Value Investing

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WFJ
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Joined: Sat Apr 24, 2021 11:32 am

Re: Value Investing

Post by WFJ »

steveo73 wrote:
Wed Feb 16, 2022 6:30 am
I wouldn't even call that a lot. I should have stated you'd have tens of millions of dollars. That is the type of wealth you should be able to generate if you can beat the market. If not then I don't think you are beating the market or you are beating the market by such a small amount you may as well not bother.



Correct.



My take is that money/wealth doesn't buy happiness. Life is complex.

Investing though is pretty easy. The index investor is the out performer. The exceptions are extremely rare. Those people make bank. If you can honestly trade well get into financial services and become a hedge fund manager. You'll get to the top. That skill-set is rewarded. Even if you are just doing it on your own account. You just leverage yourself and make bank. It's easy. Getting the trade right consistently enough to be profitable is the hard job.

This is why I don't trust people who say they beat the market. Something doesn't add up. I don't think you can be so smart to beat the market hand over foot and so stupid not to be super rich.
As the saying goes, "If you have to ask, you can't afford it" If you have to ask if $X is enough, it's not. There appears to be a stark different between people with 9 figure AUM vs 8 and under. The sustainable lifestyle of someone worth $5 mil and $25 mil is not significant. It's all relative as even $20 mil in NYC/NorCal might consider themselves average.

steveo73
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Re: Value Investing

Post by steveo73 »

Lemur wrote:
Wed Feb 16, 2022 10:10 am
@Steveo73

I'm perhaps being pedantic but I can trust people who say they beat the market only because I think it can happen occasionally due to some luck or some very specific alpha. I crushed the market returns in 2020 via heavy tech investing after the COVID crash....The market defeated my individual stocks/options returns though in 2021 (especially considering all the capital gains I took).

To be more specific, I think what you're really saying (correct me if I'm putting words in your mouth) is that you can't trust people who say they beat the market consistently...something like over a decade - this is probably extremely rare....and I can understand your perspective coming from that angle.
100% correct. If you can beat the market consistently you will be at the very least a deca millionaire. It's extremely easy.

steveo73
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Re: Value Investing

Post by steveo73 »

Sclass wrote:
Wed Feb 16, 2022 10:57 am
It’s really hard for me to see how to get to tens of millions of dollars as a criterion for beating the market.
If you can beat the market all you do is leverage yourself and you will make millions. If you can beat the market you can get a job as a trader and even a hedge fund manager and make big money.

The alternative is you aren't playing the game correctly.

It doesn't add up. If you don't know how to leverage yourself then you are extremely inexperienced.

I know a successful professional trader and he is definitely a deca millionaire.

steveo73
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Re: Value Investing

Post by steveo73 »

ducknald_don wrote:
Wed Feb 16, 2022 8:57 am
I think there is a slight cult of agency on this forum which will never accept that some things are unknowable and many or even most outcomes will be random. You can see this in the thread 7w5 posted about her health.
Good post. It's hard for some people to be rational and objective. It's hard for some people to look at the premise being stated and look at the flaws even if they are obvious.

I just read that thread. People post from their own perspective and they don't realize that life cannot be controlled the way they want to control it.

white belt
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Re: Value Investing

Post by white belt »

Can we not turn this into another active vs passive investing debate? We already have literally half a dozen other threads that went down this exact same route. Many of them ended up locked due to repeated violations of forum rules.

This is the value investing thread, so any broad discussion that falls under value investing would meet the criteria. I think Humanofearth's posts about applying value investing techniques/principles to the crypto markets are an interesting take and totally germane.

Humanofearth
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Re: Value Investing

Post by Humanofearth »

Really easy to beat the S&P 500 over a 4 year time frame, just buy BTC & ETH. Beating those on a 4 year time frame is much harder.

Humanofearth
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Re: Value Investing

Post by Humanofearth »

@WFJ
No thanks, sounds like a headache, rather be mobile. No government contracts for me unless it's residence in a country I love.

steveo73
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Re: Value Investing

Post by steveo73 »

white belt wrote:
Wed Feb 16, 2022 6:17 pm
Can we not turn this into another active vs passive investing debate? We already have literally half a dozen other threads that went down this exact same route. Many of them ended up locked due to repeated violations of forum rules.

This is the value investing thread, so any broad discussion that falls under value investing would meet the criteria. I think Humanofearth's posts about applying value investing techniques/principles to the crypto markets are an interesting take and totally germane.
I think everyone should be able to have their say and I don't understand why you get to state that crypto comments are fine whereas comments on active vs passive investing which is what this thread is about aren't cool.

I haven't seen these dozens of threads that have gone the exact same route either.

To me it was a good discussion. If you don't like it and people aren't being rude then I think you should shut your peep hole.

chenda
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Re: Value Investing

Post by chenda »

steveo73 wrote:
Thu Feb 17, 2022 3:45 pm
If you don't like it and people aren't being rude then I think you should shut your peep hole.
Let's keep it civil Steveo.

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mountainFrugal
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Re: Value Investing

Post by mountainFrugal »

chenda wrote:
Thu Feb 17, 2022 4:14 pm
Let's keep it civil Steveo.
+1

macg
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Re: Value Investing

Post by macg »

chenda wrote:
Thu Feb 17, 2022 4:14 pm
Let's keep it civil Steveo.
+1

steveo73
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Re: Value Investing

Post by steveo73 »

Let's keep it civil and not let people come in and tell other people what to they have to state or believe or post. I have no problems with asking for more information on crypto. I don't get to control the conversation. Conversely neither does anyone else especially when it is civil.

macg
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Location: USA-FL

Re: Value Investing

Post by macg »

I don't think someone asking to keep on topic to the thread is in any way not civil. That was not the over reaction. It's easy enough to create new threads when the topics stray and expand into new topics, or revive old threads when it starts into topics already discussed elsewhere.

steveo73
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Re: Value Investing

Post by steveo73 »

macg wrote:
Thu Feb 17, 2022 11:59 pm
I don't think someone asking to keep on topic to the thread is in any way not civil.
It was on topic. The crypto comments weren't on comment. It was a bizarre comment.

steveo73
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Re: Value Investing

Post by steveo73 »

ducknald_don wrote:
Wed Feb 16, 2022 8:57 am
I think there is a slight cult of agency on this forum which will never accept that some things are unknowable and many or even most outcomes will be random. You can see this in the thread 7w5 posted about her health.
This to me is a really good post which is completely on point. I'd love to hear some more comments on this point.

IlliniDave
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Re: Value Investing

Post by IlliniDave »

steveo73 wrote:
Sun Feb 20, 2022 7:28 pm
This to me is a really good post which is completely on point. I'd love to hear some more comments on this point.
As someone who spent a good deal of time in the modeling world, "random" is often an umbrella term for stuff that's too complicated to model and/or the expense of a deterministic model isn't worth it; or we frankly don't know how it works but have some way to describe the results based on observation. I've always felt that investment returns are not truly random, but far more complex than I care to grapple with in an effort to beat the market. I'm probably not up to the task, and to me it is unpleasant. I just have to beat the cadre of people whose goal is to get into my pocket and collectively take it all by dangling baubles, by making me fearful, by fraud, or by force.

For someone who feels compelled to beat the market, value investing can be a good play in theory. So can market timing. The two are not so different.

I do agree the future is largely unknowable.

steveo73
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Re: Value Investing

Post by steveo73 »

IlliniDave wrote:
Tue Feb 22, 2022 11:46 am
I've always felt that investment returns are not truly random, but far more complex than I care to grapple with in an effort to beat the market.
I think there is an attitude on this forum that you can create a customized plan just for you. You are special. You can out think the market or anything at all because your system is so great.

The proof is pretty clear cut that that isn't the case in that there aren't a bunch of multi-millionaires on this forum. It's interesting because if you look at the MMM forum I bet there are a lot more multi-millionaires. I think the MMM forum has a much more practical approach to investing.

The simple reality is that an approach of saving money, investing in index funds and having patience is an extremely robust path to obtaining wealth.

I think the point that was made by ducknald_don is extremely relevant because it's a philosophical viewpoint that in the case of investing is going to lead to sub optimal returns and hence less people reaching the goal of FI or retirement.

It's a clear case of cognitive dissonance.

prudentelo
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Re: Value Investing

Post by prudentelo »

Self-reliant artisans want self-directed investments and expect artisanal returns for their efforts. This is as much "aesthetic" factor as money factor and maybe a case of general good psychological trait becoming situational defect.

On other hand, it's a serious issue raised by Jacob and others that index ETFs are just a "paradigm" and secular long-term shift can invalidate that paradigm. Maybe you can't (reliably) beat the index now but must know enough to understand if/when that stops being true. At least if your timespan is 60 years.

Dave
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Re: Value Investing

Post by Dave »

As @white belt said, this thread is repeatedly hammering the same point: the fruitfulness of active vs. passive investing. While the question of whether active value investing is doable/worthwhile is relevant, it is certainly not the only point of this thread, and the brushing aside of other aspects of value investing probably what was being suggested is/was the “problem”.

Going back to the basics, value investing is simply buying assets for less than they are worth (based on a study of their underlying assets and cash flows [on an expected-value basis, to be a bit more nuanced]). To the extent one can stay disciplined and only buy such opportunities, and then wait for prices to converge with value, value investing will work. It’s axiomatic. You buy things for less than they’re worth, and sell them when they’re trading at what they’re worth.

The problem is that it’s not easy to do. Many don’t have the skills to evaluate various securities/assets, the discipline to only limit themselves to such outstanding situations, the self-awareness to not deceive themselves about how well they really understand a situation (e.g. not buy in value traps that screen well), the patience to wait for investments to work out sometimes over 5+ years, the ability to ride out inevitable periods of underperformance, etc.

And so when it fails for them, sometimes they say it fails for everyone. And I’d say that for many people who try, it probably doesn’t “work”. I really don’t think the combination of technical skills, psychological wiring/ability, and ability to push through the training period create a situation where there are a ton of individuals who are particularly well-suited to the activity of value investing. So considering that, it is worth thinking long and hard about whether it is worthwhile to try.

But for those with the knowledge, wiring, and desire to work at it, it is doable. It’s going to be a minority. There are going to be periods, often long, of underperformance. But, through the cycle, value investors have the ability to create alpha at lower levels of risk. It goes back to what value investing is: buying assets for what they are are worth. If you’re actually right about what assets are worth, buying them for a lot less works.

So to the OP’s post, I think the investors you listed are definitely outliers with unusually good performance, but to the extent you are able to find, buy, and hold assets for less than they are worth, and that you enjoy the process (which is a substantial amount of work, as was discussed upthread), it is worthwhile, as has been broken out in the math above. But I’d caution one to be honest about their ability to do this, and to move slowly before betting the farm on the approach.

steveo73
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Re: Value Investing

Post by steveo73 »

prudentelo wrote:
Fri Feb 25, 2022 8:47 am
Self-reliant artisans want self-directed investments and expect artisanal returns for their efforts. This is as much "aesthetic" factor as money factor and maybe a case of general good psychological trait becoming situational defect.
Exactly. This is a key point. The stats state they under perform. There is some other reason for investing in artisanal portfolios and approaches other than risk adjusted returns.

It's about how it looks rather than how it performs.
prudentelo wrote:
Fri Feb 25, 2022 8:47 am
On other hand, it's a serious issue raised by Jacob and others that index ETFs are just a "paradigm" and secular long-term shift can invalidate that paradigm. Maybe you can't (reliably) beat the index now but must know enough to understand if/when that stops being true. At least if your timespan is 60 years.
It is a paradigm and a secular shift could invalidate this approach but this is in reality just an extremely weak argument to try and validate the artisanal approach which results in poor performance. Sure indexing might not work sometime in the future but that could be tens of thousands years later.

There is also a pretty strong counter argument to this point. I trust index investors who can view the world rationally much more likely to change their approach than to the artisanal investor who can't view the world rationally.
Last edited by steveo73 on Sat Feb 26, 2022 12:23 am, edited 1 time in total.

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