Is Warren Buffett's investing approach outdated?

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tvubpwcisla
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Is Warren Buffett's investing approach outdated?

Post by tvubpwcisla » Wed May 13, 2020 7:25 am

I wanted to get your thoughts on Warren Buffett's investing approach, if you think it is outdated, and if he should change anything going forward?

Please see story below where one investor is now dumping his Berkshire shares.

https://www.marketwatch.com/story/heres ... 2020-05-12
Stay invested my friends.

MotoTrojan
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Re: Is Warren Buffett's investing approach outdated?

Post by MotoTrojan » Wed May 13, 2020 7:29 am

There’s a difference between his system being outdated and his scale being to large to implement it. If he left BK and started a side gig with $1B in assets I bet he would have a significant leg up on the market. The more money you have the less opportunities there are to outperform.

Jim Simmons has maintained a $10B cap on his fund and that’s a big reason they continued to get insane returns (39% after fees, 66% return). They pay it all out as distributions every year. I wouldn’t mind getting a 39% dividend but having to reinvest it in a 3-fund :).

I personally feel a lot of what he (WB) was so good at can be done quantitatively though, but I still wouldn’t call it outdated.

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JoMoney
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Re: Is Warren Buffett's investing approach outdated?

Post by JoMoney » Wed May 13, 2020 7:47 am

:thumbsup ^ What Moto said...

I'll add that the people in the article are clearly active investors. It's not like they've been long-term passive holders of Berkshire. Active investors are going to be 'active'. They could just as easily be saying that Coca-Cola is "outdated" and trading that.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

stormcrow
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Re: Is Warren Buffett's investing approach outdated?

Post by stormcrow » Wed May 13, 2020 10:14 am

I do wonder if the post-2008 recession paradigm of the government being willing to step in to give loans or bailouts has rendered a big weapon in Buffet's arsenal somewhat toothless. In the past it would have been easier to pick up a solid but temporarily distressed company on the cheap. Now, the default position seems to be to seek funding from government sources before things become too desperate.

TheNightsToCome
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Re: Is Warren Buffett's investing approach outdated?

Post by TheNightsToCome » Wed May 13, 2020 10:47 am

MotoTrojan wrote:
Wed May 13, 2020 7:29 am
There’s a difference between his system being outdated and his scale being to large to implement it. If he left BK and started a side gig with $1B in assets I bet he would have a significant leg up on the market. The more money you have the less opportunities there are to outperform.

Jim Simmons has maintained a $10B cap on his fund and that’s a big reason they continued to get insane returns (39% after fees, 66% return). They pay it all out as distributions every year. I wouldn’t mind getting a 39% dividend but having to reinvest it in a 3-fund :).

I personally feel a lot of what he (WB) was so good at can be done quantitatively though, but I still wouldn’t call it outdated.
"If he left BK and started a side gig with $1B in assets I bet he would have a significant leg up on the market."

This, but perhaps more importantly, he is nearing 90 with more wealth than anyone can spend. He has admitted that he held some positions rather than sell them because he enjoyed the people he worked with on the board and/or in mgmt, and the extra return he might have gained elsewhere was not worth severing those relationships.

He is no longer a young man with drive and vitality striving to "win the game."

Elysium
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Re: Is Warren Buffett's investing approach outdated?

Post by Elysium » Wed May 13, 2020 10:51 am

TheNightsToCome wrote:
Wed May 13, 2020 10:47 am
This, but perhaps more importantly, he is nearing 90 with more wealth than anyone can spend. He has admitted that he held some positions rather than sell them because he enjoyed the people he worked with on the board and/or in mgmt, and the extra return he might have gained elsewhere was not worth severing those relationships.

He is no longer a young man with drive and vitality striving to "win the game."
This. WB is no longer motivated to win the game. He has already won many times when it mattered, now it's all about preservation and a realization that beating the market is no longer relevant to him. You can see the parallel with Bill Gates, who is no longer in business, was driven like crazy at one point where his co-founder couldn't keep up with him, was brutal with Paul Allen for not having same mindset and work attitude, but having won the game, his focus has changed to other things.

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Re: Is Warren Buffett's investing approach outdated?

Post by DonIce » Wed May 13, 2020 11:09 am

Elysium wrote:
Wed May 13, 2020 10:51 am
This. WB is no longer motivated to win the game. He has already won many times when it mattered, now it's all about preservation and a realization that beating the market is no longer relevant to him. You can see the parallel with Bill Gates, who is no longer in business, was driven like crazy at one point where his co-founder couldn't keep up with him, was brutal with Paul Allen for not having same mindset and work attitude, but having won the game, his focus has changed to other things.
Dunno why these guys give up so early. ~$100B is just getting started! If they tried harder they could have had a trillion by now.

Elysium
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Re: Is Warren Buffett's investing approach outdated?

Post by Elysium » Wed May 13, 2020 11:17 am

DonIce wrote:
Wed May 13, 2020 11:09 am
Elysium wrote:
Wed May 13, 2020 10:51 am
This. WB is no longer motivated to win the game. He has already won many times when it mattered, now it's all about preservation and a realization that beating the market is no longer relevant to him. You can see the parallel with Bill Gates, who is no longer in business, was driven like crazy at one point where his co-founder couldn't keep up with him, was brutal with Paul Allen for not having same mindset and work attitude, but having won the game, his focus has changed to other things.
Dunno why these guys give up so early. ~$100B is just getting started! If they tried harder they could have had a trillion by now.
There is another guy who is currently making a run for it, let's see how far he can stay motivated.

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tvubpwcisla
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Re: Is Warren Buffett's investing approach outdated?

Post by tvubpwcisla » Wed May 13, 2020 11:18 am

DonIce wrote:
Wed May 13, 2020 11:09 am
Elysium wrote:
Wed May 13, 2020 10:51 am
This. WB is no longer motivated to win the game. He has already won many times when it mattered, now it's all about preservation and a realization that beating the market is no longer relevant to him. You can see the parallel with Bill Gates, who is no longer in business, was driven like crazy at one point where his co-founder couldn't keep up with him, was brutal with Paul Allen for not having same mindset and work attitude, but having won the game, his focus has changed to other things.
Dunno why these guys give up so early. ~$100B is just getting started! If they tried harder they could have had a trillion by now.
Funny! :mrgreen:

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striker79
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Re: Is Warren Buffett's investing approach outdated?

Post by striker79 » Wed May 13, 2020 11:44 am

Too much uncertainty on how coronavirus will play out. Other crashes you already knew the problem and were much easier to figure out how they would play out. Smart to be in cash when you don't know whats going on. If this was a one time coronavirus thing...we have lockdown for a month and then we are done with this, then im sure he would have been buying. Stock market has been priced as either a one time lockdown and we're done and soon back to normal AND/OR there has been a large amount of fear of missing out rally. The fact that this can come and go with more and more lockdowns in the future makes it way too hard to predict. If the market goes below the March low, will you still be saying Buffett's approach is outdated? I personally dont think we will revisit those lows BECAUSE the fed will announce its buying equities if we come near that low.

afan
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Re: Is Warren Buffett's investing approach outdated?

Post by afan » Wed May 13, 2020 12:32 pm

Warren Buffett made a huge amount of money, many years ago. One could interpret what happened thereafter as "lost his touch", "running too much money", or simply "regression to.the mean".

Buffett has an amiable folksy style that plays very well on TV. I enjoy his interviews. He is an active manager so I don't invest with him or follow his advice.

I could understand being interested in Buffet has to say. It is certain to be informed and entertaining. I cannot imagine being interested in what David Merkel, whoever he is, thinks of Buffett.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: Is Warren Buffett's investing approach outdated?

Post by FelixTheCat » Wed May 13, 2020 12:33 pm

tvubpwcisla wrote:
Wed May 13, 2020 7:25 am
I wanted to get your thoughts on Warren Buffett's investing approach, if you think it is outdated, and if he should change anything going forward?
I never understood why people question Buffett's methodology unless you have made more than $86 billion through investing. Remember, he made his wealth.
Felix is a wonderful, wonderful cat.

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Re: Is Warren Buffett's investing approach outdated?

Post by Maestro G » Wed May 13, 2020 12:46 pm

striker79 wrote:
Wed May 13, 2020 11:44 am
Too much uncertainty on how coronavirus will play out. Other crashes you already knew the problem and were much easier to figure out how they would play out. Smart to be in cash when you don't know whats going on. If this was a one time coronavirus thing...we have lockdown for a month and then we are done with this, then im sure he would have been buying. Stock market has been priced as either a one time lockdown and we're done and soon back to normal AND/OR there has been a large amount of fear of missing out rally. The fact that this can come and go with more and more lockdowns in the future makes it way too hard to predict. If the market goes below the March low, will you still be saying Buffett's approach is outdated? I personally dont think we will revisit those lows BECAUSE the fed will announce its buying equities if we come near that low.
If the Fed continues to bail out markets (first treasuries, now corporate bonds, and eventually as you suggest equities - and I am not necessarily arguing against this), at what point does the equity risk premium simply disappear, for all intents and purposes? :?:
Everything should be made as simple as possible, but no simpler. Most daily market noise is "a tale told by an idiot, full of sound and fury, signifying nothing.”

rich126
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Re: Is Warren Buffett's investing approach outdated?

Post by rich126 » Wed May 13, 2020 1:18 pm

I originally bought it a while ago due to his track record and due to his ability to invest in things I could not (either from a lack of understanding or opportunities/access he has that I don't have). While long term it may be fine I've gotten concerned over the last few years with investments I didn't understand. Airlines being one obvious investment. IBM. Lots of older companies that aren't as relevant right now (Coke, not going anywhere but not exactly the "in" thing). And his refusal to buy good tech companies other than Apple (why not Microsoft especially when it was cheap, Google and Facebook).

So I've been cutting back. Obviously he won't be around long term (and maybe you can say the same for me!).

People harp on the cash but there are articles online that explain his cash amount isn't that different from most of its history. It is just that more of it is in cash vs other fixed income investments.

I do think it may have issues unless the economy tanks in the near future (still a good chance of that) since stocks need demand by buyers to go up and I don't see that demand right now, including by the larger money managers that can purchase large amounts of it.

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Re: Is Warren Buffett's investing approach outdated?

Post by LFS1234 » Wed May 13, 2020 2:07 pm

striker79 wrote:
Wed May 13, 2020 11:44 am
Too much uncertainty on how coronavirus will play out. Other crashes you already knew the problem and were much easier to figure out how they would play out. Smart to be in cash when you don't know whats going on. If this was a one time coronavirus thing...we have lockdown for a month and then we are done with this, then im sure he would have been buying. Stock market has been priced as either a one time lockdown and we're done and soon back to normal AND/OR there has been a large amount of fear of missing out rally. The fact that this can come and go with more and more lockdowns in the future makes it way too hard to predict. If the market goes below the March low, will you still be saying Buffett's approach is outdated?

I agree with the above, and I think the damage from Covid is considerably more extensive than many realize. Our system is based on the efficient conversion of labor into money. Massive unemployment puts one big dent in this. A second big dent is caused by reduced efficiency of the surviving businesses. These enterprises were optimized for their pre-Covid volumes of business, and adjusting both for business volume changes and contagion risk mitigation will be expensive. The money has to come from somewhere, and it could be expected to be felt in reduced salaries as well as reduced business profits. At some point, we'll recover and the surviving businesses will be right-sized and in many cases stronger than ever, but getting from here to there may take quite a bit longer than we'd like.

Prices being a function of supply and demand, they could be expected to further decline if the volume of securities for sale increases due to people's need to raise money, while demand decreases due to fewer people having surplus investable cash.
I personally dont think we will revisit those lows BECAUSE the fed will announce its buying equities if we come near that low.
I could see the lows being taken out. This is a major shock with a huge amount of damage done so far already. We've had two 50% market drops in the past 20 years, and at the recent market low we were only down perhaps 30% from record highs (percentages approximate). We are also most likely still at an early stage of a major event. The Fed will have its hands full, and it's been able to accomplish some impressive feats, but its capabilities aren't limitless. One way or another, there will almost certainly be an increased transfer of resources from those who are making out relatively well to those who are in dire straits.

Regarding the OP's question: Buffett's investing approach is not outdated. Buying great businesses (or partial interests therein) at good prices and keeping them for very long periods of time never goes out of style; it is one of the best ways to become rich and few have been more proficient at it than Buffett.

There was a great article in Fortune magazine in 1978, entitled "How Mr. Womack Made a Killing". Mr. Womack, a farmer, compared investing to farming, where there is a season to plant and a season to harvest. Planting during harvest season doesn't make for good results, and neither does harvesting during planting season. It is pretty clear that Buffett doesn't feel that this is planting season, for which reason he has $137+ billion readily available for such time when good deals again are available, as they inevitably are from time to time.

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Re: Is Warren Buffett's investing approach outdated?

Post by ValuationsMatter » Wed May 13, 2020 2:11 pm

Sorry, but no. Buying attractively priced 'good' businesses with long-term future growth prospects is not outdated. It's the way I wish all investors thought. The biggest gripe I have with investors in general is that it seems the majority of them have no consideration of the underlying fundamentals. There's the crowd that likes a product and so they buy the company. There's the crowd that hears headlines and buys the company. There's the crowd that believes the only thing that can be known is that the long-term future is always better than now.

Correct investing is thinking like a business owner, valuing the reward/opportunity against the risks, and employing capital wherever it makes the most sense.

Buffett has said time and again that diversification is protection against ignorance. At the same time, he advises index investing for his family and for us. How does one reconcile consistency in those comments? Simple, Buffett believes that the majority of people, including his family, are ignorant.

Remaining ignorant is a choice. Educating oneself is a time-consuming and likely expensive process.... and you may find that you only end up learning enough to be a danger to yourself. His approach is not outdated. It's fundamental.

ballons
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Re: Is Warren Buffett's investing approach outdated?

Post by ballons » Wed May 13, 2020 2:39 pm

stormcrow wrote:
Wed May 13, 2020 10:14 am
I do wonder if the post-2008 recession paradigm of the government being willing to step in to give loans or bailouts has rendered a big weapon in Buffet's arsenal somewhat toothless. In the past it would have been easier to pick up a solid but temporarily distressed company on the cheap. Now, the default position seems to be to seek funding from government sources before things become too desperate.
Agreed. Buffett is still holding on to the antiquated notion America has a free market and that deals found during extreme price discovery based on fundamentals. The Fed's moral hazard eliminated all that. I would go beyond toothless and say his arsenal is an albatross.

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