Warren Buffett v. Bogleheads

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fantasytensai
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Warren Buffett v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 10:08 am

A common quote that I see floating around here is Warren Buffett's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
Last edited by fantasytensai on Tue Feb 21, 2017 11:07 am, edited 1 time in total.

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Re: Warren Buffet v. Bogleheads

Post by timboktoo » Tue Feb 21, 2017 10:11 am

We're not called Buffetheads :)

I do love Buffet, though. I would not call this mantra of his market timing. He buys based on valuation. We're just not generally capable of doing what he does.

- Tim

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Re: Warren Buffet v. Bogleheads

Post by msk » Tue Feb 21, 2017 10:15 am

Just assign a major portion of your portfolio to BRK.B. Everyone is fearful that Buffett will drop dead at any moment! Yes, sort of market timing. I had between 40 and 50% of my portfolio in BRK (+ a similar amount in SPY) for decades and I have no regret. Only recently I dropped both because of this board pointing out the risks of US Estate Tax on non-residents like myself and so I switched to Ireland based ETFs.

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Re: Warren Buffet v. Bogleheads

Post by larryswedroe » Tue Feb 21, 2017 10:16 am

No problem, disciplined rebalancing accomplishes exactly what Buffett is advising

The big difference is he is a big time TILTER to value/quality and not a TSM investor
Larry

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Re: Warren Buffet v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 10:41 am

So I guess the solution is to stay the course? :P

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?

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Re: Warren Buffet v. Bogleheads

Post by nisiprius » Tue Feb 21, 2017 10:45 am

Warren Buffett drops out random sound bites, and I've never been able to stitch them together into a coherent investment strategy.

"Be fearful when others are greedy, and be greedy when others are fearful" does sound like words of wisdom; so does "buy low, sell high." But, in the words of an early computer adventure game, "you must tell me how to do a thing like that." How do you measure your own greed or fear? How do you measure that of others? Does Mr. Buffett issue periodic statements in which he says "others are fearful this year" or "others are greedy this year?"

Buffett always leaves huge questions dangling, which he never seems to answer. For example, many times, he has recommended that most investors invest in "an S&P 500 index fund," and sometimes he even suggests' "Vanguard's." He has never made it clear why he is recommends the S&P 500 rather than a total stock market fund. He has never made it clear why he recommends a US-only stock investment. Similarly, Warren Buffett issues dire warnings against "bonds," based on inflation concerns. He never says a word about TIPS. His stated rationale for concern about bonds does not apply to TIPS, but he has never made it clear what he personally thinks about them.

John C. Bogle is on record in book after well-written book, spelling out a clear, if loosely-defined investment philosophy--back by articulate discussions of why he thinks so, with tables and graphs. Warren Buffett has never done that.

Personally, I have tried to find a stable path that I do not think of as either greedy or fearful... and stick to it. One maxim I like is Bogle's: "Time is your friend. Impulse is your enemy."
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Re: Warren Buffet v. Bogleheads

Post by nisiprius » Tue Feb 21, 2017 10:49 am

fantasytensai wrote:So I guess the solution is to stay the course? :P
If you stay the course, then you "will be less greedy than others when others are greedy, and less fearful than others when others are fearful." Or, perhaps, "you will be relatively fearful when others are greedy and relatively greedy when others are fearful." I'm not sure that's exactly what Buffett means, though!

I've always interpreted that maxim to mean "be actively contrarian." But since he's never explained it carefully, who knows?

Another example:
“I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep,” he told investors not long ago. “For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.
In my local supermarket, hamburger goes on sale when it is about a day before the sell-by date. So even if it is perfectly wholesome, it probably doesn't taste quite as good, and certainly isn't going to last as long when I get it home. So, no, we don't sing the "Hallelujah chorus" in my household. We weigh the lower price against the obvious fact that it now is objectively lower in value. He never has explained why the same thing isn't true of stocks.

I find it interesting, by the way, that he chose "hamburger" as his example. If he had talked about "canned soup," where you have every reason to believe the item on sale is truly "the same" as it was the day before the sale--well, perhaps (checking a can of soup I bought on sale yesterday) two years, four months and ten days stated shelf life instead of two years, four months and twelve days--it would be a far stronger case.
Last edited by nisiprius on Tue Feb 21, 2017 11:01 am, edited 3 times in total.
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Re: Warren Buffet v. Bogleheads

Post by KlangFool » Tue Feb 21, 2017 10:55 am

fantasytensai wrote:A common quote that I see floating around here is Warren Buffet's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
fantasytensai,

Are you a troll or there is a point to your post?

If you believe in Warren Buffet, how many percents of your portfolio is in BRK.A or BRK.B? If not, why do you quote him?

I hate it when somebody quotes some famous person's quote instead stating their position and defends it. Please speak your own mind. For better or worse, you are at least faithful to your own thought.

KlangFool

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Re: Warren Buffet v. Bogleheads

Post by Boglegrappler » Tue Feb 21, 2017 11:07 am

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
It is a variation of Buffett, in the sense that Buffett isn't interested in owning the market. Just certain companies, which are ones run by conservative management, and which have a strong company competitive position in a good business sector. When there are market declines, the prices of these companies come down as well, and it creates a reasonable entry price point for him.

Its taken me decades to understand Buffett. He talks so much about book value in his letters, and his published metrics, and most investment courses will explain that book value isn't an important metric. But Buffett views these companies as though they are private, and ignores the fact that there is a daily public quotation reflecting the most recent transfer of shares. He focuses on book value (and its increase) because it is the cumulative result of all the company's earnings that have been retained.

This is quite close to Bogle's discussion of the "investment" component of return/appreciation over time (as opposed to the "speculative" component of the return, which Bogle equates to P/E multiple expansion, or contraction). Both approaches are basically "buy-and-hold" approaches. Bogle's variation states that you're not smart enough to pick individual stocks, or to pick someone who is. Buffett's variation is that he is smart enough.

In Buffett's variation, he requires large amounts of underinvested cash, which he deploys in big lumps at opportune times. In Bogle's world, since you're not smart enough to pick stocks to beat the market, the "cost" of carrying large cash positions is too high, and you should be fully invested up to your equity allocation tolerance, rather than waiting to dive in with the rest of your cash when the market slides.

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Re: Warren Buffet v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 11:14 am

nisiprius wrote:
fantasytensai wrote:So I guess the solution is to stay the course? :P
If you stay the course, then you "will be less greedy than others when others are greedy, and less fearful than others when others are fearful." Or, perhaps, "you will be relatively fearful when others are greedy and relatively greedy when others are fearful." I'm not sure that's exactly what Buffett means, though!

I've always interpreted that maxim to mean "be actively contrarian." But since he's never explained it carefully, who knows?

Another example:
“I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep,” he told investors not long ago. “For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.
In my local supermarket, hamburger goes on sale when it is about a day before the sell-by date. So even if it is perfectly wholesome, it probably doesn't taste quite as good, and certainly isn't going to last as long when I get it home. So, no, we don't sing the "Hallelujah chorus" in my household. We weigh the lower price against the obvious fact that it now is objectively lower in value. He never has explained why the same thing isn't true of stocks.

I find it interesting, by the way, that he chose "hamburger" as his example. If he had talked about "canned soup," where you have every reason to believe the item on sale is truly "the same" as it was the day before the sale--well, perhaps (checking a can of soup I bought on sale yesterday) two years, four months and ten days stated shelf life instead of two years, four months and twelve days--it would be a far stronger case.
Well, for individual stockholders (I am not one but I can imagine) that there is a certain stigma associated with a declining stock - sure, there is a chance that the company may rebound, but it could also be Enron'd. That risk is lessened with an index.

So the way I see it, buying more when the market is down is not necessarily "market timing", but more "get more bang for your buck". It may be a nuanced distinction but it's one that will probably help me sleep at night, knowing that I stayed the course.

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Re: Warren Buffet v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 11:17 am

Boglegrappler wrote:
In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
It is a variation of Buffett, in the sense that Buffett isn't interested in owning the market. Just certain companies, which are ones run by conservative management, and which have a strong company competitive position in a good business sector. When there are market declines, the prices of these companies come down as well, and it creates a reasonable entry price point for him.

Its taken me decades to understand Buffett. He talks so much about book value in his letters, and his published metrics, and most investment courses will explain that book value isn't an important metric. But Buffett views these companies as though they are private, and ignores the fact that there is a daily public quotation reflecting the most recent transfer of shares. He focuses on book value (and its increase) because it is the cumulative result of all the company's earnings that have been retained.

This is quite close to Bogle's discussion of the "investment" component of return/appreciation over time (as opposed to the "speculative" component of the return, which Bogle equates to P/E multiple expansion, or contraction). Both approaches are basically "buy-and-hold" approaches. Bogle's variation states that you're not smart enough to pick individual stocks, or to pick someone who is. Buffett's variation is that he is smart enough.

In Buffett's variation, he requires large amounts of underinvested cash, which he deploys in big lumps at opportune times. In Bogle's world, since you're not smart enough to pick stocks to beat the market, the "cost" of carrying large cash positions is too high, and you should be fully invested up to your equity allocation tolerance, rather than waiting to dive in with the rest of your cash when the market slides.
Great point.

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Re: Warren Buffett v. Bogleheads

Post by Chadnudj » Tue Feb 21, 2017 11:27 am

fantasytensai wrote:A common quote that I see floating around here is Warren Buffett's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
If you're in the accumulation stage and dollar-cost averaging with everything you can (i.e. investing repeatedly with as much as you can afford to invest), you're doing exactly this -- buying more shares when costs/prices are low (being greedy when others are fearful) and buying fewer shares when costs/prices are high (being fearful when others are greedy). Moreso if you rebalance your portfolio to keep stocks/bonds, domestic/international within pre-set and appropriate bands.

Buffett also says his ideal horizon for holding a stock is "forever," which is a pretty Boglehead approach too (particularly since we're buying index funds).

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Re: Warren Buffet v. Bogleheads

Post by oldcomputerguy » Tue Feb 21, 2017 12:07 pm

nisiprius wrote:
fantasytensai wrote:So I guess the solution is to stay the course? :P
If you stay the course, then you "will be less greedy than others when others are greedy, and less fearful than others when others are fearful." Or, perhaps, "you will be relatively fearful when others are greedy and relatively greedy when others are fearful." I'm not sure that's exactly what Buffett means, though!

I've always interpreted that maxim to mean "be actively contrarian." But since he's never explained it carefully, who knows?

Another example:
“I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep,” he told investors not long ago. “For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.
In my local supermarket, hamburger goes on sale when it is about a day before the sell-by date. So even if it is perfectly wholesome, it probably doesn't taste quite as good, and certainly isn't going to last as long when I get it home. So, no, we don't sing the "Hallelujah chorus" in my household. We weigh the lower price against the obvious fact that it now is objectively lower in value. He never has explained why the same thing isn't true of stocks.

I find it interesting, by the way, that he chose "hamburger" as his example. If he had talked about "canned soup," where you have every reason to believe the item on sale is truly "the same" as it was the day before the sale--well, perhaps (checking a can of soup I bought on sale yesterday) two years, four months and ten days stated shelf life instead of two years, four months and twelve days--it would be a far stronger case.
In fact it appears that the quote as shown doesn't talk about hamburger (the meat you buy in grocery stores), it mentions hamburgers (the sandwiches you buy at fast food retaurants). I know it's a minor distinction, but it puts the question of value for price paid into a different context.
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Re: Warren Buffet v. Bogleheads

Post by freebeer » Tue Feb 21, 2017 12:09 pm

KlangFool wrote:
fantasytensai wrote:A common quote that I see floating around here is Warren Buffet's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
fantasytensai,

Are you a troll or there is a point to your post?

If you believe in Warren Buffet, how many percents of your portfolio is in BRK.A or BRK.B? If not, why do you quote him?

I hate it when somebody quotes some famous person's quote instead stating their position and defends it. Please speak your own mind. For better or worse, you are at least faithful to your own thought.

KlangFool
Accusing a forum member who has been here some months and has posted a number of times of being a troll seems out of line as well as not very welcoming.

And in my journey to Bogleheads theory I had this same question which I think is a perfectly reasonable query in a forum on investing theory whether or not the OP has a firm position. Actually "Warren Buffet v. Bogleheads" is probably a good candidate for the wiki.

One of the confusing things about Warren Buffet is that he recommends SP500 which seems to contradict his other advice... but this recommendation is **for other people**. Implicitly he is agreeing with the theory that "we aren't as smart as Warren Buffet" which is logical.

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Re: Warren Buffet v. Bogleheads

Post by Jags4186 » Tue Feb 21, 2017 12:13 pm

fantasytensai wrote:So I guess the solution is to stay the course? :P

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
This never makes any sense to me. If I am able to save $X dollars a month how do I all of a sudden have $X + $Y to invest when the market is down?

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Re: Warren Buffet v. Bogleheads

Post by bigred77 » Tue Feb 21, 2017 12:19 pm

Jags4186 wrote:
fantasytensai wrote:So I guess the solution is to stay the course? :P

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
This never makes any sense to me. If I am able to save $X dollars a month how do I all of a sudden have $X + $Y to invest when the market is down?
I interpret this to mean you probably had some part of your portfolio allocated to fixed income or cash. When equities decline your portfolio percentages get thrown out of whack so you sell some of your fixed income to buy equities at now lower prices. Or you can direct your new contributions completely to the underweight asset class.

That's at least how I do it.

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Re: Warren Buffet v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 12:21 pm

Jags4186 wrote:
fantasytensai wrote:So I guess the solution is to stay the course? :P

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
This never makes any sense to me. If I am able to save $X dollars a month how do I all of a sudden have $X + $Y to invest when the market is down?
You need to think of investing as in # of shares rather than $. For example, I have an excel worksheet of all of my investments, and I keep track not only of the total $ invested in a fund, but also the shares I have of that fund.

So, to answer your question, you would still have $X dollars to invest (which actually is duplicative since $ = dollar), let's say X = 1,000. When a fund is at $50, you can buy 20 shares of it. However, when the market is down, and the fund drops to $20, you can buy 50 shares of it. Therefore you have 50 shares instead of 20 shares of the same fund you wanted to buy when the market is down. Notice this only works when you have faith that the market will eventually rebound, and the fund will regain, and exceed its original value.

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Re: Warren Buffet v. Bogleheads

Post by willthrill81 » Tue Feb 21, 2017 12:23 pm

freebeer wrote:
KlangFool wrote:
fantasytensai wrote:A common quote that I see floating around here is Warren Buffet's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
fantasytensai,

Are you a troll or there is a point to your post?

If you believe in Warren Buffet, how many percents of your portfolio is in BRK.A or BRK.B? If not, why do you quote him?

I hate it when somebody quotes some famous person's quote instead stating their position and defends it. Please speak your own mind. For better or worse, you are at least faithful to your own thought.

KlangFool
Accusing a forum member who has been here some months and has posted a number of times of being a troll seems out of line as well as not very welcoming.

And in my journey to Bogleheads theory I had this same question which I think is a perfectly reasonable query in a forum on investing theory whether or not the OP has a firm position. Actually "Warren Buffet v. Bogleheads" is probably a good candidate for the wiki.

One of the confusing things about Warren Buffet is that he recommends SP500 which seems to contradict his other advice... but this recommendation is **for other people**. Implicitly he is agreeing with the theory that "we aren't as smart as Warren Buffet" which is logical.
+1 :)
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Re: Warren Buffett v. Bogleheads

Post by ruralavalon » Tue Feb 21, 2017 12:27 pm

fantasytensai wrote:A common quote that I see floating around here is Warren Buffett's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
I am not sure that is market timing.

Warren Buffett is smarter and better informed than I am, investing is his full time job, and he is more disciplined than nearly anyone else. He doesn't just buy stocks. He buys companies, which is something I am not able to do.
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Re: Warren Buffett v. Bogleheads

Post by PVW » Tue Feb 21, 2017 12:47 pm

fantasytensai wrote:A common quote that I see floating around here is Warren Buffett's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
This was in response to questions about investing Berkshire Hathaway's substantial cash position in the wake of the 2008 financial crisis. If you are in this position, then I also recommend buying several billion dollars in preferred stock from GE and Goldman Sachs. Otherwise, I recommend buying index funds in proportion to your investment plan as cash becomes available to you.

http://www.cnbc.com/id/26982338

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Re: Warren Buffett v. Bogleheads

Post by boglephreak » Tue Feb 21, 2017 1:09 pm

nothing to reconcile. i dont follow generic investment philosophies especially ones as subjective as this one (assuming buffet even considers it an investment philosophy).

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Re: Warren Buffett v. Bogleheads

Post by nisiprius » Tue Feb 21, 2017 1:22 pm

There's a wide spectrum of behavior in between maintaining a perfectly constant asset allocation (as in the Vanguard Balanced Index Fund), and going to cash whenever the 200-day moving average pirouettes across the 50-day moving average and the Baroom oscillator precesses into the House of Atreus.

I think we should reserve the phrase "market timing" to mean "the things that people who call themselves 'market timers' do."

As for the greedy/fearful thing, I ask someone how we would even backtest the hypothesis that "investors who are greedy when others are fearful and fearful when others are greedy get superior results to those who maintain a steady level of greed and fear unaffected by the feelings of others."

Fear and greed are strong emotions; I can't cite studies, but I think there actually is evidence that investors are best off avoiding strong emotions.
Last edited by nisiprius on Tue Feb 21, 2017 1:28 pm, edited 1 time in total.
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Re: Warren Buffett v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 1:23 pm

nisiprius wrote:There's a wide spectrum of behavior in between maintaining a perfectly constant asset allocation (as in the Vanguard Balanced Index Fund), and going to cash whenever the 200-day moving average pirouettes across the 50-day moving average and the Baroom oscillator precesses into the House of Atreus.

I think we should reserve the phrase "market timing" to mean "the things that people who call themselves 'market timers' do."
Related to that, just saw this article today. I heard Mark Hulbert has a good reputation in the Boglehead circles.

http://www.marketwatch.com/story/market ... 2017-02-21

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Re: Warren Buffett v. Bogleheads

Post by stemikger » Tue Feb 21, 2017 1:43 pm

As far as I see it, they are almost giving the identical advice when it comes to us mere mortals.

The only difference is John Bogle loves to hold bonds for ballast and Warren does not like bonds.

As far as what Warren has done to become one of the richest men in the world cannot be done by the little guy and he knows that. That is why over the last several years he is telling everyone who would listen to simply invest in a low cost index fund that buys America and dollar cost average into it. So far, his bet with a Hedge Fund is proving his point.

They both are very bullish on America and both agree that international necessary is not needed.

I personally like Jack's advice to simply buy the Balanced Index Fund and get on with it. So simple it became sophisticated. Pure elegance and you get to ignore Wall Street.
Last edited by stemikger on Tue Feb 21, 2017 1:46 pm, edited 1 time in total.
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Re: Warren Buffet v. Bogleheads

Post by avalpert » Tue Feb 21, 2017 1:44 pm

fantasytensai wrote:
Jags4186 wrote:
fantasytensai wrote:So I guess the solution is to stay the course? :P

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
This never makes any sense to me. If I am able to save $X dollars a month how do I all of a sudden have $X + $Y to invest when the market is down?
You need to think of investing as in # of shares rather than $.
No, you don't. That is a great way to fall into various forms of cognitive biases - much better thinking of investing in terms of the $ value.

When a stock splits your position did not magically get better, when the stock price goes down the company's future performance prospects did not just improve.

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Re: Warren Buffet v. Bogleheads

Post by fantasytensai » Tue Feb 21, 2017 1:53 pm

avalpert wrote:
fantasytensai wrote:
Jags4186 wrote:
fantasytensai wrote:So I guess the solution is to stay the course? :P

In all seriousness, many Bogleheads talk about how they love to "up" their buying when the market is down. This seems to be a variation of Buffet's philosophy. I suppose while this is still technically considered market timing, it's an acceptable form of market timing, right?
This never makes any sense to me. If I am able to save $X dollars a month how do I all of a sudden have $X + $Y to invest when the market is down?
You need to think of investing as in # of shares rather than $.
No, you don't. That is a great way to fall into various forms of cognitive biases - much better thinking of investing in terms of the $ value.

When a stock splits your position did not magically get better, when the stock price goes down the company's future performance prospects did not just improve.
I agree, which is why I conditioned this comment with 1) index funds NOT individual stocks; and 2) faith that the market will eventually rebound. A company, no matter how large, may fall. But America will not (hopefully).

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Re: Warren Buffett v. Bogleheads

Post by PVW » Tue Feb 21, 2017 1:58 pm

Another source of this quote is the Berkshire Hathaway 2004 Chairman's Letter. Sounds very Boglehead in this context.
Over the 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.

There have been three primary causes: first, high costs, usually because investors traded excessively or spent far too much on investment management; second, portfolio decisions based on tips and fads rather than on thoughtful, quantified evaluation of businesses; and third, a start-and-stop approach to the market marked by untimely entries (after an advance has been long underway) and exits (after periods of stagnation or decline). Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.
http://www.berkshirehathaway.com/letters/2004.html

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telemark
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Re: Warren Buffet v. Bogleheads

Post by telemark » Tue Feb 21, 2017 2:11 pm

Boglegrappler wrote:
It is a variation of Buffett, in the sense that Buffett isn't interested in owning the market. Just certain companies, which are ones run by conservative management, and which have a strong company competitive position in a good business sector. When there are market declines, the prices of these companies come down as well, and it creates a reasonable entry price point for him.

Its taken me decades to understand Buffett. He talks so much about book value in his letters, and his published metrics, and most investment courses will explain that book value isn't an important metric. But Buffett views these companies as though they are private, and ignores the fact that there is a daily public quotation reflecting the most recent transfer of shares. He focuses on book value (and its increase) because it is the cumulative result of all the company's earnings that have been retained.

This is quite close to Bogle's discussion of the "investment" component of return/appreciation over time (as opposed to the "speculative" component of the return, which Bogle equates to P/E multiple expansion, or contraction). Both approaches are basically "buy-and-hold" approaches. Bogle's variation states that you're not smart enough to pick individual stocks, or to pick someone who is. Buffett's variation is that he is smart enough.

In Buffett's variation, he requires large amounts of underinvested cash, which he deploys in big lumps at opportune times. In Bogle's world, since you're not smart enough to pick stocks to beat the market, the "cost" of carrying large cash positions is too high, and you should be fully invested up to your equity allocation tolerance, rather than waiting to dive in with the rest of your cash when the market slides.
This, I think, is the key distinction that almost everyone misses. Buffett doesn't invest in the stock market. He buys companies and then takes an active role in managing them. This is a very good approach if you have the time, money, and skill to pull it off, but for most of us he is not a suitable role model.

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Re: Warren Buffett v. Bogleheads

Post by bottlecap » Tue Feb 21, 2017 2:59 pm

I don't think Buffett's "advice" is intended as an investment strategy, so there is nothing to reconcile.

He is merely pointing out that it is wise to be wary of mania and rarely pays to remain bearish forever. Basically, don't let you emotions rule your investing.

In fact, you could take the advice as an admonition against market timing: You shouldn't jump in with both feet just because everyone else is and you shouldn't let fear keep you completely out of markets when things look bleak.

JT

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Re: Warren Buffet v. Bogleheads

Post by inbox788 » Tue Feb 21, 2017 3:46 pm

msk wrote:Just assign a major portion of your portfolio to BRK.B. Everyone is fearful that Buffett will drop dead at any moment! Yes, sort of market timing. I had between 40 and 50% of my portfolio in BRK (+ a similar amount in SPY) for decades and I have no regret. Only recently I dropped both because of this board pointing out the risks of US Estate Tax on non-residents like myself and so I switched to Ireland based ETFs.
A major distinction between the Buffett and Bogle is that Buffett is a businessman and Bogle is an investor. Both have managed to find a way to eliminate or reduce the stock broker/active fund manager fees. We are seeing competition to low cost Vanguard index funds, but so far, I've encountered few companies that are following the BRK operating and investment style and it hasn't been a big secret. I fear the secret sauce is a person.

Recently, I heard Charlie Munger (93) speak for the first time and his voice sounds just like Warren Buffett (86) to me. Munger seems to be in good health for his age, but he appears to be more frail than Buffett, and given their 7 years difference that's not surprising. While I'm a fan of BRK and wouldn't worry about a sizable concentration, I wouldn't choose it over a diversified index fund without some significant additional compensation for the risk. We know Buffett won't be around forever, and Munger's departure from the company may also provide a small preview of what might happen to BRK stock when Buffett exits.

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Re: Warren Buffett v. Bogleheads

Post by msk » Wed Feb 22, 2017 1:34 am

I am lucky enough to know a handful of my peers (school buddies, etc., some close some not so close) who have grown seriously rich, 9 and 10 figures rich, from our common pauper beginnings. None of them use index funds. All invest in a similar fashion to Buffett. Each owns a handful of companies either outright or in fractions large enough to sit on the Boards, and active stock and bond selections if any on the side. The richest of the lot states that he now refuses to buy any stock that he cannot assure himself a seat on the Board. Sometimes I do wonder whether he, the richest among them, would not be better off, i.e. get fewer irritating urgent phone calls in the middle of the night because of some crisis on the other side of the world, if he just placed his 10-figure fortune into index funds. He has made serious money buying out companies in serious distress. Think Eastern Europe companies that had to urgently seek financing or go out of business. But he says it's all fun. Just like Buffett says, tip-tapping each morning to his office. Indexing is for us lazies. We are too lazy even to gauge when others are greedy/fearful. Just admit it. I do :wink:

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Re: Warren Buffett v. Bogleheads

Post by bottlecap » Wed Feb 22, 2017 7:30 am

msk wrote:But he says it's all fun. Just like Buffett says, tip-tapping each morning to his office. Indexing is for us lazies. We are too lazy even to gauge when others are greedy/fearful. Just admit it. I do :wink:
He's not investing, he's doing his job. And he likes it. Similar to what Buffett does. I don't have the same job, so I sure can't "invest" that way.

JT

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Re: Warren Buffett v. Bogleheads

Post by Dandy » Wed Feb 22, 2017 9:36 am

In effect that is what rebalancing does -- it buys when the market is down and sells when the market is up. Also, keep in mind that Mr. Bogle has said when the market is extremely overvalued you should consider significant reductions in equities. e.g. going from say 60% to 40%. This Bogle idea gets very little attention on this forum since it goes in the face of generally good advice that you can't time the market.

The dilemma is that there are many more false alarms of the investment sky is falling than actual equity sell offs. And it makes a difference how risky a highly valued market is depending on how close you are to retirement or in early retirement. If you are in the early or mid accumulation phase you can more easily recover from a major decline and might get great benefit by investing when the market is low.

if and when to make a move counter to the norm is a serious question. I feel the current nice run up of equites coupled with lots of potential changes on the horizon might make taking some risk off the table a decent idea --for me.. I realize that there are strong possibilities of economic growth ahead but since in retirement my goal is asset preservation vs growth I reduced equity exposure by about 2% yesterday. It is part of my philosophy to make small and relatively rare adjustments to my portfolio. This move pretty much offsets my equity investment last year when the equity market got off to such a horrible start.

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Re: Warren Buffet v. Bogleheads

Post by parsi1 » Wed Feb 22, 2017 10:03 am

nisiprius wrote:Warren Buffett drops out random sound bites, and I've never been able to stitch them together into a coherent investment strategy.

"Be fearful when others are greedy, and be greedy when others are fearful" does sound like words of wisdom; so does "buy low, sell high." But, in the words of an early computer adventure game, "you must tell me how to do a thing like that." How do you measure your own greed or fear? How do you measure that of others? Does Mr. Buffett issue periodic statements in which he says "others are fearful this year" or "others are greedy this year?"

Buffett always leaves huge questions dangling, which he never seems to answer. For example, many times, he has recommended that most investors invest in "an S&P 500 index fund," and sometimes he even suggests' "Vanguard's." He has never made it clear why he is recommends the S&P 500 rather than a total stock market fund. He has never made it clear why he recommends a US-only stock investment. Similarly, Warren Buffett issues dire warnings against "bonds," based on inflation concerns. He never says a word about TIPS. His stated rationale for concern about bonds does not apply to TIPS, but he has never made it clear what he personally thinks about them.

John C. Bogle is on record in book after well-written book, spelling out a clear, if loosely-defined investment philosophy--back by articulate discussions of why he thinks so, with tables and graphs. Warren Buffett has never done that.

Personally, I have tried to find a stable path that I do not think of as either greedy or fearful... and stick to it. One maxim I like is Bogle's: "Time is your friend. Impulse is your enemy."
Have you ever considered publishing a book, or you already have?
I enjoy reading your comments.
Thanks

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Re: Warren Buffett v. Bogleheads

Post by dbr » Wed Feb 22, 2017 10:11 am

fantasytensai wrote:A common quote that I see floating around here is Warren Buffett's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
I don't invest by sound bite and I recommend that others do not either. There is nothing to reconcile among all the meaningless statements you can find out there.

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Re: Warren Buffett v. Bogleheads

Post by nedsaid » Wed Feb 22, 2017 10:17 am

fantasytensai wrote:A common quote that I see floating around here is Warren Buffett's famous "be fearful when others are greedy, and be greedy when others are fearful". Sounds like words of wisdom, but I just realized that is market timing. How do Bogleheads reconcile this?
This is not actionable for most investors except at the extremes of market valuation and sentiment. During these extremes, one might make a shift of 15% or 20% or their portfolio but I would not go beyond that.
A fool and his money are good for business.

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Re: Warren Buffett v. Bogleheads

Post by garlandwhizzer » Wed Feb 22, 2017 11:43 am

nedsaid wrote:
This is not actionable for most investors except at the extremes of market valuation and sentiment.
1+

Market timing and tactical asset allocation tends to work well if your name is Warren Buffett. For most of us, the results aren't so good. Warren has decades of experience in investing successfully, a proven skill for identifying value/quality stocks selling at significant discounts to their intrinsic worth, unlimited patience in bear markets, being greedy rather than fearful at the time when blood is in the streets and panic rules the day, and on top of this a massive wad of liquid cash waiting to pounce on opportunities whenever they appear. If you have these attributes, it is likely to work for you as well. If not, rebalancing or perhaps making modest tactical asset changes during extreme events as nedsaid points out are alternatives open to those of us that are not quite up to Warren's standard.

Garland Whizzer

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Re: Warren Buffett v. Bogleheads

Post by SGM » Thu Feb 23, 2017 8:33 am

There are times when it is quite easy to determine market sentiment. Efforts to quantify this or to seek consistency in the effect of sentiment on returns are foolishly attempted by the mathematically oriented. i find it laughable that some look for consistency when there is none. Buffet's statement is a contrarian one. I believe the market valuations in certain segments is often wrong. It takes serious effort to take advantage of this. Buffet has the additional benefit of some of his stock purchases going up after he announces to the public his recent purchases. This is an advantage that the individual stock picker does not have. Maybe with twitter one of you will develop a following like Mr. Buffet.

Here are a few examples of market evaluations that I recall being obviously wrong even without using hindsight.

1. Price of oil drops precipitously around 1985 to $10 a barrel or less. Oil stocks go down precipitously.
2. Well known prognosticator warns of imminent mass muni bond forfeitures in California and New York a few years ago.
3. A particular segment of the economy has company stocks with much lower P/E ratios than the rest of the market, also supermarket stocks sometime in the last 5 years.
4. Dot.com stocks reach tremendous highs without earnings or scarce earnings.
5. People are either selling or buying because of a political event or war.
6. Soviet Union breaks up military industrial stocks go down in value.
7. Company with X billion in sales is going to go out of business in the short term.

This is different than Jack Bogle's philosophy of buy and hold the whole market and get market returns minus expenses which isn't a bad thing. Jack's philosophy is a lot easier to follow and much less risky.

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Re: Warren Buffett v. Bogleheads

Post by betablocker » Thu Feb 23, 2017 10:54 am

I think Larry made the right call here. Buffett's maxims come from a lifetime of experience. Buy cheap, buy good companies, etc. But that alpha has now become beta through the study of Buffett's (and other's) returns. Buy value funds, systematically rebalance, etc. Yesterday's alpha is today's rules based beta. So everyone is saying the same thing but with a different frame.

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Re: Warren Buffet v. Bogleheads

Post by Bastiat » Thu Feb 23, 2017 6:09 pm

nisiprius wrote:Warren Buffett drops out random sound bites, and I've never been able to stitch them together into a coherent investment strategy.

"Be fearful when others are greedy, and be greedy when others are fearful" does sound like words of wisdom; so does "buy low, sell high." But, in the words of an early computer adventure game, "you must tell me how to do a thing like that." How do you measure your own greed or fear? How do you measure that of others? Does Mr. Buffett issue periodic statements in which he says "others are fearful this year" or "others are greedy this year?"

Buffett always leaves huge questions dangling, which he never seems to answer. For example, many times, he has recommended that most investors invest in "an S&P 500 index fund," and sometimes he even suggests' "Vanguard's." He has never made it clear why he is recommends the S&P 500 rather than a total stock market fund. He has never made it clear why he recommends a US-only stock investment. Similarly, Warren Buffett issues dire warnings against "bonds," based on inflation concerns. He never says a word about TIPS. His stated rationale for concern about bonds does not apply to TIPS, but he has never made it clear what he personally thinks about them.

John C. Bogle is on record in book after well-written book, spelling out a clear, if loosely-defined investment philosophy--back by articulate discussions of why he thinks so, with tables and graphs. Warren Buffett has never done that.

Personally, I have tried to find a stable path that I do not think of as either greedy or fearful... and stick to it. One maxim I like is Bogle's: "Time is your friend. Impulse is your enemy."
If you have been unable to stitch together Buffett's investment strategy you obviously haven't looked very hard. There are literally books that have been around for decades which lay it out.

Have you read any of his letters to shareholders? Or any of the numerous articles he has written? Or any of these books? There is much information therein.

The Intelligent Investor - Benjamin Graham (1949)
Security Analysis - Benjamin Graham and David Dodd (1934)
The Superinvestors of Graham-and-Doddsville - Warren Buffett (1984)

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Re: Warren Buffett v. Bogleheads

Post by Redstorm » Sun Feb 26, 2017 7:09 am

How do Bogleheads reconcile this?
Rebalancing?

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