...will be missed.
Warren Buffett once explained the significance of Jack Bogle's contribution this way:
"If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.
In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me."
Separately, in a tribute to Mr. Bogle, Buffett also said:
"Jack Bogle has probably done more for the American investor than any man in the country. (Applause)
And Jack, would you stand up? There he is." (Applause)
"I estimate that Jack, at a minimum, has saved — left in the pockets of investors, without hurting them overall in terms of performance at all — gross performance — he's put tens and tens and tens of billions into their pockets. And those numbers are going to be hundreds and hundreds of billions over time."
Fortunately, Jack Bogle's wisdom remains available to all in the form of the many interviews, articles, and books he has written over the years.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Showing posts with label Bogle. Show all posts
Showing posts with label Bogle. Show all posts
Thursday, January 17, 2019
Thursday, January 11, 2018
Quotes of 2017
Here's a collection of quotes said or written at some point during 2017.
Innovators, Imitators, & the Swarming Incompetents
"...the great majority of [investment] managers who attempt to over-perform will fail. The probability is also very high that the person soliciting your funds will not be the exception who does well. Bill Ruane...said it well: 'In investment management, the progression is from the innovators to the imitators to the swarming incompetents.'
Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods. If 1,000 managers make a market prediction at the beginning of a year, it's very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him." - Warren Buffett
Buffett on Bogle
"If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.
In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me." - Warren Buffett
Buffett on American Business
"American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.
Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: 'We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.'
During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well." - Warren Buffett
Destroying Bad Ideas - Part II
"...I've done so many dumb things that I'm very busy destroying bad ideas because I keep having them. So it's hard for me to just single out one from such a multitude. But I actually like it when I destroy a bad idea because...I think it's my duty to destroy old ideas. I know so many people whose main problem of life, is that the old ideas displace the entry of new ideas that are better. That is the absolute standard outcome in life. There's an old German folk saying...'We're too soon old and we're too late smart.' That's everybody's problem. And the reason we're too late smart is that the stupid ideas we...already have, we can't get rid of!...in most fields you want to get rid of your old ideas. And it's a good habit, and it gives you a big advantage in the competitive game of life since other people are so very bad at it. What happens is, as you spout ideas out, what you're doing is you're pounding them in. And so you get these ideas and then you start agitating and saying them and so forth. And of course, the person you're really convincing is you who already had the ideas. You're just pounding them in harder and harder. One of the reasons I don't spend much time telling the world what I think about how the federal reserve system should behave and so forth is I know that I'm just pounding the ideas into my own head when I think I'm telling the other people how to run things. So I think you have to have mental habits that -- I don't like it when young people get violently convinced on every damn cause or something. They think they know everything. Some 17 year old who wants to tell the whole world what should be done about abortion or foreign policy...or something. All he's doing when he or she spouts about what he deeply believes is pounding the ideas he already has in, which is a very dumb idea when you're just starting and have a lot to learn.
So it's very important that habit of getting rid of the dumb ideas. One of things I do is pat myself on the back every time I get rid of a dumb idea. You could say, 'could you really reinforce your own good behavior?' Yeah, you can. When other people won't praise you, you can praise yourself. I have a big system of patting myself on the back. Every time I get rid of a much beloved idea I pat myself on the back. Sometime several times. And I recommend the same mental habit to all of you. The price we pay for [not] being able to accept a new idea is just awesomely large." - Charlie Munger
Happy New Year,
Adam
Quotes of 2016
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Innovators, Imitators, & the Swarming Incompetents
"...the great majority of [investment] managers who attempt to over-perform will fail. The probability is also very high that the person soliciting your funds will not be the exception who does well. Bill Ruane...said it well: 'In investment management, the progression is from the innovators to the imitators to the swarming incompetents.'
Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods. If 1,000 managers make a market prediction at the beginning of a year, it's very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him." - Warren Buffett
Buffett on Bogle
"If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.
In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me." - Warren Buffett
Buffett on American Business
"American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.
Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: 'We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.'
During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well." - Warren Buffett
Destroying Bad Ideas - Part II
"...I've done so many dumb things that I'm very busy destroying bad ideas because I keep having them. So it's hard for me to just single out one from such a multitude. But I actually like it when I destroy a bad idea because...I think it's my duty to destroy old ideas. I know so many people whose main problem of life, is that the old ideas displace the entry of new ideas that are better. That is the absolute standard outcome in life. There's an old German folk saying...'We're too soon old and we're too late smart.' That's everybody's problem. And the reason we're too late smart is that the stupid ideas we...already have, we can't get rid of!...in most fields you want to get rid of your old ideas. And it's a good habit, and it gives you a big advantage in the competitive game of life since other people are so very bad at it. What happens is, as you spout ideas out, what you're doing is you're pounding them in. And so you get these ideas and then you start agitating and saying them and so forth. And of course, the person you're really convincing is you who already had the ideas. You're just pounding them in harder and harder. One of the reasons I don't spend much time telling the world what I think about how the federal reserve system should behave and so forth is I know that I'm just pounding the ideas into my own head when I think I'm telling the other people how to run things. So I think you have to have mental habits that -- I don't like it when young people get violently convinced on every damn cause or something. They think they know everything. Some 17 year old who wants to tell the whole world what should be done about abortion or foreign policy...or something. All he's doing when he or she spouts about what he deeply believes is pounding the ideas he already has in, which is a very dumb idea when you're just starting and have a lot to learn.
So it's very important that habit of getting rid of the dumb ideas. One of things I do is pat myself on the back every time I get rid of a dumb idea. You could say, 'could you really reinforce your own good behavior?' Yeah, you can. When other people won't praise you, you can praise yourself. I have a big system of patting myself on the back. Every time I get rid of a much beloved idea I pat myself on the back. Sometime several times. And I recommend the same mental habit to all of you. The price we pay for [not] being able to accept a new idea is just awesomely large." - Charlie Munger
Happy New Year,
Adam
Quotes of 2016
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Friday, June 30, 2017
Compound Returns, Compound Costs...
"Hedge funds (so-called; actually concentrated investment accounts which offer a wide variety of strategies) manage about $2.8 trillion of assets, at a cost equal to at least 3% of assets per year (300 basis points, an informed guess), generating some $84 billion in annual fees." - John Bogle in a speech last year
Bogle's "informed guess" is, of course, primarily driven by the 2 and 20 compensation structure common to hedge funds.
In a prior post, I wrote what "if Buffett charged investors something like the 3% in annual fees to manage Berkshire Hathaway's (BRKa) current portfolio...?"
Well, 3 percent of Berkshire's now roughly $ 300 billion of cash and investments would increase Berkshire Hathaway (BRKa) expenses by ~ $ 9 billion which would naturally hurt shareholders by reducing intrinsic value -- materially so if this were to become an ongoing annual expense.* For many reasons such a fee structure would never exist at Berkshire, of course, but it's worth considering carefully how much less valuable Berkshire would be today if 1) Buffett had been draining those kind of fees out of the company all these years and 2) how much it would hurt investors going forward. If those kind of fees were charged in the past, Berkshire would in fact be a rather much smaller company and it's capacity to invest (not just in common stocks but also things like the capital intensive businesses Berkshire owns outright) would be a fraction of its current capability. Going forrward, if for some reason Berkshire started paying the $ 9 billion in fees -- fees likely to increase over time as the portfolio grows -- the impact would be substantial. Consider that Berkshire's invested roughly $ 13 billion in property, plant and equipment last year. Much of it to build and maintain things like the railroad, utilities, and energy infrastructure. Useful stuff. Well, that $ 9 billion in hypothetical fees would sure chew up a substantial chunk of Berkshire's $ 13 billion capital expenditure budget.
It's compounding returns pitted against what Bogle calls "the tyranny of compounding costs".
These annual Berkshire capital expenditures -- assuming they're intelligently implemented -- aren't just a likely future benefit Berkshire's continuing shareholders, they're potentially of substantial benefit more generally. In 2015, Buffett wrote that 86 percent of their property, plant and equipment budget was "deployed in the United States."
If this kind of high fee structure is detrimental to Berkshire shareholders -- never mind the possible adverse societal impact caused by high fees draining capital that could have been used to upgrade infrastructure -- why wouldn't this similarly apply to anyone managing lots of capital and charging high fees?
That question, at least for me, answers itself. The justification is usually that the money manager is so exceptional that the fees are fully justified. So that means, apparently, there's a large army of money managers so talented that they deserve compensation orders of magnitude greater than Mr. Buffett.
The money doesn't completely disappear, of course. The high fees being charged naturally get invested and spent somewhere but effective investment needs for good ideas to get backed by sufficient financial scale and real patience. Yet, at least relative to the Berkshire model, what could have been concentrated long-term investment seems, instead, destined to become rather diffuse and impatient while producing fewer things of lasting value.
"We have two [investment] managers at Berkshire. They each manage $9 billion for us. They both ran hedge funds before. If they had a 2/20 arrangement with Berkshire, which is not uncommon in the hedge fund world, they would be getting $180 million annually each merely for breathing." - Warren Buffett at last year's Berkshire Annual Meeting
Buffett, in any case, based on long-term track record is easily among the best -- if not the best -- at investing exceptionally well yet charging others little for it. I wouldn't expect his extraordinarily low compensation (considering the size of the job and the performance) to become the norm but it would seem a more reasonable equilibrium could exist between the two extremes.
"The way to wealth, it turns out, is to avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today's financial service system and rely on the magic of compounding returns. While the interests of the business are served by the aphorism 'Don't just stand there. Do something!' the interests of investors are served by an approach that is its diametrical opposite: 'Don't do something. Just stand there!'" - John Bogle in a commentary on CNBC
When high fees are tolerated "the magic of compounding returns" becomes something much less magical via "the tyranny of compounding costs".
Adam
Long position in BRKb eastablished at much lower than recent market prices
Related posts:
Buffett on Bogle
Innovators, Imitators, & the Swarming Incompetents
Bogle & Buffett on Frictional Costs
Buffett on Active Investing
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Howard Marks on Risk
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* For Berkshire, even as large as it is, ~ $ 9 billion of additional costs would be a real hit to the company's earning power. If those fees were to actually become an ongoing cost it'd basically be a wealth transfer to Buffett but the intrinsic value of Berkshire -- of which Buffett is the largest shareholder -- would be materially reduced. In many ways it'd be like moving his wealth from one pocket to another while hurting all the other shareholders (and, somewhat weirdly, even himself). Buffett's wealth has come about alongside his investors instead of from his investors. For too many that's just not the case. Best case it's usually a bit of both.
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Bogle's "informed guess" is, of course, primarily driven by the 2 and 20 compensation structure common to hedge funds.
In a prior post, I wrote what "if Buffett charged investors something like the 3% in annual fees to manage Berkshire Hathaway's (BRKa) current portfolio...?"
Well, 3 percent of Berkshire's now roughly $ 300 billion of cash and investments would increase Berkshire Hathaway (BRKa) expenses by ~ $ 9 billion which would naturally hurt shareholders by reducing intrinsic value -- materially so if this were to become an ongoing annual expense.* For many reasons such a fee structure would never exist at Berkshire, of course, but it's worth considering carefully how much less valuable Berkshire would be today if 1) Buffett had been draining those kind of fees out of the company all these years and 2) how much it would hurt investors going forward. If those kind of fees were charged in the past, Berkshire would in fact be a rather much smaller company and it's capacity to invest (not just in common stocks but also things like the capital intensive businesses Berkshire owns outright) would be a fraction of its current capability. Going forrward, if for some reason Berkshire started paying the $ 9 billion in fees -- fees likely to increase over time as the portfolio grows -- the impact would be substantial. Consider that Berkshire's invested roughly $ 13 billion in property, plant and equipment last year. Much of it to build and maintain things like the railroad, utilities, and energy infrastructure. Useful stuff. Well, that $ 9 billion in hypothetical fees would sure chew up a substantial chunk of Berkshire's $ 13 billion capital expenditure budget.
It's compounding returns pitted against what Bogle calls "the tyranny of compounding costs".
These annual Berkshire capital expenditures -- assuming they're intelligently implemented -- aren't just a likely future benefit Berkshire's continuing shareholders, they're potentially of substantial benefit more generally. In 2015, Buffett wrote that 86 percent of their property, plant and equipment budget was "deployed in the United States."
If this kind of high fee structure is detrimental to Berkshire shareholders -- never mind the possible adverse societal impact caused by high fees draining capital that could have been used to upgrade infrastructure -- why wouldn't this similarly apply to anyone managing lots of capital and charging high fees?
That question, at least for me, answers itself. The justification is usually that the money manager is so exceptional that the fees are fully justified. So that means, apparently, there's a large army of money managers so talented that they deserve compensation orders of magnitude greater than Mr. Buffett.
The money doesn't completely disappear, of course. The high fees being charged naturally get invested and spent somewhere but effective investment needs for good ideas to get backed by sufficient financial scale and real patience. Yet, at least relative to the Berkshire model, what could have been concentrated long-term investment seems, instead, destined to become rather diffuse and impatient while producing fewer things of lasting value.
"We have two [investment] managers at Berkshire. They each manage $9 billion for us. They both ran hedge funds before. If they had a 2/20 arrangement with Berkshire, which is not uncommon in the hedge fund world, they would be getting $180 million annually each merely for breathing." - Warren Buffett at last year's Berkshire Annual Meeting
Buffett, in any case, based on long-term track record is easily among the best -- if not the best -- at investing exceptionally well yet charging others little for it. I wouldn't expect his extraordinarily low compensation (considering the size of the job and the performance) to become the norm but it would seem a more reasonable equilibrium could exist between the two extremes.
"The way to wealth, it turns out, is to avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today's financial service system and rely on the magic of compounding returns. While the interests of the business are served by the aphorism 'Don't just stand there. Do something!' the interests of investors are served by an approach that is its diametrical opposite: 'Don't do something. Just stand there!'" - John Bogle in a commentary on CNBC
When high fees are tolerated "the magic of compounding returns" becomes something much less magical via "the tyranny of compounding costs".
Adam
Long position in BRKb eastablished at much lower than recent market prices
Related posts:
Buffett on Bogle
Innovators, Imitators, & the Swarming Incompetents
Bogle & Buffett on Frictional Costs
Buffett on Active Investing
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Howard Marks on Risk
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* For Berkshire, even as large as it is, ~ $ 9 billion of additional costs would be a real hit to the company's earning power. If those fees were to actually become an ongoing cost it'd basically be a wealth transfer to Buffett but the intrinsic value of Berkshire -- of which Buffett is the largest shareholder -- would be materially reduced. In many ways it'd be like moving his wealth from one pocket to another while hurting all the other shareholders (and, somewhat weirdly, even himself). Buffett's wealth has come about alongside his investors instead of from his investors. For too many that's just not the case. Best case it's usually a bit of both.
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Friday, April 28, 2017
Buffett on Bogle
"If a statue is ever erected to honor the person who has done the most for American investors, the hands-down
choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds.
In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have
promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of
added value.
In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me." - From Warren Buffett's latest letter
John Bogle, in a speech last year, noted that:
- Hedge funds, in total, managed at the time something like $2.8 trillion in assets
- Investors in such funds pay out to their managers ~ 3 percent per annum -- what he calls an "informed guess" -- or roughly like $ 84 billion (yes...billion) in fees per year
- Vanguard manages ~$3 trillion in assets -- nearly the same amount as all hedge funds combined -- with two thirds being index funds.
- The cost of managing the ~ $2 trillion of index fund assets = .08 percent of assets per annum = ~ $ 1.6 billion
Quite a difference in costs even after normalizing the $ 2.8 trillion to the size of the index fund asset base. The compounded impact of these extra costs for investors over the long haul is hardly small.
In fact, even a traditional actively managed mutual fund that charges something like "only" 1 percent per annum is an order of magnitude more costly than the typical index fund. Imagine two investors. Both have $ 100k to invest and a 35 year investment horizon. Each have portfolios excluding fees that produce a 6 percent annual return over those 35 years. The only difference is one of the investors is paying 1 percent in annual fees while the other has .08 percent in annual fees.
So how much more wealth would the low fee paying investor have at the end of the 35 year investment horizon?
~ $ 200k
What's worth noting is that here we have someone who's accomplished great success through active investing (Buffett) with high respect and admiration for the person (Bogle) who has been encouraging investors to avoid such an approach for decades.
To understand why this seemingly inherent conflict might exist just consider the frictional costs -- or lack thereof -- inherent to Buffett's approach. Now, imagine if Buffett charged investors something like the 3% in annual fees to manage Berkshire Hathaway's (BRKa) current portfolio -- ~ $ 276 billion of cash and investments at the end of 2016 -- instead of the $ 100,000 salary plus security costs?*
Berkshire would instantly become a very different and very much less valuable investment -- more than $ 8 billion in additional costs tends to do that -- but that'll have to be a subject for another day.
High fees or not, it's just not easy to figure out who'll be able to produce -- over many years/decades and many investing environments -- satisfactory or better results.
Add in the high fees and an already difficult task becomes even tougher.
When it comes to investing -- and often well beyond the world of investing -- it's tough to beat the wisdom of Bogle and Buffett.
Adam
Long position in BRKb eastablished at much lower than recent market prices
Related posts:
Innovators, Imitators, & the Swarming Incompetents
Bogle & Buffett on Frictional Costs
Buffett on Active Investing
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Howard Marks on Risk
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* Otherwise, Buffett generally receives no stock options, stock grants or bonuses. Keep in mind that Buffett's $ 100,000 salary covers not only his investment portfolio responsibilities, but also finding and buying new businesses outright, and making sure the many businesses Berkshire already owns outright (which combined have 367,000 employees according to the latest annual report) are run effectively by honest and capable people (among other things).
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
(6)
In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me." - From Warren Buffett's latest letter
John Bogle, in a speech last year, noted that:
- Hedge funds, in total, managed at the time something like $2.8 trillion in assets
- Investors in such funds pay out to their managers ~ 3 percent per annum -- what he calls an "informed guess" -- or roughly like $ 84 billion (yes...billion) in fees per year
- Vanguard manages ~$3 trillion in assets -- nearly the same amount as all hedge funds combined -- with two thirds being index funds.
- The cost of managing the ~ $2 trillion of index fund assets = .08 percent of assets per annum = ~ $ 1.6 billion
Quite a difference in costs even after normalizing the $ 2.8 trillion to the size of the index fund asset base. The compounded impact of these extra costs for investors over the long haul is hardly small.
In fact, even a traditional actively managed mutual fund that charges something like "only" 1 percent per annum is an order of magnitude more costly than the typical index fund. Imagine two investors. Both have $ 100k to invest and a 35 year investment horizon. Each have portfolios excluding fees that produce a 6 percent annual return over those 35 years. The only difference is one of the investors is paying 1 percent in annual fees while the other has .08 percent in annual fees.
So how much more wealth would the low fee paying investor have at the end of the 35 year investment horizon?
~ $ 200k
What's worth noting is that here we have someone who's accomplished great success through active investing (Buffett) with high respect and admiration for the person (Bogle) who has been encouraging investors to avoid such an approach for decades.
To understand why this seemingly inherent conflict might exist just consider the frictional costs -- or lack thereof -- inherent to Buffett's approach. Now, imagine if Buffett charged investors something like the 3% in annual fees to manage Berkshire Hathaway's (BRKa) current portfolio -- ~ $ 276 billion of cash and investments at the end of 2016 -- instead of the $ 100,000 salary plus security costs?*
Berkshire would instantly become a very different and very much less valuable investment -- more than $ 8 billion in additional costs tends to do that -- but that'll have to be a subject for another day.
High fees or not, it's just not easy to figure out who'll be able to produce -- over many years/decades and many investing environments -- satisfactory or better results.
Add in the high fees and an already difficult task becomes even tougher.
When it comes to investing -- and often well beyond the world of investing -- it's tough to beat the wisdom of Bogle and Buffett.
Adam
Long position in BRKb eastablished at much lower than recent market prices
Related posts:
Innovators, Imitators, & the Swarming Incompetents
Bogle & Buffett on Frictional Costs
Buffett on Active Investing
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Howard Marks on Risk
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* Otherwise, Buffett generally receives no stock options, stock grants or bonuses. Keep in mind that Buffett's $ 100,000 salary covers not only his investment portfolio responsibilities, but also finding and buying new businesses outright, and making sure the many businesses Berkshire already owns outright (which combined have 367,000 employees according to the latest annual report) are run effectively by honest and capable people (among other things).
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
(6)
Thursday, October 13, 2016
Bogle & Buffett on Frictional Costs
John Bogle had the following to say in a speech earlier this year:
"Hedge funds (so-called; actually concentrated investment accounts which offer a wide variety of strategies) manage about $2.8 trillion of assets, at a cost equal to at least 3% of assets per year (300 basis points, an informed guess), generating some $84 billion in annual fees."
Vanguard manages roughly $3 trillion with roughly two thirds being index funds. Similar size but naturally much lower costs:
"The costs of supervising these index portfolios come to about $400 million annually, or 0.02% per year (two basis points)—less than 1% of the hedge fund rate. Administering the index funds and handling the accounts of some 15 million index shareholders costs another $1.2 billion, adding 0.06% (six basis points) to bring the aggregate expense ratio to eight basis points."
The ~ 300 basis point "informed guess" is primarily driven by the 2 and 20 compensation structure that is common to hedge funds. The above comments are not unlike those made by Warren Buffett -- in reference to his bet that a low-cost S&P 500 index fund would outperform a basket of hedge funds chosen by experts -- at the Berkshire Hathaway (BRKa) shareholder meeting earlier this year:
"The result is that after eight years and several hundred hedge fund managers being involved, the totally unmanaged fund by Vanguard with very minimal costs is now 40-something [percentage] points ahead of the group of hedge funds. It may sound like a terrible result for the hedge funds, but it's not a terrible result for the hedge fund managers."
Buffett also pointed out...
"We have two [investment] managers at Berkshire. They each manage $9 billion for us. They both ran hedge funds before. If they had a 2/20 arrangement with Berkshire, which is not uncommon in the hedge fund world, they would be getting $180 million annually each merely for breathing."
And then added:
"It's a compensation scheme that is unbelievable to me and that's one reason I made this bet."
So it comes down to this big difference in frictional costs to explain the results (so far) of Buffett's bet.
Investors in these high-cost funds are betting that, over many years, a capable manager can reliably outrun such a frictional cost headwind and that somehow those investors will be able to correctly pick beforehand who that manager is going to be. As Charlie Munger said at the same Berkshire meeting:
"There have been a few of these managers who've actually succeeded...But it's a tiny group of people...like looking for a needle in a haystack."
The likelihood that a manager will do well ends up much higher than the likelihood those who actually put their capital at risk will do well.
It seems rather obvious that the system would be vastly improved if the opposite were true.
Tortured logic is required to explain why those who are putting their capital at risk shouldn't first be compensated sufficiently before vast sums are drained from their balance sheet.
Adam
Long position in BRKb established at much lower than recent market prices
Related posts:
Buffett on Active Investing
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
"Hedge funds (so-called; actually concentrated investment accounts which offer a wide variety of strategies) manage about $2.8 trillion of assets, at a cost equal to at least 3% of assets per year (300 basis points, an informed guess), generating some $84 billion in annual fees."
Vanguard manages roughly $3 trillion with roughly two thirds being index funds. Similar size but naturally much lower costs:
"The costs of supervising these index portfolios come to about $400 million annually, or 0.02% per year (two basis points)—less than 1% of the hedge fund rate. Administering the index funds and handling the accounts of some 15 million index shareholders costs another $1.2 billion, adding 0.06% (six basis points) to bring the aggregate expense ratio to eight basis points."
The ~ 300 basis point "informed guess" is primarily driven by the 2 and 20 compensation structure that is common to hedge funds. The above comments are not unlike those made by Warren Buffett -- in reference to his bet that a low-cost S&P 500 index fund would outperform a basket of hedge funds chosen by experts -- at the Berkshire Hathaway (BRKa) shareholder meeting earlier this year:
"The result is that after eight years and several hundred hedge fund managers being involved, the totally unmanaged fund by Vanguard with very minimal costs is now 40-something [percentage] points ahead of the group of hedge funds. It may sound like a terrible result for the hedge funds, but it's not a terrible result for the hedge fund managers."
Buffett also pointed out...
"We have two [investment] managers at Berkshire. They each manage $9 billion for us. They both ran hedge funds before. If they had a 2/20 arrangement with Berkshire, which is not uncommon in the hedge fund world, they would be getting $180 million annually each merely for breathing."
And then added:
"It's a compensation scheme that is unbelievable to me and that's one reason I made this bet."
So it comes down to this big difference in frictional costs to explain the results (so far) of Buffett's bet.
Investors in these high-cost funds are betting that, over many years, a capable manager can reliably outrun such a frictional cost headwind and that somehow those investors will be able to correctly pick beforehand who that manager is going to be. As Charlie Munger said at the same Berkshire meeting:
"There have been a few of these managers who've actually succeeded...But it's a tiny group of people...like looking for a needle in a haystack."
The likelihood that a manager will do well ends up much higher than the likelihood those who actually put their capital at risk will do well.
It seems rather obvious that the system would be vastly improved if the opposite were true.
Tortured logic is required to explain why those who are putting their capital at risk shouldn't first be compensated sufficiently before vast sums are drained from their balance sheet.
Adam
Long position in BRKb established at much lower than recent market prices
Related posts:
Buffett on Active Investing
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
Monday, September 12, 2016
Buffett on Active Investing
Warren Buffett said the following on CNBC back in May:
"Active investing as a whole is certain to lead to worse than average results."
He goes on to explain that those who are active, in aggregate, must by definition get an average result. Subtract all the fees and what happens is a below average result. John Bogle has previously made the point that it's tough to get around what he calls the "relentless rules of humble arithmetic".
Naturally some think they themselves will be able to outperform over the long haul or, alternatively, that they'll be able to reliably pick, beforehand, an active manager who will outperform.
This might prove possible for some but history shows it's much easier in theory than reality.
Buffett's bet with Protege Partners -- one that now goes back more than eight years -- was, from his point of view, meant to demonstrate that while many "smart people are involved in running hedge funds...to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors."
Naturally, Protege held the opposite view.
The results so far?*
Index Fund: 65.7%
Hedge Funds: 21.9%
Of course, one example doesn't necessarily prove anything but Buffett elaborated on his thinking during the 2016 Berkshire Hathaway (BRKa) shareholder meeting:
"Supposedly sophisticated people...hire consultants, and no consultant in the world is going to tell you 'just buy an S&P index fund and sit for the next 50 years.' You don't get to be a consultant that way. And you certainly don't get an annual fee that way. So the consultant has every motivation in the world to tell you, 'this year I think we should concentrate more on international stocks,' or 'this manager is particularly good on the short side,' and so they come in and they talk for hours, and you pay them a large fee, and they always suggest something other than just sitting on your rear end and participating in the American business without cost. And then those consultants, after they get their fees, they in turn recommend to you other people who charge fees, which... cumulatively eat up capital like crazy."
And, according to Buffett, it's not easy to change behavior:
"I've talked to huge pension funds, and I've taken them through the math, and when I leave, they go out and hire a bunch of consultants and pay them a lot of money. It's just unbelievable."
And guess who these consultants tend to recommend?
Hedge funds that typically get paid via something like a 2-and-20 or a similar compensation structure.
According to Buffett these consultants usually "have lots of charts and PowerPoint presentations and they recommend people who are in turn going to charge a lot of money and they say, 'well you can only get the best talent by paying 2-and-20,' or something of the sort, and the flow of money from the 'hyperactive' to what I call the 'helpers' is dramatic."
During the CNBC interview Buffett added the following:
"In...almost every field, the professional brings something to the party."
Yet, in contrast, Buffett points out that the world of professional investing as a whole produces "negative results to their clientele. And that's a very interesting phenomenon to live with, if you spend your life doing something where your expectancy is to hurt your customer. And yet that is the case for professional investors."
Naturally, some capable individual managers will outperform. Yet as Charlie Munger said at the Berkshire meeting:
"There have been a few of these managers who've actually succeeded...But it's a tiny group of people...like looking for a needle in a haystack."
Think about it this way: if 80% to 90% of actively managed funds tend to underperform, then that by definition means the purchaser of a low-cost index fund, with no skills whatsoever, should over the long-term outperform roughly 80% to 90% of the professional managers.**
Can you imagine such a product existing for other professions?
In other words, there's just no way to buy a product that will enable someone to perform better than, for example, 80% to 90% of doctors without the requisite expertise. The same would be mostly true for other professions (and, for that matter, this also applies to skilled trades).
Of course, one of the problems with this is investors tend to trade index funds too much -- the net reward for the incremental effort being reduced returns -- as well as the actively managed funds they own. Such behavior usually turns what should be inherently, at least on a relative basis, an advantageous approach into one that is less so.
It's tough to outperform picking individual stocks. Similarly, it's tough to pick the professional investors who, going forward and over the long-term, will not only outperform, but will outperform by enough to justify all the frictional costs and, possibly, the incremental risks they'll need to take.
Stocks, generally speaking, appear to be not all cheap these days. So it would seem to be rather unwise to expect market averages will produce more than modest results as long as such valuations persist. Of course, what look like high-ish valuations can for a time become even higher and, as far as near-term price action goes, almost anything can happen.***
Some will see such a situation for what it is and no doubt be tempted to find some creative ways to outperform.
An understandable response?
Possibly.
That doesn't necessarily make it the correct response.
The vast majority (I'd 80% to 90% qualifies) of active investors -- many who are smart, capable, and hardworking -- do worse than what a passive approach could achieve. So that means many market participants, if nothing else, must have a built in bias; they inherently overestimate their own likelihood of success. To them, it's always the other less prepared and less able participants who'll do worse than the average.
Certainly not themselves.
It's worth amplifying that all the extra effort involved isn't just producing no incremental benefit, it's producing a worse than passive outcome; a negative return on all the additional invested time and effort.
A subpar result for the investors though likely not for the managers.
Where else is so much time and talent put forth to achieve so little or, in fact, what is a net reduced outcome?
Adam
Long position in BRKb established at much lower than recent market prices
Related posts:
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* Through December 31, 2015.
** Think of it this way: it's essentially a choice between a small chance of picking the manager who produces long-term outperformance versus near certainty of being at or near the top ~10% or 20% in terms of long-term market performance. Also, there's still some (usually rather modest) fees to consider in an index fund that might produce a lesser outcome.
*** As always, I have no view on what near-term market prices might be. I'll leave that sort of thing to those who attempt to profit betting on price action. The focus here is definitely not on speculation; it is always on investment -- judging what something is intrinsically worth, looking for reasonable (if not considerable) mispricings, then benefiting, in general, mostly from what's produced over the long run. Valuations right now do seem to be more on the high side than not for many stocks. Or, well, let's just say it seems wise to, considering where valuations are at the present time, use conservative assumptions and lower future return expectations. Of course, higher multiples in the near-term can naturally occur. Those higher multiples may even theoretically make those with a shorter horizon (who sell) better off -- or, at a minimum, will make some participants feel better off -- but, in fact, a meaningful drop in market prices would logically make life easier for the long-term investor. Those with a substantial investing time horizon who are hoping for market prices to continue higher near-term (or even intermediate-term) should keep this in mind. It is lower market prices that increase the possibility of making incremental purchases -- whether done directly by the shareholder or via buybacks using the company's excess cash -- at a nice discount to intrinsic value. The potential long-term compounded effects for continuing owners (i.e. not traders) need not be small. Buying shares at increasingly large discounts to conservatively estimated value over time should, all else equal, reduce risks/improve returns.
(Notice the sometimes overlooked inverse relationship here. Risk and reward is at times positively correlated, but some incorrectly assume they're always positively correlated. Well, the correlation is not always positive and is, as far as I'm concerned, too often a rather underutilized consideration.)
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
"Active investing as a whole is certain to lead to worse than average results."
He goes on to explain that those who are active, in aggregate, must by definition get an average result. Subtract all the fees and what happens is a below average result. John Bogle has previously made the point that it's tough to get around what he calls the "relentless rules of humble arithmetic".
Naturally some think they themselves will be able to outperform over the long haul or, alternatively, that they'll be able to reliably pick, beforehand, an active manager who will outperform.
This might prove possible for some but history shows it's much easier in theory than reality.
Buffett's bet with Protege Partners -- one that now goes back more than eight years -- was, from his point of view, meant to demonstrate that while many "smart people are involved in running hedge funds...to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors."
Naturally, Protege held the opposite view.
The results so far?*
Index Fund: 65.7%
Hedge Funds: 21.9%
Of course, one example doesn't necessarily prove anything but Buffett elaborated on his thinking during the 2016 Berkshire Hathaway (BRKa) shareholder meeting:
"Supposedly sophisticated people...hire consultants, and no consultant in the world is going to tell you 'just buy an S&P index fund and sit for the next 50 years.' You don't get to be a consultant that way. And you certainly don't get an annual fee that way. So the consultant has every motivation in the world to tell you, 'this year I think we should concentrate more on international stocks,' or 'this manager is particularly good on the short side,' and so they come in and they talk for hours, and you pay them a large fee, and they always suggest something other than just sitting on your rear end and participating in the American business without cost. And then those consultants, after they get their fees, they in turn recommend to you other people who charge fees, which... cumulatively eat up capital like crazy."
And, according to Buffett, it's not easy to change behavior:
"I've talked to huge pension funds, and I've taken them through the math, and when I leave, they go out and hire a bunch of consultants and pay them a lot of money. It's just unbelievable."
And guess who these consultants tend to recommend?
Hedge funds that typically get paid via something like a 2-and-20 or a similar compensation structure.
According to Buffett these consultants usually "have lots of charts and PowerPoint presentations and they recommend people who are in turn going to charge a lot of money and they say, 'well you can only get the best talent by paying 2-and-20,' or something of the sort, and the flow of money from the 'hyperactive' to what I call the 'helpers' is dramatic."
During the CNBC interview Buffett added the following:
"In...almost every field, the professional brings something to the party."
Yet, in contrast, Buffett points out that the world of professional investing as a whole produces "negative results to their clientele. And that's a very interesting phenomenon to live with, if you spend your life doing something where your expectancy is to hurt your customer. And yet that is the case for professional investors."
Naturally, some capable individual managers will outperform. Yet as Charlie Munger said at the Berkshire meeting:
"There have been a few of these managers who've actually succeeded...But it's a tiny group of people...like looking for a needle in a haystack."
Think about it this way: if 80% to 90% of actively managed funds tend to underperform, then that by definition means the purchaser of a low-cost index fund, with no skills whatsoever, should over the long-term outperform roughly 80% to 90% of the professional managers.**
Can you imagine such a product existing for other professions?
In other words, there's just no way to buy a product that will enable someone to perform better than, for example, 80% to 90% of doctors without the requisite expertise. The same would be mostly true for other professions (and, for that matter, this also applies to skilled trades).
Of course, one of the problems with this is investors tend to trade index funds too much -- the net reward for the incremental effort being reduced returns -- as well as the actively managed funds they own. Such behavior usually turns what should be inherently, at least on a relative basis, an advantageous approach into one that is less so.
It's tough to outperform picking individual stocks. Similarly, it's tough to pick the professional investors who, going forward and over the long-term, will not only outperform, but will outperform by enough to justify all the frictional costs and, possibly, the incremental risks they'll need to take.
Stocks, generally speaking, appear to be not all cheap these days. So it would seem to be rather unwise to expect market averages will produce more than modest results as long as such valuations persist. Of course, what look like high-ish valuations can for a time become even higher and, as far as near-term price action goes, almost anything can happen.***
Some will see such a situation for what it is and no doubt be tempted to find some creative ways to outperform.
An understandable response?
Possibly.
That doesn't necessarily make it the correct response.
The vast majority (I'd 80% to 90% qualifies) of active investors -- many who are smart, capable, and hardworking -- do worse than what a passive approach could achieve. So that means many market participants, if nothing else, must have a built in bias; they inherently overestimate their own likelihood of success. To them, it's always the other less prepared and less able participants who'll do worse than the average.
Certainly not themselves.
It's worth amplifying that all the extra effort involved isn't just producing no incremental benefit, it's producing a worse than passive outcome; a negative return on all the additional invested time and effort.
A subpar result for the investors though likely not for the managers.
Where else is so much time and talent put forth to achieve so little or, in fact, what is a net reduced outcome?
Adam
Long position in BRKb established at much lower than recent market prices
Related posts:
John Bogle: Arithmetic Quants vs Algorithmic Quants
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* Through December 31, 2015.
** Think of it this way: it's essentially a choice between a small chance of picking the manager who produces long-term outperformance versus near certainty of being at or near the top ~10% or 20% in terms of long-term market performance. Also, there's still some (usually rather modest) fees to consider in an index fund that might produce a lesser outcome.
*** As always, I have no view on what near-term market prices might be. I'll leave that sort of thing to those who attempt to profit betting on price action. The focus here is definitely not on speculation; it is always on investment -- judging what something is intrinsically worth, looking for reasonable (if not considerable) mispricings, then benefiting, in general, mostly from what's produced over the long run. Valuations right now do seem to be more on the high side than not for many stocks. Or, well, let's just say it seems wise to, considering where valuations are at the present time, use conservative assumptions and lower future return expectations. Of course, higher multiples in the near-term can naturally occur. Those higher multiples may even theoretically make those with a shorter horizon (who sell) better off -- or, at a minimum, will make some participants feel better off -- but, in fact, a meaningful drop in market prices would logically make life easier for the long-term investor. Those with a substantial investing time horizon who are hoping for market prices to continue higher near-term (or even intermediate-term) should keep this in mind. It is lower market prices that increase the possibility of making incremental purchases -- whether done directly by the shareholder or via buybacks using the company's excess cash -- at a nice discount to intrinsic value. The potential long-term compounded effects for continuing owners (i.e. not traders) need not be small. Buying shares at increasingly large discounts to conservatively estimated value over time should, all else equal, reduce risks/improve returns.
(Notice the sometimes overlooked inverse relationship here. Risk and reward is at times positively correlated, but some incorrectly assume they're always positively correlated. Well, the correlation is not always positive and is, as far as I'm concerned, too often a rather underutilized consideration.)
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Wednesday, June 29, 2016
Bogle: Arithmetic Quants vs Algorithmic Quants
From a recent speech by John Bogle:
"As I see it, the plain and simple, well-armed, lightly-dressed, unencumbered shepherd is the index fund, a portfolio holding all 500 stocks in the Standard & Poor’s 500 Index. The David approach to investing, then, is 'buy a diversified portfolio of stocks operated at rock-bottom costs, and hold it forever.' The index fund relies on simple arithmetic, a mathematical tautology that could be calculated by a second grader: gross return in the stock market, minus the frictional costs of investing, equals the net return that is shared by all investors as a group. Taking the lion's share of those costs out of the equation is the key to successful long-term investing.
In contrast, many (most?) Goliaths of academia and quantitative investing believe the contrary: the application of multiple complex equations—the language of science and technology, of engineering and mathematics (yes, STEM), developed with computers processing Big Data, and trading stocks at the speed of light—make our Goliaths far stronger and more powerful than are we indexing Davids. The question posed in my title is essentially, 'who wins?'—the arithmetic quants or the algorithmic quants."
In the early days, when the hedge fund Goliaths* were individually smaller in size and part of a much smaller industry (assets of $ 120 billion in 1997), annualized returns were impressive: 11.8 percent vs 7.2 percent for the S&P 500 from 1990 to 2008.
By 2008, the Goliaths had $ 1.4 trillion in assets that have now grown to roughly $ 2.8 trillion and their relative performance has suffered a bunch: 5.3 percent vs 13.5 percent for the S&P 500 from 2009 to 2016.
Will there prove to be, in the long run, any advantage to all this additional complexity? Is the additional size the main cause of the more recent underperformance? Is it the additional competition from capable individuals entering what is, if nothing else, a potentially rather lucrative profession? Or is it the addition of less capable managers entering the industry? For Bogle this all just reflects what is an inevitable reversion to the mean. The extra muscle and heavy armor -- in terms of industry assets -- has certainly led to huge compensation for the Goliaths.
(Bogle estimates ~$ 84 billion in annual fees while The New York Times reported that the top 25 managers alone were paid an average of $ 465 million in 2014.)
In any case, not unlike the classic battle, all that additional muscle and armor didn't make the Hedge Fund Goliaths a more formidable opponent to the indexing Davids; instead, it appears -- at least based upon the more recent results -- to have made them vulnerable to a much simpler and low cost approach.
Huge frictional costs -- roughly 3 percent per year or more according to Bogle -- are, of course, a meaningful factor but, with a greater than 8 percent annualized gap since 2009, it comes down to more than just those costs. Keep in mind that in the early days the drag of these heavy frictional costs also existed.
The range of outcomes is also a concern. Over the past 5 years, according to Bogle, individual hedge fund returns have been between -91 percent to 157 percent.
Yikes.
These Goliaths may perform much better in the future, of course. There's, as always, just no way to know. Yet I think it's fair to ask whether such long-term outcomes deserves so much time, talent, and capital especially when much less costly, simple, and effective alternatives exist.
If nothing else, over the long haul, the headwind coming from all the frictional costs is no small thing for most to overcome. Some exceptional managers no doubt will overcome those costs -- whether through pure chance or skill or a bit of both -- but that doesn't change the reality that a hedge fund with typical fees must outperform by ~3 percent each year just to keep up with the indexing Davids.
Adam
Related posts:
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* It's worth noting the wide variety of investment and trading strategies employed by hedge funds. Still, what most have in common is vastly greater complexity and cost.
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
"As I see it, the plain and simple, well-armed, lightly-dressed, unencumbered shepherd is the index fund, a portfolio holding all 500 stocks in the Standard & Poor’s 500 Index. The David approach to investing, then, is 'buy a diversified portfolio of stocks operated at rock-bottom costs, and hold it forever.' The index fund relies on simple arithmetic, a mathematical tautology that could be calculated by a second grader: gross return in the stock market, minus the frictional costs of investing, equals the net return that is shared by all investors as a group. Taking the lion's share of those costs out of the equation is the key to successful long-term investing.
In contrast, many (most?) Goliaths of academia and quantitative investing believe the contrary: the application of multiple complex equations—the language of science and technology, of engineering and mathematics (yes, STEM), developed with computers processing Big Data, and trading stocks at the speed of light—make our Goliaths far stronger and more powerful than are we indexing Davids. The question posed in my title is essentially, 'who wins?'—the arithmetic quants or the algorithmic quants."
In the early days, when the hedge fund Goliaths* were individually smaller in size and part of a much smaller industry (assets of $ 120 billion in 1997), annualized returns were impressive: 11.8 percent vs 7.2 percent for the S&P 500 from 1990 to 2008.
By 2008, the Goliaths had $ 1.4 trillion in assets that have now grown to roughly $ 2.8 trillion and their relative performance has suffered a bunch: 5.3 percent vs 13.5 percent for the S&P 500 from 2009 to 2016.
Will there prove to be, in the long run, any advantage to all this additional complexity? Is the additional size the main cause of the more recent underperformance? Is it the additional competition from capable individuals entering what is, if nothing else, a potentially rather lucrative profession? Or is it the addition of less capable managers entering the industry? For Bogle this all just reflects what is an inevitable reversion to the mean. The extra muscle and heavy armor -- in terms of industry assets -- has certainly led to huge compensation for the Goliaths.
(Bogle estimates ~$ 84 billion in annual fees while The New York Times reported that the top 25 managers alone were paid an average of $ 465 million in 2014.)
In any case, not unlike the classic battle, all that additional muscle and armor didn't make the Hedge Fund Goliaths a more formidable opponent to the indexing Davids; instead, it appears -- at least based upon the more recent results -- to have made them vulnerable to a much simpler and low cost approach.
The range of outcomes is also a concern. Over the past 5 years, according to Bogle, individual hedge fund returns have been between -91 percent to 157 percent.
Yikes.
These Goliaths may perform much better in the future, of course. There's, as always, just no way to know. Yet I think it's fair to ask whether such long-term outcomes deserves so much time, talent, and capital especially when much less costly, simple, and effective alternatives exist.
If nothing else, over the long haul, the headwind coming from all the frictional costs is no small thing for most to overcome. Some exceptional managers no doubt will overcome those costs -- whether through pure chance or skill or a bit of both -- but that doesn't change the reality that a hedge fund with typical fees must outperform by ~3 percent each year just to keep up with the indexing Davids.
Adam
Related posts:
Hedge Funds: Balancing Risk & Reward?
Index Funds vs Actively Managed Funds
John Bogle on Investor Returns
Buffett's Hedge Fund Bet
John Bogle's "Relentless Rules of Humble Arithmetic", Part II
Index Fund Investing Revisited
Charlie Munger on Complexity, Hedge Funds, and Pension Funds
Why Do So Many Investors Underperform?
When Mutual Funds Outperform Their Investors
John Bogle's "Relentless Rules of Humble Arithmetic"
Investor Overconfidence Revisited
Newton's Fourth Law
Investor Overconfidence
Chasing "Rearview-Mirror Performance"
Index Fund Investing
Investors Are Often Their Own Worst Enemies, Part II
Investors Are Often Their Own Worst Enemies
The Illusion of Skill
Buffett's Bet Against Hedge Funds, Part II
Buffett's Bet Against Hedge Funds
The Illusion of Control
Buffett, Bogle, and the "Invisible Foot" Revisited
If Buffett Were Paid Like a Hedge Fund Manager - Part II
If Buffett Were Paid Like a Hedge Fund Manager
Buffett, Bogle, and the Invisible Foot
Charlie Munger on LTCM & Overconfidence
"Nothing But Costs"
Bogle: History and the Classics
When Genius Failed...Again
* It's worth noting the wide variety of investment and trading strategies employed by hedge funds. Still, what most have in common is vastly greater complexity and cost.
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Monday, January 4, 2016
Quotes of 2015
Here's a collection of quotes said or written at some point during 2015.
John Bogle on Investor Returns
"Advisers or whoever saying you should get out of healthcare and into technology or into financials. That's a way to manage money that doesn't work. Who knows what will do best? I don't even know anybody who knows anybody who does." - John Bogle
Stocks and Risk
"Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray." - Warren Buffett
Investment Sins
"Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to 'time' market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy." - Warren Buffett
Berkshire's Architect
"What most of you do not know about Charlie [Munger] is that architecture is among his passions. Though he began his career as a practicing lawyer...he designed the house that he lives in today – some 55 years later. (Like me, Charlie can't be budged if he is happy in his surroundings.) In recent years, Charlie has designed large dorm complexes at Stanford and the University of Michigan and today, at age 91, is working on another major project.
From my perspective, though, Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices." - Warren Buffett
What's Gold Intrinsically Worth?
"You don't want to be one of these people, spending years telling reality that it is wrong." - Jason Zweig
Buffett on Value vs Growth
"I always say if you aren't investing for value, what are you investing for? And the idea that value and growth are two different things makes no sense. I mean, growth is part of the value equation and a company that grows and uses little capital in doing it...is obviously worth more money than one that doesn't grow. That doesn't make the one that doesn't grow valueless though." - Warren Buffett
Bogle on Speculation
"It's just speculators not speculating on what they think is going to happen but what they think other speculators think is going to happen..." - John Bogle
"This speculative binge that we're seeing here … has nothing to do with the fundamentals behind the long-term value of equities in particular, which are created by the values of corporations, earnings and dividends, and reinvestment in the business." - John Bogle
Activists & the AmEx Buyback, Part II
"People assume when we buy some stock we want it to go up. We don't want it to go up. Maybe, obviously, eventually... five or ten years from now [we'd like it]." - Warren Buffett
Corporate Hocus-Pocus
"Berkshire is now a sprawling conglomerate, constantly trying to sprawl further.
Conglomerates, it should be acknowledged, have a terrible reputation with investors. And they richly deserve it." - Warren Buffett
"Since I entered the business world, conglomerates have enjoyed several periods of extreme popularity, the silliest of which occurred in the late 1960s. The drill for conglomerate CEOs then was simple: By personality, promotion or dubious accounting – and often by all three – these managers drove a fledgling conglomerate's stock to, say, 20 times earnings and then issued shares as fast as possible to acquire another business selling at ten-or-so times earnings. They immediately applied 'pooling' accounting to the acquisition, which – with not a dime's worth of change in the underlying businesses – automatically increased per-share earnings, and used the rise as proof of managerial genius. - Warren Buffett
Munger on Efficient Markets, Indexing, & Stock Pickers
"They were teaching my colleagues that the stock market was so efficient that nobody could beat it....I knew it was bull. When I was young I never went near a business school so I didn't get polluted by the craziness.
[laughter]
I never believed it. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle, and there's nothing remarkable about it. I don't have any wonderful insights that other people don't have. I just avoided idiocy slightly more consistently than others." - Charlie Munger
Happy New Year,
Adam
Quotes of 2014 Part I & II
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
John Bogle on Investor Returns
"Advisers or whoever saying you should get out of healthcare and into technology or into financials. That's a way to manage money that doesn't work. Who knows what will do best? I don't even know anybody who knows anybody who does." - John Bogle
Stocks and Risk
"Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray." - Warren Buffett
Investment Sins
"Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to 'time' market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy." - Warren Buffett
Berkshire's Architect
"What most of you do not know about Charlie [Munger] is that architecture is among his passions. Though he began his career as a practicing lawyer...he designed the house that he lives in today – some 55 years later. (Like me, Charlie can't be budged if he is happy in his surroundings.) In recent years, Charlie has designed large dorm complexes at Stanford and the University of Michigan and today, at age 91, is working on another major project.
From my perspective, though, Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices." - Warren Buffett
What's Gold Intrinsically Worth?
"You don't want to be one of these people, spending years telling reality that it is wrong." - Jason Zweig
Buffett on Value vs Growth
"I always say if you aren't investing for value, what are you investing for? And the idea that value and growth are two different things makes no sense. I mean, growth is part of the value equation and a company that grows and uses little capital in doing it...is obviously worth more money than one that doesn't grow. That doesn't make the one that doesn't grow valueless though." - Warren Buffett
Bogle on Speculation
"It's just speculators not speculating on what they think is going to happen but what they think other speculators think is going to happen..." - John Bogle
"This speculative binge that we're seeing here … has nothing to do with the fundamentals behind the long-term value of equities in particular, which are created by the values of corporations, earnings and dividends, and reinvestment in the business." - John Bogle
Activists & the AmEx Buyback, Part II
"People assume when we buy some stock we want it to go up. We don't want it to go up. Maybe, obviously, eventually... five or ten years from now [we'd like it]." - Warren Buffett
Corporate Hocus-Pocus
"Berkshire is now a sprawling conglomerate, constantly trying to sprawl further.
Conglomerates, it should be acknowledged, have a terrible reputation with investors. And they richly deserve it." - Warren Buffett
"Since I entered the business world, conglomerates have enjoyed several periods of extreme popularity, the silliest of which occurred in the late 1960s. The drill for conglomerate CEOs then was simple: By personality, promotion or dubious accounting – and often by all three – these managers drove a fledgling conglomerate's stock to, say, 20 times earnings and then issued shares as fast as possible to acquire another business selling at ten-or-so times earnings. They immediately applied 'pooling' accounting to the acquisition, which – with not a dime's worth of change in the underlying businesses – automatically increased per-share earnings, and used the rise as proof of managerial genius. - Warren Buffett
Munger on Efficient Markets, Indexing, & Stock Pickers
"They were teaching my colleagues that the stock market was so efficient that nobody could beat it....I knew it was bull. When I was young I never went near a business school so I didn't get polluted by the craziness.
[laughter]
I never believed it. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle, and there's nothing remarkable about it. I don't have any wonderful insights that other people don't have. I just avoided idiocy slightly more consistently than others." - Charlie Munger
Happy New Year,
Adam
Quotes of 2014 Part I & II
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
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