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No. of Recommendations: 5
IMO this was a very interesting link over at Deranged Monkeys re Buffett and the question "Is he a value investor?" I know it made me think, and perhaps indicates that we all are a bit eclectic and try to buy good businesses (thank you KitKat, Kelbon and many others).

http://www.donvillekent.com/uploads/ROE%20Reporter%20Volume%...

Bob
RYR Home Fool
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No. of Recommendations: 5
At the same time he [Ben Graham] also began to realise that a large number of healthy companies with strong balance sheets were trading at deep discounts to their “intrinsic value.”

I'm glad to see they put “intrinsic value” in quotes because everybody knows what it is but no one knows how to calculate it.

Funny thing, last night I was watching a Richard Feynman lecture on quantum mechanics. The guy is amazing, I actually understood what he was talking about! That's not the funny part. In a nutshell he said that nobody knows why nature is like it is but scientists are able to come up with accurate computations about it. Just the reverse of "analysts" dealing with "intrinsic value."


... you have to read Wells Fargo’s annual report ... Wells Fargo’s most recent annual report, covering 2011, is 236 pages long.

And many of those 236 pages are about "other" items that are as mysterious as quantum mechanics. If Wells Fargo told us what they are, they would no longer be "other" black holes, would they?


Which finally brings me to "What IS a Value Investor?" It is a person who invests in things that he understands, in things where he can see, understand, and calculate or estimate an "intrinsic value," whatever that is.

Buffett might understand Wells Fargo which would make him a value investor. If we don't understand Wells Fargo then we would not be value investors buying it.

Dan asked me a few days ago why I like retail. Because I think I understand it which would make me a retail value investor. I believe I understand Kandi and it is behaving pretty much according to the way I thought it would. See "The Kandi Story Continues" at Software Times: http://softwaretimes.com/files/the+kandi+story+continues.htm...

Denny Schlesinger


Richard Feynman on Quantum Mechanics Part 1 - Photons Corpuscles of Light.FLV
http://www.youtube.com/watch?v=xdZMXWmlp9g


BTW: Albert Einstein said: "I, at any rate, am convinced that He does not throw dice." On the other hand, Richard Feynman shows that nature at the quantum level is probabilistic. Darwinian evolution is also non deterministic. If we are to believe all three learned men, we cannot call nature "god" as Stuart Kauffman would like to do. If nature throws dice but god doesn't then nature can't be god. Unless, of course, if nature acts like quantum mechanics and it throws or does not throw dice depending on the observer. LOL

BTW2: Is investing probabilistic?
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No. of Recommendations: 4
To a large extent, Buffett's style had to change because of the size of investment required to move the needle. He has stated that the old style is suitable for much smaller AUM, and that it could still work quite well for small investors. Some of us try to use a combination of styles, seeking out much smaller mispriced businesses and also putting a portion of money into much larger great business franchises.

sw
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No. of Recommendations: 9
Buffett might understand Wells Fargo which would make him a value investor. If we don't understand Wells Fargo then we would not be value investors buying it.

BIGGEST and most expensive lesson I learned that helped me was to take personal responsibility for each investment. It's OK to take in many ideas, but once you choose, you shoulder any "blame" [credit you can share] and no one else. It's amazing how much that improved my choices.

Do I fully understand Berkshire or even asset allocation? Not entirely. But I do know enough that I'm willing to take personal responsibility for the choice.

Bob
RYR Home Fool
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Do I fully understand Berkshire or even asset allocation? Not entirely. But I do know enough that I'm willing to take personal responsibility for the choice.


Bob,

you sound almost as dangerous as I am.

Dave
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No. of Recommendations: 9
Deranged Monkeys re Buffett and the question "Is he a value investor?"

There is more to Buffett's style than is presented in the article, which is really an advertisement leveraging off Buffett. Lots of people are trying to imitate Buffett. What I have very seldom read about is Buffett's cash or liquidity management prowess. In fact I believe Buffett has two distinct and concurrent investment styles, one aimed at listed companies and a different one aimed at private companies. The objectives in regard to listed companies could well be what the advertisement claims but I believe the private investments are done with an eye to raising "float," free capital for investing purposes.

On a related topic, Feynman stressed the opinion that you cannot do science if you have a strongly held belief about nature. You can have a bias or preference but not strongly held beliefs. "How does this relate to value investing?" you might ask. One big risk is holding a wrong opinion against all evidence. That can cost a lot of money. Recently I read about two accidents, an airplane crash and an Italian village that was literal wiped off the map by a "tsunami" when mountainside slid into a lake behind a power dam. Both were attributed to human error. In the case of the airplane the pilot disregarded the reading of an instrument because he thought the instrument was on the blink. It wasn't and a lot of people were killed. The accident in Italy a much more interesting and not on account of the 2,000 or do dead. The builders of the dam noticed that the mountainside had a tendency to side into the lake. They realized the danger this presented so they dug four holes to check out the geology of the mountain. They got one reading from three of the holes and a different reading from the other hole. They figured the instruments in the last hole were faulty. No, the first three didn't reach the deadly fault and the fourth one did. Based on these erroneous results they calculated that a 20 meter wave would result from the landslide so they lowered the lake's water level 25 meters below the dam's edge. The actual wave was calculated to have been 200 meters high! A whole order of magnitude error because the landslide happened in 45 seconds instead of in about a minute. These people worked hard to save the dam and the village but not recognizing that the odd man out hole was the right one cost over 2000 lives.

Beware your biases and your beliefs!

Denny Schlesinger
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No. of Recommendations: 4
OT
They realized the danger this presented so they dug four holes to check out the geology of the mountain. They got one reading from three of the holes and a different reading from the other hole. They figured the instruments in the last hole were faulty. No, the first three didn't reach the deadly fault and the fourth one did. Based on these erroneous results they calculated that a 20 meter wave would result from the landslide so they lowered the lake's water level 25 meters below the dam's edge. The actual wave was calculated to have been 200 meters high! A whole order of magnitude error because the landslide happened in 45 seconds instead of in about a minute. These people worked hard to save the dam and the village but not recognizing that the odd man out hole was the right one cost over 2000 lives.

My first higher education job after graduate school had my first board meeting in Chadron Nebraska. They had a fairly new student union building constructed in two parts that was blowing out large windows [thankfully] in the middle of the night. We were smart enough to be fearful, so we called in engineers and architects from Denver. First construction was controvercial because they spent "unneeded" money putting in drilled pier pilings down to the bedrock, despite a study that showed they could have used the less expensive spread footings.

The second half of the building went off the first study AND another for the national guard armory less than twenty yards away. Again, no need for drilled pier footings. The President saved money using the two previous studies to put construction two on spread footings.

The Denver firm found a fifty year old picture of a swale running off the mountain behind the campus which was directly between the first half of the student union and the armory. It had been filled in with compacted fill dirt and no living person on campus remembered it. Attached to the first half, the second building not only slid (which might have been fixed) but twisted on the unmoving first half. We tore down the sliding half and blamed it on the retired President.

Matthew 7:24-27

And living in NJ,
http://www.google.com/imgres?imgurl=http://1.bp.blogspot.com...

Bob
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No. of Recommendations: 5
They figured the instruments in the last hole were faulty. No, the first three didn't reach the deadly fault and the fourth one did. Based on these erroneous results they calculated that a 20 meter wave would result from the landslide so they lowered the lake's water level 25 meters below the dam's edge. The actual wave was calculated to have been 200 meters high! A whole order of magnitude error because the landslide happened in 45 seconds instead of in about a minute.

This is exactly what quants do. In their case though it's not so much "holding a wrong opinion against all evidence" but not having the imagination to envision something other, or beyond, what their available evidence leads them (and their number crunching computer programs) to believe.

They drill a few holes (metaphorically speaking) and if the next hole isn't like all the others they consider it an anomaly and disregard it. They set parameters about the likely behavior of markets, financial vehicles, etc., and have little motivation to think beyond the comfort zone they have constructed around their beliefs and assumptions. These "quants" are often very smart people, smart enough to figure they can get paid a lot more by hedge funds and their ilk than if they'd taken a route more suited to their proclivities and one where they would cause much less damage.

kelbon
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In the small world and you can find ANYTHING on the internet, I found the study (with the same pictures we saw)and initial remedial action. We did eventualy tear down the building.
http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=13...
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Bob,

Thanks for the link. Interesting "white" paper and I think it is well written and concise. I am ok for a plug if it brings value to the table. As for value investor -- the current stats on my portfolio which are also based on another Buffett port analysis (along with my own special sauce):

ROE 30% (29.96)
FWD PE 11.6

ROE/PE = 2.6X (assuming it is forward earnings / not 100% clear)

additional:

EPS growth 7.6%
Yield: 3.7%

[data from M*]

This port has 31 names currently (ABT spin out of ABBV) which is a level of concentration I am comfortable with -- 6 might be a little too much. I would note that my "group" is developed similarly that I took ~50-55 names and ranked them based on 5 criteria -- (valuation, volatility, invested capital growth, dividend yield, and profitability)

Matthew
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Matthew,

OK, we've had the tease: the ROE; the P/E; the yield; the earnings'growth; and, the dice-o-matic.

What 31 names are currently in this portfolio — will you share?

kelbon
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Kelbon,

Sorry wasn't suppose to be a tease. Post 12482 outlines the group. Post 12573 lists the "ranked" companies invested in. I will update if any changes made.

Matthew
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