Asked what he is optimistic about, Warren Buffett reflects on some key points of progress over his lifetime and suggests some things we might all be thankful for. “If I’d been born 200 years ago my life would have been just a tiny, tiny, tiny fraction of what it is now,” he noted, continuing: “I tell the students [they] are actually living better than John D. Rockefeller Senior lived when I was born.””
Buffett’s optimism persists even where he sees challenges, such as in education: “I think students are generally throughout the world getting a better education, certainly than they did when I was getting my education,” while acknowledging that “we like to say we have equality of opportunity in this country but unless everybody has a shot at a similar education there is no equality of opportunity. We’ve got a long way to go on that.” Asked about deficits, Buffet commented: “Our output per capita goes up year after year. How it gets divided is another matter. But if you look at real GDP per capita it’s six times what it was when I was born.”
Going forward, Buffett suggested, “even at 2% GDP [growth annually] that’s over 1% per capita and in one generation that means the next generation is going to live 25% better than we live per capita in the United States .” Although he acknowledged distributional issues, he also maintained that progress is made on such issues over time in the United States.
It’s extremely common to hear investment commentators talk about “growth” and “value” as though they are polar opposites. But Validea CEO John Reese says not to buy that false notion.
“When it comes to investing’s great ‘either/or’ – that is, the growth or value debate – you can have your cake and eat it, too,” Reese writes for Canada’s Globe and Mail. “That’s because the great growth versus value debate is, in fact, a false choice. … Confining yourself to either value stocks or growth stocks is only limiting your portfolio’s potential. At certain times, you’ll be able to find more attractive growth-type picks; at other times, the market will be offering more value-type plays. Having a portfolio of growth-focused and value-focused stocks can also help smooth your returns over the long haul, since the two styles take turns leading the market.”
Reese says the “fallacy of the growth-versus-value notion goes even deeper. … That’s because implicit in the debate is the idea that any given stock is either a value stock or a growth stock, and that’s just not true.” He highlights a pair of stocks that currently get approval from the growth strategy he bases on the writings of renowned quantitative investor James O’Shaughnessy — and a separate value strategy he bases on O’Shaughnessy’s writings. One of them: AXA, a Paris-based financial company that’s involved in life insurance, property and casualty insurance, asset management and banking.
How do Apple, Facebook, Berkshire Hathaway, and other market giants stack up against the strategies used by history’s greatest investors? In his latest column for Forbes.com, Validea CEO John P. Reese takes a look at how 10 market titans fare, and the results might surprise you.
Reese notes that, historically, small stocks have beaten large stocks by a significant margin. Small stocks have an advantage because they can fly under the radar in a way that larger stocks cannot, and they usually come with an added risk premium because they tend to be less stable and more susceptible to bankruptcy. But, he says, that doesn’t mean you should ignore the big guys.
“Mega-cap stocks have advantages of their own,” Reese writes. “Their size and name recognition can give them what [Warren] Buffett would call ‘durable competitive advantages’ over their competitors. They also tend to be less volatile and safer plays during tough times. … And often times the big guys will offer nice dividends or implement major share buyback plans because of their more stable cash flows, making up for the slowing of growth that inevitably occurs when a company gets to be as big as these firms.”
So how do the 10 largest companies by market capitalization score using Reese’s Guru Strategies, which are based on the approaches of Buffett and other great investors? Apple, for one, fares quite well, earning strong interest from Reese’s Buffett- and Peter Lynch-based models. Facebook, on the other hand, misses the mark. To see how the others stack up, click here.
Warren Buffet’s strategy has changed over the years because the funds he manages have grown, according to Professor George Athanassakos article in Canada’s Globe & Mail. Both the old and new Buffett approaches are types of value investing but they differ in key ways. The early-career Buffet followed the advice of his professor and the father of value investing, Ben Graham. He picked stocks with low P/E (or P/B) ratios that, upon closer evaluation, were found to have an intrinsic value at least a one-third higher than the stock price. Choosing such “cigar butt” stocks is an opportunistic approach suitable for short-term investment, and is the classic meaning of “value investing.”
With greater assets under management, Athanassakos writes, Buffet has moved to a different form of value investing. He buys larger companies with higher than typical P/E (or P/B) values that “possess significant competitive advantages that are sustainable in the long term.” This leads to Buffet’s well-known long holding periods because, given a sustainable competitive advantage, “chances are that their intrinsic value will be ahead of the stock price” over the long term as well. According to Athanassakos, value investing strategies can come in “several variations”, but the deep value, cigar butt style offers investors “offers many more profitable opportunities than the high quality, competitive-advantage-driven investing approach.”
Value investor and author Guy Spier discusses his philosophy on investing, which includes taking a long term perspective, not reacting to news and pundit predictions and keeping an arm’s length away from Wall Street (Spier lives in Zurich). Mr. Spier’s views are greatly influenced by that of Warren Buffett. He believes that Buffett, who lives in Omaha and works out of a simple office building “could not be further away from the vagaries of the stock market”. When markets are volatile, Spier says, investors would be better off not making any changes to their investment portfolios and rather engage in “calm contemplation” activities — going for a walk, reading or doing something that takes their mind off of the markets.
Spier drives home his point by referencing a recent Fidelity study, which “found that the portfolios of dead people perform better than live people. It is an astonishing result—but one that follows from the simple rule that for the vast majority of the time, the right thing to do with a stock portfolio is absolutely nothing—something that dead people are better at accomplishing than live people.”
Warren Buffett made headlines recently with Berkshire Hathaway’s acquisition of Precision Castparts. And in his latest Forbes.com column, Validea CEO John Reese talks about why the firm is a “Buffett-esque” company.
Warren Buffett says that his favorite holding period for a stock is forever. But in his latest column for Canada’s Globe and Mail, Validea CEO John Reese says that good investors, including Buffett, are willing to sell stocks in shorter periods, too.