The Many Myths of Warren Buffett

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The Many Myths of Warren Buffett

Postby Redstorm » Fri Jul 26, 2013 7:15 am

An interesting read here

Make of it what you will

http://pragcap.com/the-many-myths-of-warren-buffett

But in digging deeper I realized that Warren Buffett isn’t just this value stock picker that he is widely portrayed as. What he has built is far more complex than that.

In reality, he formed one of the original hedge funds (The Buffett Partnership Ltd) and used his gains to one day purchase Berkshire Hathaway. His evolution into the value investor we now think of today has been long in the making. Make no mistake, Buffett is a hedge fund manager. Yes, he comes from the ilk of the oft vilified and awful hedge fund clan. Today, he hides behind the curtain of incorporation, but in many ways Buffett hasn’t changed one bit since his Partnership days.
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Re: THE MANY MYTHS OF WARREN BUFFETT

Postby abuss368 » Fri Jul 26, 2013 7:25 am

That was an interesting article indeed.

Thanks.
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Re: THE MANY MYTHS OF WARREN BUFFETT

Postby JoMoney » Fri Jul 26, 2013 8:05 am

Meh... Just because he's often sitting around waiting for a fire-sale doesn't mean he's not a value investor... he's just a deep discount cut-throat value investor.

"Buffett likes for you to think that he just picks up an SEC filing, makes a phone call and seals the deal before he purchases a stock"
I've never heard him say anything like this. He does a lot of deep research on the businesses he invests in and makes no claim otherwise. Buffet even suggests most people would be better off purchasing a low-cost index fund. Maybe the title is accurate in that the author is trying to create some "myths" ?
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Re: THE MANY MYTHS OF WARREN BUFFETT

Postby bottlecap » Fri Jul 26, 2013 8:45 am

JoMoney wrote:Meh... Just because he's often sitting around waiting for a fire-sale doesn't mean he's not a value investor... he's just a deep discount cut-throat value investor.

"Buffett likes for you to think that he just picks up an SEC filing, makes a phone call and seals the deal before he purchases a stock"
I've never heard him say anything like this. He does a lot of deep research on the businesses he invests in and makes no claim otherwise. Buffet even suggests most people would be better off purchasing a low-cost index fund. Maybe the title is accurate in that the author is trying to create some "myths" ?


The article actually states says he's not a "pure" value investor and then goes on to state why. The article also acknowledges that he does his homework, so you are not quite being accurate with your characterization of the article or the title. I don't know what exactly WB wants us to think, but he certainly doesn't advertise the information contained in the article, assuming it is true. If it is, it's an interesting read.

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Re: THE MANY MYTHS OF WARREN BUFFETT

Postby JoMoney » Fri Jul 26, 2013 8:54 am

bottlecap wrote:The article actually states says he's not a "pure" value investor and then goes on to state why. The article also acknowledges that he does his homework, so you are not quite being accurate with your characterization of the article or the title. I don't know what exactly WB wants us to think, but he certainly doesn't advertise the information contained in the article, assuming it is true. If it is, it's an interesting read.

JT


It is an interesting read. And truly, I don't know what WB (or the author) wants us to think. Just one more reason to be diversified and not have all your eggs in one basket - even in W.B./Berkshire Hathaway.
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Re: THE MANY MYTHS OF WARREN BUFFETT

Postby nisiprius » Fri Jul 26, 2013 9:04 am

Interesting, although I think it's a bit of a straw man, in that nobody ought to believe those myths, and nobody who's actually paying attention believes them. To be fair, Buffett (and his organization) are not their source. The myth of Buffett as a stock-picker is mostly promulgated by other people, often people selling schlocky books, newsletters, or advisory services. "The existence of Warren Buffett proves there are people who can pick stocks, ergo we can pick stocks."

And I'm not sure that it clarifies things to label The Buffett Partnership Ltd as a "hedge fund." Sounds a little like name-calling to me.
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Re: The Many Myths of Warren Buffett

Postby johnubc » Fri Jul 26, 2013 9:30 am

Meh - not much to the article. Was/Is he a hedge fund manager - his profit was 25% of the profit after a 6% return - today's hedge fund manger makes money win or lose (2 and 20).

He is a shrewd business man who has taken risk and made investments - when he thought there was value. Buffett has recently said that BH is getting to large to be able to generate the same returns as in the past, as he has to deploy more capital to move the needle.
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Re: The Many Myths of Warren Buffett

Postby bulbul » Fri Jul 26, 2013 10:20 am

Warren Buffett actually thinks more than 90% retail investors should index and do not trade. The author greatly misunderstood WB and his investing philosophy.
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Re: The Many Myths of Warren Buffett

Postby nisiprius » Fri Jul 26, 2013 10:58 am

One of the curious things is that due to Buffett's praise of Graham and Dodd, I think it is true that as the article suggests he is often perceived as someone who succeeds through Graham-and-Dodd-style analysis. However, in 1976, Graham himself said:
In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost.
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Re: The Many Myths of Warren Buffett

Postby magician » Fri Jul 26, 2013 11:32 am

Warren Buffett isn't afraid of the dark; the dark is afraid of Warren Buffett.

Oh, wait . . . that's somebody else.
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Re: The Many Myths of Warren Buffett

Postby bulbul » Fri Jul 26, 2013 11:54 am

nisiprius wrote:One of the curious things is that due to Buffett's praise of Graham and Dodd, I think it is true that as the article suggests he is often perceived as someone who succeeds through Graham-and-Dodd-style analysis. However, in 1976, Graham himself said:
In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost.


Buffett used to follow Graham style and he touted it as 'cigar butt' approach. Later he stopped doing it mostly under the influence of Charlie Munger and Philip Fisher.
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Re: The Many Myths of Warren Buffett

Postby MathWizard » Fri Jul 26, 2013 12:52 pm

Buffet shut down his (17 I think) Partnerships in the late 60's to early 70's because he
could no longer generate extra return though value investing (the cigar butt approach).
Many of his partners did not want him to shut them down since they had made so
much money. He directed them to other companies like the Sequoia Fund.

He still likes a good value, but now he really just wants to buy well run businesses
and he needs to buy most whole since BH has so much money. Of course, then he
is essentially taking them private, since BH is the only one holding the stock, and
he does not want to sell.
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Re: The Many Myths of Warren Buffett

Postby exeunt » Fri Jul 26, 2013 1:36 pm

It's a bad article.

1) "Ironically, Buffett Partners charged 25% of profits over 6% in the fund."

The details made it an insanely good deal. A 2-20 hedge fund would need a gross return above 22% to offer a higher after-fee return than it would under a Buffett-like fee arrangement. And Buffett ate all the losses, with no guaranteed fee. Not only that, but he was dealing with a much smaller capital base, which makes hedge funds with billions of dollars under management look positively piggish.

2) The article insinuates that Buffett doesn't preach what he advocates on several dimensions. First of all, none of his descriptions of Buffett's investments violates the notion of "value investing", which Buffett simply defines as buying things below their intrinsic values with a substantial margin of safety. Second, the public backlash from Dempster Mill traumatized Buffett, and he has been incredibly loath to do anything similar again. Third, describing Berkshire as one of the most complicated financial businesses in the world is a stretch--Buffett's derivatives bets are few and simple, and merely another type of insurance business, whereas a typical bank's derivatives books is worth trillions of dollars spanning many thousands of contracts. When Berkshire bought General Re, Buffett sold off its massively complicated derivatives business.

The point that not anyone can be a Buffett is obvious and doesn't really need repeating.
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Re: The Many Myths of Warren Buffett

Postby abuss368 » Fri Jul 26, 2013 2:29 pm

I am presently reading "The Snowball" (all 900 pages that is).
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Re: The Many Myths of Warren Buffett

Postby Redstorm » Fri Jul 26, 2013 6:17 pm

abuss368 wrote:I am presently reading "The Snowball" (all 900 pages that is).


Looks like a great book

Buffett's story is fascinating

A friend was telling me they recently read an article on Buffett where it discussed the numbers on his investment returns along with the returns from his structures. In short it said that where a large portion of his returns apparently come from, is from the tax structures he uses?

I've asked for a link to the article so I can post here
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Re: The Many Myths of Warren Buffett

Postby Redstorm » Fri Jul 26, 2013 6:21 pm

On a side note

Whatever happened to the Rothschilds, Rockefeller's, Carnegies', Schiffs etc and why do they not feature on the Forbes Worlds Richest Lists?
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Re: The Many Myths of Warren Buffett

Postby HenryPorter » Sat Jul 27, 2013 11:38 am

I've read a few books on WB. I think the one by his ex-DIL or someone, 'Buffettology' left the most breadcrumbs behind. The idea of metrics WB used, like return on equity and book value and current ratio, etc., I guess key statistics if you look on Yahoo finance stock look-ups, is something I still use as the first way to review a company. But I digress. I see WB on CNBC getting teased by Joe Kernan, like he is a lovable grandfather type. To me, the guy loves money. Lots of money. Guess that is how I see him. No myth. If you love money, or the chase to just accumulate it, you will do what works for you to get money. That is the message I get from WB. To me, the phrase"nothing personal, it is just business" sums up his life. Yeah, he is giving his wealth away. Can I have some of it?
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Re: The Many Myths of Warren Buffett

Postby pshonore » Sat Jul 27, 2013 12:51 pm

There was an interesting piece in last Saturday's WSJ about a couple who invested in one of WB's partnerships in 1961. They each invested $25K (a princely sum in 1961). He dissolved the partnership in 1969 and they received 14,800 shares of Berkshire Hathaway stock which then grew to a value of $780 million when they passed away in the 1990s. The article is really about a $135 million bequest they made to a Hospital which was subsequently squandered by the hospital.
http://online.wsj.com/article/SB1000142 ... 59720.html
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Re: The Many Myths of Warren Buffett

Postby Kalo » Sun Jul 28, 2013 1:23 am

HenryPorter wrote:I've read a few books on WB. I think the one by his ex-DIL or someone, 'Buffettology' left the most breadcrumbs behind. The idea of metrics WB used, like return on equity and book value and current ratio, etc., I guess key statistics if you look on Yahoo finance stock look-ups, is something I still use as the first way to review a company. But I digress. I see WB on CNBC getting teased by Joe Kernan, like he is a lovable grandfather type. To me, the guy loves money. Lots of money. Guess that is how I see him. No myth. If you love money, or the chase to just accumulate it, you will do what works for you to get money. That is the message I get from WB. To me, the phrase"nothing personal, it is just business" sums up his life. Yeah, he is giving his wealth away. Can I have some of it?


This gets my vote for most baffling post ever.

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Re: The Many Myths of Warren Buffett

Postby nisiprius » Sun Jul 28, 2013 8:57 pm

Redstorm wrote:On a side note

Whatever happened to the Rothschilds, Rockefeller's, Carnegies', Schiffs etc and why do they not feature on the Forbes Worlds Richest Lists?
Wikipedia: Rockefeller family. Note that the lead is all in the present tense:
The Rockefeller family /ˈrɒkɨfɛlər/ is an American industrial, political and banking family that made one of the world's largest fortunes in the oil business during the late 19th and early 20th centuries, with John D. Rockefeller and his brother William Rockefeller primarily through Standard Oil.[1] The family is also known for its long association with and financial interest in the Chase Manhattan Bank, now part of JPMorgan Chase. They are generally seen as one of the most powerful families in the history of the United States.
The combined wealth of the family – their total assets and investments plus the individual wealth of its members – has never been known with any precision.
This 1992 article refers to "[the Rockefellers'] fortune, which they currently estimate at $5 billion to $10 billion."

Forbes itself says "The Rothschilds, Rockefellers, Michelins and 35 other billionaire families don’t appear on the Forbes World’s Richest People list. Why not? It’s a question of degrees. We have tried to distinguish between fortunes that belong to individuals or nuclear families, and those that have been passed down through more than one branch of the family tree and are often shared by dozens of heirs."

Among others, they list:
  • Rockefeller Family: $8.5 billion United States 200 members
  • Rothschild Family: $1.5 billion United Kingdom, France At least 10 members
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Re: The Many Myths of Warren Buffett

Postby Redstorm » Mon Jul 29, 2013 7:01 am

Interesting Nisiprius

No where near the new rich then?

1. Carlos Slim Helu & family $73 Billion

2. Bill Gates $67 Bilion

3. Amancio Ortega $57 Billion

4, Warren Buffett $53.5 Billion
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Re: The Many Myths of Warren Buffett

Postby nisiprius » Mon Jul 29, 2013 1:06 pm

Well, let's see. In the roughest back-of-the-envelope way, using the "plot-a-mutual-fund-first" trick, it appears that Morningstar knows about BRK.A back to 1990, and in 23 years it has grown $10,000 to $274,884 while inflation means it takes $17,866 to equal $10,000 in 1990 buying power, so, roughly, 12.6% real per year.

So, a legendary investor can average 12.6%/year.

John D. Rockefeller began having little Rockefellers in 1866, and the Forbes article says there are 200 little Rockefellers today, so a legendary rich guy can achieve a natural rate of family increase of--200 fold in 147 years? That's only a 3.7% annualized rate of increase.

OK, scratch one theory. It's not failure of investments to keep up with familial "inflation."
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Re: The Many Myths of Warren Buffett

Postby Redstorm » Fri Aug 02, 2013 7:46 am

There's also

Warren Buffett: More myth than legend

A $10,000 investment in Berkshire Hathaway stock in 1965 would have grown to be worth nearly $30 million 40 years later, in 2005. That's about 60 times as much as you would have made if you'd invested $10,000 in the Standard & Poor's 500 Index and held it for those same 40 years. He makes it sound easy.

So, what's not to like about the way Buffett invests? Well, for starters, it doesn't always work.


Fifteen years ago, investors knew the stock had compounded at more than 34% since 1978. A $100 investment had grown to $36,200. I'm sure that many investors thought: "If I can earn half of that, I'll be happy."

Those who confidently bought the stock may be excused if they feel chagrined at having made a compound return of only 5.3% a year since then, according to Morningstar.

Those investors might understandably wish they had taken his advice instead of his portfolio. Buffett has repeatedly said that investors should use index funds instead of buying individual stocks.


When I looked back at the U.S. and international value funds offered by Vanguard and Dimensional Fund Advisors (DFA) that were in existence 15 years ago, I found that buying five DFA value funds would have earned an average return of 9.3%. Three similar funds at Vanguard compounded at 6.1% in that same period. (That's a 12% increase in return at much less risk.)


Continues...

http://www.marketwatch.com/story/warren ... genumber=1
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Re: The Many Myths of Warren Buffett

Postby Teetlebaum » Sat Aug 03, 2013 6:43 pm

Warren Buffett: Baptist and Bootlegger
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Re: The Many Myths of Warren Buffett

Postby stemikger » Sat Aug 03, 2013 8:51 pm

Warren Buffett is currently in a police chase. He is driving a white Ford Bronco. I'm not sure what he did or why they are after him. The entire chase is on T.V. It's fascinating to watch.
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Re: The Many Myths of Warren Buffett

Postby hazlitt777 » Sun Aug 04, 2013 12:29 am

My take on him is that he is quite well politically connected and that this gives him an edge with much of his investing. It may not have always been that way, but I take with a grain of salt what he says and does in these last years.

The rest of us should diversify and index.
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Re: The Many Myths of Warren Buffett

Postby JoMoney » Sun Aug 04, 2013 12:39 am

hazlitt777 wrote:My take on him is that he is quite well politically connected and that this gives him an edge with much of his investing. It may not have always been that way, but I take with a grain of salt what he says and does in these last years.

The rest of us should diversify and index.


Warren Buffett's dad was a Congressman. Not that I agree with your statement, but it's a fact.

Warren Buffet agrees regarding most people buying "AN" index fund,
"They should look very carefully at costs. But they should hold a diversified group of really high-class companies, which you can do by buying an index fund. And then they should forget it. They should just pretend the stock market closes for five years and they shouldn't look at prices every day... "

I wonder what he would say regarding the slice-and-dice rebalancing "indexing" that seems to be so popular...
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Re: The Many Myths of Warren Buffett

Postby stemikger » Sun Aug 04, 2013 10:24 am

Posted by JoMoney
wonder what he would say regarding the slice-and-dice rebalancing "indexing" that seems to be so popular...


I have a feeling he would feel the same was as Mr. Bogle does about it. He is not against it, but warns not to push too far because you may just fall short of capturing the index of the Total Market of the S&P. So in a nutshell they would recommend just sticking with the Total Market or the S&P 500.
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Re: The Many Myths of Warren Buffett

Postby stemikger » Sun Aug 04, 2013 10:27 am

hazlitt777 wrote:My take on him is that he is quite well politically connected and that this gives him an edge with much of his investing. It may not have always been that way, but I take with a grain of salt what he says and does in these last years.

The rest of us should diversify and index.


How would this give him an advantage?

If you watch the movie Too Big to Fail, he did certainly gain an advantage by buying Goldman Sachs at the price that he wanted. So if that is what you mean, I guess you are right. You do pay a premium to have Buffett buy a lot of your stock. Lehman Brothers on the other hand didn't agree and look where they are now.
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Re: The Many Myths of Warren Buffett

Postby hazlitt777 » Sun Aug 04, 2013 1:12 pm

stemikger wrote:
hazlitt777 wrote:My take on him is that he is quite well politically connected and that this gives him an edge with much of his investing. It may not have always been that way, but I take with a grain of salt what he says and does in these last years.

The rest of us should diversify and index.


How would this give him an advantage?

If you watch the movie Too Big to Fail, he did certainly gain an advantage by buying Goldman Sachs at the price that he wanted. So if that is what you mean, I guess you are right. You do pay a premium to have Buffett buy a lot of your stock. Lehman Brothers on the other hand didn't agree and look where they are now.


I don't want to get into it here. I can email some of the evidence I'm basing my opinion on to you if you are interested. It gets political so I'm not posting it here. I just say he is well connected to policy makers on both sides and so it gives him an edge.

I'm glad he speaks favorably about indexing and having a balanced portfolio...but I also think it is a big mistake and not totally honest that he denigrates gold...especially since he had taken a big position in commodities in the recent past, if he still doesn't hold it.

His father was a very big fan of the idea of sound money and the important role of gold in the monetary system... that doesn't prove anything...just interesting.
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