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This subject is a serious hobby (approaching business) of mine so I'll comment. Warren Buffet is an investor, namely a value investor. And he does very well wi

This subject is a serious hobby (approaching business) of mine so I'll comment. Warren Buffet is an investor, namely a value investor. And he does very well with his strategies. But there are other more speculative strategies that work and do provide greater annual returns than his company. The returns for certain strategies, however, diminish when you increase your capital for a certain strategy. There is a difference between what he does and financial speculation. W.B. actively goes out to seek and create value, whereas speculators are scalpers, not actually creating value but by exploiting market inefficiencies. There is also a difference between the value of a company and the supply and demand of the stock of that company. W.B. follows the former with the expectation that the latter will follow (it most often does). His last paragraph is probably the most interesting in this essay. It shows that past returns are certainly not indicative of the future. My guess is that U.S. domestic equities will not have the greatest return as a securities class for a while. See: http://bespokeinvest.typepad.com/bespoke/2008/06/shrinking-usa.html http://bespokeinvest.typepad.com/bespoke/2008/06/shrinking-u...

gscott 18y ago
Reading your comment, it made me think of Yahoo! and the "value" that is in Yahoo! but just isn't seen in it's stock price. Warren Buffet should buy Yahoo! and turn it into the company it should already be but for some reason, isn't.
- steveplace 18y ago
  W.B. refuses to invest in internet companies. He feels that they are overvalued. And there is a difference between stock price and the value of a company. Of course, I also believe that the efficient market hypothesis is bullshit.
  - byrneseyeview 18y ago
    I though the argued that they were hard to understand, not intrinsically worth less than the price at which he could buy them.
kingkongrevenge 18y ago
> W.B. actively goes out to seek and create value I would dispute this. Berkshire Hathaway is essentially an insurance company. Look at revenues. Buffet relies on the peculiar accounting tricks of global insurance and his special relationships in the industry to line up unusual access to ultra-cheap capital at opportune times to seize value opportunities. Buffet is not just another billionaire investor with sharp analysis. He has a bag of special tricks and special relationships. He is just a speculator, not a value creator. The main point I took away is that speculation is a zero sum game, which is practically a truism. Getting returns above the general rate of growth requires outsmarting other investors and pocketing their losses. Total returns are constrained to the general growth rate. You are quite right that many people win at this zero sum game. Buffet seems to endorse the fraudulent popular idea that everyone can fund retirement from the stock market by sharing in the general rate of return. In reality the stock market has historically barely beat inflation and equities investing is really pretty much a straight-up zero sum game.
- steveplace 18y ago
  BRK.A is a conglomeration. Over the past decade they have been in the insurance business (GEICO). But they have also been in other businesses, and I would say that you could consider them like a private equity firm. They would buy companies of good value and build them out. They did it with furniture retail. There is a difference between speculating and investing. Speculating is zero sum and about 80% of the people that trade will lose money. Buffet actually says that diversification is a good idea if you don't know what you're doing. If you can value companies properly then you can have returns greater than the market (beta-weighted). Investing is not zero sum. I'm not going to defend that, it just is. That being said, buy and hold is a dumb idea too. And equities historically beat inflation if you consider dividend payouts.

gscott 18y ago

Reading your comment, it made me think of Yahoo! and the "value" that is in Yahoo! but just isn't seen in it's stock price. Warren Buffet should buy Yahoo! and turn it into the company it should already be but for some reason, isn't.

steveplace 18y ago
W.B. refuses to invest in internet companies. He feels that they are overvalued. And there is a difference between stock price and the value of a company. Of course, I also believe that the efficient market hypothesis is bullshit.
- byrneseyeview 18y ago
  I though the argued that they were hard to understand, not intrinsically worth less than the price at which he could buy them.

kingkongrevenge 18y ago

> W.B. actively goes out to seek and create value I would dispute this. Berkshire Hathaway is essentially an insurance company. Look at revenues. Buffet relies on the peculiar accounting tricks of global insurance and his special relationships in the industry to line up unusual access to ultra-cheap capital at opportune times to seize value opportunities. Buffet is not just another billionaire investor with sharp analysis. He has a bag of special tricks and special relationships. He is just a speculator, not a value creator. The main point I took away is that speculation is a zero sum game, which is practically a truism. Getting returns above the general rate of growth requires outsmarting other investors and pocketing their losses. Total returns are constrained to the general growth rate. You are quite right that many people win at this zero sum game. Buffet seems to endorse the fraudulent popular idea that everyone can fund retirement from the stock market by sharing in the general rate of return. In reality the stock market has historically barely beat inflation and equities investing is really pretty much a straight-up zero sum game.

steveplace 18y ago
BRK.A is a conglomeration. Over the past decade they have been in the insurance business (GEICO). But they have also been in other businesses, and I would say that you could consider them like a private equity firm. They would buy companies of good value and build them out. They did it with furniture retail. There is a difference between speculating and investing. Speculating is zero sum and about 80% of the people that trade will lose money. Buffet actually says that diversification is a good idea if you don't know what you're doing. If you can value companies properly then you can have returns greater than the market (beta-weighted). Investing is not zero sum. I'm not going to defend that, it just is. That being said, buy and hold is a dumb idea too. And equities historically beat inflation if you consider dividend payouts.