Merriman - Buffett is more myth than legend

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Here's what Paul Merriman has to say about Warren Buffett's investing acumen - you would have been better off in value index funds unless you'd gotten in on the ground floor when Berkshire was little known:

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.)

http://www.marketwatch.com/story/warren ... genumber=1

[LondonJimmy]

I didn't like the article. It is pretty simplistic and not accurate.

It says that Buffett's speciality is value investing. It isn't. Value investing is what Warren refers to the 'cigar butt apropach'. Where you search around for cigar butts and there is one puff left in it, you have it then move on to the next one...but it is free. You won't get rich that way but you can make a small amount.

Warrens skill is investing when he understands a business and can see where it will be in the future. The best buys for him has been where the numbers have told him not to buy, but he understood so much about the business that he felt very strongly about it. Those are the best buys, if you have that great skill.

[z3r0c00l]

Buffett has done well for Buffett, however. To his credit, he never told anyone to live off his stock, and he openly admits that individual investors should just own mutual funds.

It is true that many act as if he has some kind of business secrets or genius at play. In reality, he is a smart guy with the wealth to throw his weight around and own a whole company or a large piece of a company at the right time, like Bank of America when it was struggling. At that time he "nibbled" a few billion dollars in a deal that no individual could ever hope to get.

Although I usually roll my eyes when people lament the fact that the market is rigged, in his case, it sorta is. Or that is to say the uber wealthy are among the few for whom it makes sense to pick stocks.

[greg24]

This article is terrible.

[nisiprius]

This article is terrible.

It's hit-and-myth.

[Levett]

I guess Merriman needs a bit of attention--kinda like a mosquito on an elephant.

Buffett and Charlie Munger have made an awful lot of people very happy.

Lev

[pennstater2005]

Ahh, the green eyed monster.

[telemark]

Buffett thinks most investors should use index funds. Merriman thinks most investors should use index funds. I'm a small investor and I prefer index funds when I can get them. Not sure I see any real conflict here.

[Toons]

More Noise

[afan]

I saw an analysis a year or two ago from Insider Monkey that indicated Buffet had not earned a positive alpha for a long time- 10 or 15 years. I have not seen an update, so I don't know what it would look like now.

"He is a smart guy" I would say "obviously"

But there are lots of smart people trying to beat the market, and very few succeed. I don't know whether he is the smartest guy trying, or he got lucky and is smart enough not to screw it up.

In any case, I don't own BRK. The price is way too dependent on the mystique of one, very smart, elderly gentleman. Or two, if you count the less public Munger. [Political comment removed by Mod.]

[golfallday]

Sorry Mr Merriman, you are very mistaken. Mr Buffet is a legend.

[wesleymouch]

My impression that everyone parrots that Buffett is an "investing genius" but few have done the reaserach to verify that he is or not.

[G-Money]

My impression that everyone parrots that Buffett is an "investing genius" but few have done the reaserach to verify that he is or not.

That's my suspicion, too. But honestly, I just don't care. Even if he is an "investing genius," I'd be too chicken to invest in BRK. Even geniuses can be unlucky.

[Rick Ferri]

Berkshire Hathaway is primarily a large-cap US value company and the underlying common equity held are primarily large-US companies. See this list. Merriman's list of mutual funds is not a good style comparison and would not come close to a benchmark used in real investment analysis. It equal weights DFA emerging markets value, small-cap US value, international small value, etc, and on the Vanguard side, the big winner was small-cap value. That's not how Buffet invests.

Rick Ferri

[fredd]

[I merged this thread into here. See my post below. --admin LadyGeek]

http://www.marketwatch.com/story/warren ... genumber=4

I would like to know where Merriman gets his facts. I compared my purchase of BRK.B on 4-23-97 with the SPY. I used yahoo historical quotes, which give a total return, not just price return. Adjusting for the 50-1 split my cost basis is 250 shares at $25.36. Based on todays closing price of $112.52, my calculation shows a 344% total return, which equates to an apprx 9.5% annualized return.

The SPY over this same period went from $58.78 to todays close of $161.28 for a total return of 174%, and an annualized return of 6.39%.

I know that Merriman is using the past 15 years not 16+ but still I think his 5% annualized return for Berkshire,is way way off the mark. Who is right?

fredd

[gkaplan]

Thread started earlier today.

http://www.bogleheads.org/forum/viewtop ... t#p1740431

[Langkawi]

I would like to know where Merriman gets his facts.

He clearly states in the article that Morningstar is his source.

I know that Merriman is using the past 15 years not 16+ but still I think his 5% annualized return for Berkshire,is way way off the mark. Who is right?

He is. Check BRK's price in July 98. It was double the April 97 price.

[mschmitt]

Who is right? From a quick look, both numbers look reasonable. However, from 4/97 to 7/98 Berkshire roughly doubled in value. So in this case changing the starting date by a year makes a huge difference in the calculated annual return.

[LadyGeek]

I moved a later thread into here. Also note that I retitled the thread Subject line, as it was somewhat rude.

[dharrythomas]

If the baseline moves 100% in a year, you can argue it any way you want to.

Let me pick the time period and I can cherry pick the facts to 'prove' almost any investment theory you can come up with.

Harry

[nedsaid]

My reaction to the article was, "WOW, what a myth?" Wouldn't we all like to be a myth like that. Particularly Paul Merriman.

[staythecourse]

My feelings of what Mr. Merriman was trying to refer to was the difference between time weighted returns vs. dollar weighted. The idea is unless you are one of the few to invest early in the fund you would not have been able to fully enjoy all the profits.

Good luck.