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I'm not trying to give investment advice, just explaining why you should be somewhat credulous about any sales pitch from a guy with vested interests in where y

I'm not trying to give investment advice, just explaining why you should be somewhat credulous about any sales pitch from a guy with vested interests in where you should put your money. It's not as simple as Buffett makes it seem.

hueving 10y ago
Buffets position is also backed by reality. On average, managed money will do worse because of the fees. The people making outsized returns are the minority. It's like going into a casino and arguing that the casino is losing because you see one guy hit a jackpot on the slot machine.
- roymurdock 10y ago
  Again, I'm not advocating for one strategy over another, just pointing out that Buffett's explanation is simplistic and that it is worth considering metrics other than average returns.
  - 0xEFF 10y ago
    I mentioned this above, but I think you're missing the point. For what you suggest to be worth considering, you have to believe you're something other than an average investor. But you aren't. That's who he was speaking to and speaking about. Average investors.
    - soared 10y ago
      Hes not arguing managed makes more money, just that within hedge funds there is variation, where there is no variation within index. The both have the same avg, but wildly different max/min/etc
0xEFF 10y ago
> It's not as simple as Buffett makes it seem. Yes, actually, it is. That's the whole point.
- meric 10y ago
  No, it isn't. If everyone in the room were passive investors, and a company like GM starts losing money quarter after quarter, the passive investors will not sell GM. The company will continue to maintain the same stock price. They will continue to issue stock to cover their losses. Issuing stock increases market capitalisation, passive investors will buy in, and keep giving the company cash. On the other hand, new companies will have no active investors looking at them. No active investors to issue IPO's to. The economy will stagnate. Eventually the entire portfolio the room holds will be money losing companies, burning up the country's capital. The half of the room who are active investors contribute greatly to the economy's long term growth. They could either have negative long run returns as passive investors, or positive long run returns that are less than passive investors.
  - jganetsk 10y ago
    This analysis is dead-wrong. Passive investors will sell GM, not buy in. Index funds are weighted by capitalization. So whether GM's capitalization goes up or not is actually irrelevant: what's relevant is the ratio of its capitalization to the size of the total capitalization of all companies in the market, and how that changes. Setting that point aside, here's some basic math that shows why this analysis is completely wrong and why GM's market cap will go down. Let's say today, I am the CEO of GM, and I issued 1 million new shares, bringing the total up to 1 Billion outstanding shares. I dump them on the market, when the price was $50. The price drops some amount, because shares are being sold. How much money did I, as CEO of GM, raise? At most $50 million How much could market cap possibly have gone up? Exactly the amount that was raised: at most $50 million How much could market cap possibly have gone down? Drop in stock price * 1 Billion So market cap increase is precisely equal to the amount of capital provided by investors, which is finite and won't run away into a vicious cycle as suggested by the poster. Market cap decrease can be... well... 100%, all the way to zero. And the more shares issued, the more downward pressure on market cap... as the effect of crossing the bid-ask spread on market capitalization gets amplified.
    - meric 10y ago

hueving 10y ago

Buffets position is also backed by reality. On average, managed money will do worse because of the fees. The people making outsized returns are the minority. It's like going into a casino and arguing that the casino is losing because you see one guy hit a jackpot on the slot machine.

roymurdock 10y ago
Again, I'm not advocating for one strategy over another, just pointing out that Buffett's explanation is simplistic and that it is worth considering metrics other than average returns.
- 0xEFF 10y ago
  I mentioned this above, but I think you're missing the point. For what you suggest to be worth considering, you have to believe you're something other than an average investor. But you aren't. That's who he was speaking to and speaking about. Average investors.
  - soared 10y ago
    Hes not arguing managed makes more money, just that within hedge funds there is variation, where there is no variation within index. The both have the same avg, but wildly different max/min/etc

0xEFF 10y ago

> It's not as simple as Buffett makes it seem. Yes, actually, it is. That's the whole point.

meric 10y ago
No, it isn't. If everyone in the room were passive investors, and a company like GM starts losing money quarter after quarter, the passive investors will not sell GM. The company will continue to maintain the same stock price. They will continue to issue stock to cover their losses. Issuing stock increases market capitalisation, passive investors will buy in, and keep giving the company cash. On the other hand, new companies will have no active investors looking at them. No active investors to issue IPO's to. The economy will stagnate. Eventually the entire portfolio the room holds will be money losing companies, burning up the country's capital. The half of the room who are active investors contribute greatly to the economy's long term growth. They could either have negative long run returns as passive investors, or positive long run returns that are less than passive investors.
- jganetsk 10y ago
  This analysis is dead-wrong. Passive investors will sell GM, not buy in. Index funds are weighted by capitalization. So whether GM's capitalization goes up or not is actually irrelevant: what's relevant is the ratio of its capitalization to the size of the total capitalization of all companies in the market, and how that changes. Setting that point aside, here's some basic math that shows why this analysis is completely wrong and why GM's market cap will go down. Let's say today, I am the CEO of GM, and I issued 1 million new shares, bringing the total up to 1 Billion outstanding shares. I dump them on the market, when the price was $50. The price drops some amount, because shares are being sold. How much money did I, as CEO of GM, raise? At most $50 million How much could market cap possibly have gone up? Exactly the amount that was raised: at most $50 million How much could market cap possibly have gone down? Drop in stock price * 1 Billion So market cap increase is precisely equal to the amount of capital provided by investors, which is finite and won't run away into a vicious cycle as suggested by the poster. Market cap decrease can be... well... 100%, all the way to zero. And the more shares issued, the more downward pressure on market cap... as the effect of crossing the bid-ask spread on market capitalization gets amplified.
  - meric 10y ago