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My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data

by mg 3y ago

My first question would be: Do "best investors" actually exist? The title implies that some investors are better than others. But I have not yet seen any data driven argument in favor of this theory. There are so many investors on planet earth, that even if they all have the same ability to predict the future prices of stocks, some will do unbelievably better than others. By pure chance. The article starts with a photo of Charlie Munger and Warren Buffett. Does this imply that they are "better" than the average investor? Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett? Now some might say that it is "easy" to outperform the market with a single stock. Pick a very volatile one and your chances are 50%. And that Munger and Buffett made many investments. And that the chance is low to make that many investments and in total still beat the S&P500. Ok. But how low is the chance for the number of trades Berkshire did? Maybe it is totally normal, that some investors do that many trades and beat the S&P500 by pure chance. By the way, a QQQ certificate which contains the 100 largest tech companies also outperformed Berkshire and had about twice their performance over the last 20 years.

lucas_membrane 3y ago
Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!
- Cthulhu_ 3y ago
  Survivorship bias though; did they report on anyone that held the account for a long time and lost money? But yeah, this is the generalised advice; spread your investments, index funds, and wait. The market's trend over long term always goes up. It's just that it's more of a retirement plan than a get rich quick plan; people want or need money early in life, buy a house, be financially secure. I think it was better for everyone back when, when the Simpsons started airing, where a single low education level income was enough to buy a house and support a whole family. That was wealth.
  - blitzar 3y ago
    > The market's trend over long term always goes up Actually it is mostly just population growth + inflation - which is almost always positive.
shubhamjain 3y ago
Yes, there are. I won't say it's easy, but it's possible to outperform the market without relying on the element of luck over a long term. Often, you don't hear about these folks because they are succeeding at a much smaller scale. The reason is simple. The market, even rational as it is, gives you chances to make a great deal of money. META was $89 only a few months back. APPL was once trading at P/E of 10. TSLA is now 2.5x from its recent bottom. Of course, the boat has sailed now. Now, you can say investors who made money here were just lucky, or you can see how they ignored the temporary negative sentiment and invested in a company with solid fundamentals. It's a myth that you can't beat the market. If you know how to seize an opportunity, you perfectly can. My investment philosophy is to keep investing in ETFs, but also keep an eye on bargains.
- drumhead 3y ago
  Its having the courage to act on your convictions. Meta was on a P/e of 13 earning billions of dollars in profit and generating huge amounts of cash flow, but it had effectively gone ex growth and it's metaverse investment was a dud. I bought because it looked like great value, but once it's repriced to take that into account where's the growth story?
  - lostlogin 3y ago
    > where's the growth story? They are not Twitter and are doing Twitter-like things with Threads. It’s going to be interesting to watch, particularly as someone with no money on either and a dislike of both.
rwmj 3y ago
Berkshire Hathaway do actually own 16% of MSFT, about $400 billion if my maths is right.
Archelaos 3y ago
> There must be many such investors. Are they all "better" than Munger and Buffett? Your reasoning demonstrates that "better" is, strictly speaking, relative to a given set of criteria,[1] that are at least vaguely quantifiable and can be meaningfully (numerically?) combined[2] with each other. I think that all these discussions who is "better" or "best" (strictly speaking or not) have their merrits. But not in the sense that we ever may arrive at a final, definite ranking. It is more of a recommendation to analyse a certain person's performance because something important might be learned from it. [1] If we were to consider lottery tickets as "investments", the person who spent $1 and won $997,600,000 in the Powerball lottery in 2022[1.1] would be among the best investors of all time. [1.1] https://en.wikipedia.org/wiki/Lottery_jackpot_records https://en.wikipedia.org/wiki/Lottery_jackpot_records [2] Does it make sense to ask whether Michael Jordan is a "better" sportsperson than Magnus Carlsen?
zone411 3y ago
> Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett? Using overall return as the sole comparison metric isn't really done when comparing managers. You can look at factors such as diversification, Sharpe and Sortino ratios, drawdowns...
- mg 3y ago
  Depends on who does the comparison. And what is important to them. The Microsoft investor might say "I'm fine with the price going up and down a bit in the short term. Reducing that is not worth it for me to miss out on 50% of the ROI". If you say Berkshire's performance is significantly exceptional when including those aspects in a combined performance indicator, then it is up to you to show that.

by mg 3y ago

lucas_membrane 3y ago

Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!

Cthulhu_ 3y ago
Survivorship bias though; did they report on anyone that held the account for a long time and lost money? But yeah, this is the generalised advice; spread your investments, index funds, and wait. The market's trend over long term always goes up. It's just that it's more of a retirement plan than a get rich quick plan; people want or need money early in life, buy a house, be financially secure. I think it was better for everyone back when, when the Simpsons started airing, where a single low education level income was enough to buy a house and support a whole family. That was wealth.
- blitzar 3y ago
  > The market's trend over long term always goes up Actually it is mostly just population growth + inflation - which is almost always positive.

shubhamjain 3y ago

Yes, there are. I won't say it's easy, but it's possible to outperform the market without relying on the element of luck over a long term. Often, you don't hear about these folks because they are succeeding at a much smaller scale. The reason is simple. The market, even rational as it is, gives you chances to make a great deal of money. META was $89 only a few months back. APPL was once trading at P/E of 10. TSLA is now 2.5x from its recent bottom. Of course, the boat has sailed now. Now, you can say investors who made money here were just lucky, or you can see how they ignored the temporary negative sentiment and invested in a company with solid fundamentals. It's a myth that you can't beat the market. If you know how to seize an opportunity, you perfectly can. My investment philosophy is to keep investing in ETFs, but also keep an eye on bargains.

drumhead 3y ago
Its having the courage to act on your convictions. Meta was on a P/e of 13 earning billions of dollars in profit and generating huge amounts of cash flow, but it had effectively gone ex growth and it's metaverse investment was a dud. I bought because it looked like great value, but once it's repriced to take that into account where's the growth story?
- lostlogin 3y ago
  > where's the growth story? They are not Twitter and are doing Twitter-like things with Threads. It’s going to be interesting to watch, particularly as someone with no money on either and a dislike of both.

rwmj 3y ago

Berkshire Hathaway do actually own 16% of MSFT, about $400 billion if my maths is right.

Archelaos 3y ago

> There must be many such investors. Are they all "better" than Munger and Buffett? Your reasoning demonstrates that "better" is, strictly speaking, relative to a given set of criteria,[1] that are at least vaguely quantifiable and can be meaningfully (numerically?) combined[2] with each other. I think that all these discussions who is "better" or "best" (strictly speaking or not) have their merrits. But not in the sense that we ever may arrive at a final, definite ranking. It is more of a recommendation to analyse a certain person's performance because something important might be learned from it. [1] If we were to consider lottery tickets as "investments", the person who spent $1 and won $997,600,000 in the Powerball lottery in 2022[1.1] would be among the best investors of all time. [1.1] https://en.wikipedia.org/wiki/Lottery_jackpot_records https://en.wikipedia.org/wiki/Lottery_jackpot_records [2] Does it make sense to ask whether Michael Jordan is a "better" sportsperson than Magnus Carlsen?

zone411 3y ago

> Someone who would have invested in Microsoft 20 years ago and said "Hey, I am sure software will grow like mad! That's enough for me to know about the markets. From now on, all I will do is wait." would have been right. And would have seen about twice the return that Berkshire achieved. There must be many such investors. Are they all "better" than Munger and Buffett? Using overall return as the sole comparison metric isn't really done when comparing managers. You can look at factors such as diversification, Sharpe and Sortino ratios, drawdowns...

mg 3y ago
Depends on who does the comparison. And what is important to them. The Microsoft investor might say "I'm fine with the price going up and down a bit in the short term. Reducing that is not worth it for me to miss out on 50% of the ROI". If you say Berkshire's performance is significantly exceptional when including those aspects in a combined performance indicator, then it is up to you to show that.