Tag: t_Buffett

leverage≠killer_skill 4investors #Singtel

Posted on by tiger40490

— eg: Singtel .. in Mar 2006 Singtel held cash_balance (i.e. cash equivalent) to about 5month worth of operating expenses. In Mar 2016 that “cushion” was down to 14D of operating expenses. This is a form of financial leverage.

With a strong financial position, Singtel could easily tap capital markets (bonds etc) and bank financing to raise working capital. Therefore the increased leverage may or may not be a concern.

— eg: Lehman .. (based on https://hbr.org/2009/09/lessons-from-lehman) was overleveraged at 30+.
^^^^^^^^^^^^^^^^^^^^^^^^^^
In both cases, the leverage is powerful, enviable, a sign of strength when times are good. Those good times could last decades, so the observers may never notice the hidden weakness/risks.

Individuals can borrow from banks but corporations do that at a fundamentally deeper level — some players in a given market must take on leverage just to compete. My focus is _personal_ (and family) finance.

  • eg: Individual home buyers, car buyers … can avoid leverage. It may look silly, but legit.
  • eg: Individual currency traders can use low leverage like 10, even though it may be unexciting and slow.
  • — Below examples are not about leverage but about risk-taking for higher profit:
  • eg: Individual stock investors can avoid hot stocks, even though many believe “If you bother to trade U.S. stocks but avoid hot stocks, then what’s the point?”
  • eg: Individual stock investors can favor stocks with high dividend but low growth. This style is often sidelined, dismissed, but still a legit style. Many (me too) believe that the hottest growth stocks don’t pay dividends.

In many of these examples, the good times would cast these risk-averse individuals in bad light, as laggards, as /also-rans/, as “missed the show”, but what about in bad times? XR would probably agree with me that “strength would emerge”.

Buffett once quoted his partner saying “there are only three ways a smart person can go broke: liquor, ladies, and leverage.”

In my case, I actually take risky bets with my HY/PE etc but that’s a digression.

Buffett’s IBM “mistake” #hold to BrE

Posted on by tiger40490

99% of online discussions describe IBM as  Buffett’s misstep, but https://finance.yahoo.com/news/warren-buffett-ibm-very-profitable-171245620.html estimates that “As I noted in a previous article, this investment wasn’t a complete disaster. I put the estimated holding period return at 5% overall, including dividends.”

If you don’t read the fine prints, you would walk away with the wrong impression… Common System 1 weakness in news-based learning.

I think Buffett has in his career made many questionable buys, where he has to hold decades to breakeven, provided the asset is fundamentally productive asset, without erosive annual fees. I feel he can hold forever until breakeven of the asset becomes worthless like bankrupt. If he can, then I think he would.

time=onYourSide iFF…#patience #stableAppreciation

Posted on by tiger40490

 

k_babysit4exit

My friend Kun.H is the first one to remind me this vague yet powerful factor (See my Feb 2021 mail below). Warren Buffett also mentioned some variation of it. He wants to buy-n-hold for decades. IFF you choose wisely, then the assistance of Time can be effective and quick. I think ValueInvesting often shows powerful examples but not everyone is able to follow ValueInvesting principles.

— BnH: time is on your side if you buy and hold. If you try to time the market to exit, then time is probably not on your side.

Assuming BnH is a good thing, BNH proves to be much easier with real assets due to higher tx cost ?!

For both BGC and khm investments, I need many more years than initially planned (10Y). Luckily, I invested at age 41 and later, so I have a long runway.

— swans and price stability
With speculative assets, I don’t feel time is on your side. See https://tanbinvest.dreamhosters.com/1786/durability-asset-appreciation/

— ChineseBambooTreeParable .. is more relevant in pff than in other domains, because:

  • buy-n-forget .. you need due diligence to pick the seed. After that, you don’t need to babysit.
  • there’s an effective “system” at work, with the power to grow the asset. No such “system” outside the pff domain.
  • in pff, from Year 1 you can see the current value:) In the classic CBTP, the current value is $0 for four long years, i.e. no immediate result 🙁

Q: which asset classes are economically no-growth ?
* gold and oil … supposed to be scarce commodities with increasing demand, but the market may take decades to reflect that.
* bccy
— is time on your side in these asset classes? It depends on your horizon and other factors.

  • Time is usually on the side of productive assets, unless the payout rate is not growing enough.
  • U.S. stocks in general yes, but non-US tend to have long trough, so during your lifetime, Time may not be on your side.
  • U.S. index ETF .. long-term trend exceeds expRatio, so yes Time is on your side.
  • (see also mail below)
  • zero-coupon bond? Its value approaches par, but it is dubious to say Time is on your side. I guess in a volatile market, you can just hold the bond to maturity and therefore Time is on your side.
  • rEstate in developing countries — yes (but probably not in most parts of U.S. See blogposts on Brian.)
  • .. For rEstate, Time can be a lifetime 😉
  • REITs .. yes the rental payout gives hope that Time is on your side.
  • small amount of physical gold (so that I can keep at home at very small negative DYOC)? Time may not be on your side as gold long trough can last decades.
  • mufu? with expense ratio time is on fund manager’s side
  • FX? No
  • annuity like CpfLife? probably yes. The longer you live, the more payout you receive.
  • endowment and other insurance products? questionable
  • .. Note there’s a high expense ratio in all insurance products, worse than mufu.

—– Letter to Kun.H
I like your comment about “have time on our side”. Mutual funds have an erosive expense ratio, so time is on the fund manager’s side 😉

To have Time on my side, one of my habits is buy-n-hold. (A related habit is buy-n-forget, as explained in the earlier mail below. If I must babysit my positions, then Time is not really on my side.)

Q: Do stock markets show long-term growth more than inflation?
A: Not sure. Depends on the region and the timeframe. Most authors use U.S. equities history over the past 100 years. What if they only look at the last 20Y? What if they look at another region beside the U.S.?
A: Beware of survival bias. There are thousands of growth stocks (including fake and failed growth stocks) in the last 50 years, but if we include all stocks across all equity markets, the long-term trend would look less convincing, less foolproof.

In contrast to growth stocks, look at T:US. Not much of a long-term trend,  but it delivers a consistent dividend, following a sustainable DPR (dividend payout ratio). Looking at my dividend stocks like T:US, I feel “Growth is overrated and based on flawed analysis but dividends seldom lie.”

Our friend, Time, is a big help in dividend stocks — If the business has healthy profit, cash flow and DPR, then time will prove that the stock is worth buying. Its valuation will tend to grow with the overall market, perhaps at a low beta.

With growth stocks, Time is even more helpful. Beware
* we must pick the real growth stocks not fake ones (with dividend stocks I mostly look at track record only)
* we may need to baby-sit them after we buy (less baby-sitting for dividend stocks… buy-n-forget)

It’s easier to be patient with an investment when it generates periodic cash incomes.

You raised the excellent question about bonds. High coupons are usually on long bonds… where inflation (Time) is NOT on our side. In contrast, about half of my dividend stocks could hopefully grow with the stock market. Both dividend amount and stock price would grow. Nevertheless, there is indeed a chance that my dividend stocks underperform bonds.

With both growth stocks and dividend stocks, we need to have Time on our side and we need patience.

My objective is not windfall appreciation. My objective is a dependable income, like retirees. For my objective dividend stocks are safer. I believe Time is on my side. Time will tell.

ez2hit high return but..Sustainable@@ #luck #w1r3

Posted on by tiger40490

MOETF return is likely lower than Buffett, which is likely no better than sp500
Do I envy those with higher annual returns? Typically we are seeing BTC or growth stock investors.

——

See also

  1. ##hot^beloved asset classes 喜新厌旧
  2. MOETF: lower return than SP500 likely which points to beatIndex^absReturn: choose your goals
  3. j4 MOETF #w1r4

Background: I often feel my MOETF “system” is under fire when lots of fellow investors seem to make higher returns either quickly or over a short few years. Are their returns sustainable?

It’s crazy to use (realized or unrealized) return alone to compare 2 portfolios, ignoring quality of return, fundamentals, crashes, and variouis risks (liquidity risk, credit risk, investor sentiment risk). Buffett’s portfolio probably shows better risk-adjusted return than sp500.

I would say if the investor pockets the realized profit and stand aside with detachment, then she is wiser than most. But such wise investors are rare.

Some investors make “enough” (like USD 2M) and then scale back risk capital level to $100k .. “cash out n quit”.  But such ungreedy investors are rare if under age 60.

— jolt: sustainable if buy-n-forget→ sleep]peace, focus@work. With high growth investments (including BTC), can you sleep in peace?

— jolt: Intern… Learning is an absolutely essential process (takes years) before people can have reason to believe your high return is sustainable.
There are various types of knowledge/experience to learn. Here I tend to think of EE/AA.

If higher return were sustainable without substantial learning and risk analysis, then this would be similar to an arbitrage or a Ponzi scheme.

— jolt: arbitrage or Ponzi/pump-n-dump
Q: deep down, do you really believe your SP500 ETF would show compound return at least 8% a year for the next 40Y, with at most one negative year in any 5Y window? I think many respected publication assume just that.

If you believe it, then to you this represents an arbitrage or Ponzi scheme. You should really borrow money to the max and invest in SP500 ETF.

— jolt: diversification .. A related perception is “To beat the broad SP500 index, you will need higher concentration on growth stocks.” — this perception is very dangerous. Look at Shopee. High-risk-high-return.

Diversify to international stocks .. is a recommendation for U.S. stock investors. However, if you allocate 30% this way, usually it would reduce your portfolio average return.

— eg: hot growth stock investors … even index investors can hit higher return than my div-centric MOETF system.
— eg: personal xp: 1997 commodity trading .. return too high. My agent said 18% a month. Clearly unsustainable.
leveraged trading !
— eg: dot-com boom-n-bust .. https://www.fool.com/investing/best-warren-buffett-quotes.aspx says “I can’t think of another period of time when it was easier to make money in the stock market. ”
— eg: bccy.. I think the believers of growth stocks would also consider cryptocurrencies (Zhang Jun?), even though they recognize the fundamental differences between bitcoin and growth stocks in terms of economic value.
— eg: leverage .. some investors even borrow money to trade stocks. With $100k capital, they get to trade $200k and hit higher returns on capital
— eg: xp of many non-US investors .. newbies tend to lose money in stock-picking outside the U.S. I guess this is worse with growth stocks. In contrast, index investing looks like safer.

##Buffett quotes #BnH

Posted on by tiger40490

— “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.”

— “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Fair meaning mediocre
— “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.” — don’t keep buying at lower prices if the business (not stock) is not performing as you expected. Leaks probably means annual losses.
— “Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” — impulses, infatuations, fears
— “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
— “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”
— “The difference between successful people and really successful people is that really successful people say no to almost everything.”
— “For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.” — market timing?
==== don’t focus on a fellow investor’s trec in good times
— “Only when the tide goes out do you discover who’s been swimming naked.”
When the market goes up and up, everyone looks like an investing genius. It’s only when things go sour that you see who actually has a good long-term strategy.
==== beware of infatuation with new technology
— “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” — Buffett is not keen on innovative technology, but destructive innovation can hurt a cash-cow’s durability-of-advantage
— “In the business world, the rearview mirror is always clearer than the windshield.”
Focus less on prognosis. Historical data is always more accurate than future projections
— “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
I think in the short term, you can, simply because of first-mover advantage, momentum and other investors’ herd mentality.

==== on buy-n-hold
— “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
— “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Note when the “outstanding” becomes mediocre, then holding period may need adjustment.
— “Buy into a company because you want to own it, not because you want the stock to go up.”
— “Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”
I think “market” means liquidity or opportunity to sell for a profit, similar to :

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

 

Buffett no longer beating (only)SP500

Posted on by tiger40490

Note SP500 is all-large-cap and all-US.

Buffett is no longer beating the SP500 in annual returns.

https://www.fool.com/investing/2019/12/22/5-reasons-warren-buffett-didnt-beat-the-market-ove.aspx is one of the better explanations.

In https://kernelwealth.co.nz/buffett-vs-sp-500/ , When asked whether Berkshire or the S&P 500 would be a better investment for a long-term investor, he did not hesitate to answer that “I think the financial result would be very close to the same”. Note he said “financial”, and only U.S. index can match Buffett’s financial results.

I wonder why Buffett (and many others) still stick to value investing “systems”? A big , complex question, but I don’t mind offering my simple, naive answers.

  • I believe value-investing is safer, less volatile, lower beta, higher Sharpe ratio.
  • tCost is higher, but I think the investor has better peace of mind than a SP500 tracking ETF investor.

Buffett@market timing: 2meanings

Posted on by tiger40490

k_babysit4exit

Disambiguation of “timing” — It can mean the strategic importance of AA) acquisition price, or BB) price forecast, including prediction of turning points using analytical or math methods.

No one disputes the importance of AA. BB is controversial.

I don’t know how Buffett perceive BB. Value investors are not supposed to time the market(BB). However, in a down turn, there are more bargain opportunities. See the book by Pauline Teo. In my experience, I can see that timing in AA sense (or random luck) is a major factor but there’s not much we can do about it[1], except obvious things like “avoid buying after a climb”.

  • Buffett (AA): “For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.”
  • Buffett (BB): “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.”
  • Buffett (BB): “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
  • [1] Buffett (BB): “If you like spending six to eight hours per week working on investments, do it. If you don’t, then DCA [ dollar-cost average ] into index funds.” — no timing please

[1] I can say the same about absorbency for financial numbers. This absorbency is not easy to train. If you don’t have this absorbency, then consider low-cost index funds.

— https://www.cnbc.com/2022/05/03/warren-buffett-why-you-should-navigate-not-predict-the-stock-market.html says

Buffett recommended against obsessing over finding(BB) a perfect time to buy a stock. Rather, the Berkshire Hathaway CEO said, go ahead and invest, and then observe the stock market over time to see if you should buy more of that company’s stock or sell it.

Buffett favors stocks over gold/BTC

Posted on by tiger40490

— gold

  • “I have no views as to where it (gold) will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money, and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.”
  • “You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what it’s worth at current gold prices, you could buy — not some — all of the farmland in the United States. Plus, you could buy 10 ExxonMobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

— bitcoin:

  • “Bitcoin has no unique value at all,”
  • “You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more. You aren’t investing when you do that, you’re speculating.”
  • “Stay away from it. It’s a mirage, basically…The idea that it has some huge intrinsic value is a joke in my view.” — However, the market, the regulations are changing.

over-rely@eq analyst ratings@@ #w1r4

Posted on by tiger40490

Opening example: https://www.fool.com/investing/2020/12/28/scoop-up-10-highest-yielding-dividend-stocks-2020/ is a survey of 10 stocks, featuring many analyst prognoses. I think a lot of obvious signs are easily missed by casual observers but not by analysts. Analysts are paid to write research. I have a few ex-classmates paid pretty good salaries doing this research. I assume they have some evidence for their recommendations.

Most of the recommendations/reviews have a focus on overvalued/undervalued, over the medium term (I won’t specify how many years). This is not exactly my horizon, as I tend to buy-n-hold longer.

Site1: https://www.moneycrashers.com/stock-market-analyst-rating-accuracy/

— Quality concern: stale … Target price is more useful (in MOETF) than the rating, to feature on my blogpost titles. If a 100% BUY is given at price $97, before a surge to $152, then obviously the BUY rating is invalidated immediately.

Time horizon — Site1 says “analysts only follow 12-month time frames”. I think target audience often act on the recommendation and keep a position for years. However, Overpriced/Undervalued ratings are always tied to a price level, and loses relevance as soon as the stock experiences a big move. That’s presumably why 30 days later there will be a bunch of new research published for the same stock.

— Quality concern: selfish agenda .. Many online commentators accuse equity analysts of selfish bias, written to brainwash the lay public, for their self-interest (including indirect assistance to their paid clients). I think it’s valid suspicion and accusation. Site1 explains that analysts are more likely to rate a stock a buy than a sell. However, I want to hold a balanced view. In defense of the analysts I would point out

  • The analysis is a detailed writing, not a one-sentence stock tip.  There’s a track record to each analyst. If the equity analysis is all commercial propaganda then its track record would have discredited itself. Maybe it has happened, but I see that the mainstream news still cover them
  • Analysts are paid a high compensation, so there’s probably some evidence beneath their writing.
  • If there’s only one analyst, then I would suspect her motive. 9 analysts all have self-interests and would unlikely to give identical ratings. However, analyts in general tend to give Buy.
  • Do you have the same suspicion over Buffett’s pick?
  • Site1 says A) analysts are more likely to rate a stock a buy than a sell, B) if the vast majority of analysts that cover a particular stock rate it a sell, that acts as a big red flag that something is wrong with the company.

— Concern: tcost .. reading the fine print is time-consuming and perhaps poor ROTI. Therefore, when I look at ratings I mostly look at the percentage “breakdown”. Fine prints can contain crucial details, esp. in fiancial statements, but not in analyst reports! The analysts write to attact attention, so they would not bury important details in fine prints !

In absolute terms, I spend very few hours on analyst ratings or online recommendations. Longest article I would on a stock is 100 words.  However, within my 3-min due diligence framework, media-research is a big component indeed.

Note: Unlike MOETF, Index investing requires very little media research.

— A final, big question .. Q: Let’s say we rank the various inputs (to our decision making), and let’s say 30% is a reasonable level of influence by media (analysts++), then am I too receptive/attentive?

(But Why bother with this question? I think this question might come up during my discussions with other investors. Also, the degree of influence is a non-trivial factor esp. in eq investing. )

Buffett: “Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”

Independent research .. sounds cool, esp. to an idealistic investor. In reality, it is foolhardy to buy (or sell) against visible consensus among analysts.  When too many analysts say “Overpriced” then I’m very reluctant to buy. I guess this is prudent of me. Overpaying for a stock would hurt my DYOC for years. Therefore, harmony is needed.

It’s quite common to encounter one negative forecast for my “favorite of the month”. We can either A) ignore it, B) reduce our purchase, or C) cancel it. Which option is independent? (A). We have no time to do our independent research. So I never choose (A). Since the media does affect my decision-making, how do I manage its influence? I limit my research t$cost.
* tcost .. a big factor. See section above.
* $cost .. So far I don’t feel the need to pay for advice.

— which rating sites are convenient
https://www.tipranks.com/stocks/gain/forecast .. 96,000 financial experts, including Wall Street analysts, financial bloggers, hedge funds, and corporate insiders,

  • 🙂 has a “enter stock name” search box. Easily click into the box -> type “MSFT” and Enter.
  • 🙂 has a link to dividend data
  • 🙂 the sentiment dashboard (left menu -> StockAnalysis) … comparable to analyst rating.

https://money.cnn.com/quote/forecast/forecast.html?symb=gm ..

  • to change the trailing ticker string, you need to double-click exactly on the symbol string embedded in the URL, then type the new symbol, and Enter. Slightly harder than TipRanks.
  • 🙂 historical ratings .. nice presentation
  • 👎 small print, esp. on count of Buy/Sell

mufu: y recover slower than ETF: illustrated #1.5% typical ExR

Posted on by tiger40490

Buffett said: “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”

Q: why statistically most mutual funds under-perform the benchmark?

1.5% is a typical management fee, similar to GSAM/PWM quarterly fees. Suppose I invest the same amount in two similar funds — an ETF vs a mutual fund.

  1. 12k -> $180 fee = 1.5%. Second year my ETF becomes
  2. 10k -> $150
  3. 8k -> $120
  4. 9k -> $135
  5. 8k -> $120
  6. 8800
  7. 10k -> $150
  8. 11k -> $165
  9. in this year ETF recovered to 12k, but mutual fund is about 10% (at least 1k) below break-even.

It took 8 years for ETF to recover, but it would take the mutual fund a few more years.

in https://www.newretirement.com/retirement/the-lockbox-strategy-and-10-other-retirement-income-tips-from-nobel-laureate-william-sharpe/, Sharpe pointed out the same annual fee eroding a retiree’s returns.

— William Sharpe concluded that active fund managers underperform passive fund managers, not because of any flaw in their strategies, but because of the laws of arithmetic. In order for active fund managers to beat the market by just 1%, they would need to achieve an excess return of more than 2% just to account for the average 1.19%  management fee.

https://www.investopedia.com/terms/m/managementfee.asp