Value Investing 01 (May 08 - Dec 08)

[winston]

If you have no patience for a good 10-20 years minimum, you basically lost the edge

10 to 20 years is a very long time to wait.

I think I've mentioned that it took 25 years before the market return to the 1929 pre-Depression level.

[iam802]

http://www.bigfatpurse.com/2008/12/buy-and-hold-is-not-as-easy-as-you-think/

I am not against buy and hold strategy. Instead, I believe it can really bring you great wealth - note that the world’s richest investor is a buy and hold strategist. Many investors are familiar with this strategy and often practice it, but not many are successful. Here are some of the reasons that may have caused their failure:

....................

Just making a little fun here.

The world's richest investor is a buy and hold strategist.

And the world's richest trader is one who also buy and hold. Just the difference in timeframe and the approach to pick which counter to buy/sell.

[millionairemind]

Just my 2 cts worth.

Be very careful about repeating this "buy and hold" mantra. WB is probably one in a billion. The fact that there isn't many ppe. like him shows you that he is unique, and not easily replicated.

If you think WB is buy and hold forever for all his stocks, you might want to read up on the book - Trade like Warren Buffet.

10-20yrs period to show if your strategy works?? What if you are wrong and you have researched on the wrong company and bought the wrong stock?? Companies come and go... industries get decimated and replaced by newer ones thro' creative destruction.

If you find out at the end of 20yrs that you are wrong... how many more 20yrs of earning power do you have in a lifetime?

Just my 2cts worth of discussion.

[kennynah]

dont be obtuse....our opinion means nothing in the grander schema....

[winston]

by millionairemind on Wed Dec 24, 2008 8:58 am

I went back to check the SP500 annual returns over the last 50 years.

If the index closes at the current rate which is about 40% off for the year, this will be the WORST year ever...

Amazing actually, from my perspective that so much damage can be done within a single year. This literally wiped out all the gains from the last 4 years of bull market, making the buy and hold investors for index funds none the richer after 10years of holding religiously and saving regularly by listening to all the Wall Street crap about the long haul.

http://www.moneychimp.com/features/market_cagr.htm

[Musicwhiz]

Winston, does the 40% drop in the S&P include dividends as well ? Dividends can make quite a difference to returns (as I've found out) during prolonged periods of bearishness when the index goes absolutely nowhere.

Thanks in advance.

[winston]

Hi MW,

I think you have a very valid point. I dont really know. It was some numbers that I saw in article.

Take care,
Winston

[cif5000]

The beer effect hasn't worn off and I am still on finding a mate.

It is not how long you are with the girl (buy and hold) but how comfortable you are with her (quality of stock) while being with her. If she pissed you off (a lemon), it's better to go separate ways (sell the stock) instead of forcing both into a long term relationship. At least there is no social stigma associated with selling stocks. And if you hope that she will become better as time goes by (turnaround situation), you are in for a tough future. I mean, the desire is to find the appropriate mate to be with (the right stock at the right price) than to be concerned with wanting a long lasting relationship (buy and hold).

There are of course other styles at work. For example, a segment enjoys one-night-stand (day trading) but I am not too familiar with the selection criteria.

PS: Apologies for using she/her/girl/woman...feel free to switch these words to he/him/boy/man/ass/idiot/gorilla/

[kennynah]

cif5K : i just love your beer smitten analogies... sui !!!

on this subject then....let's not forget that in a small sized market like SGX.... there are those who favour the "pump then dump" (institutions screwing that girl in the bar from last night) action, only to find herself lonely in the morning, with smeared makeup face, wondering groggily under the hot sun trying to hail a taxi (retailers getting into the frenzy buying and left standing alone finding the next buyer at a lower price).... hahahaha...

[Cheng]

Just my 2 cts worth.

Be very careful about repeating this "buy and hold" mantra. WB is probably one in a billion. The fact that there isn't many ppe. like him shows you that he is unique, and not easily replicated.

If you think WB is buy and hold forever for all his stocks, you might want to read up on the book - Trade like Warren Buffet.

10-20yrs period to show if your strategy works?? What if you are wrong and you have researched on the wrong company and bought the wrong stock?? Companies come and go... industries get decimated and replaced by newer ones thro' creative destruction.

If you find out at the end of 20yrs that you are wrong... how many more 20yrs of earning power do you have in a lifetime?

Just my 2cts worth of discussion.

I read Trade like Warren Buffett before. Very very good book. Buffett has a trading instinct guided by value principles. A master of arbitraging. That's what changed my mind on buy and hold forever. I did put a note at the end of the article that if you were to buy and hold for 10-20yrs make sure the company has excellent quality. Hopefully the business will still be relevant for 50+ yrs. If not, just sell when it hits 80% to 100% of your intrinsic value.

Another good read is the Dhandho investor by Monish Prabai. See how he replicate the master.