tag:blogger.com,1999:blog-5389144729834496735.post7910288331307193237..comments2024-03-17T05:15:55.634-04:00Comments on The Brooklyn Investor: Buffett the Market Timer? Part 1: The Partnership Years Unknownnoreply@blogger.comBlogger18125tag:blogger.com,1999:blog-5389144729834496735.post-31867739816152079312014-03-28T12:00:56.151-04:002014-03-28T12:00:56.151-04:00Thanks for the reply. Much to think about.Thanks for the reply. Much to think about.John OBnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-80786239786968707542014-03-27T21:52:00.415-04:002014-03-27T21:52:00.415-04:00I think he has evolved over time. He said that he...I think he has evolved over time. He said that he used to be more quantitative like Graham but gradually moved to the qualitative approach (away from cigar butts and to more moated businesses etc.). <br /><br />As for how much to stay invested is a tough question, but it will vary according to your situation. If you have an income and you are young, then there should be no problem being 100% invested. Why not? Even if there is a bear market, it doesn't matter as you can keep buying with new cash you are earning. <br /><br />But on the other hand, if you are the nervous type and you freak out from big numbers, then maybe you want to temper your exposure (and then let it grow). For example, if you inherit $1 million suddenly and then put that in the market, you might see $100,000 or $200,000 losses (temporarily). That would freak out most people who are not used to those kinds of numbers. In that case, it's probably a better idea to gradually move into stocks and get used to the volatility. Or else your first monthy statement that shows you down $60,000 in a single month might prove too upsetting. <br /><br />I can imagine billionaires not wanting to see even a $1 million mark against them. <br /><br />Also if you have so much money that money is not an issue, then you can probably afford to have a lot in the markets too. Buffett is 99% in BRK and doesn't worry about volatility because he has so much that even after a 90% loss, he would still have more than enough to live comfortable. So why worry? Plus his 1% is probably enough to live off of too. <br /><br />So there are all these different factors involved. And yes, there may be a tactical reason to keep cash too; have some cash available in case of another bear market. For some people, if it makes them feel better, its probably not a bad idea. But then again, if you have income, there is always cash coming in so maybe people don't need as much cash lying around as they think. <br /><br />On the other hand, if you need cash in the near future, that cash probably shuoldn't be in the market. Again, unless you have so much that it's not going to affect your lifestyle... <br /><br />Oh, and for generals, in BPL, I do think it's just regular undervalued situations; low p/e and things like that. <br /><br />Thanks for reading. <br /><br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-8805696106589411102014-03-27T20:32:56.000-04:002014-03-27T20:32:56.000-04:00Another great post kk. Always enjoyable. Persona...Another great post kk. Always enjoyable. Personally, I struggle with this same issue (guess we all do): That is whether to remain fully invested in undervalued stocks (along with the usual 30%-50% drawdowns the market periodically provides) ...Or, keep 20% to 50%? in cash/dry powder for the inevitable bears. It seems Buffett's version of 'fully invested' makes a lot of sense (although, we cannot duplicate this exactly nor do we have the track record to keep partner dollars coming.) <br /><br />Having read most of the partnership letters, I am most intrigued by his evolution as an investor. You allude to it in this article. My question is, during the first few years of the partnership, was he more of a quant/numbers guy ...like Graham? And along those lines, in his 1965 letter, he adds a "4.) Generals-relatively undervalued" category. With this addition, is he simply looking at two businesses in the same industry and buying the one a P/E of 12x and avoiding the one at 20x? The 'value to a private owner' did not apply since these were large companies, he says. So, he apparently changed his criteria for purchase from calculating IV to just buying the cheaper of the two. Whereas now, he's back to estimating the IV of a firm and/or future cash flows. <br /><br />I guess I also need to account for the growing size of the partnership and Buffett's ability (or lack thereof) to buy smaller businesses as time went on.<br /><br />Thanks again and I'll read parts II ,III & IV next.John OBnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-47366364440487941162014-03-25T21:16:53.241-04:002014-03-25T21:16:53.241-04:00He turned over the portfolio a lot more back then....He turned over the portfolio a lot more back then. He wasn't the "favorite holding period is forever" investor then. In one of the partnership letters, I think he said that the ideal was to own the cheapest stocks at a given moment all the time, but that's not practical... (I always wondered that if you always owned the cheapest stock every single day, when would they ever go up?! You would sell the cheap stock to buy another cheap stock the next day etc...). kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-43654600669248202302014-03-25T19:54:53.760-04:002014-03-25T19:54:53.760-04:00How does Buffett stay fully or near fully invested...How does Buffett stay fully or near fully invested during the partnership years? Do people contribute to the partnership on regular/periodic basis? Or was it just selling out of something - the special situations or general issues? If it's selling to get more cash to re-invest, then what's the criteria for that? Selling the general issues could be when they reach fair or overvalue status, but at that point, market conditions could contribute to the overvaluation, I would think.<br /><br />Apologies if the question sounds amateurish. villainxnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-9601464786194953692014-03-25T06:45:09.540-04:002014-03-25T06:45:09.540-04:00I don't know. To me, CHTR is sort of a specia...I don't know. To me, CHTR is sort of a special situation, but not really a "Stock Market Genius"-type idea, which is what Buffett might be looking at for special situations. I don't know but I would guess he would be looking at distressed debt too.kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-91863770518161791372014-03-24T18:29:51.759-04:002014-03-24T18:29:51.759-04:00Hi Brooklyn, great post, thank you! Interested to ...Hi Brooklyn, great post, thank you! Interested to get your thoughts on whether ideas like Charter Communications or other examples of 'corporate change' are the sort of things Buffett looked at to "partially insulate" himself from the level of the general market, or whether he mostly stuck to merger arbitrage, and the "work- outs" were in fact, a little different from these sorts of investments. JShttps://www.blogger.com/profile/08904723048739814528noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-56014371590126501572014-03-24T12:47:18.309-04:002014-03-24T12:47:18.309-04:00Buffett is no market timer. He looks at valuations...Buffett is no market timer. He looks at valuations. That much is obvious. He always gives his viewpoints of the *valuation* of securities and markets, and he never makes predictions about *when* the market will change. He doesn't have to, because if he is right about the valuation, then it will lead to a good investment return regardless of whether he gets the timing right. However, when the market gets really out of whack, it *appears* as if he is timing the market because severe over- or under-valuations are not a stable situation.<br /><br />As Buffett once wrote:<br /><br />“We try to *price*, rather than *time*, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?<br /><br />We purchased National Indemnity in 1967, See's in 1972, Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott Fetzer in 1986 because those are the years they became available and because we thought the prices they carried were acceptable. In each case, we pondered what the business was likely to do, not what the Dow, the Fed, or the economy might do. If we see this approach as making sense in the purchase of businesses in their entirety, why should we change tack when we are purchasing small pieces of wonderful businesses in the stock market?”<br />- 1994 Letter to Berkshire Hathaway shareholders<br />http://www.berkshirehathaway.com/letters/1994.htmlMark Cancellierihttp://markcancellieri.com/noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-32797492182261156562014-03-24T07:53:29.604-04:002014-03-24T07:53:29.604-04:00One of the best posts I've seen for a long tim...One of the best posts I've seen for a long time! I've read Buffett's letters before but never really focussed on this aspect of it and it makes me feel a little better about being almost fully invested in this fully valued market.<br /><br />For small investors there are always opportunities around for us to be fully invested (of course not always possible for us to find them!)Investing Sidekickhttp://investingsidekick.comnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-36633703595302988382014-03-23T18:56:52.493-04:002014-03-23T18:56:52.493-04:00All good points. I think 2006-2007 was high valua...All good points. I think 2006-2007 was high valuation/low variance for sure; I had trouble finding things to do. Now may be getting similar. <br /><br />But the point is still the same; today, even with these high prices, Buffett still likes stocks, regardless of his stockpicking skills (because he was stuck with the very large caps). <br /><br />I will get to that in part 2. <br /><br />The point of this post, collectively including the other related post, is that you will want to own businesses that you like and not worry too much about valuation. In the 1986 annual report (which I will write about in part 2), he even goes as far as to say that he would not sell his 'permanent' holdings even if they got substantially overvalued. <br /><br />And the point here, too, is that it's better to sit through overvaluation/undervaluation cycles and just earn the growth in intrinsic value of a godo business over time rather than to try to buy and sell stuff according to what you think it will do. This doesn't mean that it's a bad idea to sell an overvalued asset to buy an undervalued asset. <br /><br />This gets a little hard to sort out and discuss, though. I will try to get to that and clarify that in part 2... <br /><br />Thanks for commenting. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-69123819216682110542014-03-23T18:46:37.541-04:002014-03-23T18:46:37.541-04:001) These extracts seem to indicate that Buffett is...1) These extracts seem to indicate that Buffett is/was no better at macro predictions of market movements than much anyone else. Long-duration bonds got clobbered in the 1970s during two large bouts of inflation, and I think the S&P did comparably much better over the next few decades though I don’t have the data at my fingertips. That said Buffett recognized the limitations of his own macro assessments when he said “All of the above should be viewed with all the suspicion properly accorded to assessments of the future. It does seem to me to be the most realistic evaluation of what is always an uncertain future - I present it with no great feeling regarding its approximate accuracy.” <br /><br />2) The aim of the post seems to be a bit off, though, because value investors are really interested in pricing individual securities, not the market itself. <br /><br />What’s missing from this analysis of market pricing is a discussion of other statistical moments beyond the (arithmetic) mean. We don’t necessarily need to talk skew and kurtosis even. But since Buffett was buying individual securities not market indices, discussing the mean valuation of all of collective securities without discussing variance in valuation between securities, simply misses the point. It reminds me of an old joke about an economist with one hand in freezing water and another in boiling water—and he’s says that on average things are a tad warm. The point is that dispersion matters a lot. <br /><br />If you read market commentary of Seth Klarman, for instance, you’ll see a viewpoint that there was high mean pricing and extremely high variance in pricing in the late 90s (with large names very highly valued and small cap names very cheap), whereas more recently the indication is that mean pricing is high and variance is relatively low. <br /><br />[Unfortunately, I don’t have much Baupost commentary from 2006-2007 on hand though.] <br /><br />Fundamentally value investors buy ‘cheap’ or attractively priced investments. In a market that has high mean valuations and high variance, these investments can generally be found. In a market that has high mean valuations and low variance, they generally cannot. They are really very different animals. In the latter case, if investors cannot find attractively priced securities, going to cash (or looking at different asset markets or different countries’ markets) makes logical sense. In the former case, if an investor cannot find attractively priced securities, it probably tells you more about that person’s investing acumen than anything else. <br />Dnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-60223826667088906402014-03-23T18:43:59.875-04:002014-03-23T18:43:59.875-04:00Are you referring to the WESCO investigation? Tha...Are you referring to the WESCO investigation? That was in the 70s. If there was something in the 60's (I don't remember) then that would only reinforce the point of the post. <br /><br />Thanks for reading. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-17362544612499876462014-03-23T18:42:43.773-04:002014-03-23T18:42:43.773-04:00Thanks. I will revisit these articles in Part 2. ...Thanks. I will revisit these articles in Part 2. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-41431881807831921122014-03-23T17:01:48.356-04:002014-03-23T17:01:48.356-04:00Phenomenal. You have an excellent way of revisitin...Phenomenal. You have an excellent way of revisiting Buffett's work and creating studies that other people don't necessarily see. I really look forward to these. Taylorhttp://blindspeculator.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-49852098618053921052014-03-23T10:30:43.594-04:002014-03-23T10:30:43.594-04:00You overlook the late 1960s SEC investigation of h...You overlook the late 1960s SEC investigation of his partnership. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-44736410479125755312014-03-23T05:30:46.862-04:002014-03-23T05:30:46.862-04:00Thank you for the posting! Also in recent intervie...Thank you for the posting! Also in recent interview Buffett said something on his market timing/advice giving rationale:<br /><br />BECKY: But when you did that, when you bought into it, you say you don't look at macros. I can think of times from the past when you have looked at macro effects. When you looked back with stocks at a low you told Americans to buy stocks with both hands.<br />BUFFETT: Well, occasionally--<br />BECKY: Yeah.<br />BUFFETT: --stocks are just demonstratively cheap. I mean, really demonstratively cheap. And--I wrote an article in 1974-- or, I did an interview with Forbes—and in 2008 I wrote an article for The Times. And, I mean, there are occasionally when they're just ridiculously cheap. But-- most of the time they're good value. <br />BECKY: Uh-huh.<br />BUFFETT: But there have been a few times when I thought they were so cheap that I-- I should say something.<br /><br />And for sure he said more than "something" on the dot com bubble, when stocks were really expensive: <br /><br />First:<br />http://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071/<br />And later:<br />http://money.cnn.com/magazines/fortune/fortune_archive/2001/12/10/314691/<br /><br />So probably it is all about extremes, when it really makes sense to speak or do something. Put it another way, Li Lu answer to the question on overall attractiveness of equities: "I also put that into "too hard" and "I know I don’t have to know." I only think about it when things go to an extreme. I don’t foresee that as going to the extreme, either way. In that case, I know I don’t have to know."<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-77293482853334567292014-03-23T01:14:34.939-04:002014-03-23T01:14:34.939-04:00I'm fuzzy on the details, but I distinctly rem...I'm fuzzy on the details, but I distinctly remember the book "Snowball" covering Buffett's reasons for shutting down the partnerships.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-42181871912713710742014-03-22T23:37:55.187-04:002014-03-22T23:37:55.187-04:00Thank you, this was great. Always fun to revisit B...Thank you, this was great. Always fun to revisit Buffett's old letter, and the way you put them together makes for a very convincing case. Keep up the good work!Anonymousnoreply@blogger.com