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You cannot perform above average without an information asymmetry. This asymmetry may be either because you found "bug" in financial system or insider informati

You cannot perform above average without an information asymmetry. This asymmetry may be either because you found "bug" in financial system or insider information or custom data collection. The test for "good" funds is essentially what information asymmetry they have. If their answer is "good fund managers", "years of experience", "past performance" etc then it's not concrete asymmetry and most likely won't work over longer term.

valuearb 9y ago
Buffett clearly disproves this theory. The reason is it's ignoring the overwhelming impact of bias and mal-incentives. Hundreds of thousands of investors have professional training in valuation techniques Buffett uses. But 99% don't make the same use of that skill as Buffett does, for reasons that include 1) they can't buy in to using valuation as their sole investment criteria. They want to be "smarter", thinking they can see things others can't using psychology or charts or other pseudo sciences. 2) They fall sway to Mr Market ( read the Ben graham parable). 3) They can't sell value to clients and only want a strategy clients will pay for. 4) Buffett spends a great deal of time trying to make decisions free of bias. A CFA program teaches you nothing about this, but it's critical to good valuation work. For example, WEB does not want to know the stock price of a company he's analyzing until he's made his valuation estimate. He doesn't want to be biased into giving a too high valuation to a company he loves just to ensure he can buy it. Lastly, there is a meta level to value investing. A great valuation at a current price isn't enough if the company lacks a competitive moat, or management can't be trusted to treat shareholders well. First level cigar butt value investors never learn this.
- lootsauce 9y ago
  Or perhaps Buffet has an information asymmetry. Don't you think when he is interested in buying a company that may not even be in the public market that the meetings, tours of facilities and financial due diligence represents a significant information asymmetry. This information is probably available to any who seek it but not practically to most.
  - gozur88 9y ago
    That's the whole point of a mutual fund (of any kind). You're paying them to do things you couldn't possibly justify given the size of your portfolio. If all they're doing is sifting through quarterly reports they're not providing much value for your fees.
  - valuearb 9y ago
    Well first, Buffett still buys lots of shares in public companies. His first few decades were almost entirely public companies. Second, any investor running an investment fund can make offers on private businesses, and get the same tours. Its not an informational asymmetry, it's what you do with it. Walter Schloss is another great example. Beat the market by 5% a year for over 40 years, did it buying exclusively the doggiest public companies. He was the ultimate cigar butt hunter. His advantage wasn't information Wall Street didn't have, it was his willingness to use information Wall Street wouldn't, to invest in opportunities they would not. Buffett does have one informational edge, his experience and judgement. He knows how value works, he has total confidence it works, and he never panics, even when down 50% in 2008. He never leverages himself in a dangerous manner, never gives someone else control over his decisions.

valuearb 9y ago

Buffett clearly disproves this theory. The reason is it's ignoring the overwhelming impact of bias and mal-incentives. Hundreds of thousands of investors have professional training in valuation techniques Buffett uses. But 99% don't make the same use of that skill as Buffett does, for reasons that include 1) they can't buy in to using valuation as their sole investment criteria. They want to be "smarter", thinking they can see things others can't using psychology or charts or other pseudo sciences. 2) They fall sway to Mr Market ( read the Ben graham parable). 3) They can't sell value to clients and only want a strategy clients will pay for. 4) Buffett spends a great deal of time trying to make decisions free of bias. A CFA program teaches you nothing about this, but it's critical to good valuation work. For example, WEB does not want to know the stock price of a company he's analyzing until he's made his valuation estimate. He doesn't want to be biased into giving a too high valuation to a company he loves just to ensure he can buy it. Lastly, there is a meta level to value investing. A great valuation at a current price isn't enough if the company lacks a competitive moat, or management can't be trusted to treat shareholders well. First level cigar butt value investors never learn this.

lootsauce 9y ago
Or perhaps Buffet has an information asymmetry. Don't you think when he is interested in buying a company that may not even be in the public market that the meetings, tours of facilities and financial due diligence represents a significant information asymmetry. This information is probably available to any who seek it but not practically to most.
- gozur88 9y ago
  That's the whole point of a mutual fund (of any kind). You're paying them to do things you couldn't possibly justify given the size of your portfolio. If all they're doing is sifting through quarterly reports they're not providing much value for your fees.
- valuearb 9y ago
  Well first, Buffett still buys lots of shares in public companies. His first few decades were almost entirely public companies. Second, any investor running an investment fund can make offers on private businesses, and get the same tours. Its not an informational asymmetry, it's what you do with it. Walter Schloss is another great example. Beat the market by 5% a year for over 40 years, did it buying exclusively the doggiest public companies. He was the ultimate cigar butt hunter. His advantage wasn't information Wall Street didn't have, it was his willingness to use information Wall Street wouldn't, to invest in opportunities they would not. Buffett does have one informational edge, his experience and judgement. He knows how value works, he has total confidence it works, and he never panics, even when down 50% in 2008. He never leverages himself in a dangerous manner, never gives someone else control over his decisions.