quote:
If the whole "value investing" buffet approach isn't as profitable going forward, what are your thoughts on strategy? I get what you are saying- rates are bottomed out, growth will not be near as explosive going forward, etc. I'm always open to hearing thoughts and advice on what strategy might be best going forward.

Sorry it took me so long to respond. Forgot about this thread.

The best strategy going forward, I believe, is global tactical opportunity allocation. By that I mean finding intermediate-term mispricing of assets based on risk. Unfortunately this is not an easy strategy because risk is so hard to quantify, but the biggest opportunities for growth going forward will be outside of developed countries.

An example would be to buy bonds in Italy or Spain at the steepest part of the yield curve in the 0-5 year area. That way you take advantage of the price appreciation you recieve from your bond "rolling down" the yield curve while maximizing yield at the time. The reason your risk is muted is from the ECB's OMT program that these countries can enroll in if they really need to lower borrowing costs.

This is not a new strategy, but it is the most appropriate for a low return world as you have to take advantage of the fewer opportunities present in the market. Declining corporate revenue and very low interest rates provide this low return market. Think of it as a slowly draining fish pond, with fewer and fewer fish as the pond drains. To be able to catch the remaining fish, you will have a good enough fishing pole (macro view) to aim exactly where you want to cast and a wide array of bait (tactical view) to catch any type of fish. You can't just sit in the same spot (US) and keep casting with the same bait (strategy). You have to be nimble and dynamic.

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Posted by tirebiter

7K R&G chile land aka SF

Member since Oct 2006

9188 posts

Posted on 11/28/12 at 3:11 pm to BennyAndTheInkJets

quote:
This is not a new strategy, but it is the most appropriate for a low return world as you have to take advantage of the fewer opportunities present in the market. Declining corporate revenue and very low interest rates provide this low return market.

Tell Bill I'll hang in there with PIMCO but that he needs to reduce his costs, like pronto in the ZIRP world.

quote:
If the whole "value investing" buffet approach isn't as profitable going forward, what are your thoughts on strategy?

Buffet hasn't been known as a value investor in years, more like growth at a reasonable cost in wide moat companies. He has said numerous times in the last 10-15 years that if he invested as an individual and then could access the small cap universe he would make multiples compared to what he has been relegated to doing due to the size of BRK.

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Posted by BennyAndTheInkJets

Middle of a layover

Member since Nov 2010

5593 posts

Posted on 11/28/12 at 3:30 pm to tirebiter

quote:
Tell Bill I'll hang in there with PIMCO but that he needs to reduce his costs, like pronto in the ZIRP world.

Why would you if you're still better than your competitors after-fees.

quote:
Buffet hasn't been known as a value investor in years, more like growth at a reasonable cost in wide moat companies. He has said numerous times in the last 10-15 years that if he invested as an individual and then could access the small cap universe he would make multiples compared to what he has been relegated to doing due to the size of BRK.

And every time he said it I didn't believe him. You expose yourself to much higher possibilities of capital losses with the small cap universe and the best way to grow capital is to avoid from the big losses. It's difficult for me to say this considering Warren deserves a million times more respect than me in the financial world, but he's just straight full of it when he says he would be making multiples if he was an individual investor.

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Posted by tirebiter

7K R&G chile land aka SF

Member since Oct 2006

9188 posts

Posted on 11/28/12 at 4:14 pm to BennyAndTheInkJets

quote:
And every time he said it I didn't believe him. You expose yourself to much higher possibilities of capital losses with the small cap universe and the best way to grow capital is to avoid from the big losses.

I believe he could do it, like his early outperformance in his early years. Yeah, but you are omitting the much higher potential upside in smallcap investing as well, look at small and small value over the last 20 years compared to GSPC index. I'm not a Buffetologist, but it's hard to move the needle on a behemoth firm, too.

46 bps ain't too bad on PTTRX, but some of the funds which are funds of funds, PAUIX, etc are pricey.

Can you speak to why PQIIX has been so slow in gaining assets given the guys running it have a good track record at their prior firm? Scratching my head on that one, thought it would ramp up fairly quickly. If you are precluded from discussing I understand.

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Posted by BennyAndTheInkJets

Middle of a layover

Member since Nov 2010

5593 posts

Posted on 11/28/12 at 4:27 pm to tirebiter

quote:
Yeah, but you are omitting the much higher potential upside in smallcap investing as well

This is one rule I live by with investing.

Security A: Goes up 60% in period 1 and down 40% in period 2.

Security B: Goes up 6% in period 1 and down 4% in period 2.

At the end of period 2, Security B is worth more than Security A. In fact Security B is worth more than the initial investment (1.76% return) while Security A is actually worth less (-4%). Those returns are basic arithmatic returns.