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The secret is that Buffett isn't beating the market by 7-10% a year over decades. He's not a hedge fund prodigy, he's a management prodigy. His companies beat
by paulmd 10y ago
The secret is that Buffett isn't beating the market by 7-10% a year over decades. He's not a hedge fund prodigy, he's a management prodigy.
His companies beat the market because he is the antithesis of the quarterly-numbers-driven model of Wall Street. He focuses on fundamentals, long-term value, and having leadership that's on the same page. He makes sure his businesses aren't underspending on fundamentals or overspending on inessentials, and then he gets out of the way.
Saying that Buffett "beats the market" is like saying that a sports coach is really good at picking winning teams. His companies outperform the market because Buffett enables them to outperform the market.
(on top of that, yes, he's a savvy investor and he's made some ballsy calls - but absent his management I doubt you would see him doing better than the 2% that other actively-managed funds can earn above the market return)
- adventured 10y agoYour information is incorrect. As an investor - not as a manager - Buffett stomped the market for decades prior to the modern concept of Berkshire Hathaway becoming the business model. Numerous other Graham disciples likewise stomped the market over long periods of time. https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors https://www8.gsb.columbia.edu/articles/columbia-business/sup... Going further, other well-known value investors applying similar approaches (by their own admission), stomped the market as well. Those include the likes of Phil Fisher and Seth Klarman. The out-performance isn't subtle, it's dramatic, and it takes place over long periods of time.
- davidivadavid 10y agoHow many Graham-trained "superinvestors" never beat the markets, though?
- axlprose 10y agoWhat "superinvestors" are you alluding to here? Are you suggesting that getting investment advice from Graham is sufficient to reproduce the kinds of returns he and Buffett have had? Because that seems like an unrealistic expectation, and a totally orthogonal argument to whether or not investors can "beat the market". It's like talking about Google and then asking how many other Stanford CS grads never went on to start successful tech companies. Learning from somebody good doesn't automatically guarantee you'll end up being as good as them afterwards, for a variety of factors.
- isolli 10y agoThe point was about selection bias: just because you can observe n successful Graham investors in the wild does not tell you how many Graham investors there were to begin with. Nor does it tell you whether the proportion of successful Graham investors is greater than the proportion of successful investors from other schools.
- paulmd 10y ago> Learning from somebody good doesn't automatically guarantee you'll end up being as good as them afterwards, for a variety of factors. Exactly the point. How many students did Graham have over the years who flunked out, or went on to underperform the market? How many articles got written about those guys?
- kmonsen 10y agoI think beating the market was way easier in earlier times because the markets were less efficient. These days everyone have data and watch metrics.
- valuearb 10y agoMetrics are useless without philosophical and psychological commitment to the process. Many mediocre value investors can do valuations all day, understand moats, and then allow tons of biases to cloud their thinking and panic at the worst times. Then there's the guys who do valuations, then look at the charts to pick entry/exit point s, as if they can predict price action. With so many people doing it wrong, is there any reason to doubt the market is still inefficient? Buffett has never used computers. He reads financial reports. He doesn't want to know the market price until he's estimated a valuation, so he doesn't bias his decision. He's not staring at the tape or CNN so he doesn't get wound up to make knee jerk decisions. He sits around and reads and learns.
- gnaritas 10y agoReplace the word value investor with lottery winner and perhaps the logical error you're making will become more obvious; one can name lottery winners all day long, it doesn't validate their strategy, it's simply survivorship bias. I'm not saying value investing doesn't work, just that your argument for it is ill formed, pointing out successes is not a rational argument for something. You have to know how many failures there are as well and need the same information for other strategies you're saying are less effective.