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tony

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When I say duplicate, I don't mean duplicate a theory - I want results. If its so easy to beat the market and be like Buffett, show me others who have. The fact of the matter is that Buffett is an anomaly. The funny thing to me is that statistically speaking we should have MORE Buffett types out there, not less, the fact that we have less is more proof that active management is not a winning game.

 

I am a believer in Value investing, heck I utilize DFA funds - one cannot become more of a value investor than that. However, I believe that utilizing active management is not a good long term strategy.

 

As for advocating complexities to sell services - you're talking to the wrong person. I am an advocate of the Target Date strategy (at least in theory....). I am still waiting for a good set of Target Dates to hit the market.

 

ScottyD

 

 

I think we might be talking about different things now. In the context of 403(b) plans, I understand why you might be tempted towards passive rather than active management. Good managers are hard to find; when you do find them, they tend towards the expensive side; and even so, buying their funds is not necessarily a guarantee that you'll have their services, insofar as they might leave the company the day after you buy the fund, and you're faced with trusting the new manager or paying some sort of contingent deferred sales charge. To me, that doesn't mean disregarding active management entirely, merely to tread carefully into those waters.

 

When I first commented in this thread, though, it was in the context of why anybody would trust the so-called "efficient market" theory OUTSIDE of an investing format that required the use of funds (such as a 403(b)). And I stand by that. I don't think I ever said it was "easy" to duplicate Warren Buffett's record; that's silly. But you CAN use his methodology to create a series of individual investments that should handily beat the market indices if chosen carefully. Even if you can't rack up a 20% average annual gain the way Buffett does with Berkshire, doesn't it make some degree of sense (only for those with the time and the inclination to put the work in, of course) to use his methodology to attain superior results?

 

Perhaps I am a bit naive, having used this strategy for little more than a year to obtain these results. But as I did so, it necessitated a fair amount of work, to be sure, but no day-to-day obsession about the markets, no requirement to watch the ticker, and in general, none of the nausea and sweating that accompanied my late-90's "instinctive" investments in dogs like WorldCom and such. Amazing what using a methodology that has been proven over time and through booms and busts, recessions and depressions, will accomplish!

 

Anyway, it's in the context of individual investment in stocks that I say that it is possible to use Buffett's methodology, and in so doing, to generate superior investment results. I still believe that. Your questions seem to be asking me to show you what active mutual funds have turned the trick, which is not an argument that I ever made, I don't think. I did say that it's possible to find value managers who consistently outperform their benchmarks, even if they don't achieve Buffett-like returns; I would guess that the more closely they emulate the discipline that Buffett talks about in his writings, the more closely they would be able to emulate his results.

 

I suppose one good place to start finding these guys, if they exist, is to look at a service like Morningstar and see what kinds of value funds they consider to be superior. Some of the names that pop up there are names that I have seen you write about in other posts: Dodge & Cox Stock, TRP Equity Income, Vanguard U.S. Value, Weitz Value among the large-caps; Janus Mid-Cap Value, Vanguard Selected Value and TRP Mid-Cap Value in the mid-caps; Royce Special Equity and Longleaf Partners Small-Cap in the small-caps.

 

Still, I emphasize that I was talking about individuals using the Buffett methods to construct a stock portfolio of their own, not mutual funds.

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To the extent that anyone's interested, here are the purchases I made last year in my stock portfolio. The logic behind each was roughly the same: the more conservative ones had illustrated an ability to grow earnings and return on invested capital by at least 15% a year over a ten-year period, while the more aggressive ones had demonstrated the same ability over a shorter time frame (but appeared promising in their ability to continue to do so going forward). Each one was a consensus among analysts to sustain growth going forward.

 

Anyway, here's some of what I did:

 

Oracle (ORCL): bought @ 15.23

Google (GOOG): bought @ 390.01

Berkshire Hathaway (BRKB): bought @ 3038.01

Coldwater Creek (CWTR): bought @ 27.19

Staples (SPLS): bought @ 23.25

Cognizant Technology (CTSH): bought @ 70.58

Claire's Stores (CLE): bought @ 27.40

 

Can't find my pre-July records, but this is a decent idea of what I have been up to. There are some successful picks there, some mediocre ones, and one outright dog (CWTR...trading around $20 right now). And to be sure, there are a few picks that Buffett wouldn't touch with a ten-foot pole, especially Google, which hasn't been around nearly long enough for conservative value investors. In general, Buffett doesn't touch tech stocks anyway.

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Guest Sierra

 

 

"As for advocating complexities to sell services - you're talking to the wrong person. I am an advocate of the Target Date strategy (at least in theory....). I am still waiting for a good set of Target Dates to hit the market."

 

ScottyD

 

 

Dear Scotty:

 

Would you be gracious enough to give us your opinion of the Target Date Funds offered by the Deferred Compensation Plans of the City of New York? Its website is: http://www.nyc.gov/html/olr/html/deferred/dcphome.shtml

 

Thanks,

Joel

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Not bad, in fact pretty darn good and at very reasonable, Vanguardesq pricing. They even have DFA managing some of the Small Cap money. Upon a very short review, these funds look superior to any other Target Dates that I've come across. I'll do a more in depth review later......if I can find the time!

 

ScottyD

 

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Guest Sierra

Not bad, in fact pretty darn good and at very reasonable, Vanguardesq pricing. They even have DFA managing some of the Small Cap money. Upon a very short review, these funds look superior to any other Target Dates that I've come across. I'll do a more in depth review later......if I can find the time!

 

ScottyD

 

 

Thanks Scott.

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The funds seem to offer a greater degree of diversification than a number of TR funds, particularly in regards to mid cap and small cap stocks. Great pricing (.23 expense ratio), too. I would love to have this for my 457 plan.

 

Do NYC teachers have access to this plan?

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FT, I guess that you purchased your holding during the year, so it's a little hard to measure as a group versus a benchmark. I guess the s & p 500 . Do you plan to expand in this category. What are your plans for other categories that you may be interested in ie foreign, small cap,reit, bonds

 

ONe potential strategy is to do individual stock in the large cap, and index funds in other categories.

 

Another is to limit stock picking on your own to 10 percent of your holdings, and mutual funds for 90 percent of your investments.........the serious money.

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To the extent that anyone's interested, here are the purchases I made last year in my stock portfolio. The logic behind each was roughly the same: the more conservative ones had illustrated an ability to grow earnings and return on invested capital by at least 15% a year over a ten-year period, while the more aggressive ones had demonstrated the same ability over a shorter time frame (but appeared promising in their ability to continue to do so going forward). Each one was a consensus among analysts to sustain growth going forward.

 

Anyway, here's some of what I did:

 

Oracle (ORCL): bought @ 15.23

Google (GOOG): bought @ 390.01

Berkshire Hathaway (BRKB): bought @ 3038.01

Coldwater Creek (CWTR): bought @ 27.19

Staples (SPLS): bought @ 23.25

Cognizant Technology (CTSH): bought @ 70.58

Claire's Stores (CLE): bought @ 27.40

 

Can't find my pre-July records, but this is a decent idea of what I have been up to. There are some successful picks there, some mediocre ones, and one outright dog (CWTR...trading around $20 right now). And to be sure, there are a few picks that Buffett wouldn't touch with a ten-foot pole, especially Google, which hasn't been around nearly long enough for conservative value investors. In general, Buffett doesn't touch tech stocks anyway.

 

 

FT,

 

I for one applaud you for doing this. I don't mean that sarcastically, either. If you can really do this along the lines of a Warren Buffett, I will be the first to offer applause because I think that it is exceedingly difficult to do so. It's not impossible, as Buffett and others have shown, but I think that it takes a lot of talent, time, resources, temperament, and judgment. If you have those qualities, more power to you.

 

On the other hand, I will be quite content to earn market returns.

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Guest Sierra

The funds seem to offer a greater degree of diversification than a number of TR funds, particularly in regards to mid cap and small cap stocks. Great pricing (.23 expense ratio), too. I would love to have this for my 457 plan.

 

Do NYC teachers have access to this plan?

 

 

Yes they do! and they can max out the 401(k) Plan as well. Did you note that these are Separately Managed Accounts and not no-load mutual funds? The same investment line up is available for employees and former employees that would like to have a NYCE IRA (New York City Employee IRA) managed by the Deferred Compensation Plan. ALL OF THIS WAS THE SOLE BRAINCHILD OF THE DEFERRED COMPENSATION BOARD. THE UNIONS OFFERED ABSOLUTELY NO INPUT AND THE CITY DID NOT ASK FOR ANY. HERE IS A REAL LIFE EXAMPLE WHERE UNION NEGOTIATION/PROTECTION WAS TOTALLY UNNECESSARY.

 

Joel

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FT,

 

I for one applaud you for doing this. I don't mean that sarcastically, either. If you can really do this along the lines of a Warren Buffett, I will be the first to offer applause because I think that it is exceedingly difficult to do so. It's not impossible, as Buffett and others have shown, but I think that it takes a lot of talent, time, resources, temperament, and judgment. If you have those qualities, more power to you.

 

On the other hand, I will be quite content to earn market returns.

 

 

Thanks for the sentiment. Two things I'd say in response: first and most importantly, it's not my goal to do this along the lines of Buffett, which I think would be akin to picking up a bat and ball for the first time at age 40 and profess to want to play ball like Ted Williams. If I can do better than the averages, I'll consider it a success. The other thing is that I certainly don't want to applaud myself for a single decent year of investment returns...that, too, is something I have done in the past, clapping myself on the back for my magnificent and brilliant tech stock purchases in the late 90's. Man, did that hurt when THOSE chickens came home to roost.

 

 

FT, I guess that you purchased your holding during the year, so it's a little hard to measure as a group versus a benchmark. I guess the s & p 500 . Do you plan to expand in this category. What are your plans for other categories that you may be interested in ie foreign, small cap,reit, bonds

 

ONe potential strategy is to do individual stock in the large cap, and index funds in other categories.

 

Another is to limit stock picking on your own to 10 percent of your holdings, and mutual funds for 90 percent of your investments.........the serious money.

 

 

You're right that these purchases were staggered over a period of several months, so I can't say for certain how well I did. A glance at the numbers seems to indicate I met my goal of outperforming the indices, but by how much I just can't say.

 

I'm not looking to build a "diversified" portfolio per se with my individual stock purchases. Right now, it seems clear that I'm concentrated in tech stocks and retailers. I went there simply because that's where the opportunities were. In fact, if I had any extra cash to put to work right now (or if I sold something), the company that looks most attractive to me is EBay, which would entrench me even more in tech stocks. And it's another purchase that's Buffett-like strictly looking at the numbers, and very un-Buffett-like insofar as he so rarely goes into tech stocks (and while it definitely qualifies as a "wide moat" company, it hasn't been around for enough years to interest Buffett, I imagine). I do hope that the next good opportunity presents itself in a stock that gives me a new sector, especially something like a REIT or perhaps a foreign index. We'll see.

 

 

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do hope that the next good opportunity presents itself in a stock that gives me a new sector, especially something like a REIT or perhaps a foreign index. We'll see.

 

Because of tax consquences it is good idea to buy reits in tax deferred accounts.

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Interesting. According to Morningstar's Guide to Mutual Funds, actively managed small cap funds (growth in particular I think) and fixed income funds have been able to outperform their benchmarks over the long term. Peter Bernstein's book "Against the Gods" is a great read. In one of the chapters he tackles the random walk theory and proves that it isn't valid. The markets do not always act in accordance with Malkiel's theory that all current information is factored into the market. He especially disregards the strong form of market behavior. He also illustrates with charts that shows that there isn't a normal distribution of returns around the mean.

 

Any web sources on what the distribution of returns does look like? It's easy to believe it's not normal, but what, in general, is known about it?

 

CS

 

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