Forum Archive Index - September 2002

["Bing & Gary Wilson" <fastmail@bigpond.net.au>]

Nick,

 

First of all I must declare my hand – I have read a lot of investor books and to me the Buffett philosophy is the only one that is credible and rational IMHO.  Trading is a high risk activity unless you have inside knowledge which will get you in hot water.  You rightly observe discipline is everything (and I have met more than a few people in recent months who bought shares at high levels in recent times and sold out when the going got more difficult, i.e. went with the mob – and lost a lot of money!) 

 

Buffett of course dismisses TA as “hocus pocus” – but logically it may be an aid re timing buys and sales – but the buying patterns that TA relies on must be regarded as second or even third tier data – so RATIONALLY there is no escaping the core importance of fundamental analysis.  Buffett is a bit more than just a buy & hold operator as the following often quoted statement of his illustrates …    “Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you own those shares forever. "   

 

Well even this great quote is rather simplistic – (Buffett does sell stocks!)  But we are all suckers at sometimes in our lives for slick rhetoric without stopping to work out what it really means!  A friend of mine with little share market knowledge quite recently went to a seminar on options trading …. I am amazed in these days of Fair Trading Acts etc these people can still get away with their promotional approach.  The weight of evidence is that trading is very risky, and I would be interested to see if those few who consistently make money can attribute this to more than good fortune – I would be certainly interested in how they can justify their risk reward equation.

 

The real trouble with the Buffett like approach is its pretty boring – ‘Buffett like stocks’ don’t have very active message Boards or attract a lot of commentary – and the Companies themselves do pretty ordinary things - usually – and of course your sharebroker goes broke waiting for you to do the next transaction.  Lastly no one will talk to you at those parties if you say you bought X stock 15 years ago and the dividends have paid back your original outlay and the current price is now several hundred % above the purchase price.  The chap that drives up in his MERC Sports (on HP of course) and tells how he made 100% in a few days will always get all the attention and seem very charismatic!

 

So you are back to “boring” – but in more ways than one richer for it!