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Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

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Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#271

Post by stouset »

dsacco wrote: post #256
stouset wrote: post #252

Earlier quoted context omitted.

Are you willing to bet $1,000 that those funds will, in aggregate, beat VTSMX over the next 10 years? It's easy to pick the winners in hindsight. Buffett put $1mm on a bet that it's hard to do it beforehand. If Protege partners couldn't do it with $1mm on the line, what makes you so convinced that you can?

Sure, I'll take that bet absolutely. It's a little reductive to use "past performance is not an indication of future gains" as an argument. If you extrapolate that with the premises that I am using (namely, that it is possible to intentionally and consistently beat the market), there is no reason to have faith in the continued investment in anything, private or public, because you cannot use any past measure of succe…

Choose a measurable fund or a weighted set of them such that one can do an easy comparison of returns, net of fees and expenses, against VTSMX and I'll create the bet on longbets.

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#272

Post by throwaway5752 »

hackuser wrote: post #236
throwaway5752 wrote: post #211

Earlier quoted context omitted.

Look, it's great and all but 1) it was not a standing start (NY and VA have colonial histories starting over 400 years ago) 2) even at a low rate of return of 4% wealth should have compounded over 12,200% over 240 years (or: assuming a 4% IRR and current $90T valuation, ignoring inflation were the colonies worth $750M?) 3) this spanned the industrial and computer revolutions and all nations benefited. If you don't re…

I agree with the main thrust of your statement. My understanding from my synthesis of reading the experts is that the U.S.' current economic success and international power comes down to: 1) Political stability and the rule of law: No point in investing much in a farm, factory, or infrastructure (fiber!) if it will be burnt down the next day by bandits or seized by someone more powerful (government, the rich family i…

I agree with you, but particularly with 4 and 5. As far as 5 goes N. America had/has enormous iron, copper, uranium, gold, natural gas, coal, and petroleum deposits to an extent that I don't think many appreciate.

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#273

Post by stouset »

dsacco wrote: post #256
stouset wrote: post #252

Earlier quoted context omitted.

Are you willing to bet $1,000 that those funds will, in aggregate, beat VTSMX over the next 10 years? It's easy to pick the winners in hindsight. Buffett put $1mm on a bet that it's hard to do it beforehand. If Protege partners couldn't do it with $1mm on the line, what makes you so convinced that you can?

Sure, I'll take that bet absolutely. It's a little reductive to use "past performance is not an indication of future gains" as an argument. If you extrapolate that with the premises that I am using (namely, that it is possible to intentionally and consistently beat the market), there is no reason to have faith in the continued investment in anything, private or public, because you cannot use any past measure of succe…

> It's a little reductive to use "past performance is not an indication of future gains" as an argument. If you extrapolate that with the premises that I am using (namely, that it is possible to intentionally and consistently beat the market), there is no reason to have faith in the continued investment in anything, private or public, because you cannot use any past measure of success as guidance.

No, the point is that any of these outliers that beat the market will, given time, revert back to the mean. Given this, you are simply wasting money on fees for actively-traded funds.

> Facebook has done well since its IPO. But since we're throwing out its past performance entirely, we shouldn't consider it a sound investment.

The market has already factored this information into the price of Facebook. Facebook, the company, may continue to perform well. But if everyone believes this, the stock will be trading at a premium compared to what its current situation looks like.

Facebook, or any other company, could have ten years of record-breaking quarters and the stock not move a dime if the market already assumed there was a significant likelihood that this would happen. It could even decrease if these record-breaking quarters fell short of what the market was expecting.

> I don't believe in EMH; I believe that past success for firms like those has been caused by skill and strategy…

Then invest in these funds and make a killing.

Funnily enough, few of the people who claim to disbelieve in the efficient-market hypothesis are billionaires.

> …I feel confident taking on this bet when Protege Partners Protege Partners, LLC is losing is because I'm choosing a small, specific subset of the hedge fund industry that I believe in for the reasons explained above. In contrast, Buffett and Protege's bet is over a basket of funds, a "portfolio of funds of hedge funds."

That "portfolio of funds of hedge funds" was chosen by Protege Partners exactly the way that you are doing. They picked a portfolio of hedge funds they believed were most likely to succeed over the long haul, and they are losing. Badly.

At least as far as the bet goes. I suspect they've made more than the million dollars lost in the bet by marketing themselves as being confident enough in their picks to make such a bet against Buffett.

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#274

Post by hsitz »

dsacco wrote: post #248
pg314 wrote: post #46

Earlier quoted context omitted.

> if a hedge fund is actually worth investing in (and there are quite a few) Apparently it is hard to come up with a collection of 5 of them that would beat the S&P 500 over 10 years. At least Buffett had a hard time finding counterparties for a bet.

RenTec, D.E. Shaw, Baupost, Bridgewater, Farallon, off the top of my head. There are others. I agree that it's hard to find firms that beat the market over long terms but it's not quite that difficult. Much like other very difficult but not impossible things in life, it is very difficult but not impossible to beat the market for long periods of time. It's fair to say that most people, millionaires included, should go…

If you're trying to locate them after the fact it's quite easy, nothing hard about it at all. It's using skill to identify them before any given period that's hard. Plenty of people do in fact end up identifying them before any given period, but no more than would be predicted by chance, so it is quite hard to prove that anyone at all identifies outperformers using skill; it's laws of chance at work, even though many like to think they used skill (or like for you to believe they used skill, if they're trying to get you to pay them to manage your money).

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#275

Post by stouset »

mememachine wrote: post #239
gizmo wrote: post #10

Earlier quoted context omitted.

Hedge funds make perfect sense for people who want to hedge their capital in specific ways. A hedge fund doesn't need to outperform the market to deliver tremendous value to their customers. Secondly, every trade has a counterparty. So somebody necessarily has to be at the loser's end of every trade. For every investment fund that makes oversize profits another fund loses money. It all evens out. That doesn't mean it…

>Secondly, every trade has a counterparty. So somebody necessarily has to be at the loser's end of every trade. This is not true. There will always be someone who wins less between the two, but it doesnt mean it wasnt a win-win trade. Some things are more valuable to one person than another.

He's talking about the stock market as an investment, not trade in general.

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#276

Post by cbanek »

One hilarious thing I learned, and I can't wait to put into action:

So stop by for a quote. In most cases, GEICO will be able to give you a shareholder discount (usually 8%). This special offer is permitted by 44 of the 51 jurisdictions in which we operate. (One supplemental point: The discount is not additive if you qualify for another discount, such as that available to certain groups.) Bring the details of your existing insurance and check out our price. We can save many of you real money. Spend the savings on other Berkshire products.

I need to get hooked up with my shareholder discount!

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#277

Post by sumedh »

gizmo wrote: post #64
pg314 wrote: post #50

Earlier quoted context omitted.

No, he isn't reading it incorrectly. Buffett is claiming that on aggregate, because of the fees, the passive investors will be better off than the active investors. From page 23: A lot of very smart people set out to do better than average in securities markets. Call them active investors. Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approxima…

Yes, but Buffett is not claiming that active investing (as opposed to passive index investing) is negative-sum in aggregate! That would be ludicrous, because Buffett is an active investor himself and the Buffett Annual Report is a long form sales letter to persuade people to buy more Berkshire shares.

> Buffett Annual Report is a long form sales letter to persuade people to buy more Berkshire shares.

If you have read his past reports you will know that he wants his shareholders (he calls them partners) not to sell their shares. He published some numbers in the past as well where 90% of shareholders don't sell and he is very happy about that.

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#278

Post by sumedh »

anonu wrote: post #91
tyingq wrote: post #5

The transparency and humble tone is pretty unique. "Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock" " It was, nevertheless, a terrible mistake on my part" "Despite that cautious approach, I made one particularly egregious error" I bet you don't find that sort of thing in many other annual shareholder letters.

It's easy to be self-effacing when everyone views you as the investing messiah! I do agree with you - it is refreshing to read those quotes from the CEO. But he's "earned" it so-to-speak. Less successful people would probably not make such quotes because they have more to lose.

> It's easy to be self-effacing when everyone views you as the investing messiah

He was making critical comments about himself before he got famous.

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#279

Post by sumedh »

stevenj wrote: post #134
mrfusion wrote: post #15

Has anyone ever attended a shareholder meeting? Sounds kind of fun.

Yes, it was really fun. On a related note, I came across a website several years ago that has a lot of info from the annual meeting Q&As, as well as other interviews, etc. It's quite long, but I found it very enjoyable to read. http://buffettfaq.com

If like reading about Buffett you should definitely check out buffettfaq.com

Re: Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]

#280

Post by sumedh »

Nokinside wrote: post #67
logicallee wrote: post #57

Earlier quoted context omitted.

Of the average 86 year old male, you mean. I think he wouldn't bat an eye on getting the best personal health care on the face of the planet (it's also an important long-term goal for him.) He wouldn't overpay for it, either.

Warren Buffet is not health freak. He enjoys life and according to his own words is "one quarter Coca-Cola" >"If I eat 2700 calories a day, a quarter of that is Coca-Cola. I drink at least five 12-ounce servings. I do it everyday." Really funny: >Asked to explain the high-sugar, high-salt diet that has somehow enabled him to remain seemingly healthy, Buffett replies: "I checked the actuarial tables, and the lowest de…

His daughter said that he does not drink water, he just drinks coke. He also eats lots of burgers and steak, I dont understand how his body remains in good health with all that junk food.
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