Data Sufficiency

Tommy,

I've done it, it wasn't a fluke, and it wasn't just guess work. I did it all while sitting in the library in Lincoln, Nebraska, hahaha. I will continue to do it as well. In fact, I didn't just do it once, I did it multiple times with different securities over multiple years.

Here is something to consider Tommy:

A rebuttall article- https://www.tilsonfunds.com/superinvestors.html

Something about me: I have literally sat in the library and have read every relevant investment/ Economics book ever written.

Let me ask you a very simple question: If you wanted to learn a subject would you learn it from the person who is the absolute best or would you learn it from other people who know the subject but aren't good at it? AKa put up or shut up, as the old adage goes.

Whether it is the GMAT or investing , one would assume you would want to talk to the guy with a 750+ or who has billions of dollars from investing. You would have to ask yourself, maybe that guy is on to something and I should listen to him.

One other thing to consider - if the market is completely efficient, that would be saying that everyone everywhere has the same information, the same skill, and understands businesses, economics, and finance at the same level. Certainly that is not true.
- BP

Also,

If you think I am some sort of weirdo/ scam artist I'll post my Resume. Just a guy who enjoyed investment management who couldn't find a decent job out of college. It is hard when HR is full of communication majors who are asking you how analytical you are on a scale from 1 to 10, rather than talking about the subject you spent years studying. Plus the goofy picture to the left is actually of me.

Tommy,

A lot to touch on here:

"The trap you're falling into is a common cognitive bias (the Halo Effect vis-a-vis a few successful investors, along with a common probabilistic fallacy that one will always beat the odds), and the reason why value investing fails on a macro level is related to a whole collection of cognitive biases, from loss aversion to failure to recognize reversion to the mean."

I understand psychology and some of my investment was what Graham considers one off situations. For example, purchasing AIG at $2 a share. That is a situation that will never happen again. The problem with most people is they are looking for a mathematical way to do it; rather, than focusing on the Economics, human behavior, and what the business actually does.

The problem with most professional financial analysts who sit and cram discounted cash flows DESPERATELY trying to compete with other people is that they are trying to forecast earnings into the future. Well, if you have a company, for instance Wal-Mart, about the easiest company to analyze, that has a price competetive advantage and provides a good or service that you have a completely inelastic demand for, over a long period of time that business is going to be worth more in terms of dollars.

It is so EASY to say I know that more people are going to be on the Earth now until the end of time and those people have to eat, so if a company can provide that time of service at lower costs then it's competitors it will be succesful overtime. Almost too easy for any hardcore academic.

You figure out how fiscal and monetary policy are run, how the decision makers make decision about how to coordinate policy and voila. You also have to know price theory and some other things. It isn't as if Ben Bernanke doesn't have incentives for his behavior. The key is to act
before he does. It's the change that counts.

Perhaps you are falling for a psychology condition known as the self-serving Bias. All in good fun Tommy.

-BP

Tommy,

https://en.wikipedia.org/wiki/Self-serving_bias

I agree I am one of those three. Only time will tell. The preponderance of evidence points to the third option as being the most likely is correct; however, the hereditary evidence doesn't point to number three . I am not going to elaborate further on that; however, I will say I have family who have graduated first in their class from Ron's Alma Mater.

The problem with your basketball analogy is those shots are just shots. I mean sure there is some skill to a granny shot I guess? However, it doesn't involve reading hundreds of books to make those shots. See this is what value investing is, it isn't formal logic, it is adapting to the present day situation and having a very solid understanding about how the things that determine prices work. What I did in 2008 will never work again and as prices rise in general it gets harder; however, in times of despair people will always have emotional reactions to things they don't understand so at the top tick things are generally over valued and at the bottom they are undervalued. It is how people work that is important not some theory. You have to have a temperament that doesn't derive great pleasure from being against or with the crowd. If I were you I would pick up a copy of the general theory and really ponder it. I am sure you have already read it; however, it is always good to read Keynes. You already know all of this, but the real question and the real importance is can you apply it succesfully? Or are you more of a LTC management type guy with option pricing .

No need to get the last word in Tommy, as this isn't some sort of heated argument, in my mind. Just a good discussion about the world. I hope you keep responding as it is always good to hear your articulate insight.

-BP

Also Tommy,

If you took all the publicly traded companies, you could certainly start crossing off ones that you know you dont want to allocate capital too. Airplanes, Car Companies, Lululemon, Linkedin, Facebook, ETc. Then you could go through and see which businesses allocate capital the most efficient. I have this giant checklist I use to narrow it down. Anyways, off to the gym.

- BP

Tommy,

Lol at your first point, I guess I am making jabs at myself here!

I know everyone is doing research Tommy; however, to say markets are efficient would to say that everyone who is doing research is accurately looking at all of the information/ data the exact same way and that they have the same background. If this were true, everyone would allocate capital the exact same way and it would be completely efficient? Well there are people who are investing in Linkedin today even-though it is selling at 800 times it's earnings power and right after the largest TECH BUBBLE IN HISTORY. That is insane. It isn't as if Linkedin produces anything of real value.

I am sorry, but if you have not taken at least one monetary policy class you will have no idea where prices are going or what to base it off of. What I am saying is, the problem with most people's research is they do discounted cash Flow models that are based on faulty assumptions and take the data SERIOUSLY! I mean, you essentially make up the number out of your A** in order to discount cash flows back to PV, unless of course I was taught wrong which is certainly possible (studied Investments by BODY AND KANE or whatever those bros names are) . If I can't do it with Wal-mart, no one can do it with businesses that are a lot more difficult to do. I mean Wal-mart is as simple as they come. It's like MacroEconomists who try to predict GDP out to 3% or 4%. I mean those numbers are a joke. However, it is a lot easier to say, well the United States in 2008, for example, is running a large fiscal and trade deficit. WE have the Federal Funds rate at 4% or whatever it was at at the time and we have a run on the banks. Now, from a policy standpoint, how does monetary policy generally deal with a collapse in credit? By Artificially lowering interest rates to induce banks to borrow again and recapitalize. If they do this, dollars will begin to flow out of fixed assets and into securities. Now, what businesses have the most pricing power here and over a long period of time? That is right, the one's you have the most inelastic demand for! For example, if it is Ron, you and I on an Island and Ron is selling water, you are selling Athletic gear, and I am selling paint and none of us have water, you and myself are probably going to be willing to pay any price, as I value water more than I do athletic gear. Now if you look at securities, Wal-Mart has a beta of what like .50? Why is that? People need to eat and they are going to eat where food prices are the lowest. Essentially, you could purchase Wal-Mart and hold it forever. Unless of course you have any brilliant ideas on how to allocate 50 billion dollars to somehow price Wal-Mart out of the market. You have that kind of company, in 2008, selling at a P/E ratio of 8 when you KNOW the people at the FED are going to lower interest rates in the future!?!?!?!?! ($54 dollars a share) Now, that my friend, is a good deal. Especially because the change in monetary policy comes with what is called a monetary lag. Aka it takes people time to catch on to the game. Also, I PREDICTED that they were going to be FORCED to lower interest rates. You could have invested in just about anything. It isn't as if the government really wants to pay bond holders a larger percentage in REAL terms.
Now you could say, well this kid is talking in hindsight anyone can do that! But that is the thing, I acted BEFORE it happened.

It is the same thing with AIG, while I can say it definitively isn't worth $2 it certainly wasn't worth 52 during my second stock-market game. Which of course it went up to 59 and then plummeted down to 35. It turns out shorting stocks you know are over valued is dangerous. I learned my lesson pretty quickly.

It isn't the time spent really doing things, it is the time spent thinking. I can't explain some people are just better at some things than other people. I am awful at Basketball, for example. I've got no ups; however, I have always been able to kill a book in a night and fully understand what it means.

https://www.nytimes.com/2011/04/17/educa ... d=all&_r=1&

In regards to that article, first of all, thank God I majored in Finance and Economics, a non-business major. Secondly, that is the exact opposite attitude I have had. I don't want to network through people to simply get promoted because of my buddies. I want to prove that I deserve to be promoted because of the work I have done. Like I have said in earlier posts, it is the process I am interested in, or the SKILLS. Good article though.

Also, why would anyone take the LSAT now? Unless you go to a top 10 school you are going to be a clerk making 10 bucks an hour. Who wants to go into debt to get a piece of paper that says I R SMARt, something someone who does well on the LSAT already knows. I think if you have an Economics degree as an undergraduate and you go to Law School you should automatically be disqualified from practicing law unless you score a 170+.

Ok enough rambling. To Sum up all my thoughts of all my Econ / Finance stuff would take forever, so instead I am just spewing out random things I have thought about. Hopefully you weren't expecting a properly written textbook.

-BP

Tommy,

I woke up this morning and read the pdf for Omaha value investing and wanted to comment on it really quickly:

1) Page 3 seems like a pretty bitter categorization for a whole group in general. It isn't as if those are the only people who do value investing nor is it as if that the only people who practice value investing only fall into those three categories.
2) Slide Four, again the language here sounds like someone has some preconceived hate toward value investing in general. However, I do not view index investing as for stooges! I think index investing beats most actively managed funds in the United States, so I would rather invest in a low-cost ETF that tracks the S&P500 than a mutual fund. Again, if you read these notations the guy who wrote this seems awfully mad at someone. When was the last time you ever heard Buffett talk in a disrespectful manner about anyone, whether or not their views are different than from his? Something to certainly think about.
3) I already addressed slide 5; however, to reiterate my point, what is the correct value for R? Is this number not just picked by the "professional"? Again, I did a sensitivity analysis for Wal-Mart in 2008 and it ranged anywhere from 50 dollars a share to 63 based on R changing a half a percentage point. Seems pretty ambiguous to me.
4) Beta, my favorite stupid Academic measure of Risk. Sorry if that offends, but the risk of purchasing any company is not merely how much it wiggles. It is what it sells and it's general competitive advantage of selling that product. It is also how inelastic the demand for that businesses goods or services. As Keynes said, when the shit hits the fan or you have a large contraction in credit/ the money supply, the first thing an individual should logically do is cut back their spending. What do they cut back on? Things that they have the most elastic demand for - think luxury goods, clothes, things you don't really need but you spend your discretionary income on.
5) Slide 8: it isn't that technology is risky, it is the fact that most of those companies merely have raised capital. Just because a company can raise capital certainly doesn't mean they can make a profit. I think E-toys is a good example, I think facebook or linkedin will be a good example in the future.
6) in regard to slide 6. What is the "risk" in owning let's say all the water in the world? OH the market value of your HOLDINGS MAY GO DOWN in value temporarily; however, I don't know about you but if I didn't have water, I would pay any price for it.
7) I agree with good management does not equal good risk slide, as that doesn't have anything to do with the business. I could be a kicka*** famous manager and manage a long john's silver in the ghetto of Lincoln Nebraska and I'll probably go bankrupt. It is a sh*T business.
8) Slide 16 I agree with, in some cases. Some companies may not hold their competitive advantage because over time the industry changes, low cost producers come in, people make a product that gains popularity over their current product. For example, if $1 razors gained enormous popularity Gilette would probably be in trouble.
9) Slide 19 is ridiculous. The author doesn't site a source, doesn't explain his numbers, and makes vast generalizations. In fact, throw Rick Guerin's returns in there and see what it does to the numbers.

However, I think the most pressing issue in this article is the author's emotional vindication that spews threw the letters. It is like you go on a date with a girl and she sits there dreamy eyed, twirling her hair, brushing it out of her face, and blushing quite profusely. You might pick up she is attracted to you, or you might go home alone, Loser.

That is all for this morning. Practice test time dun dun dun.

- BP

Tommy,


haha fair enough. I'll keep you posted. I got another 660 on the gmatprep test today. Not exactly what I was hoping for; however, I will have some time to go over it tomorrow, so hopefully i can post some questions I didn't understand and add to my general conceptual understanding of how some of the questions I missed work. I will also post my results next week from Manhattan's practice test.

-BP