Value Investing

[WFJ]

As @The Old Man mentioned, the value investing "bible" wasn't published until 1934, so their weren't really very many value investors other than Graham and Dodd themselves active in the 1930s. Without digging, I can't pull up the results by year, but I know Graham's partnership put up some solid results in the period following the Great Depression. In fact, TGD was an important driver in Graham developing a method that approached investing by focusing on buying at a discount to measurable value, such that the investment would work out even in adverse market outcomes.

Regarding the 1970s, and at the risk of cherry picking (although this is the best list I know of), one can look at Buffett's The Superinvestors of Graham and Doddsville, available online. Those are some pretty impressive records, on both a relative basis and an absolute basis.

Not to take away from your point though - timing certainly plays a huge role in the level of performance achieved, and it's going to be hard for anyone to have strong absolute results in a period of market strife.



I know what you're saying and I think it's fair. The qualification of "over long periods..." is important here. But it's maybe worth expanding on a bit.

If someone crushes the equity market over 30 years, the odds are they are going to end up pretty wealthy. How wealthy depends on a few things: the absolute level of return, the starting capital, and the contributions throughout the investment periods. For successful investors who manage outside capital, this last category (contributions) can hugely drive the outcome, as fees on a large and growing capital base can be massive. So stack up a maybe some starting personal capital, a large and growing fee income, and compounding personal capital, and you're going to end up with that jet and butler.

I'm not so sure that everyone is going to end up at that level, though. If you have 3% outperformance in a 50 year period where the market does 5%, your outperformance is really significant (see math in an earlier post of mine), but you aren't going to be fantastically wealthy unless you started with a ton of capital or had very large income along the way. This can be easily confirmed by running a variety capital/income/return scenarios in Excel.

This is perhaps a trivial point, but I just want to point out that the strategy can be legitimately effective without resulting in massive wealth. So just because someone isn't insanely wealthy (even after the long periods) doesn't mean they didn't add alpha. So the idea mentioned in this thread "if you're not super rich you aren't generating alpha" is a bit simplistic.

While I don't mean to suggest it's common, I bet there are quite a few people who fit into this bucket. Private investors who have done quite well over long periods of time. They aren't broadcasting it to the world, so there is no record (back to the OPs question), making it hard to know.

Haha to your point though, yeah, if someone put up 20% returns for over two decades while earning an above-average salary, yeah you would expect them to be a in a pretty stellar place financially...unless perhaps they hadn't read ERE and are only saving 5% of their income .

The person claimed to have made $200k on a house sale in his 20's, some kind of stock option windfall (maybe $500k) in his early 30's and claimed to always have made $100k+ from his labor. The estimate was about $50,000,000 but, in his mind, he was crushing the market despite AUM in low millions (still impressive). He also was from money, attended private schools and also mentioned inheriting money, which makes his estimates of investing abilities even more ludicrous. He was an intelligent person, but ego, some kind of ability refraction or Ostrich Effect prevented him from accurately assessing his own investing abilities

When someone brags about their investing abilities once, I just say "Wow, that's impressive". If they do it over and over again, I get annoyed and ask to evaluate their portfolio to estimate the exact outperformance and the bragging stops. Investing skill/luck is so rare, fleeting and sporadic that it is like finding LeBron James or other NBA star shooting hoops at your local YMCA.

[steveo73]

Investing skill/luck is so rare, fleeting and sporadic that it is like finding LeBron James or other NBA star shooting hoops at your local YMCA.

I like comparing the out performers to NBA players. That is about your odds of making it.

I know an out performer and he made most of his money working for other people. He definitely doesn't consistently make money. He is also a multi-millionaire.

People all the time tell us how their system beats the market but they aren't multi-millionaires which means they aren't beating the market.

I don't know why people do this. I think one possible reason is exceptional bias where people think they are exceptional when they aren't. I also think it's about fun for some people. The guy I know who is a multi-millionaire agrees index investing is the smartest way to invest. He just likes to take big punts and he has big pockets.

[Sclass]

I refuse to accept this fate. I’m betting on being an exception.

[Humanofearth]

I have literally had better returns in the past year than in my entire investing life before, both % and on an absolute numbers basis. Find what is undervalued. I've destroyed buffet and nearly every tech stock since I switched.

Hint, you won't find it in books, the alpha is gone by the time it's printed and mass distributed. Graham did like 7 editions of the Intelligent Investor and eventually settled on indexing. What a waste of time reading that book was. This goes double for youtube, pure shilling and scams there. Twitter and discord have better resources but $10 to play on each chain's major dexes is better than a year of study.

For example, why is ATOM cheaper than LUNA? It is baselayer security for LUNA and many other chains? Seems undervalued. Even more so when you consider that it's staking rate is double that of LUNA's.

What about the value of SOL and ADA vs other L1s like AVAX, LUNA, FTM that have lower fees, less congestion, have never been down unlike SOL and have more functionality than ADA?

How should all these chains be valued relative to each other is something you can learn only from playing with them. How should settlement vs execution vs data availability layers be valued relative to eachother in comparison to where they are now?

There's tons of value to be discovered but you won't find it in bloomberg or news weekly. You have to go experiment and maybe read some whitepapers for yourself.

[white belt]

@Humanofearth

I think that depends on whether one feels the money in the crypto space comes from rational investors seeking value or speculators seeking the jackpot.

Crypto’s performance as a high-beta risk-on trade over the past few years certainly seems to lean towards the ladder, but it’s too early to know for sure. How much of the space is funny money with leverage? No one really knows, so one would assume a lot especially given the lack of regulation in the stable coin space.

I’m not arguing with crypto’s outperformance to this point if one got in at the right time. However, I am arguing that if we see major pain in conventional assets like stocks and bonds from interest rate rises and QT, I can only imagine the blood in the streets that will be the crypto market. At that point I’m sure there will be good value to be had, I’m just not sure about right now.

[Sclass]

Hint, you won't find it in books, the alpha is gone by the time it's printed and mass distributed. Graham did like 7 editions of the Intelligent Investor and eventually settled on indexing.

I have no clue about those things you’re invested in. But you’re spot on here.

I had a bad stretch of investing in 2003 when I read Intelligent Investor and fell in love with it. I wrote a DCF screener to find “value”. It chose absolute dogs. Great earnings and prospects when I bought them. Then the earnings collapse due to some kind of change in the system and the Grahamanian thing falls apart. Ironically when you combine Buffetology where you have to look out many years to obtain tax deferred internally compounded gains the entire thing becomes a disaster when the income falls off prematurely. The two ideas compound your losses when things get upside down.

[WFJ]

When QE ends and QT begins, crypto will get crushed. The dumb money pooled in crypto and will get flushed out when the punch bowl is taken away. One can replace any crypto pair trade with beenie babies or tulips type pair trades. But others will have to put up with this blather until QE ends and QT begins.

Novice value investors almost always get stuck holding value traps (GE, IBM, INTC) and show 0% 20-year returns. If your father is a several term congressman and runs an investment firm, you may have the contacts to develop value investing skills. If you sit in front of a computer in your sweatpants in Omaha without above connections, value investing will destroy value.

[Humanofearth]

I have no clue about those things you’re invested in. But you’re spot on here.

You’re in the wiser cohort here to not impulsively dismiss things you haven’t studied more than your competition. I had a similar experience when I tried investing for dividend income or commodity stocks. Got rekt. Learning and being aware of the constantly changing narrative was the only real solution.

Whitebelt, I agree that there is a lot of speculation. I got in very late though, and I made tons of mistakes, yet my focus on constant learning allowed me to succeed more than I expected. Those, thankfully, get wiped in the crashes and go back to 0 often. There are assets of clear value like btc and eth, and others that I’m surprised are holding on, like doge and safemoon. Then there are others that are too easy to replicate and thus, have no moat beyond more liquidity, but less liquidity than centralized versions and so they’re on steady downward trends, like sushi and uni. Others are clear ponzis and marketed as such, ohm, snowbank, or even meme coins like chihuahua and shibu. Consider that with the work of digging through everything, some assets are undervalued for the long term growth they’ll experience as they’re adopted by nation states and as decentralized, transparent financial systems become an extension of your phone.

WFJ, can you refer to my points about the relative value of systems? Because cryptographically protected ownership systems are replacing the legacy governments. Freeing up the 30-60% burden imposed by governments is worth far more than tulips. If you don’t see this, consider indexing as you’ll get farther with less work. Consider game theory. If everyone else says something has value, your opinion on whether it has value is irrelevant. If it is accepted currency in multiple countries, long term deflationary, unseizable if properly secured, hyper liquid capital, do you really value this at 0? Beanies and tulips didn’t reach 1T, didn’t survive multiple year long bears, and weren’t designed to resist the corruption shown in 2008. This is the life raft, literally has the virgin birth origin story from the depths of the financial crash when banks were bailed out, if this was a scam, Satoshi could’ve seized the funds and be among the richest human/group on earth. The value of transparent government is far greater than 100T.

[steveo73]

I refuse to accept this fate. I’m betting on being an exception.

I love this line. You and the vast majority of people do this.

[steveo73]

I have literally had better returns in the past year than in my entire investing life before, both % and on an absolute numbers basis. Find what is undervalued. I've destroyed buffet and nearly every tech stock since I switched.

It this isn't a fluke you are either a multi-millionaire now or you will be within 5 years at best.

I'm talking apartments in New York, Ferrari's and holidays to the south of France.

My bet with no disrespect to you is that you won't get to anywhere near that level but if you do you should come back and state I did it. It'd be great.

[steveo73]

You’re in the wiser cohort here to not impulsively dismiss things you haven’t studied more than your competition.

Just to be clear I've studied it and been mentored by an out performer who is a multi-millionaire. Harbour view houses, apartments in New York, charities that he provides money too and a large cost of living due to having to support various people.

I'm not impulsively dismissing anything. I know what it takes to be a consistent out performer and I've seen the rewards.

I'm just a rational educated investor betting with the odds significantly in my favor.

[Humanofearth]

It this isn't a fluke you are either a multi-millionaire now or you will be within 5 years at best.

I'm talking apartments in New York, Ferrari's and holidays to the south of France.

Serious question, is multi-millionaire (2M) actually a lot? All that level did was bring peace but the experiences you mentioned seem to be deca-millionaire level or else it’ll get blown. I keep a low withdrawal rate (1.3% based off past 30 weeks) and still work a normal tech job remotely from a low cost of living country that feels like home to me. This helps to handle volatility like we had last month but more importantly, keep perspective and stay happy. Don’t want to lose it all or think money > health or love.

I had lobster 2 days in a row and then I got bored-23Euros each, is that a lot? I don’t want to get kidnapped or flash money. I took 5 vacation trips in the past month, each one $70-150 for 2 people and are out daily, spent 1975usd in 2 weeks trying to spend as much as I could here, so tired and exhausted. Gained 2kg, slept late, no thank you. I’m much happier in my apartment, trying to fast and workout every day, cooking chicken and vegetables. I do have a harbor view but it’s probably less than a studio in your city. These things aren’t too expensive.

[plantingtheseed]

@humanofearth

Depends on your age and comfort level. Is this after-tax or before tax? I think if you have the basic necessities taken care of, especially the shelter and the healthcare, and if the savings is after-tax, with give or take 30+ years of life expectancy, then it's probably very reasonable, or even comfortable (it's about 4k/mo., after paying taxes, to spend each month on food, car, insurance, utilities, misc. and entertainment). 4k a month used to be a lot, but not anymore. CPI between 2014-2021 was around +19%. And the inflation is raging right now.

Prior to this raging inflation, I figured about 2M would have been adequate to cover the cost of housing and healthcare on top of the rest but now I am thinking around 3M, if this pool of money is the only source of income to sustain around 50k/yr lifestyle and comfort level for 30+ years.

This is a fairly conservative, straight forward rule of thumb calculation of the 25x annual spending or 4% (1/0.04) withdrawal rate etc. etc., for a quick estimate. (Just multiply annual spending by x30 without any kind of what-if predictions of future market gains and also factoring in paying for taxes, say 35% = income tax, property tax, sales tax...)and future inflation factor, say 30%. No firecalc necessary.

Added: Now you can do one better if there are multiple income sources that keep up with the inflation fully or at least partially. Since it's hard to predict the market risk to rely on the market as the sole inflation hedge, having social security benefit (keeps up with inflation, at least CPI-W) or pension, with cost of living adjustment and income for life, can potentially reduce the size of the money required and market risk at the same time.

Another way is to make a lot of money, say 10M-15M, and not worry about it unless the world collapses. But is it likely?

it's a trade off, especially of time, which is irrevocable. The balancing of which is up to the person designing their own future, and accepting the risk and the consequences that's to come.

(I know you're in Europe, but the concept should translate, especially if you have some form of public pension similar to social security and healthcare that's taken care of)

note: added "+"19% and this note.

[Sclass]

I love this line. You and the vast majority of people do this.

Good thing I turned out to be the exception.

[steveo73]

Serious question, is multi-millionaire (2M) actually a lot?

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.

All that level did was bring peace but the experiences you mentioned seem to be deca-millionaire level or else it’ll get blown.

Correct.

I keep a low withdrawal rate (1.3% based off past 30 weeks) and still work a normal tech job remotely from a low cost of living country that feels like home to me. This helps to handle volatility like we had last month but more importantly, keep perspective and stay happy. Don’t want to lose it all or think money > health or love.

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.

[ducknald_don]

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.

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.

[Lemur]

@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.

[Sclass]

It’s really hard for me to see how to get to tens of millions of dollars as a criterion for beating the market. Over my entire investing horizon 1998 to present the S&P500 has only gone up a factor of 4. A lot of this is during the last decade so money invested early in the cycle would not see the benefit of recent high returns. Perhaps you can share your calculations with us?

It’s really hard to tease out a benchmark for myself using average rates. I think I need to sit down in front of a spreadsheet and do a year by year analysis. Wait maybe I can break down the calculation into two parts and solve it on my HP12c here.

I can break out my HP12 right now and do a basic one. I started getting serious about my stock investing at 29 which was in 1998. The S&P 500 flatlined for the next ten years. I managed to save about $20,000 a year back then give or take from my engineering salary after taxes. That would bring me to 2008 with a whopping sum of $200,000 in 2008 due to the generosity of Mr. Market.

Due to the miracle of indexing I put that into the S&P index and let it run 14 years till present while continuing to deposit $20,000 a year. Roughly my HP calculator is saying I’d get nice 10% gain yearly on my investments as the index climbs 3x during that period. Plug in my PV of 200,000 and a yearly deposit of 20,000 for the next fourteen good years of 2008-present. I come out with $1,500,000.

$2,000,000 > $1,500,000. Why does @Humanofearth need tens of millions to establish superiority?

Please check and contribute your calculations. I could have made a mistake and the piecewise linear approach I used is about the best I can do on this phone I’m on right now.

[WFJ]

@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.

I've beat the market 3 times in 25 years, 2001, 2020 and 2021 and made more abnormal returns in those years than made in decades of labor. The only fully self-made decamillionaire I know 'only' beat the market in 2008 and 2019. He goes nearly 100% cash otherwise. I'm about 65% cash (all the abnormal returns from the last two years) as I know the probability of consistent returns is absolute 0%.

I've offered to evaluate several casual investors who claim to "beat the market" and yet to have someone follow-up for analysis. Absence of evidence is not evidence of absence, but one can speculate.

[WFJ]

You’re in the wiser cohort here to not impulsively dismiss things you haven’t studied more than your competition. I had a similar experience when I tried investing for dividend income or commodity stocks. Got rekt. Learning and being aware of the constantly changing narrative was the only real solution.

Whitebelt, I agree that there is a lot of speculation. I got in very late though, and I made tons of mistakes, yet my focus on constant learning allowed me to succeed more than I expected. Those, thankfully, get wiped in the crashes and go back to 0 often. There are assets of clear value like btc and eth, and others that I’m surprised are holding on, like doge and safemoon. Then there are others that are too easy to replicate and thus, have no moat beyond more liquidity, but less liquidity than centralized versions and so they’re on steady downward trends, like sushi and uni. Others are clear ponzis and marketed as such, ohm, snowbank, or even meme coins like chihuahua and shibu. Consider that with the work of digging through everything, some assets are undervalued for the long term growth they’ll experience as they’re adopted by nation states and as decentralized, transparent financial systems become an extension of your phone.

WFJ, can you refer to my points about the relative value of systems? Because cryptographically protected ownership systems are replacing the legacy governments. Freeing up the 30-60% burden imposed by governments is worth far more than tulips. If you don’t see this, consider indexing as you’ll get farther with less work. Consider game theory. If everyone else says something has value, your opinion on whether it has value is irrelevant. If it is accepted currency in multiple countries, long term deflationary, unseizable if properly secured, hyper liquid capital, do you really value this at 0? Beanies and tulips didn’t reach 1T, didn’t survive multiple year long bears, and weren’t designed to resist the corruption shown in 2008. This is the life raft, literally has the virgin birth origin story from the depths of the financial crash when banks were bailed out, if this was a scam, Satoshi could’ve seized the funds and be among the richest human/group on earth. The value of transparent government is far greater than 100T.

Keep buying crypto, everyone will always be using AOL channels due to the first mover network effects (Napster, Friendster, MySpace, Meta, all network effect systems are always replaced quickly).

If you haven't closed on your Caribbean villa, your too late in the crypto trade.