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Several misconceptions in this articles, quite typical ones actually: 1) "I can’t imagine what led all of us to believe that we could regularly expect double-d
by HSO 18y ago
Several misconceptions in this articles, quite typical ones actually:
1) "I can’t imagine what led all of us to believe that we could regularly expect double-digit annual returns on our money, for doing no work"
You did work. You worked, exchanged your product for money, and saved it. But other people did work too. So you took your money, in effect lowered the capital cost of other people's enterprises (unless you bought in the primary market), and in return have a chance of participating in their venture's success (if). Those who are more discerning in their allocations earn higher average returns on their capital. It's not alchemy, it's capitalism! Whether the assets are fairly valued or not is a totally different question.
2) " Let’s say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? [...] If you don’t, you’re not an investor, you’re a speculator"
Quoted like this, wrong! THe crucial condition is that you did an independent valuation of the asset and came up with a higher value. The price itself doesn't tell you anything other than what other people think or feel.
3) "An out-of-print guide to value investing, it sells for as much as $2,500 per copy on the Web."
Just for the record, these are collector's editions. If anyone is simply interested in the material (which is not all that original, btw) it floats as free PDF, just google it.
In general, I find it fascinating that people like to think that there is someone out there with their best interests at heart. Where does this come from? Where is their independence and responsibility? Balthasar Gracian, a Jesuit priest from the 18th (?) century, put it thus: You don't count on the kindness or gratitude of people but on their self-interest.
- anigbrowl 18y agoExcellent points - wish I could vote it up twice. Ultimately there is an economy of trust, and most people are poor economists. I share your regard for Gracian, despite being lamentably bad at such calculus. The best advice I ever received is to associate with successful people (however you define success) and be helpful when given the opportunity. Owning your failures is always more satisfying than trying to assign them to someone else; sharing credit for your success is always more attractive than trying to hoard it. This kind of wealth is independent of your bank balance.
- christofd 18y agoHmmm... I don't really like this comment and the fact that it's being upvoted. Regarding 1) Why are you going on over 6 sentences to explain that capital (just like labor) commands a return on investment in the marketplace, while the simple message being delivered is that in fact there is a perceived anomaly going on with these exceptional capital growth rates. If the system, of how the Fed hands out money to banks and creates the incentive for a false bubble, is the problem at hand, then an answer citing a lesson in capital markets is not helpful. Regarding 2) Again, I don't like this short-sighted smack-down. Actually, I like this quote. Well, if I buy an asset (own it) then I have made an implicit judgement to how I assess the value of the stock. So thereby the fluctuation compared against this base value does very well matter to me. Regarding 3) In a time of failure of capital markets the answer to the problem voiced here seems to be "self-interest". Again, a short-sighted smack-down with a resolve that sounds catchy. The answer to this whole financial mess does not lie in the private sector, for capital markets, as they have shown, are quite narrow-minded. Bad oversight has led to this. The solution lies in looking at long-term effective regulation, which goes beyond the perspective that narrow-minded self-interest can deliver. The Chicago school of thought in Economics truly has suffered in 2008. Sorry, reading the article again... the point is valid, that blind belief in non-educated financial advisors (basically the equivalent of used-cars salesmen) or profit-motivated pros is deadly.
- HSO 18y agoSorry if I ranted but I went on for "over 6 sentences" because I am sensitive to this cliche of investors/speculators as nonproductive blood suckers. It was one of the images that was used in a certain historical catastrophe where I live (Germany). It's also a very popular image today, risking throwing the baby (capitalism) out with the bathwater (corruption, greed, ...). Regarding 2, I also like the quote. But the article misquotes it by leaving out the crucial part: independent valuation, based on economic fundamentals. I think you overestimate people's "implicit judgement". Many if not most people buy because the price recently went up, and vice versa, without reference to fundamentals or doing their homework. Leaving out the valuation part makes it read as if Klarman was simply inverting the trend-followers. But not so, the point was doing independent research and acting only when price deviates sufficiently far from one's own judgment.