Historical Results and Commentary
August 11, 2000
Holdings
|
|
Aug-00 |
|
1 |
PFE |
|
2 |
UN |
|
3 |
BBV |
|
4 |
NKE |
|
5 |
LLY |
|
6 |
MMM |
|
7 |
IBM |
|
8 |
CAT |
|
9 |
JNJ |
|
10 |
DELL |
|
11 |
MCD |
|
12 |
FNF |
|
13 |
MSFT |
|
14 |
BRK-A |
|
15 |
AMGN |
|
16 |
WMT |
|
17 |
NOK |
|
18 |
AAPL |
|
19 |
P |
|
20 |
WB |
Performance of Individual Stocks For last 3 months
|
Aug-00 |
|
|
FNF |
26.91% |
|
P |
8.92% |
|
CAT |
0.49% |
|
NKE |
12.63% |
|
LLY |
3.28% |
|
MMM |
13.31% |
|
IBM |
15.62% |
|
BBV |
14.34% |
|
JNJ |
14.09% |
|
DELL |
-15.66% |
|
MCD |
-12.43% |
|
PFE |
0.41% |
|
MSFT |
6.75% |
|
BRK-A |
12.07% |
|
AMGN |
13.08% |
|
WMT |
-6.82% |
|
NOK |
-20.38% |
|
AAPL |
-7.24% |
|
UN |
12.96% |
|
WB |
-9.12% |
Total Increase (Decrease) since last quarter: 4.16%
Additions: None
Subtractions: None
Commentary: I have given a lot of thought over the past few weeks to the question of how I might be able to compete with professional investors. I am an amateur and yet I have the nerve to get in the same game as people with lots of more experience, training, and resources than I have. My general conclusion is that if I play the same game as most Wall Street professionals, I will lose. However, if I can play a different game, one that operates on different time scales, then I might be able to win, potentially in a big way. Here are my thoughts:
Value investing requires the acceptance of one’s shortcomings and disadvantages as an amateur investor compared with the ‘professionals’ in the investment industry. These fall into three general categories: resource deficiency, time deficiency, and information deficiency. Ironically, it is through an understanding of one’s limitations in investing that one arrives at the greatest strength of a value investor – the ability to use tried and true principles to create and maintain a long term strategy in the market where short term considerations are given a disproportionate amount of attention.
A frank assessment of one’s limitations makes it virtually impossible to consider any other investment philosophy over the long term. The first two limitations –
resource and time deficiency – are rather straightforward. An amateur investor does not have the same educational training, institutional resources, computing power, nor as much time to devote to the market as his or her professional colleagues at investment management firms. Therefore, it is highly unlikely that an amateur investor will independently discover anything new about the way the market works, or spot any trends or companies that have not been combed over several dozen times by the professionals in the business.
The third disadvantage – an information deficiency – is the hardest single shortcoming for many amateur investors to accept. In today’s world, the dissemination of information is nearly instantaneous. We can turn on CNN and hear about events in the business world that occurred only hours ago. We can receive industry newsletters that seem to predict the future. However, an amateur investor is at the bottom of the information food chain. The information food chain goes something like this:
1. Company insiders
2. Journalists and industry practitioners
3. Banks, brokerage firms, and investment management firms
4. The general investing community
5. Everyone else
6. You
This means that by the time you receive news, even if it is only a few minutes old, other investors have already acted on what you have learned. Supercomputers have already bought and sold based on this information, perhaps several thousand times! And if your information is coming through the printed press or a monthly newsletter, you can be sure you are the absolute last person to have seen it. Remember, whenever there is a market transaction there is a winner and loser – and if you are trying to play a short term gain with short term specialists, you will always be the loser.
The day-to-day disadvantages of the amateur value investor constrain his or her competitive position as an investor towards the unknown future. Only in this future space of the unforeseen, projected, and estimated, can the value investor stand on relatively equal footing with his or her peers that are higher up on the information food chain and have more time and resources to devote to their coverage of the market. The major strength of the position of a value investor is the long term outlook afforded by such a stance. Ironically, this is both the only stance an amateur investor can reasonably hold given his or her inherent disadvantages, and also the strongest stance that any investor can hold over the long run! In fact, since many professional money managers’ livelihoods depend on producing results on a quarterly or yearly basis, many of their investment decisions are controlled by short term considerations, not long term ones. By surrendering to one’s short-term blindness and looking far into the future, a value investor’s gaze is both accepting of his or her limitations and focused on a time-scale that is both more predictable and more comprehensible from the perspective of broad social and economic forces.
Ok, sorry for the preachy mantra. E-mail me your thoughts at justin_bandy@hotmail.com. I have some spare time on my hands (a.k.a. I am stuck at home with my parents and it is summer vacation) so I promise I will write you back.
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