Any INTJ investors?

[Rick]

Hi, all

Stocks, anyone?

Just wondering whether it is an INTJ thing or just me.

As time permits, I play with an online stock trading service...buying and selling.

If there are others, do you care to trade experiences, picks, and strategies?

I have one stock that I watch like a hawk. If others have interest, I'll share as well.

[Henry]

Hi, all

Stocks, anyone?

Just wondering whether it is an INTJ thing or just me.

As time permits, I play with an online stock trading service...buying and selling.

If there are others, do you care to trade experiences, picks, and strategies?

I have one stock that I watch like a hawk. If others have interest, I'll share as well.

Own stocks, but its almost all in index funds. I think maybe 5% of my money is actively managed, the rest is an index in one form or another.

Boring, but clearly the best investment for everyone but Buffet.

[Max T]

Yes I enjoy investing and closely follow the 'value' investing discipline.
The UK market is quite overpriced (bull run for the past 5 yrs) so very few companies are selling at half price at the moment, so mainly in cash, waiting for the next correction/ crash.

I waffle here:
To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

... about value investing and how it fits the INTJ mentality very well.

Value investing requires going against the herd, and by buying $1 companies for 50 cents, you not only minimise risk (of further decline) but also maximise gains.
And for small investors with comparatively little money, we can invest where the market is most inefficient and therefore opportunities abound- the smaller companies.

The stock market system, big picture analysis of companies and behavioural finance aspects are fascinating.
I recommend value investing to any business-minded INTJ.

[GOD]

I started analysing the stockmarket when I was about 9 or 10. Is was a function of me liking Maths and being very interested in making Money. (By that stage I'd already made a couple of hundred dollars trading and winning at Marbles (I cornered the market in these "swirly" marbles and forced the value up and traded them). I also had memorised the value of every mint and used stamp ever issued in my country and traded with other kids at school.

So yeah, I knew P/E ratios and so forth as a pre teen and didn't learn about them formally until my second year of my Finance degree.

As for the Stockmarket. Sorry it sucks. You hand over money to others who are "dimmer" in intellect and care less for your money than you do. The Stockmarket itself is driven more by funds inflow than actual fundamentals. (The property market is a far better mechanism if you consider the leverage of debt than can be achieved (and the control)).

[logan235711]

I'm wondering what anyone here gets out of investing? Are you money hungry? Or do you feel that doing something such as this is important to your life in some real way beyond economics vs something else you could be doing? If I were begin investing, what are some things I could look forward to getting out of it beyond monetary benefits? etc.

[Max T]

As for the Stockmarket. Sorry it sucks. You hand over money to others who are "dimmer" in intellect and care less for your money than you do. The Stockmarket itself is driven more by funds inflow than actual fundamentals.
The stock market certainly does suck!
What is comical if it wasn't so tragic is that all the share investors combined do not produce any gains whatsoever- they cancel each other out. Those that gain are funded by those that lose. They invest everyone's wealth/ pension/ savings and do not actually produce a dime extra in the short-term. That's how the system has to work.

And yet the market increasingly attracts some of the sharpest brains (e.g. Phd quants creating exotic derivative models, business leaders that can move proverbial mountains through M&A's). All those brains creating no societal wealth, just redistributing it...
But not redistributing all back to investors- the City/ Wall Street put their interests before their clients so they take a big cut too.

The Stockmarket itself is driven more by funds inflow than actual fundamentals.
Agree. Driven by big fund inflow and also by investor emotions (primarily greed and fear).
As a result, the market is occasionally very inefficient (i.e. very inaccurate at valuing a company) and value investing exploit this.

If you're a coldly logical INTJ who can determine a business' true value using fundamentals (not that difficult), you just wait for the market (i.e. all other investors) to irrationally drive down the company's share price until it reaches half its true value based on your analysis and buy...
... then wait up to 3 yrs for the market to then realise "actually it's not a bad company after all" and bring the price up to the true value. Doubled your money and taken minimal risk.
That's value investing in a nutshell.


Why does this INTJ believe in value investing so much?
First- why shares?
Shares have provided a greater return over all other asset classes (commodities, bonds, property, fine wine) based on past 100 yrs (c. 10% return p.a. against property's c. 7% nominal return). And shares investing can be done on just 5 hrs a week- try doing that with property and a full-time job. True- the leverage capability with property is great but you'd need to ditch the full time job and go wholly into property. In this sense, the stock market system is amazing- you can buy a piece of a company's future profits for just $15.

Why value investing?
Fund performances since 1930's show that it produces greater returns than other styles (even when you take out Warren Buffett's performance).

So it's simply about investing in the best performing asset class with the best performing strategy.
Value investing only achieves superior returns in a system (the market) that reverts any excess returns to an average (as other investors imitate a successful strategy and compete away the profits), by doing what the masses cannot do- exploit mass investor emotions whilst keeping yours in check.
Hence value investing is an ideal pursuit for INTJs.

[Max T]

If I were begin investing, what are some things I could look forward to getting out of it beyond monetary benefits? etc.

Personally, investing is simply a route to financial independence.
Save 20% of take-home pay, invest it at 20% return p.a. and quit working for others in 10- 15 years.
When you have the mentality to achieve these figures, material possessions become totally meaningless (else you won't save 20% per week) and delayed gratification, your time and productivity become very important... mmm... pretty good life lessons.

An employee is partial freedom from prison (you're still dedicating 40- 80 hrs/week to shareholders... that 'shares' thing again!). A self-employed guy is nearly fully free.
Financial independence is total freedom.

I want to fill a working week with 2 days spent on ideas/ inventions, 2 days on voluntary work, 1 day on study and the week-end to relax with family etc. And make a real difference when donating to charities. No job gives that but investing is one route.

How do you want to fill your ideal week?

[GOD]

I'm wondering what anyone here gets out of investing? Are you money hungry? Or do you feel that doing something such as this is important to your life in some real way beyond economics vs something else you could be doing? If I were begin investing, what are some things I could look forward to getting out of it beyond monetary benefits? etc.

Most people do "investing" for the security of money and what that brings -> Freedom.

Although money ultimately buys you "time".

Me, as 8w7 I am the INTJ challenger. Its just an intellectual joust and a test of realisation of my imagination.

[Rick]

Agree completely with the 'money buys you time' statement. Eventually, I hope it will provide a ticket away from 9-5 type jobs.

My investing is done online so I don't have to use a broker. It is mixed between day/swing trading and long term. For day/swing trades, I find stocks that are channeling. In other words, stocks that have a relatively stable prices with up/down changes of only pennies per day. If you buy enough shares of, say, a $1 stock then buy/sell it everytime it goes up/down a penny or two per share, that is a terrific annual return.

I only own one long term stock, and that is Siga Technologies (SIGA on the NASDAQ).

[elsdfr]

Hi, all

Just wondering whether it is an INTJ thing or just me.

If there are others, do you care to trade experiences, picks, and strategies?



Its not just you, about a year ago I put a forum poll on a Foreign Exchange forum. The results where swayed outrageously to INTJ/P types. From memory it was more than 50% out of about 50 people. Unfortunately I can't find the thread anymore but will update if I do.

These days I usually take a contrarian view on markets and buy/sell (stocks, metals, options, currency) knowing I might have to weather a storm or two but with time I can't pretty much mitigate the risk if need be. Earlier on I was just a wagon jumper/scalper. Although I still like to get the pulse going now and then I prefer to preserve capital these days.. I found earning then losing a small fortune month in and out was having more than a few effects on me, plus I need to get back into life :D

I've actually written about some of my own trading experiences - To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[GOD]

Its not just you, about a year ago I put a forum poll on a Foreign Exchange forum. The results where swayed outrageously to INTJ/P types. From memory it was more than 50% out of about 50 people. Unfortunately I can't find the thread anymore but will update if I do.

These days I usually take a contrarian view on markets and buy/sell (stocks, metals, options, currency) knowing I might have to weather a storm or two but with time I can't pretty much mitigate the risk if need be. Earlier on I was just a wagon jumper/scalper. Although I still like to get the pulse going now and then I prefer to preserve capital these days.. I found earning then losing a small fortune month in and out was having more than a few effects on me, plus I need to get back into life :D

I've actually written about some of my own trading experiences - To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

One thing I would say, and it’s highlighted by the "plus I need to get back into life" is that life is like the yin and yan type balance. A very smart INTJ will see opportunity to find a business activity that covers all the basis, or at least decide that they will sell their soul for the highest price per day and find an out of hours activity that recharges them and fulfills their other needs.

I treat business as a seamless activity... Just as an E is charged by social interaction I am charged by a mutually successful trade in which the buyer votes for my abilities by buying my product. It’s along the lines of that endorphin buzz I need by going to the gym etc.

I'd say women can understand less a guys propensity to like "business" but if any F women turns their own desire "to nest" into a desire to "build a nest" then they might have some basis for understanding "some" elements of the male psych.

[INTJoe]

Glad to finally see an investment thread formulating.

I've only been investing for a few years or so, but I'm glad I started.

Myself and my live-in ISTJ girlfriend have managed to save 50% of our gross income over the last 2 years towards the purchase of a home/whatever.

I don't buy stocks, and the only actively-managed funds I own are in my companies craptastic 401(k) plan.

I think I'm a bit too heavy in retirement, though. As of next January 1st, when her and I max out our Roth IRA's for 2008, we (combined) will have about 58% of our net savings in retirement, and the other roughly 35% in online e-savings accounts earning 5%-6% guaranteed, FDIC-insured interest, as we will be pulling that money out in a couple years as downpayment. I've got another 7% or so in independent funds which are in Vanguards Total Stock Market Index. I may or may not pull that out when we buy. Depends on if it's up or down. If it's down I'm certainly not going to pull it out and realize a loss. I've got plenty as it stands to buy a home and not have to pay PMI.

For those INTJ's reading this thread who are not invested, I recommend starting up a Roth IRA (if you are eligible). The sooner, the better.

[Henry]

As for the Stockmarket. Sorry it sucks. You hand over money to others who are "dimmer" in intellect and care less for your money than you do. The Stockmarket itself is driven more by funds inflow than actual fundamentals. (The property market is a far better mechanism if you consider the leverage of debt than can be achieved (and the control)).


Except with an index fund, you get, looking back a 6.5% real rate of return (going forward it will probably be 4.5-5.5), compared with about 1.5% per bonds and about -.5 percent for cash. Those are before fee, before tax returns. Inflation is a bitch, and the only real way to guard against it is to own stocks.



And can I please make a brief commentary here:

Nobody beats the market over a 20 year period, except Buffet. And Buffet beats it because of temperament, management, and an obsession for details and integrity that INTJs don't have. Its extremely unlikely that you're going to beat the market as an INTJ over the long haul because the market is not moved by fundamentals, its moved by Mr. Market and the people that listen to him. Thus the most rational perspective, even if the most counterintuitive, is that the index fund provides the highest return for the least effort.

[The Rose]

...Nobody beats the market over a 20 year period, except Buffet....What is Buffet?

[INTJoe]

What is Buffet?


To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

the most successful investor known to man.

[The Rose]

To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

the most successful investor known to man.Thank you. Very interesting wiki.

[Max T]

Nobody beats the market over a 20 year period, except Buffet.
Certainly Buffett (not the restaurant diner) is a six+ sigma person, a 1 in a billion.
No one is going to beat Buffett over 20 yrs.
But I don't think the logic can then be extended to "no-one beats the market over 20 yrs".
Over 20 yrs, many investors aggregate returns will come between beating the market but not beating Buffett's record.
That's how the system has to work, just as equal numbers of investors will underperform the market (thereby funding the market outperformers).


And Buffet beats it because of temperament, management, and an obsession for details and integrity that INTJs don't have.
INTJs have a significant advantage over other investors.
Our trait typecasters suggest we: have well placed self-confidence (emph. on 'well placed'), a rational and analytical nature, pattern forming thinking and are very humble yet confident in our own analyses.
All fantastic qualities to succeed in investing (not speculating).


Thus the most rational perspective, even if the most counterintuitive, is that the index fund provides the highest return for the least effort.
Agree- index funds are the most efficient way to invest your savings providing you hold in the fund for at least one typical economic cycle (c. 7yrs).
For INTJs lacking business background and not enthusiastic about researching companies for min. 3 hrs per week, a cheap index fund is most efficient.

But not most effective. If you understand business and have the time and temperament, you can trounce the stock market over 20 yrs.


Its extremely unlikely that you're going to beat the market as an INTJ over the long haul because the market is not moved by fundamentals, its moved by Mr. Market and the people that listen to him.
In the short-term (<1 yr) the market is moved by the emotions of the manic depressive "Mr. Market" as we mention.
But in the long-term (>1yr) the market IS moved by fundamentals, I assure you- this is what Buffett has been advocating for the past 5 decades.
Wiki's Buffett link says:
"[Buffett] bought companies because they were cheap compared to their intrinsic value (i.e. true based on fundamentals)... He reasoned that the market will eventually realize it has undervalued the company and will correct its course [returning the co. to its true intrinsic value]".

Buffett's mentor- Ben Graham said in 1930's: In the short-term the market is an emotional voting machine, in the long-term it is a weighing machine.



Reasons why the small investor can beat the institutions that practically represent the market over 20 yrs:
1. small investors can hold cash when no half-price companies exist such as now (therefore hold 50% of funds in cash waiting for a market slump). Institutions have to remain fully invested in shares.
2. they can invest where the market is least efficient- in companies <$100m cap. Try doing that with an institution's fund of $1bn.
3. they don't have liquidity problems in exiting / entering positions in companies because they're buying such small stakes. A big fund buying 5% of a company takes a lot of time and cost.
4. they can hold a focussed portfolio of say 10 stocks and therefore understand the companies better than the institutions (greatly increasing probability of beating the market). Institutions have to hold 80+ stocks.
5. they can take the better long-term view with investments by tolerating underperforming the market for months or even years. A fund manager suffering such 'tracking error' (deviating from the market) will be out of a job.
6. most importantly, the small investor can wait for months until a decent company at a great (half) price is offered by the market. The institution has to be actively buying and selling to justify the hundreds of people- analyst front office, settlement back office etc.

The small investor can thrash the market in the first 20 yrs providing they have 3+hrs/week to research, they understand business, have the right temperament and follow the value investing discipline.


(Index fund= a fund that doesn't try to pick select companies but instead buys hundreds of companies 'til it reflects the whole market indices).

[rocksteady]

/\ nice post max, I am currently contemplating choosing economics as my field of study in college, and have planned on doing some investing similar to what you describe above.

[Henry]

Certainly Buffett (not the restaurant diner) is a six+ sigma person, a 1 in a billion.
No one is going to beat Buffett over 20 yrs.
But I don't think the logic can then be extended to "no-one beats the market over 20 yrs".
Over 20 yrs, many investors aggregate returns will come between beating the market but not beating Buffett's record.
That's how the system has to work, just as equal numbers of investors will underperform the market (thereby funding the market outperformers).

Your thesis hinges on the last statement.


INTJs have a significant advantage over other investors.
Our trait typecasters suggest we: have well placed self-confidence (emph. on 'well placed'),

Self confidence is probably not an asset in investing, particularly if that self confidence extends beyond "I'm smart and capable" to "I'm smarter and more capable than everyone else".

a rational and analytical nature, pattern forming thinking and are very humble yet confident in our own analyses.
All fantastic qualities to succeed in investing (not speculating).

Perhaps. I'm just doubtful that any individual can do better than the team of MBAs, PhDs, and JDs that investment houses put together, and more skeptical that they can, after taxes and fees, beat the index return that beats actively managed funds by a considerable margin.

People screw up their own portfolios. Average individual stock investor made, as I recall correctly, around 2% from 1980-2005. I don't have Bogle's book around here anywhere, but I do know that it was abysmally low over that period.



In the short-term (<1 yr) the market is moved by the emotions of the manic depressive "Mr. Market" as we mention.
But in the long-term (>1yr) the market IS moved by fundamentals, I assure you- this is what Buffett has been advocating for the past 5 decades.
Wiki's Buffett link says:
"[Buffett] bought companies because they were cheap compared to their intrinsic value (i.e. true based on fundamentals)... He reasoned that the market will eventually realize it has undervalued the company and will correct its course [returning the co. to its true intrinsic value]".

Buffett's mentor- Ben Graham said in 1930's: In the short-term the market is an emotional voting machine, in the long-term it is a weighing machine.

I would be more apt to agree with this statement if we amended your 1 year being "long term" to 10 years.



Reasons why the small investor can beat the institutions that practically represent the market over 20 yrs:
1. small investors can hold cash when no half-price companies exist such as now (therefore hold 50% of funds in cash waiting for a market slump). Institutions have to remain fully invested in shares.
2. they can invest where the market is least efficient- in companies <$100m cap. Try doing that with an institution's fund of $1bn.
3. they don't have liquidity problems in exiting / entering positions in companies because they're buying such small stakes. A big fund buying 5% of a company takes a lot of time and cost.
4. they can hold a focussed portfolio of say 10 stocks and therefore understand the companies better than the institutions (greatly increasing probability of beating the market). Institutions have to hold 80+ stocks.
5. they can take the better long-term view with investments by tolerating underperforming the market for months or even years. A fund manager suffering such 'tracking error' (deviating from the market) will be out of a job.
6. most importantly, the small investor can wait for months until a decent company at a great (half) price is offered by the market. The institution has to be actively buying and selling to justify the hundreds of people- analyst front office, settlement back office etc.

The small investor can thrash the market in the first 20 yrs providing they have 3+hrs/week to research, they understand business, have the right temperament and follow the value investing discipline.

(Index fund= a fund that doesn't try to pick select companies but instead buys hundreds of companies 'til it reflects the whole market indices).


All valid reasons to support your thesis, except that the data shows a different perspective. Perhaps the INTJ is different.

[Max T]

Certainly Buffett (not the restaurant diner) is a six+ sigma person, a 1 in a billion.
No one is going to beat Buffett over 20 yrs.
But I don't think the logic can then be extended to "no-one beats the market over 20 yrs".
Over 20 yrs, many investors aggregate returns will come between beating the market but not beating Buffett's record.
That's how the system has to work, just as equal numbers of investors will underperform the market (thereby funding the market outperformers).
Your thesis hinges on the last statement.

To expand, <1yr the stock market is a zero sum game (i.e. one can only gain if another loses) and >10yr it's mainly a positive sum game (i.e. most investors gain) as dividends are received and corporations create genuine wealth thereby pushing up share price.


INTJs have a significant advantage over other investors.
Our trait typecasters suggest we: have well placed self-confidence (emph. on 'well placed'),


Self confidence is probably not an asset in investing, particularly if that self confidence extends beyond "I'm smart and capable" to "I'm smarter and more capable than everyone else".
Absolutely agree- the stock market will strip the money from an arrogant person.
Self confidence and investment returns are inversely correlated.
Hence my emphasis on "well-placed" confidence and to be humble.

But you have to be confident in your analysis to buy a company like Fiberweb, as I did at 51 pence last week (see chart below- now at 39 pence). It's selling for half it's true value that I estimate at 102 pence (which is when I'll sell unless something changes). The absolute bottom- its full liquidation in a distressed sale- is c. 45 pence.

a rational and analytical nature, pattern forming thinking and are very humble yet confident in our own analyses.
All fantastic qualities to succeed in investing (not speculating).

Perhaps. I'm just doubtful that any individual can do better than the team of MBAs, PhDs, and JDs that investment houses put together, and more skeptical that they can, after taxes and fees, beat the index return that beats actively managed funds by a considerable margin.

I agree it sounds unlikely. But value investing eliminates both of your very valid claims.

Can you imagine a team of MBA's advocating buying a company that has fallen to 1/5th its market value within 6 mths? They just won't agree for fear of losing their jobs, looking dumb, looking too 'high risk' (even though risk of actual capital loss is negligible), fear of having to explain to a client why they hold such a 'dog'...

And value investors typically hold c. 10 stocks for up to 5 yrs max., so the taxes and fees are much lower than those of the investment houses.



People screw up their own portfolios. Average individual stock investor made, as I recall correctly, around 2% from 1980-2005. I don't have Bogle's book around here anywhere, but I do know that it was abysmally low over that period.

I so agree- an investor's biggest liability is their own emotions. Some research into individual investors accounts found the average individual investor to just break even. They don't even make any money but buy shares for entertainment and to join the party talk!
The value investing framework protects the investor from their emotions.
Bogle was very pro indexing.


In the short-term (<1 yr) the market is moved by the emotions of the manic depressive "Mr. Market" as we mention.
But in the long-term (>1yr) the market IS moved by fundamentals, I assure you- this is what Buffett has been advocating for the past 5 decades.


I would be more apt to agree with this statement if we amended your 1 year being "long term" to 10 years.

Ok yes agree >1yr is too short... but I'd say 4 yrs is normally long term enough for two reasons:
a. most companies fix their strategies and problems within that period and
b. it takes max. 3 yrs for investors to actually forget a company's 'disaster of the day' (profit warning, product recall etc.).



Reasons why the small investor can beat the institutions that practically represent the market over 20 yrs:
1. small investors can hold cash when no half-price companies exist such as now (therefore hold 50% of funds in cash waiting for a market slump). Institutions have to remain fully invested in shares.
2. they can invest where the market is least efficient- in companies <$100m cap. Try doing that with an institution's fund of $1bn.
3. they don't have liquidity problems in exiting / entering positions in companies because they're buying such small stakes. A big fund buying 5% of a company takes a lot of time and cost.
4. they can hold a focussed portfolio of say 10 stocks and therefore understand the companies better than the institutions (greatly increasing probability of beating the market). Institutions have to hold 80+ stocks.
5. they can take the better long-term view with investments by tolerating underperforming the market for months or even years. A fund manager suffering such 'tracking error' (deviating from the market) will be out of a job.
6. most importantly, the small investor can wait for months until a decent company at a great (half) price is offered by the market. The institution has to be actively buying and selling to justify the hundreds of people- analyst front office, settlement back office etc.

The small investor can thrash the market in the first 20 yrs providing they have 3+hrs/week to research, they understand business, have the right temperament and follow the value investing discipline.


All valid reasons to support your thesis, except that the data shows a different perspective. Perhaps the INTJ is different.
Value investing is practised by c. 2% of the investing community.
Therefore, it is very likely that value investor's results were not factored into the data you refer to.
The INTJ is not different- he's just parrotting back to you what he has read from value investing books... and practised.


Let's invert the situation and consider from Bogle's perspective- the most efficient thing to do is to invest in index trackers- say 95% of money is in them.
That would provide even greater returns for value investors, as the stock market would consider even less the individual companies' performance and so share price would be further removed from reality. The market would be less efficient.
For example, if most people index tracked, a company whose size is on the brink of say the top 500 shares some funds are tracking, could one day lose 50% of its value as index funds sell that company. Irrespective of true (intrinsic) value, that company is now on sale at 50% discount. A value opportunity.


But what do value investors know?
The academics hate us for disproving their efficient market hypothesis.
The City/ Wall St. have set up corporations and consumer expectations in such a manner that prevents them from following the value discipline.
... And that's is just how we like it. :-)

[Max T]

Henry- I can't help but feel that you either:
1. invest personally and, judging by what you say, you outperform the market most of the time (but perhaps you're having an underperforming year like everyone (incl. Buffett) suffers) or...
2. you're smart enough not to invest but instead leave it in a tracker/ decent few funds.

Me? figured that my gains over the past 5 years were just pure luck- the US and UK markets have been rising- everyone wins. Increasingly nervous about the next crash/slide/correction so been reading a bunch on value investing.

[Henry]

Value investing is clearly the most rational way to go about investing in a very irrational market. There's no other way to do it, especially when you can find companies very close to book value.

I still think its very easy to get scared out of the market, and do stupid things to screw up your portfolio.

To expand, <1yr the stock market is a zero sum game (i.e. one can only gain if another loses) and >10yr it's mainly a positive sum game (i.e. most investors gain) as dividends are received and corporations create genuine wealth thereby pushing up share price.

Agreed.

But if you own individual stocks and you don't understand or can't handle the ups and downs, then bonds, especially TIPS, are ideal. And I think TIPS are ideal for most investors.




But you have to be confident in your analysis to buy a company like Fiberweb, as I did at 51 pence last week (see chart below- now at 39 pence). It's selling for half it's true value that I estimate at 102 pence (which is when I'll sell unless something changes). The absolute bottom- its full liquidation in a distressed sale- is c. 45 pence.

Well if you are actually able to find bargains like this and hold through ups and downs, you'll do fine.



I agree it sounds unlikely. But value investing eliminates both of your very valid claims.

Can you imagine a team of MBA's advocating buying a company that has fallen to 1/5th its market value within 6 mths? They just won't agree for fear of losing their jobs, looking dumb, looking too 'high risk' (even though risk of actual capital loss is negligible), fear of having to explain to a client why they hold such a 'dog'...

And value investors typically hold c. 10 stocks for up to 5 yrs max., so the taxes and fees are much lower than those of the investment houses.

Depending on how its done, a value investor may want to hold substantially longer than 5 years.

You have an excellent point regarding status-whores not being able to value invest.


Value investing is practised by c. 2% of the investing community.
Therefore, it is very likely that value investor's results were not factored into the data you refer to.
The INTJ is not different- he's just parrotting back to you what he has read from value investing books... and practised.

If I recall the data correctly, those who setup a system for themselves did much better, around 6% per year, than the person that picked individual stocks. I'm not sure whether they were considered systematized or individual.


Let's invert the situation and consider from Bogle's perspective- the most efficient thing to do is to invest in index trackers- say 95% of money is in them.
That would provide even greater returns for value investors, as the stock market would consider even less the individual companies' performance and so share price would be further removed from reality. The market would be less efficient.

No question there. Indexing piggybacks on others' buying and selling.

For example, if most people index tracked, a company whose size is on the brink of say the top 500 shares some funds are tracking, could one day lose 50% of its value as index funds sell that company. Irrespective of true (intrinsic) value, that company is now on sale at 50% discount. A value opportunity.

I don't disagree; your method is clearly the most rational way to proceed in an insane market. I would caution anyone to take a balanced approach though, and indexing with a substantial part of the portfolio.

[Alexfree]

I am into options.

I like investing just because it is a chance to multiply my money, retire early and being independently introverted all day long :D

No, seriously. I think INTJ are natural investors because good investing strategies (that is, something that could yield more than a crappy 5%) require excellent information-gathering capabilities... which is something I guess we are good at... if motivated enough.

By the way, a good eyeopener about stock market is a book called "A Random Walk Down Wall Street" by Burton G. Malkiel. Classic.

[Warren_Wong]

Own stocks, but its almost all in index funds. I think maybe 5% of my money is actively managed, the rest is an index in one form or another.

Boring, but clearly the best investment for everyone but Buffet.

I completely agree. With all the time that people spend day trading and picking stocks, that time could be spent actively making money elsewhere. Like 15% of like 50k isn't really that much more than 10% of 50k. Unless you have like a couple million or more, it really doesn't make a whole lot of difference.

[elsdfr]

15% is 15% - if you can average that over twenty/thirty plus years yourself then why wouldn't you try?

Anyone can put a lump sum into a managed fund and throw out the pretty graphs they send you... BORING! and who knows where your money is really going.

And Buffet is just the Bill Gates of the Finance world. He took a huge risk and now the general populous puts him on a pedestal and throw blanket statements around like "clearly the best investment for everyone but Buffet." ... err, please!

[Max T]

With all the time that people spend day trading and picking stocks, that time could be spent actively making money elsewhere. Like 15% of like 50k isn't really that much more than 10% of 50k. Unless you have like a couple million or more, it really doesn't make a whole lot of difference.

Warren- what do Einstein, Gates and Buffett have in common?
They all knew the power of compounding (i.e. earning interest on the interest earnt each year).
- Einstein said compounding was the '8th wonder of the world'.
- Gates saw the compounding opportunity: by having his OS installed in PCs throughout the world, he had a captive market for upselling onto different software appl.
- Buffett knew that by starting from a young age and learning from the best compounders of his day (i.e. working for free at investor Ben Graham's office in Wall Street in the 1960's), he would in time have a few dollars.

So the smartest guy last century and the two richest of this century knew the power of compounding.


$50,000 earning 10% av.annual gross return over 20 yrs = $336,400.
$50,000 earning 15% av.annual gross return over 20 yrs = $818,300.

And consider that a small investor can compound at 20-30% for twenty years by following Buffett and the value investing discipline (or elsdfr's trading, Alexfree's options etc. if so choose):
$50,000 earning 25% av.annual gross return over 20 yrs = $4,337,000.

[ShaiGar]

I'm a small time investor. Most of the time I write short stories, work on my novels, poetry and technical designs. However I know the power of fashion and stupidity, and I occasionally save money to go to thailand, with no clothes, buy a shitload over there of decent designs(99bhat), and sell them back here to morons.(822bhat=30dollars)

That's how I Invest.

I'm considering getting myself an INTP or INTJ agent based either in Singapore or in Bangkok who can bhater (pun, supposed to be barter) very well, and setting up a distribution line out of Darwin. Doing that til i have enough money to set up my own sweatshop in either Indonesia or Philippines. I know it's smalltime, but capital needs to be raised to reach my higher financial aims.

[GOD]

And can I please make a brief commentary here:

Nobody beats the market over a 20 year period, except Buffet. And Buffet beats it because of temperament, management, and an obsession for details and integrity that INTJs don't have. Its extremely unlikely that you're going to beat the market as an INTJ over the long haul because the market is not moved by fundamentals, its moved by Mr. Market and the people that listen to him. Thus the most rational perspective, even if the most counterintuitive, is that the index fund provides the highest return for the least effort.

Sorry, but your completely and utterly wrong.

Firstly, Buffet is successful but he's not alone, there are plenty of others
of his type but you just don't here about them much, they keep a low profile for obvious reasons.

Buffets strategy is simple. He focuses on Fundamentals. While most of you are playing day trades and other "chartist" type plays he's focusing on cashflow and undervalued assets. In the 1960's there were more than a few players doing the asset stripping game, he's from that school.

In terms of saying that INTJs are the wrong type and temperament, that’s wrong. INTJ's are most suited to the fundamental plays that Buffet does (As it requires more strategy, more forward looking over the long term and attention to details), whereas the ISTJs will go more the chartist type plays.

To say you are unlikely to beat the market over the long run is also wrong. If you play the indexed fund management then you will likely equal the market (Or less when you take their fees out) (All as they do is achieve the market beta by having a diversified portfolio). However if you know your stuff (You'd better have a skill set up to CPA standard) and go the fundamental route then you can well and truly beat the market.

[Max T]

Sorry, but your completely and utterly wrong.

Firstly, Buffet is successful but he's not alone, there are plenty of others
of his type but you just don't here about them much, they keep a low profile for obvious reasons.

Buffets strategy is simple. He focuses on Fundamentals. While most of you are playing day trades and other "chartist" type plays he's focusing on cashflow and undervalued assets. In the 1960's there were more than a few players doing the asset stripping game, he's from that school.

In terms of saying that INTJs are the wrong type and temperament, that’s wrong. INTJ's are most suited to the fundamental plays that Buffet does (As it requires more strategy, more forward looking over the long term and attention to details), whereas the ISTJs will go more the chartist type plays.

To say you are unlikely to beat the market over the long run is also wrong. If you play the indexed fund management then you will likely equal the market (Or less when you take their fees out) (All as they do is achieve the market beta by having a diversified portfolio). However if you know your stuff (You'd better have a skill set up to CPA standard) and go the fundamental route then you can well and truly beat the market.

Yes- this has all been stated previously by someone else posting here.

To be fair to Henry, he's doing the next smartest thing by indexing.
Far more individual investors think they can beat the market than actually do.
Just as far more active institutional funds underperform the market (c. 80%) than beat it.

Buffett said that the best thing for a 'know-nothing' investor to do is to index the market.
So, ironically it takes a smart investor to decide to index (and put energies into other things in life).

[GOD]

Just as far more active institutional funds underperform the market (c. 80%) than beat it.


Most institutional investors equal the market because they actually replicate it via their diversified portfolio. Why the majority actual perform below is due to their c2% fees they then subsequently slice off.

If you want to replicate a diversified portfolio then randomly get 30 different stocks in the market....and save yourself the 2% institutional charge.

[Max T]

Most institutional investors equal the market because they actually replicate it via their diversified portfolio. Why the majority actual perform below is due to their c2% fees they then subsequently slice off.
Sure, and the transaction costs of continually buying and selling.

Coupled with the customer's behaviour and expectations- namely 'if you underperform I'm withdrawing my money', most funds today do the most logical thing- become a closet index tracker (but charge the fee)... and when the 5yr chart starts to show underperformance, start a new fund.

"Better to fail anonymously with everyone else then be different and risk failing on your own" could be a fund manager's mantra.


If you want to replicate a diversified portfolio then randomly get 30 different stocks in the market....and save yourself the 2% institutional charge.

Or try Joel Greenblatt's To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
It's like a cheap and simple way to value invest for those without the time etc.
Greenblatt created a fund called Gotham capital that compounded 40% over 20 yrs.

His 'magic formula' approach simply identifies the companies with 1. lowest Price/Earnings ratios ('though he uses E/P yield) and with 2. the highest return on invested capital (ROIC) if I recall.

In other words, you're buying low price (P/E ratio) companies that are actually strong businesses producing good returns via competitive advantage (ROIC). The share price is currently low and very likely to bounce upwards within a year.

Invest in 10 of them and a year later, sell (regardless) and repeat, each year. Mechanical.
It is this simple for a good reason- you don't really understand the company so you don't know when to sell. Such a strict buy and sell decision removes emotions and (likely) erroneus judgement from the process.

It sounds like a back-tested system that will fail when the future deviates from the past, but it is grounded in fundamentals.

The only real potential downside is that the system becomes so popular that it no longer exceeds market returns (as gains are competed away), but I guess his book addresses this.


I recommend INTJs to read the book and, if you do invest, absolutely go by the book and don't "style drift" into other strategies such as momentum, growth etc.

[Warren_Wong]

Warren- what do Einstein, Gates and Buffett have in common?
They all knew the power of compounding (i.e. earning interest on the interest earnt each year).
- Einstein said compounding was the '8th wonder of the world'.
- Gates saw the compounding opportunity: by having his OS installed in PCs throughout the world, he had a captive market for upselling onto different software appl.
- Buffett knew that by starting from a young age and learning from the best compounders of his day (i.e. working for free at investor Ben Graham's office in Wall Street in the 1960's), he would in time have a few dollars.

So the smartest guy last century and the two richest of this century knew the power of compounding.


$50,000 earning 10% av.annual gross return over 20 yrs = $336,400.
$50,000 earning 15% av.annual gross return over 20 yrs = $818,300.

And consider that a small investor can compound at 20-30% for twenty years by following Buffett and the value investing discipline (or elsdfr's trading, Alexfree's options etc. if so choose):
$50,000 earning 25% av.annual gross return over 20 yrs = $4,337,000.

Yeah, except that only becomes more important at higher $$ amounts. When you have a few million, then sure, spend time on finding better investments, but when you only have like $10k, then spend your time making more money...

[Warren_Wong]

15% is 15% - if you can average that over twenty/thirty plus years yourself then why wouldn't you try?

Anyone can put a lump sum into a managed fund and throw out the pretty graphs they send you... BORING! and who knows where your money is really going.

And Buffet is just the Bill Gates of the Finance world. He took a huge risk and now the general populous puts him on a pedestal and throw blanket statements around like "clearly the best investment for everyone but Buffet." ... err, please!


Because I'd rather get 10% now and an extra 50 hours or so, and then spend that 50 hours later to get the 15% when I have more money.

[Max T]

Yes I understand your perspective Warren.
Those extra hours this year could be very valuable especially if we're going to die next year!

So you prefer to maximise earning potential now and invest at a low rate, and when sufficient funds are accrued, start to invest at a higher rate.

But surely most of us cannot earn more than a fixed amount per week, so there's a restricted cap on current potential earning. But there is no restricted cap on investment returns (just a diminishing rate of return)- some earn cash deposit 6% p.a. and others earn 30% p.a.
There are two advantages to starting investing at a higher rate now:

1. seek to maximise investment returns now and you'll be a pro investor in 20 years, so you'll likely be earning greater p.a. returns in 2028 than the guy that started in 2018.

2. seek to maximise investment returns now and the mistakes you (inevitably) make will not erode your capital, since you have less of it, as much as mistakes made in 2018 when you start investing with larger sums. 30% loss on $10k ($3k) is ok but 30% loss on $1m is painful (I imagine!). (Relatively speaking, they're the same amount of loss in absolute terms, since the $3k loss could have compounded).

(3. a final virtuous circle (i.e. self-powering effects) for some is that by starting shares investing now, you become a better business person as you understand businesses better in general= better job = higher earnings and greater compounded returns).


The disadvantage to maximising investment returns now is the loss of 5hrs per week spent playing computer games, reading a book or writing on forums (d'oh! double d'oh!)... and you'll gain those hours lost now in your retirement, which would come earlier than the person who started maximising investment returns later in life.

Such delayed gratification is completely opposite to the 'spend now worry about debts later' society that we live in.
Once you've retired, you can think about how you want to give it back- again completely at odds with society!

[Warren_Wong]

I can see that Max, and I agree with you that if you were unable to make other sources of income, then of course, investing now makes sense.

However, in my experience, it's not that hard to make other sources of income. For example, playing poker, starting a website, can all yield upwards of a hundred k or two per year, which is no small sum. Additionally, if you're investing in stocks, there is generally the constant distraction of wanting to look at it, disrupting your current work efforts.

I think the best way is probably to start a business of your own. That way, you get to understand businesses from the inside out. I tend to think investing in stocks is more about understanding the business behind the stock, so "investing" from the outside in something you don't understand wouldn't yield much knowledge to make you a pro investor in my opinion.

[elsdfr]

I can see that Max, and I agree with you that if you were unable to make other sources of income, then of course, investing now makes sense.


I met a guy the other day who digs/cleans faeces from treatment plants, he earns more in a day then most earn in a week and he work maybe six hours a day. He said they are looking for people if I'm keen... bit I'm not, I prefer to invest in my spare time, so what does does this make me, an idiot?

By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

[Henry]

Sorry, but your completely and utterly wrong.

Firstly, Buffet is successful but he's not alone, there are plenty of others
of his type but you just don't here about them much, they keep a low profile for obvious reasons.

Buffets strategy is simple. He focuses on Fundamentals. While most of you are playing day trades and other "chartist" type plays he's focusing on cashflow and undervalued assets. In the 1960's there were more than a few players doing the asset stripping game, he's from that school.

I'll label this argument the "Black Helicopters of Investing Thesis". They're these super competent, super secretive people that are soooo good no 1 knows about them.

Thanks for the lesson on Buffett.

In terms of saying that INTJs are the wrong type and temperament, that’s wrong. INTJ's are most suited to the fundamental plays that Buffet does (As it requires more strategy, more forward looking over the long term and attention to details), whereas the ISTJs will go more the chartist type plays.

Actually, I stated little re temperament and investing. I did state that Buffett, who is clearly STJ, is the only investor who has beat the market by any sum worth the effort and risk.

To say you are unlikely to beat the market over the long run is also wrong. If you play the indexed fund management then you will likely equal the market (Or less when you take their fees out) (All as they do is achieve the market beta by having a diversified portfolio). However if you know your stuff (You'd better have a skill set up to CPA standard) and go the fundamental route then you can well and truly beat the market.

Ah, my all time favorite internets argument: never mind the data, the strong supporting theory, or the advice of experts. My anecdotal, unverifiable "evidence" trumps all that nonsense.

[Warren_Wong]

I met a guy the other day who digs/cleans faeces from treatment plants, he earns more in a day then most earn in a week and he work maybe six hours a day. He said they are looking for people if I'm keen... bit I'm not, I prefer to invest in my spare time, so what does does this make me, an idiot?

By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

No, it makes you someone who choose that path. I'll make that few hundred extra k and put it in an index fund. That'll probably beat what most people do anyway.

[Warren_Wong]

I met a guy the other day who digs/cleans faeces from treatment plants, he earns more in a day then most earn in a week and he work maybe six hours a day. He said they are looking for people if I'm keen... bit I'm not, I prefer to invest in my spare time, so what does does this make me, an idiot?

By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

I'm just saying there's better ways of learning about that than "investing" in the market.... like actually starting a business.

[elsdfr]

No, it makes you someone who choose that path. I'll make that few hundred extra k and put it in an index fund. That'll probably beat what most people do anyway.

I was pointing out that what you stated sounded like anyone who invests for themselves either doesn't make enough money in a "real" job or doesn't have what it takes to start a "real" business, which is simply not true.

It has similarities to the "dating an INTJ female thread" where some people stated broad generalizations that work for the majority of the time. Little do they know they are actually offending a quiet minority who probably wouldn't say anything otherwise.

And really if you haven't actually lived something then your ideas are just theory and even if you have lived through something then you should have the knowledge to realise your outcomes are not always going to be the same as someone elses.

I'm just saying there's better ways of learning about that than "investing" in the market.... like actually starting a business.

Fair enough, again this works for the majority of people. In my opinion anyone with the will to sell themselves to the bank can do this. Find anyone who is debt free and completely independent these days and you are again talking 2%'ers.

Its a different mindset and to dismiss it is, well.. :(

[Warren_Wong]

I was pointing out that what you stated sounded like anyone who invests for themselves either doesn't make enough money in a "real" job or doesn't have what it takes to start a "real" business, which is simply not true.

It has similarities to the "dating an INTJ female thread" where some people stated broad generalizations that work for the majority of the time. Little do they know they are actually offending a quiet minority who probably wouldn't say anything otherwise.

And really if you haven't actually lived something then your ideas are just theory and even if you have lived through something then you should have the knowledge to realise your outcomes are not always going to be the same as someone elses.

I'm sorry if that's what it sounds like, but that's not what I meant at all. I just happen to think (at least for me) that starting a business is a much better way of learning to invest and also to make extra money to invest with while doing so.

Fair enough, again this works for the majority of people. In my opinion anyone with the will to sell themselves to the bank can do this. Find anyone who is debt free and completely independent these days and you are again talking 2%'ers.

Its a different mindset and to dismiss it is, well.. :(


Well, I think it's a good idea to borrow money if you think you can make a higher return on it. For example, I have a few hundred k in liquid capital, but I still borrow money from the bank. Like why not... borrow for like 5% and get an average return of 10% just by sticking it in an index fund... hey, free money :)

I don't think it's a bad mindset to try to learn to invest and make above market returns. However, in my opinion (and experience), studying stocks and investing is actually a very poor means of accomplishing.

Like when it comes down to it, you have to understand the value the business is providing. Learning about all sorts of metrics really doesn't give you an edge over other investors (even though you might think that you're al ot smarter... there are plenty of phds with finance degrees out there running hedge funds). The only way to really understand what makes a business successful is to start a business of your own and get the experience, as the rest is just theory.

Just look at Buffet... he was running businesses when he was like 12...

[Max T]

However, in my experience, it's not that hard to make other sources of income. For example, playing poker, starting a website, can all yield upwards of a hundred k or two per year, which is no small sum. Additionally, if you're investing in stocks, there is generally the constant distraction of wanting to look at it, disrupting your current work efforts.

Yes I understand you. My justification to maximise investment returns now was based on the notion of the individual earning a fixed annual salary (i.e. no overtime pay opportunities) and not having a second line of business ('moonlighting' I think some call it?).

For some companies- included my previous employer- if you were caught with a second line of work you'd be made redundant. But I'm sure many people do run a second line of income even if its an eBay thing.


I think the best way is probably to start a business of your own. That way, you get to understand businesses from the inside out. I tend to think investing in stocks is more about understanding the business behind the stock, so "investing" from the outside in something you don't understand wouldn't yield much knowledge to make you a pro investor in my opinion.
Totally agree and you're in good company- Buffett once said that when he started actually owning whole companies, all the other issues to running a business he previously was unaware of was a real learning curve and made him a better investor.



On this issue of do we maximise earnings/savings or do we maximise investment returns, I guess it can be answered by determining patterns in the wider world.

Buffett humbly once said he couldn't do what Gates does but imagines Gates could do what Buffett does. Equally, even though investors and business owners have strong similarities (capital allocation, commercial acumen etc.), you rarely see someone excelling in both simultaneously or sequentially (e.g. first business start-up, then investor).

So it comes down to our own skills- some of us are more entrepreneurial and so can and should increase earnings by creating a second line of income/ starting own business.

Others are not so entrepreneurial but perhaps excel in other areas such as analysis and temperament. I've failed in little ventures with convincing consistency so moved to this camp.
Guess it comes down to playing to strengths and minimising weaknesses.

But like elsdfr and myself say, having earned your money through business ventures ShaiGar and Warren, don't then beat your chest as all conquering and suddenly switch to active investing else you could lose a lot.

[Warren_Wong]

Yes I understand you. My justification to maximise investment returns now was based on the notion of the individual earning a fixed annual salary (i.e. no overtime pay opportunities) and not having a second line of business ('moonlighting' I think some call it?).

For some companies- included my previous employer- if you were caught with a second line of work you'd be made redundant. But I'm sure many people do run a second line of income even if its an eBay thing.

Hehe, I tend to think even an ebay thing has better opportunities than a fixed income job :) Jobs have a ceiling cap of like a few hundred k... which really kills any motivation I have hehe.


On this issue of do we maximise earnings/savings or do we maximise investment returns, I guess it can be answered by determining patterns in the wider world.

Buffett humbly once said he couldn't do what Gates does but imagines Gates could do what Buffett does. Equally, even though investors and business owners have strong similarities (capital allocation, commercial acumen etc.), you rarely see someone excelling in both simulateously or sequentially (e.g. first business start-up, then investor).

So it comes down to our own skills- some of us are more entrepreneurial and so can and should increase earnings by creating a second line of income/ starting own business.

Others are not so entrepreneurial but perhaps excel in other areas such as analysis and temperament. I've failed in little ventures with convincing consistency so moved to this camp.
Guess it comes down to playing to strengths and minimising weaknesses.

But like elsdfr and myself say, having earned your money through business ventures ShaiGar and Warren, don't then beat your chest as all conquering and suddenly switch to investing else you could lose a lot.

Hmmm, so for reference, I have made a few hundred k playing poker and have lost 6 digits doing the "investing" thing, so this is mostly experience talking. Having spent like the last 4 years of my life analyzing edges and so forth, my conclusion is that you really don't have much of an edge over hedge funds, etc. Like my question to you is, where do you see your money coming from?

Business wise... just keep trying :) Only need to "make it" once hehe. That's my favorite thing about businesses, you can just keep failing, but you just have to get it right once to make it big!

[Warren_Wong]

The main thing for me is - when I run a business, I know where my money comes from. I provide value to people who in turns gives me money for it.

When I invest in stocks based on analytical things.. what are you really providing to other people? All you're really doing is adding liquidity to the market, and there are already tons of people with multi billion dollar computer systems pounding out those edges.

In my experience, if you don't know where the value comes from, then you're bound to lose money. It's like poker.. if you don't know who the fish is, you're it :-)

[Max T]

Hmmm, so for reference, I have made a few hundred k playing poker and have lost 6 digits doing the "investing" thing, so this is mostly experience talking.

This is interesting- so it appears that personal experiences (my start-up failures, you losing six figures investing) polarise our views on investing and earning- we are squeezed to opposite ends yet both understand each other (I hope).

Ironically, poker teaches a valuable lesson for investing. When your card hand (and approximate mental card counting) suggests that the odds are heavily stacked in your favour, bet big.
Same with investing- when you find a company like Fiberweb (stock chart above) selling at half price, bet 1/10th of your stake on it.


Having spent like the last 4 years of my life analyzing edges and so forth, my conclusion is that you really don't have much of an edge over hedge funds, etc. Like my question to you is, where do you see your money coming from?
Oh I have a huge edge over hedge funds.
I'm only investing small amounts so can invest in companies like Fiberweb currently valued at £48m. No fund with >$1bn assets can go near this size of business.
Just like in business where small companies compete with large, there are niche areas in the stock market where the smaller investor can gain an 'edge'.

Buffett perhaps says it better:
"If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."



One guy may begin with greater capital by starting a business, then it folds/ sold and they're too tired later in life to start again and so stay with 10% p.a. investment return... whilst another guy starts off slowly and just keep compounding 20%+ p.a. and gets better at it later in life.

So the longer the former lives, the less likely they can earn their money again (because start-ups is a young persons thing), but the longer the latter lives, the more cash they're generating. Time is on the side of the latter.

So the latter is more likely to return more cash to society.
In the meantime, by investing in dirt cheap companies, the value investor is ensuring the stock market system functions by preventing such companies from falling so low in market value that they break banking covenants, suffer working capital problems, supplier and customer relations problems, aggressive takeovers and so on.

Ethically and materially, you know where I am.

[Warren_Wong]

One guy may begin with greater capital by starting a business, then it folds/ sold and they're too tired later in life to start again and so stay with 10% p.a. investment return... whilst another guy starts off slowly and just keep compounding 20%+ p.a. and gets better at it later in life.

So the longer the former lives, the less likely they can earn their money again (because start-ups is a young persons thing), but the longer the latter lives, the more cash they're generating. Time is on the side of the latter.

So the latter is more likely to return more cash to society.
In the meantime, by investing in dirt cheap companies, the value investor is ensuring the stock market system functions by preventing such companies from falling so low in market value that they break banking covenants, suffer working capital problems, supplier and customer relations problems, aggressive takeovers and so on.

Ethically and materially, you know where I am.

Well, the current business I'm invovled is returning over 40%/year, not to mention growth. I mean, it's like investing in stocks, except it's just me, and I have a say in where the business goes. If you're investing in stocks, you have basically no control and have to place all your trust in some guy you don't know, and probably some business that you're not even familiar with. Well, unless you get like a 30% stake or something, which I might do if the business grows to be worth in the tens of millions...

[Max T]

Well, the current business I'm invovled is returning over 40%/year, not to mention growth. I mean, it's like investing in stocks, except it's just me, and I have a say in where the business goes. If you're investing in stocks, you have basically no control and have to place all your trust in some guy you don't know, and probably some business that you're not even familiar with. Well, unless you get like a 30% stake or something, which I might do if the business grows to be worth in the tens of millions...

That's a wonderful rate of return.
But think about this- no company is going to maintain 40% return unless its a Microsoft in early years etc.
Very likely, you'll have 40% return for at most the next few years than competitors enter the market and your competitive advantages decay. So in a few years your return on invested capital is likely to equal weighted average cost of capital. In a few year it is no longer creating excess free cash flow but produces a salary.

An investor on the other hand can maintain 20+% p.a. return on invested capital for the next 20 years. To achieve this, your company would be tremendous and v.v. rare. Probability <0.01%?


What you gain in control over the business, you lose in diversification of risk. If the company struggles, you're going down with it.

With a portfolio of 10 companies, I understand them better than most city analysts who have to cover say 30 stocks. And when one company falls... well that rarely happens since I bought at half price. Worst thing is I hold for 4 years and nothing happens.

[Max T]

Ultimately Warren, surely neither of our ways is better than the other.
For the next 10 yrs I'd prefer to be able to do what you're doing,
and in the next 20 years prefer to do what I'm doing.

Ideally, we'd be able to do what we're both doing, simultaneously, but this is virtually impossible to do!

[Warren_Wong]

That's a wonderful rate of return.
But think about this- no company is going to maintain 40% return unless its a Microsoft in early years etc.
Very likely, you'll have 40% return for at most the next few years than competitors enter the market and your competitive advantages decay. So in a few years your return on invested capital is likely to equal weighted average cost of capital. In a few year it is no longer creating excess free cash flow but produces a salary.

An investor on the other hand can maintain 20+% p.a. return on invested capital for the next 20 years. To achieve this, your company would be tremendous and v.v. rare. Probability <0.01%?


What you gain in control over the business, you lose in diversification of risk. If the company struggles, you're going down with it.

With a portfolio of 10 companies, I understand them better than most city analysts who have to cover say 30 stocks. And when one company falls... well that rarely happens since I bought at half price. Worst thing is I hold for 4 years and nothing happens.

Hmmmm that is a good point about diversification. There are some ways to minimize that of course, but yeah, definiately some disadvantages there.

Although, I don't I agree that my returns would decay within the next few years. 40% + in the 100k-1 million range is easily maintainable I think. If anything, my return should increase having more experience in the area, and hence gaining a competitive edge.

Obviously it'll slow down at some point, but I expect that to happen more around the low double digit million area. We'll see though hehe. Probably being optimistic :)

I guess my problem is how you can determine "half price", since you aren't completely sure how the company works (I'd assume) and what makes a successful business work. Valuation is based on your perception of how the company operates in the future, except I don't really see how anyone's perception can be accurate without having actually run such a business before...

[Warren_Wong]

Ultimately Warren, surely neither of our ways is better than the other.
For the next 10 yrs I'd prefer to be able to do what you're doing,
and in the next 20 years prefer to do what I'm doing.

Ideally, we'd be able to do what we're both doing, simultaneously, but this is virtually impossible to do!

I do agree with this though hehe.. after the first 10 years.. hopefully we'll be able to acquire some other companies to diversify :)

[GOD]

I completely agree. With all the time that people spend day trading and picking stocks, that time could be spent actively making money elsewhere. Like 15% of like 50k isn't really that much more than 10% of 50k. Unless you have like a couple million or more, it really doesn't make a whole lot of difference.

This is the biggest problem most high earners have. If you want to replace your day job with a business (start up or otherwise) you really need to make some serious cash.

As for indexed or otherwise returns. You might as well just pay your Mortgage off. The benefit is equivalent to pre tax earnings. Say your Mortgage is 6% and your tax marginal tax rate is 35%. Then the pre tax yield benefit is PV = i / (1 - t) or 9.23%. And ZERO RISK.

[Max T]

Obviously it'll slow down at some point, but I expect that to happen more around the low double digit million area. We'll see though hehe. Probably being optimistic :)

I guess my problem is how you can determine "half price", since you aren't completely sure how the company works (I'd assume) and what makes a successful business work. Valuation is based on your perception of how the company operates in the future, except I don't really see how anyone's perception can be accurate without having actually run such a business before...
In defense of your argument, you've supplied a bit of information to start a crude valuation of your company.

Value investors place heavyweight emphasis on the present and not the future.
As you rightly say- the future is too unpredictable.

Based on your reference to internet-based business and your age from your avatar and the high early-stage business returns of 40% and your 'increasing experience building the competitive advantage' suggesting a knowledge-ish business, I'm guessing it's an internet start-up operating for 1-2 years with very low net asset value (assuming it has more assets than liabilities). Say $20k for servers + some know how.
If a competitor were to start competing, this is what they'd have to borrow from the bank.

Now 40% profit return on those assets (dunno operating/ gross/ net) producing a range of $100k - $1m (assuming dollars) implies that you've found a little market arbitrage- like ShaiGar's business description, you're found a niche in the market and it might be a fleeting arbitrage before a large rival finds out and enters, but for now it's profitable.

So the free cash flow for this year could be say $100k (I don't know typical reinvestment rates (capex + working capital - depreciation) for internet start-ups).
So this year, $100k could be taken from the business and returned to all shareholders- you get some after the bank is paid.
Assuming no growth, multiply this $100k x 10 (dividend discount model-ignore the math)= $1m present value of future cash flows for 10 yrs. But we cannot assume any terminal value after 10 yrs- this is an assumed early-stage company so just add start-up cost so $1m + $20k =
$1.02m present value of future cash flows.

This is an optimistic valuation that assumes that rivals cannot enter and drive down returns to 10% p.a. (which roughly equals your cost of capital, so you're operating to pay the bank) and that your competitive advantages (be it low cost or differentiation) will remain perfectly intact.
Most likely barriers to entry and compet. advantages will fall. Rivals will see that for $20k start-up cost they can get future cash flows currrently worth $1m. That's a no-brainer decision- more co.s will enter until all their returns incl. yours drop down to 10% cost of capital and there is no incentive for more to enter= your present value of future cash flows become $20k start up cost.

So we've covered reproduction cost for a rival to start-up. Valuation = $20k
And crude discounted cash flow based on current situation. Valuation = $1020k
Now what about cash flows based on future potential by applying same compet. adv. within the impenetrable market? This is far removed from the present with such huge uncertainties that value investors would not consider it here (but would for Coca-cola and the like).

So two valuations. How much weight do we put on each?
What's the probability of the company having nil compet. adv. and low barriers to entry within the next 10 yrs- high probability so make it 80% chance.
Probability of retaining full monopolistic power over 10 yrs- in other words achieving same cash flows as currently at 40% return- 20% chance (that's generous).

80 + 20 probabilities =100% so we've covered "all" eventualities for the business over the next 10 yrs, placing greatest weight on the present.
$20k x 0.8 + $1020k x 0.2 = $16k + $204k = $220k.
Your company is worth $220k (its 'true value' based on the above).
If I were to buy the company, I'd want to pay $110k (half of $220k).
I'd then wait for the market to realise this is a cheap company and return it to its true value and then sell, doubling my investment.

Obviously don't be offended if this is too low a valuation- it's crude and I'd need 5 yrs of annual finances and be familiar with the industry and most importantly understand your competitive advantage producing the 40% return (assuming it's not 1 yr arbitrage).

Value investing seeks to minimise risk of loss and maximise positive future uncertainty.
The research you do today should pay off in 3 yrs time- you gather a pipeline of cheap companies.

[Max T]

This is the biggest problem most high earners have. If you want to replace your day job with a business (start up or otherwise) you really need to make some serious cash.

Absolutely.
Whilst we're talking about personal finances we have to be rational to make optimal decisions.
Key 2 criteria I've read- one from economics and one from psychology:
a. opportunity cost as GOD implies- what is the cost of not doing the next best thing. If running a business is more hours and less pay than the next best thing of a salary and the satisfaction doesn't bridge the gap, get out.

b. corrrectly anticipated regret- imagine what is the worst that could happen in the future if you made that decision- how would you feel? Now make the decision if you think you could "survive" that worst case.

Allied with using strengths and avoiding weaknesses, guess we could all find our optimal balance of investing and earning.

[Warren_Wong]

This is the biggest problem most high earners have. If you want to replace your day job with a business (start up or otherwise) you really need to make some serious cash.

As for indexed or otherwise returns. You might as well just pay your Mortgage off. The benefit is equivalent to pre tax earnings. Say your Mortgage is 6% and your tax marginal tax rate is 35%. Then the pre tax yield benefit is PV = i / (1 - t) or 9.23%. And ZERO RISK.

Well, right now it's more like 40% and my credit card debt is only like 3.4% :-D

Plus, in an index fund, if I leave it in there, it's basically tax deferred. I agree though.. otherwise the edge is kind of small for all that hassle.

[Warren_Wong]

In defense of your argument, you've supplied a bit of information to start a crude valuation of your company.

Value investors place heavyweight emphasis on the present and not the future.
As you rightly say- the future is too unpredictable.

Based on your reference to internet-based business and your age from your avatar and the high early-stage business returns of 40% and your 'increasing experience building the competitive advantage' suggesting a knowledge-ish business, I'm guessing it's an internet start-up operating for 1-2 years with very low net asset value (assuming it has more assets than liabilities). Say $20k for servers + some know how.
If a competitor were to start competing, this is what they'd have to borrow from the bank.

Now 40% profit return on those assets (dunno operating/ gross/ net) producing a range of $100k - $1m (assuming dollars) implies that you've found a little market arbitrage- like ShaiGar's business description, you're found a niche in the market and it might be a fleeting arbitrage before a large rival finds out and enters, but for now it's profitable.

So the free cash flow for this year could be say $100k (I don't know typical reinvestment rates (capex + working capital - depreciation) for internet start-ups).
So this year, $100k could be taken from the business and returned to all shareholders- you get some after the bank is paid.
Assuming no growth, multiply this $100k x 10 (dividend discount model-ignore the math)= $1m present value of future cash flows for 10 yrs. But we cannot assume any terminal value after 10 yrs- this is an assumed early-stage company so just add start-up cost so $1m + $20k =
$1.02m present value of future cash flows.

This is an optimistic valuation that assumes that rivals cannot enter and drive down returns to 10% p.a. (which roughly equals your cost of capital, so you're operating to pay the bank) and that your competitive advantages (be it low cost or differentiation) will remain perfectly intact.
Most likely barriers to entry and compet. advantages will fall. Rivals will see that for $20k start-up cost they can get future cash flows currrently worth $1m. That's a no-brainer decision- more co.s will enter until all their returns incl. yours drop down to 10% cost of capital and there is no incentive for more to enter= your present value of future cash flows become $20k start up cost.

So we've covered reproduction cost for a rival to start-up. Valuation = $20k
And crude discounted cash flow based on current situation. Valuation = $1020k
Now what about cash flows based on future potential by applying same compet. adv. within the impenetrable market? This is far removed from the present with such huge uncertainties that value investors would not consider it here (but would for Coca-cola and the like).

So two valuations. How much weight do we put on each?
What's the probability of the company having nil compet. adv. and low barriers to entry within the next 10 yrs- high probability so make it 80% chance.
Probability of retaining full monopolistic power over 10 yrs- in other words achieving same cash flows as currently at 40% return- 20% chance (that's generous).

80 + 20 probabilities =100% so we've covered "all" eventualities for the business over the next 10 yrs, placing greatest weight on the present.
$20k x 0.8 + $1020k x 0.2 = $16k + $204k = $220k.
Your company is worth $220k (its 'true value' based on the above).
If I were to buy the company, I'd want to pay $110k (half of $220k).
I'd then wait for the market to realise this is a cheap company and return it to its true value and then sell, doubling my investment.

Obviously don't be offended if this is too low a valuation- it's crude and I'd need 5 yrs of annual finances and be familiar with the industry and most importantly understand your competitive advantage producing the 40% return (assuming it's not 1 yr arbitrage).

Value investing seeks to minimise risk of loss and maximise positive future uncertainty.
The research you do today should pay off in 3 yrs time- you gather a pipeline of cheap companies.

Hehe, I think this is exactly my point. That's how companies look like when you don't know exactly what they're doing (as is the case here), so you make a lot of educated guesses. Except the start up cost isn't $20k, the barrier of entry only grows with time, and it's not arbitrage, etc. If you put all those errors together, then that valuation means almost nothing...

On the "inside" so to speak, you get to know exactly what is going on. Like what your competitive edge is, etc. and get a more accurate picture of what is going on.

To me, investing 'outside' of companies without having experience within the company is kind of like a box of black chocolates with some white ones in it. You say.. oh... there's like a 30% chance that this one I pick will be a white chocolate! Whereas, inside the company, you get to look at the chocolate first before making your decision.

[Max T]

I guess my problem is how you can determine "half price", since you aren't completely sure how the company works (I'd assume) and what makes a successful business work.
Well I endeavoured to show you how to determine half price with a simple illustration that, as a businessman, you should be able to relate to.

Hehe, I think this is exactly my point. That's how companies look like when you don't know exactly what they're doing (as is the case here), so you make a lot of educated guesses. Except the start up cost isn't $20k, the barrier of entry only grows with time, and it's not arbitrage, etc. If you put all those errors together, then that valuation means almost nothing...

On the "inside" so to speak, you get to know exactly what is going on. Like what your competitive edge is, etc. and get a more accurate picture of what is going on.

To me, investing 'outside' of companies without having experience within the company is kind of like a box of black chocolates with some white ones in it. You say.. oh... there's like a 30% chance that this one I pick will be a white chocolate! Whereas, inside the company, you get to look at the chocolate first before making your decision.

The chance of six figure investment losses that you've experienced can be eliminated by:
1. investing in businesses you understand well (leaves me with 1/5th of the stock market)
2. as in my illustration, placing heavyweight emphasis on the present and largely ignoring the future
3. recognising accounting tricks
4. being humble (and knowing the numerous biases that distort judgement) and
5. waiting for the company to be offered at half price. This completely negates the need for accurate valution, only for conservative valuation.


You have to keep investing back into the business irrespective of whether it's sliding downhill (unless you go into administration). You have to keep eating the chocolates.
In investing, I can wait and wait until I'm 99% certain that the chocolate (price) is right. Minimise risk and maximise positive uncertainty.

Obviously neither way- own business/ investing- is inherently a better route to freedom, but the pitfalls you describe to having 'imperfect knowledge' of a business can be overcome by an investor.

[Warren_Wong]

The chance of six figure investment losses that you've experienced can be eliminated by:
1. investing in businesses you understand well (leaves me with 1/5th of the stock market)
2. as in my illustration, placing heavyweight emphasis on the present and largely ignoring the future
3. recognising accounting tricks
4. being humble (and knowing the numerous biases that distort judgement) and
5. waiting for the company to be offered at half price. This completely negates the need for accurate valution, only for conservative valuation.

I dunno how well you can do #1 without having actually run the business, which affects basically 3 & 5 (kind of important).


You have to keep investing back into the business irrespective of whether it's sliding downhill (unless you go into administration). You have to keep eating the chocolates.
In investing, I can wait and wait until I'm 99% certain that the chocolate (price) is right. Minimise risk and maximise positive uncertainty.


You can always give up on the business if you don't think the market is there.

Obviously neither way- own business/ investing- is inherently a better route to freedom, but the pitfalls you describe to having 'imperfect knowledge' of a business can be overcome by an investor.


I don't see how... how can you gain experience in something that requires you to actually do it without actually doing it? It's like saying I understand having sex completely without having actually done it.

[Max T]

I don't see how... how can you gain experience in something that requires you to actually do it without actually doing it? It's like saying I understand having sex completely without having actually done it.

You're still in "if you don't run that business, you lack perfect information and should never invest in that business" mode.

I've explained from 2 angles why an investors does not need 'perfect information':
1. by showing a process to reach a perfectly rational and conservative valuation, based on analysing industry, rivals, customers, competitive advantage and financial reports (post 52).
2. by showing how the investor protects her/himself against investment losses possibly coming due to 'imperfect information' (post 56).


Now a third and fourth angle to explain why an investor can make a profit without having perfect information of actually running that specific business.


Third attempt- we'll invert the situation and consider why the actual business owner could not reach a more accurate valuation than an external, regular investor (although accuracy is not actually needed):
a. the business owner is more likely to make a grossly optimistic assessment of their business' value, since they're emotionally attached to the thing.The external investor knows through experience how to take a balanced analysis.
b. the business owner lacks any valuation experience- as much as you know about your business and all the minor little details, you do not know about valuation techniques and errors and sometimes can be blind to the real big issues affecting your business. You value the company based on what's in your head- investors value after speaking with your rivals and customers.
c. the business owner typically lacks the ability to compare their company with alternatives. Investors compare your company with other similar companies. You can only pick the chocolate whereas investors can pick a chocolate, a toffee, a walnut...


Fourth attempt- we'll cover why perfect information is both impossible and useless to investment requirements:
d. the outside investor understands that some information will always be impossible to gain (the business owner will just deceive themselves into thinking they know what their market will do next).
e. the outside investor know that company information decays rapidly over time- information from last month is likely useless now, and information about a year ahead could be very inaccurate.
f. the outside investor recognises that a perfect valuation based on perfect information would require so much time to compile that the opportunity to buy at an attractive price will likely disappear.


Finally, directors buying their own company's shares is a good sign to an outside investor. But we don't automatically mimic the directors and buy also, because directors (who know all the chocolates and had sex with the company!) frequently make terrible investment decisions with their own money.
They are not investors first and foremost, they are operators.

[INTJoe]

Guys, I know it's a little OT, but I have a question about the Roth IRA.

I know you can pull out your Contributions at any time for any reason, tax and penalty-free, but if you put in a $5K Contribution for 2008, and you need to pull it out for a downpayment, can you replenish the $5K by Tax Day 2009 (for 2008)?

For some reason I remember hearing that you could not replenish your Roth IRA once you've pulled out the Contributions. But perhaps I'm thinking of years past. In other words, say you took out $9K next year (07 & 08 Contribution), you could only replenish $5K, and not the full $9K because 4 of that came out of the 2007 contribution.

Any help on this? Thanks!

[Warren_Wong]

You're still in "if you don't run that business, you lack perfect information and should never invest in that business" mode.

I've explained from 2 angles why an investors does not need 'perfect information':
1. by showing a process to reach a perfectly rational and conservative valuation, based on analysing industry, rivals, customers, competitive advantage and financial reports (post 52).
2. by showing how the investor protects her/himself against investment losses possibly coming due to 'imperfect information' (post 56).


Now a third and fourth angle to explain why an investor can make a profit without having perfect information of actually running that specific business.


Third attempt- we'll invert the situation and consider why the actual business owner could not reach a more accurate valuation than an external, regular investor (although accuracy is not actually needed):
a. the business owner is more likely to make a grossly optimistic assessment of their business' value, since they're emotionally attached to the thing.The external investor knows through experience how to take a balanced analysis.
b. the business owner lacks any valuation experience- as much as you know about your business and all the minor little details, you do not know about valuation techniques and errors and sometimes can be blind to the real big issues affecting your business. You value the company based on what's in your head- investors value after speaking with your rivals and customers.
c. the business owner typically lacks the ability to compare their company with alternatives. Investors compare your company with other similar companies. You can only pick the chocolate whereas investors can pick a chocolate, a toffee, a walnut...


Fourth attempt- we'll cover why perfect information is both impossible and useless to investment requirements:
d. the outside investor understands that some information will always be impossible to gain (the business owner will just deceive themselves into thinking they know what their market will do next).
e. the outside investor know that company information decays rapidly over time- information from last month is likely useless now, and information about a year ahead could be very inaccurate.
f. the outside investor recognises that a perfect valuation based on perfect information would require so much time to compile that the opportunity to buy at an attractive price will likely disappear.


Finally, directors buying their own company's shares is a good sign to an outside investor. But we don't automatically mimic the directors and buy also, because directors (who know all the chocolates and had sex with the company!) frequently make terrible investment decisions with their own money.
They are not investors first and foremost, they are operators.


For 1: The process is very flawed without an accurate understanding of how businesses work. Plus, this "process" is available to everyone, thereby not really giving a significant edge. That is why I submit this "process" has a margin of error so big that it's completely useless. (FYI, this isn't random BS, I have taken graduate level investment courses in Stanford and gotten As in them so...)

For 2: I agree with the diversification bit, although, it doesn't mean the business can't diversify within itself also. These issues aren't really different from the person within the business. Business owners are investors themselves after all. This diversifying and protecting from mistake would be more easily done from within the business I'd say.

For 3: Again, you seem to think the business owner is some blockhead who has no financial or valuation knowledge, which is simply completely untrue. If anything, the business owner knows more about the valuation of their own company than anyone else. At least, I definiately know much much more about the valuation of my business than I would've if I was on the outside. It's much easier to value like a widget when you've tried to sell it to 100 people and seen their reactions, or when you've spent months trying to sell your company.

For 4: Again, you're implying that the business owners are somehow misinformed or doesn't have the "experience" that outside investors do, which is just not true. In my mind, business owners and investors are pretty much exactly the same, except the business owner has more information in their particular case.



Come to think of it, I think it depends on what the type of business you're running is. I think I'm thinking more of like Buffet, and you're thinking more like a flower store or something...

[Warren_Wong]

Guys, I know it's a little OT, but I have a question about the Roth IRA.

I know you can pull out your Contributions at any time for any reason, tax and penalty-free, but if you put in a $5K Contribution for 2008, and you need to pull it out for a downpayment, can you replenish the $5K by Tax Day 2009 (for 2008)?

For some reason I remember hearing that you could not replenish your Roth IRA once you've pulled out the Contributions. But perhaps I'm thinking of years past. In other words, say you took out $9K next year (07 & 08 Contribution), you could only replenish $5K, and not the full $9K because 4 of that came out of the 2007 contribution.

Any help on this? Thanks!

Hmmmm, not totally sure about that...

Seems like you should be able to, since it doesn't cost the government anything (it'd be like if you just put it in later...)

[INTJoe]

Yeah the reason I ask is because I'm planning on buying a home in 2009, but if the prices keep falling like they have been in my market, I may pull the trigger earlier and buy in 2008 if I feel it's bottomed out. I was going to throw the max. in for myself and my gf on Jan. 1, but if I can't replenish it if I pull it out, I may keep it out in case I want it for downpayment. Then I'd have time to get the '08 contribution in by Tax day 2009.

I need to find out, because the difference between the return on my Roth investment and FNBO Direct e-savings is obviously pretty substantial. It doesn't seem like it should be a problem, as you say, it wouldn't affect the governement, or anybody really. It just seems like I read that somewhere. I need to ask my INTP investing friend, because he actually took the time to buy a book on Roth IRAs and read it. :)

[Max T]

INTJoe- I know nothing about Roth IRA.

For 1: The process is very flawed without an accurate understanding of how businesses work. Plus, this "process" is available to everyone, thereby not really giving a significant edge. That is why I submit this "process" has a margin of error so big that it's completely useless. (FYI, this isn't random BS, I have taken graduate level investment courses in Stanford and gotten As in them so...)

Thank God the intelligent students from Stanford don't follow the valuation process I describe!

To confess, the valuation process I demonstrated to you was largely learnt from Columbia Business School:
To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
I didn't study there- they likely wouldn't accept me. But these two great sites provide a top quality free education on valuing businesses- you can even download their lectures to take notes from!


Come to think of it, I think it depends on what the type of business you're running is. I think I'm thinking more of like Buffet, and you're thinking more like a flower store or something...
This insult suggests that your mind is firmly closed to my view that an outsider can profit from investing in a company without having perfect information, and that perfect information can actually harm investment returns. Guess that's the end to our discussion.

[Happydayz]

well, I believe in efficient markets. So almost all of my investments are in the S&P 500 or other market following index funds.

I do believe that it is possible to get outsized gains from the market, however it is extraordinarily difficult to do this year to year and over time there is a definite regression to the mean. There are a HANDFUL of people who manage to consistently beat the market, Warren Buffet being the most noticeable. However I'm hesitant to invest in his company given that I have a buy and hold mentality and frankly Mr. Buffet is getting up there in age. No idea what will happen to Berkshire Hathaway once he retires/dies.

[GOD]

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10.

The villagers seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $75 and when the man returns from the city, you can sell it to him for $100 ."

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!! !

Welcome to the "Stock" Market!!!

[Max T]

well, I believe in efficient markets. So almost all of my investments are in the S&P 500 or other market following index funds.

Paradoxically, the more money that goes into index funds, the more inefficient the market becomes, as fewer and fewer investors bother to perform fundamental analysis.

So, if everyone indexed, all share prices would be fixed at that price forever since there'd be no-one to move them!


I do believe that it is possible to get outsized gains from the market, however it is extraordinarily difficult to do this year to year and over time there is a definite regression to the mean.
Agree- the investor's average annual % return will revert to market mean over the decades, as your sum eventually represents a greater % of the market and you have to invest in the efficiently-priced blue chips (unless you buy small businesses outright as Buffett).

Until that point, the investor's aggregate (sum) % return will logically widen from the market aggregate % return (albeit at an increasingly slower annual rate).

And so the investor's annual monetary gain will avert from the annual gain produced by the market index, at an increasing rate ('though not exponentially).



Even efficient market supporter William Sharpe (1990 Nobel winner) admitted:
"I still think it's prudent to assume that the market is pretty close to efficient in terms of pricing and risk and return and all that”.
Pretty close, say 98% of the time, but based on power of compounding, I think it's worth the effort to exploit the 2% when the market gets it completely wrong.

[INTJoe]

Man, those villagers are pretty dumb.

[Warren_Wong]

This insult suggests that your mind is firmly closed to my view that an outsider can profit from investing in a company without having perfect information, and that perfect information can actually harm investment returns. Guess that's the end to our discussion.

It's really not an insult. That's just my perception of how you see businesses. I was just making a point that you seem to see businesses differently from me - which is just a vehicle for investing with more information.

As for perfect information, you can't get harmed by having more information. You can always ignore it. If you aren't able to do that, that's not the information's fault...

[Warren_Wong]

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10.

The villagers seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $75 and when the man returns from the city, you can sell it to him for $100 ."

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!! !

Welcome to the "Stock" Market!!!

Hahaha!! Good one :-P

That's why you need to know where the $$ is coming from hehe!

[banzai]

Unprofessionally, but yes

Why wouldn't anyone? It seems silly.

[GOD]

Man, those villagers are pretty dumb.

The General public is pretty dumb.

They buy shares in companies when they don't even understand the financials. They buy shares in IPO's when the advisor is also the recipient of an underwriting fee for the placement...

My guess is that there's going to be a huge shake out in the Chinese Stock market and if that happens in 2008 coupled with the US slowdown... there will be some serious blood letting...

[Max T]

My guess is that there's going to be a huge shake out in the Chinese Stock market and if that happens in 2008 coupled with the US slowdown... there will be some serious blood letting...
Absolutely.

In the late 1960s Polaroid had a price/earnings multiple of 100 (in 100yrs the earnings will amount to the price, all things equal)- next year dropped by 90%

In the 2001 dot.com boom, the likes of Webvan.com went to 100 p/e- now gone.

Last month, Alibaba.com (like a mediocre ebay for business people in China) launched and had a 300 p/e on the Hong Kong stock market.

Shanghai index attached:

[Henry]

My guess is that there's going to be a huge shake out in the Chinese Stock market and if that happens in 2008 coupled with the US slowdown... there will be some serious blood letting...

Won't be as bad as you think. Bernake is a dove. China is, from a fundamental perspective, macroeconomically very solid, even if they have an absurd stock bubble that makes the US tech bubble diminutive by comparison. Worst case is a slowdown in the US, which would help get rid of the inflationary pressures we have, and Chinese recession, which would likely be disinflationary in the US as well.

[Mason]

To summarize all of the above posts... Two words: Index funds.

[elsdfr]

To summarize all of the above posts... Two words: Index funds.



By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

If the shoes fit, wear them.. by all means. But one size doesn't fit all, especially in the investment world.

[Cyrus]

Hello all,

you guys might wanna check out this link
To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

apparently Buffet, Soros and other top notch people are INTJ or other NT type cousins.

I'm not too sure about indexing and market efficiency. To be perfectly honest, after sitting on a dealing desk during internship, I'm not quite a believer of efficient markets. The chief's biggest take was $1.6 billion in ONE day.
He also made $30m for his personal account in a span of 2 weeks. This was 2 months back. Efficient? I'm not sure. Not for him @ least.

"You can't beat the market" Sounds like a cop out to me. Paul Samuelson, founding father of the Efficient Market Hypothesis (EMH) and today's school of [can't rememb e exact word. but it means math based] economics, chucked a ton of $$$ with Buffet just before embarking on his EMH rant to the world.

IMHO: Markets are made of people (controlling $1k or $1000k, but still people) People are not perfect. We all have tempers, flaws, tired days, etc.
Markets can't be perfect, but instead reflect a good amount of biases inherent in human nature.
I believe the key to making money in the markets is personal mastery + a good dose technical knowledge.

One size doesn't fit all, but as Bruce Lee said, "Absorb what is useful, discard what is useless and add what is specifically your own"
Takes alot of effort, but I think that's something an INTJ doesn't quite bother with as long as there's mental challenge and a big fat reward at the end.

Cy

[Henry]

apparently Buffet, Soros and other top notch people are INTJ or other NT type cousins.

Buffet is not an N. He's an S. All the way. He has a well developed macro sense, but he's all about what's actual, not about what's possible. Simple words. Transparency. Makes or breaks deals on details. Kiersey has him as model ISTJ and I agree 100%.

[TheLoneINTJ]

Yes I enjoy investing and closely follow the 'value' investing discipline.
The UK market is quite overpriced (bull run for the past 5 yrs) so very few companies are selling at half price at the moment, so mainly in cash, waiting for the next correction/ crash.

I waffle here:
To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

... about value investing and how it fits the INTJ mentality very well.

Value investing requires going against the herd, and by buying $1 companies for 50 cents, you not only minimise risk (of further decline) but also maximise gains.
And for small investors with comparatively little money, we can invest where the market is most inefficient and therefore opportunities abound- the smaller companies.

The stock market system, big picture analysis of companies and behavioural finance aspects are f