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I think he says one thing to the crowd and does another thing in private. I remember him taking about discounted cash flow calculations and what maybe, suppose

I think he says one thing to the crowd and does another thing in private. I remember him taking about discounted cash flow calculations and what maybe, supposedly, he and Munger use as the discount rate, but as soon as you apply this calculation to all 3000+ publicly traded US securities, you find that most of them are completely overvalued and have been for years. You can adjust the discount rate, but it doesn’t help in practice. Anyone with a computer and the patience to parse financial reports can do this, so of course people have done it. The problem is there aren’t many good investments actually there anymore. Period. If you’ve been investing the last few years and have made returns as all of us collectively have, you know those returns definitely aren’t coming from real gains. They’ve almost entirely been speculative returns. I was so jaded calculating this stuff and seeing marketable securities histories across various sectors that I came to realize all the free lunch has already been eaten. People are searching among the crumbs now. It’s just entirely an entrenched practice. There’s too many people in that game. I’m also a fan of the textbook guidelines from Security Analysis and The Intelligent Investor, but of course using those specific measurements also yield nothing worse investing in at the present date, and haven’t for years.[1] Everything is way more expensive than it should be valued at, and I suspect a part of it, too, is simply that a majority of shares are on the market and have no reason to be sold lower than what inflated values are presently passing for. It’s like owning a house knowing people need a place to live. People need securities for retirement. There’s only also many that exist. [1]: https://www.andrewmcwatters.org/personal-finance/#investments https://www.andrewmcwatters.org/personal-finance/#investment...

jmole 4y ago
The easiest way to make money is to convince the government to print more of it, and then take a percentage cut of the distribution and growth of the money supply. The financial industry has been doing this for decades.
carabiner 4y ago
I think it was his biographer, Alice Schroeder, who said that Buffett has never revealed his start to finish analysis for an investment. He's only talked about guidelines and principles, but it's like one thing to know F = m*a vs. how to design a bridge. Also, a lot of his money came from what was basically insider trading as a 20-something (chatting up CEO's and trading from that information).
- andrewmcwatters 4y ago
  Yep. He’s revealed in vague passing some guidelines for, say for instance, a discount rate to use, but it’s vague enough only to use as a rough estimate such that you arrive at a possible ballpark. It also doesn’t help that DCF calculations are incredibly sensitive with respect to interest rates that had for some time been historically low. It might be easier to calculate these days, but my findings from years ago informed me that these issues were beyond reading financial reports. There’s a bigger problem of there simply just not being enough attractive companies at even fair rates. Statistically, you can only buy earnings at so high of a price to meaningfully make a worthwhile return, and for a while now, those prices have been too high in comparison to the risk free rate. I’m sure this has since changed due to current interest rates, but I haven’t bother to look simply because of the first problem.
epups 4y ago
The price of something is what people are willing to pay for it. Those formulas that you use to conclude their value is speculative are prescriptive and mostly antiquated. It is almost impossible to separate "real" from speculative value.
- andrewmcwatters 4y ago
  It really isn’t, and the math is quite literally comparable to calculating the coupon of a bond. It’s people repeating this idea that math has suddenly changed within the last 20 years or something that is ridiculous.
  - epups 4y ago
    Ok, then you use your math to buy stocks and I'll use my definition, which is the one accepted by everyone else. I'll gladly be here with the idiots making bank, buying my overpriced index funds while you wait for them to return to their platonic price.
    - citizen_friend 4y ago
      > which is the one accepted by everyone else The field of finance studies how to value various assets, beginning with fixed cash flows over time, and then introducing things like risk.
      - epups 4y ago
        I can't find information about this field on Google. Can you point me to a reference that contradicts any of what I said?
        citizen_friend 4y ago
        https://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Valuation_using_discounted_cash_flows https://en.wikipedia.org/wiki/Valuation_using_discounted_cas...
HopenHeyHi 4y ago
> I think he says one thing to the crowd and does another thing in private. He doesn't do anything in private as Berkshire has so much money all their moves are public and well known. The advice is true but fits another era, read his autobiography. > People are searching among the crumbs now. Yeah, the cigarette butts. He had ~$10 million by age 30. Incidentally he amassed this as the the son of a congressman, had a rich auntie, and was in very good social standing in a small wealthy town (Omaha). And it was 1960. By 1960, Buffett operated seven investment partnerships. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually, eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own.
LoveMortuus 4y ago
>They’ve almost entirely been speculative returns. While that may be true to some extent (especially with the more popular stocks like, let's say... Tesla, the P/E ratio is through the roof, although it got a bit better in the last year or two), but I feel that stocks that pay dividends do have actual gains - in the form of dividends. I personally prefer dividend stocks, because with the growth stocks you have to sell to get any profits or anything back, and I don't like to sell. Also, when the stuck is moving down, they usually still do pay dividends, which allows you to buy more of the stock at an even lower price. In my opinion, it's much harder to inflate the price of the stock through the dividends, because those actually affect the company. They need to have that money to be able to pay it out to the shareholders.
- FredPret 4y ago
  Me too. I now look for companies that are fairly valued by my very simple definition, have consistent financials, and pay a big consistent dividend.
- Galanwe 4y ago
  > with the growth stocks you have to sell to get any profits or anything back, and I don't like to sell Why? Share buyback instead of dividends has almost only advantages. It's more liquid, more tax efficient. > it's much harder to inflate the price of the stock through the dividends, because those actually affect the company. What do you mean "inflate"? > They need to have that money to be able to pay it out to the shareholders. But it's the same during a buyback...
colechristensen 4y ago
>There’s too many people in that game. There's too much money in the game. There's more capital invested than there are things to invest in at a reasonable rate of real returns. It needs to be clawed back but it's hard an unpopular to do. What we effectively need is a temporary effective progressive wealth tax that alters the exponent of wealth distribution, and that tax just needs to go "nowhere" instead of being reinvested in government programs. Carefully though because such an action has lots of side effects. The problem is whenever you propose such a thing there will be a long list of people with a long and varied list of reasons why this or something similar is insane. It is A) complicated and B) poorly understood so the discourse is usually just useless, which is reason #1 why it is hard.
- andrewmcwatters 4y ago
  I agree completely.

jmole 4y ago

The easiest way to make money is to convince the government to print more of it, and then take a percentage cut of the distribution and growth of the money supply. The financial industry has been doing this for decades.

carabiner 4y ago

I think it was his biographer, Alice Schroeder, who said that Buffett has never revealed his start to finish analysis for an investment. He's only talked about guidelines and principles, but it's like one thing to know F = m*a vs. how to design a bridge. Also, a lot of his money came from what was basically insider trading as a 20-something (chatting up CEO's and trading from that information).

andrewmcwatters 4y ago
Yep. He’s revealed in vague passing some guidelines for, say for instance, a discount rate to use, but it’s vague enough only to use as a rough estimate such that you arrive at a possible ballpark. It also doesn’t help that DCF calculations are incredibly sensitive with respect to interest rates that had for some time been historically low. It might be easier to calculate these days, but my findings from years ago informed me that these issues were beyond reading financial reports. There’s a bigger problem of there simply just not being enough attractive companies at even fair rates. Statistically, you can only buy earnings at so high of a price to meaningfully make a worthwhile return, and for a while now, those prices have been too high in comparison to the risk free rate. I’m sure this has since changed due to current interest rates, but I haven’t bother to look simply because of the first problem.

epups 4y ago

The price of something is what people are willing to pay for it. Those formulas that you use to conclude their value is speculative are prescriptive and mostly antiquated. It is almost impossible to separate "real" from speculative value.

andrewmcwatters 4y ago
It really isn’t, and the math is quite literally comparable to calculating the coupon of a bond. It’s people repeating this idea that math has suddenly changed within the last 20 years or something that is ridiculous.
- epups 4y ago
  Ok, then you use your math to buy stocks and I'll use my definition, which is the one accepted by everyone else. I'll gladly be here with the idiots making bank, buying my overpriced index funds while you wait for them to return to their platonic price.
  - citizen_friend 4y ago
    > which is the one accepted by everyone else The field of finance studies how to value various assets, beginning with fixed cash flows over time, and then introducing things like risk.
    - epups 4y ago
      I can't find information about this field on Google. Can you point me to a reference that contradicts any of what I said?
      - citizen_friend 4y ago
        https://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Valuation_using_discounted_cash_flows https://en.wikipedia.org/wiki/Valuation_using_discounted_cas...

HopenHeyHi 4y ago

> I think he says one thing to the crowd and does another thing in private. He doesn't do anything in private as Berkshire has so much money all their moves are public and well known. The advice is true but fits another era, read his autobiography. > People are searching among the crumbs now. Yeah, the cigarette butts. He had ~$10 million by age 30. Incidentally he amassed this as the the son of a congressman, had a rich auntie, and was in very good social standing in a small wealthy town (Omaha). And it was 1960. By 1960, Buffett operated seven investment partnerships. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually, eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own.

LoveMortuus 4y ago

>They’ve almost entirely been speculative returns. While that may be true to some extent (especially with the more popular stocks like, let's say... Tesla, the P/E ratio is through the roof, although it got a bit better in the last year or two), but I feel that stocks that pay dividends do have actual gains - in the form of dividends. I personally prefer dividend stocks, because with the growth stocks you have to sell to get any profits or anything back, and I don't like to sell. Also, when the stuck is moving down, they usually still do pay dividends, which allows you to buy more of the stock at an even lower price. In my opinion, it's much harder to inflate the price of the stock through the dividends, because those actually affect the company. They need to have that money to be able to pay it out to the shareholders.

FredPret 4y ago
Me too. I now look for companies that are fairly valued by my very simple definition, have consistent financials, and pay a big consistent dividend.
Galanwe 4y ago
> with the growth stocks you have to sell to get any profits or anything back, and I don't like to sell Why? Share buyback instead of dividends has almost only advantages. It's more liquid, more tax efficient. > it's much harder to inflate the price of the stock through the dividends, because those actually affect the company. What do you mean "inflate"? > They need to have that money to be able to pay it out to the shareholders. But it's the same during a buyback...

colechristensen 4y ago

>There’s too many people in that game. There's too much money in the game. There's more capital invested than there are things to invest in at a reasonable rate of real returns. It needs to be clawed back but it's hard an unpopular to do. What we effectively need is a temporary effective progressive wealth tax that alters the exponent of wealth distribution, and that tax just needs to go "nowhere" instead of being reinvested in government programs. Carefully though because such an action has lots of side effects. The problem is whenever you propose such a thing there will be a long list of people with a long and varied list of reasons why this or something similar is insane. It is A) complicated and B) poorly understood so the discourse is usually just useless, which is reason #1 why it is hard.

andrewmcwatters 4y ago
I agree completely.