to monitor the active managers!!!! Hire and fire them.
Recommending passive funds is committing economic suicide, something few people will do without a push (besides they would miss all the sporting events and dinners that the active managers treat them to)
Best wishes
Larry

Larry,

I can only surmise, from your response, that you believe I have a genuine concern for the managers that perpetuate the notion of active (expensive) management.

To clarify, I was being facetious. We're in agreement.
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Re: "Think, Act, and Invest Like Warren Buffett" -- A Gem

Postby larryswedroe » Mon Mar 18, 2013 11:14 pm

eyeyield
Of course I know you were being facetious, but I was pointing out why they will continue to push for active strategies, in spite of the evidence

Bulldawg
try this for your answer

http://www.cbsnews.com/8301-505123_162-57524029/how-warren-buffett-beats-the-market/
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