Can Buffett beat the market, now?

Out of curiosity about Buffett's methods and their effectiveness I
looked up the Berkshire Hathaway (BRK-A) share price history on
Finance-Yahoo. Warren Buffett is one of the few, if not the only,
example of an investor beating the market long term and is widely quoted
to have made 24% compounded annually over a 35 year period, up to about
the end of 1996, I think. From the F-Y chart, from late 1991 to mid 1998
BRK-A went from 5,550 to 80,000, a ratio of 14.5 in just over 8 years or
37% annually. Amazing, but could he keep it up?

With the ending of the bull market B-H seems to have come slightly off
the rails. From 80,000 in mid-1998 it has got to about 89,000 now, or
11% more in another seven and a half years. This is only 1.4% average
gain annually for this recent period. In the same time the S&P500 has
gone from 1,178 to 1,250 or an average gain of 0.8% per annum. Neither
B-H nor the S&P500 beats just putting your money in the bank and
collecting interest over recent years.

If Buffett himself can't make any money out of his methods in present
conditions, what hope for readers of Buffettology books?

Re: Can Buffett beat the market, now?

David Wilkinson <> wrote:
> Out of curiosity about Buffett's methods and their effectiveness I
> looked up the Berkshire Hathaway (BRK-A) share price history on
> Finance-Yahoo. Warren Buffett is one of the few, if not the only,
> example of an investor beating the market long term and is widely quoted

This is really a huge myth. Plenty of folks consistently beat the market.
Lots of hedge funds and trend traders have been around since the late 70's
and have consistently done >20%. (Granted you need a few million to invest
with them).

Dodge & Cox have run their stock mutual fund (now closed) for decades and
always beat the market.

There are also plenty of other investors who understand the market is
cyclical that handily "beat the market".

> If Buffett himself can't make any money out of his methods in present
> conditions, what hope for readers of Buffettology books?

One of the keys to value investing is being patient and waiting things
out.

Buffet is sitting in a lot of cash and is only buying when he thinks
it's the right time to buy. So if you're a believer in value investing
you just have to wait.

-Mike

Re: Can Buffett beat the market, now?

David Wilkinson wrote:
> Warren Buffett is one of the few, if not the only,
> example of an investor beating the market long term

Buffett himself would argue that there are plenty of investors who beat
the market long-term. Academics just choose to ignore them because
they contradict the convenient theories. It's not easy, but a smart,
disciplined investor can do it. Buffett has written about all the
Graham-Dodd investors who outperform the market, and that's only one
group.

As for watching the share price of Berkshire-Hathaway, I'd caution you
not to pay too close attention to relatively short-term results. Keep
in mind that you're observing not only Buffett's investment success or
failure, but also the widening or narrowing of the premium people pay
for BRK shares.

I wouldn't examine Buffett's performance in anything less than 10-year
chunks.

Darin

Re: Can Buffett beat the market, now?

Loose On the Lead wrote:
> David Wilkinson wrote:
>
>>Warren Buffett is one of the few, if not the only,
>>example of an investor beating the market long term
>
>
> Buffett himself would argue that there are plenty of investors who beat
> the market long-term. Academics just choose to ignore them because
> they contradict the convenient theories. It's not easy, but a smart,
> disciplined investor can do it. Buffett has written about all the
> Graham-Dodd investors who outperform the market, and that's only one
> group.
>
Mike S said there were plenty of successful investors too. Can either of
you name a few, not just people who have been lucky for a year or so but
consistently beaten the market by large amounts over long periods, like
10 years by your criterion? Not many of these seem to be in the
thousands of mutual fund managers, very few of whom consistently beat
the market according to Malkiel.

> As for watching the share price of Berkshire-Hathaway, I'd caution you
> not to pay too close attention to relatively short-term results. Keep
> in mind that you're observing not only Buffett's investment success or
> failure, but also the widening or narrowing of the premium people pay
> for BRK shares.
>
> I wouldn't examine Buffett's performance in anything less than 10-year
> chunks.
>
> Darin
>
If 7 1/2 years is relatively short term to you then you must be a lot
younger than me! Anyway it all sounds a bit like special pleading to me
to say you have to continue something indefinitely that is not working
until it eventually does work, if ever. My view is that if something
does not work for 7 1/2 years it is a dead duck. In fact I would
probably decide that in a lot less than 7 1/2 years. How about 7 1/2
months or weeks? If it is not working it is time to try something else!

It seems more likely that Buffett initially lived in an era when his
methods worked, when simple brands like Coca Cola, Geico and the
Washington Post were growing strongly. Perhaps that era is past and the
things that have done well more recently, the Microsofts, Dells,
Amazons, Oracles, Googles etc. were shunned by Buffett as too complex
for him to understand (his words, I think, not mine).

Re: Can Buffett beat the market, now?

David Wilkinson <> wrote:

> Mike S said there were plenty of successful investors too. Can either of
> you name a few, not just people who have been lucky for a year or so but
> consistently beaten the market by large amounts over long periods, like
> 10 years by your criterion? Not many of these seem to be in the
> thousands of mutual fund managers, very few of whom consistently beat
> the market according to Malkiel.

John Templeton
Jim Rogers
Warren Buffet
John W Henry
Ed Sekoyota
Dodge & Cox
Bob Brinker + a few other market timers
etc..
etc..
etc...

2 trading systems that beat the market:

- trend following (pick up the book by Michael Covel)
- mechanical investing

I know some people who do MI and they easily beat the market by a few
percentage points every year. Personally - I don't have the time or
energy to do it.

One thing all these people have is emotional detachment from their
trades & a chorus of critics always chiming in about their imminent
demise.

I've said it before - we're in a secular bear market. Buffet will make
some brilliant moves in the coming years.

My shares of BRKB are up about 10% since I bought them.. Up $30 today.
Not bad IMO!

-Mike

Re: Can Buffett beat the market, now?

David Wilkinson wrote:
> Can either of
> you name a few, not just people who have been lucky for a year or so but
> consistently beaten the market by large amounts over long periods, like
> 10 years by your criterion?

Ironically, the very academics who have claimed it can't reliably be
done have provided us with a huge example of it--academic value (e.g.,
high book-to-market). It beats the market more often than the market
beats it, it has a higher overall return for just about any extended
period you want to look at, and it works in different markets in
different countries. The explanation for it is supposedly that it's
higher risk, but no one has ever demonstrated that it's higher risk,
primarily because no one has adequately defined risk. In my opinion,
no one ever will in a way that will explain the higher return of value
stocks.

You could also Google for "superinvestors buffett doddsville" and see
what you turn up.

There are also all those market makers who could not be turning a
profit if they weren't beating the market in the sense of turning a
profit from inefficiencies.

You can find many, many examples of trading strategies like the above
that have worked forever, if only you're willing to acknowledge them.

Darin

Re: Can Buffett beat the market, now?

Loose On the Lead <> wrote:
> You could also Google for "superinvestors buffett doddsville" and see
> what you turn up.
> There are also all those market makers who could not be turning a
> profit if they weren't beating the market in the sense of turning a
> profit from inefficiencies.
> You can find many, many examples of trading strategies like the above
> that have worked forever, if only you're willing to acknowledge them.

I think anyone can pull it off if they pay close attention to market cycles
and diversify into commodities when needed.

Re: Can Buffett beat the market, now?

Mike S wrote:
> Lots of hedge funds and trend traders have been around since the late 70's
> and have consistently done >20%. (Granted you need a few million to invest
> with them). Dodge & Cox have run their stock mutual fund (now closed) for decades and
> always beat the market.
>
> There are also plenty of other investors who understand the market is
> cyclical that handily "beat the market".
>
> Buffet is sitting in a lot of cash and is only buying when he thinks
> it's the right time to buy. So if you're a believer in value investing
> you just have to wait.

Apply something of RPN to that - If a time ever existed when it is most
oportune to buy, then cash is in evidence; Savers in waiting therefore
are value oriented investors. The alternative is to be riding out the
sidelines during favorable momentum - potentials of an equation between
balances, risk aversion and production composition have surely to
fashion, in order to live at a 20%+ style. There's nothing sacred about
risk or luck: I have only to be hesitant in appling the same measure to
a knowledge landmarks and notables of market capitalization may boast.
As for Dodge and Cox Balanced, I'm sorry to say it's open, that you
didn't serve a better reminder for why I continue to hold; together,
with an hedge analogy I also do hold, Analytic Defensive Equity Instl
(ANDEX), which is effectively closed ($250K minimum), perhaps there's
an extensibly interesting extrapolation in my misgivings.



- And men fancied he was dusted with gold. -Herodotus

Re: Can Buffett beat the market, now?

Flasherly <> wrote:
> Apply something of RPN to that - If a time ever existed when it is most
> oportune to buy, then cash is in evidence; Savers in waiting therefore
> are value oriented investors. The alternative is to be riding out the
> sidelines during favorable momentum - potentials of an equation between
> balances, risk aversion and production composition have surely to
> fashion, in order to live at a 20%+ style. There's nothing sacred about
> risk or luck: I have only to be hesitant in appling the same measure to
> a knowledge landmarks and notables of market capitalization may boast.
> As for Dodge and Cox Balanced, I'm sorry to say it's open, that you
> didn't serve a better reminder for why I continue to hold; together,
> with an hedge analogy I also do hold, Analytic Defensive Equity Instl
> (ANDEX), which is effectively closed ($250K minimum), perhaps there's
> an extensibly interesting extrapolation in my misgivings.
>
>

You mean DODGX (which is closed):



(see how nicely it did in 2000?)


Either fund is a winner IMO.

Why do you say ANDEX is closed? Appears to be rather open to me. Is it set to be a
closed fund end of year or in the coming months?

-Mike

Re: Can Buffett beat the market, now?

No - I'm in DODBX, which is balanced and has been for some time. It's
also been an dull performer to me for the last year - very low
profit-remains exposure. Doesn't appear to have strayed far of late
from DODGX, either. I meant by ANDEX effectively closed, as who do you
know that can afford to go in at $250,000. Wish I could say I am, but
I was grandfathered in from a prior entry level point. That's what I
mean when you say look at 2000. No way I can tear myself away from 3,
6 month charts, at most a year these days. I want it and want it now.
I bought DODBX years ago when I read only here and it was recommended
fare. It made money, but now it's sort of a fond token. ANDEX is a
different animal - hedging, a convoluted but interesting pit against
all overriding issues.

Mike S wrote:
> You mean DODGX (which is closed):
>
>
>
> (see how nicely it did in 2000?)
>
>
> Either fund is a winner IMO.
>
> Why do you say ANDEX is closed? Appears to be rather open to me. Is it set to be a
> closed fund end of year or in the coming months?
>
> -Mike

No - I'm in DODBX, which is balanced and have been for some time. It's
also been an dull performer to me for the last year - keep it at very
low exposure. Doesn't appear to have strayed far of late from DODGX,
either. I meant by ANDEX effectively closed, as who do you know that
can afford to go in at $250,000. Wish I could say I am, but I was
grandfathered in from a prior entry level point. That's what I mean
when you say look at 2000. No way I can tear myself away from 3, 6
month charts, at most a year these days. Then, yes, but that changed
to I want it and want it now (in relatively larger amounts). I bought
DODBX years ago when I read only here and it was recommended fare. It
made me money, but why it doesn't now is up for grabs -- a fond but
relegated token of yesteryear. ANDEX is a different animal - hedging,
a convoluted but refreshing pit against all overriding issues. I
bought it when I was scared as hell coming out of Russia, but now I can
afford to confidently say that its 15% YTD of course can't be
incidental to my criteria. . .least while a lull continues.

Re: Can Buffett beat the market, now?

Mike S wrote:
> David Wilkinson <> wrote:
>
>
>>Mike S said there were plenty of successful investors too. Can either of
>>you name a few, not just people who have been lucky for a year or so but
>>consistently beaten the market by large amounts over long periods, like
>>10 years by your criterion? Not many of these seem to be in the
>>thousands of mutual fund managers, very few of whom consistently beat
>>the market according to Malkiel.
>
>
> John Templeton
> Jim Rogers
> Warren Buffet
> John W Henry
> Ed Sekoyota
> Dodge & Cox
> Bob Brinker + a few other market timers
> etc..
> etc..
> etc...
>
> 2 trading systems that beat the market:
>
> - trend following (pick up the book by Michael Covel)
> - mechanical investing
>
Is Covel's book any use to investors, as opposed to day traders, hedge
funds, shorting etc.?

I looked up Mechanical Investing on Google and it came up with
Investopaedia which did not seem to define it at all It just covered the
whole of TA in a vague way without any real advice at all or proof that
it works. What is "Mechanical Investing" in detail?

> I know some people who do MI and they easily beat the market by a few
> percentage points every year. Personally - I don't have the time or
> energy to do it.
>
> One thing all these people have is emotional detachment from their
> trades & a chorus of critics always chiming in about their imminent
> demise.
>
> I've said it before - we're in a secular bear market. Buffet will make
> some brilliant moves in the coming years.
>
> My shares of BRKB are up about 10% since I bought them.. Up $30 today.
> Not bad IMO!
>
> -Mike

Re: Can Buffett beat the market, now?

Flasherly <> wrote:
> No - I'm in DODBX, which is balanced and has been for some time. It's
> also been an dull performer to me for the last year - very low
> profit-remains exposure. Doesn't appear to have strayed far of late
> from DODGX, either. I meant by ANDEX effectively closed, as who do you
> know that can afford to go in at $250,000. Wish I could say I am, but
> I was grandfathered in from a prior entry level point. That's what I
> mean when you say look at 2000. No way I can tear myself away from 3,
> 6 month charts, at most a year these days. I want it and want it now.
> I bought DODBX years ago when I read only here and it was recommended
> fare. It made money, but now it's sort of a fond token. ANDEX is a
> different animal - hedging, a convoluted but interesting pit against

Ahh, I see. My mistake. Of all the Dodge & Cox funds DODFX seemed like
the best for me.

ANDEX is effectively closed off for me too. Given their strategy I'd
expect them to perform better during a bear market then they did.

-Mike

Re: Can Buffett beat the market, now?

Mike S wrote:
> Loose On the Lead <> wrote:
> > You can find many, many examples of trading strategies like the above
> > that have worked forever, if only you're willing to acknowledge them.
>
> I think anyone can pull it off if they pay close attention to market cycles
> and diversify into commodities when needed.

I think I agree with you literally but not in spirit. Most people do
not realistically have the termperament to be successful active
investors. Even if they did, while "anyone" (of them) could pull it
off, they couldn't all do it simultaneously.

Successful investors are necessarily rare. There might be large
numbers of them in an absolute sense, but only because the total number
of investors overall is itself so much larger.

Darin

Re: Can Buffett beat the market, now?

Loose On the Lead wrote:
> David Wilkinson wrote:
> > Warren Buffett is one of the few, if not the only,
> > example of an investor beating the market long term
>
> Buffett himself would argue that there are plenty of investors who beat
> the market long-term. Academics just choose to ignore them because
> they contradict the convenient theories. It's not easy, but a smart,
> disciplined investor can do it. Buffett has written about all the
> Graham-Dodd investors who outperform the market, and that's only one
> group.

By and large, BH is not exploiting the 'value anomaly' in the
statistical sense that academics use it (low price to book). His
business franchise valuation approach is closer to a private equity
fund.


>
> As for watching the share price of Berkshire-Hathaway, I'd caution you
> not to pay too close attention to relatively short-term results. Keep
> in mind that you're observing not only Buffett's investment success or
> failure, but also the widening or narrowing of the premium people pay
> for BRK shares.

Running at a substantial premium to book NAV the last few years, I
believe.

>
> I wouldn't examine Buffett's performance in anything less than 10-year
> chunks.

Buffett is also very much a private equity investor: taking over whole
companies and then running them (Netjet, GEICO, utility cos. etc.).
Nothing, AFAIK, in efficient markets theory says that a private equity
investor cannot beat the market.

The challenge for B-H is to keep doing this as it gets bigger. This is
hard: it doesn't invest much outside the US economy, for example.

Re: Can Buffett beat the market, now?

"Mike S" <> wrote

> ANDEX is effectively closed off for me too. Given their strategy I'd
> expect them to perform better during a bear market then they did.
>
> -Mike

The fund is available in both A and C shares for $2,500 initial investment.
Long/short funds are also available from American Century, GAM Gabelli,
Gartmore, and others.

Re: Can Buffett beat the market, now?

David Wilkinson <> wrote:
>
> I looked up Mechanical Investing on Google and it came up with
> Investopaedia which did not seem to define it at all It just covered the
> whole of TA in a vague way without any real advice at all or proof that
> it works. What is "Mechanical Investing" in detail?

Well, Trend Following talks more about the traders who do trend following
and their investment philosophies. The stuff is out of my league.
I don't do options, create screens & model behavior in the markets. Hedge
fund type investing is out of my league.

Mechanical Investing - I learned about it from a Motley Fool board. A friend
of mine started doing MI in 98 and he's beat the market. He's on the boards
and says that people who follow MI beat the market.





-Mike

Re: Can Buffett beat the market, now?

darkness39 <> wrote:
> The challenge for B-H is to keep doing this as it gets bigger. This is
> hard: it doesn't invest much outside the US economy, for example.

Until now. He's moved into China, invested personally into Korea and is
sitting on a lot of cash that most of us can only speculate about.

Re: Can Buffett beat the market, now?

Loose On the Lead <> wrote:
> I think I agree with you literally but not in spirit. Most people do
> not realistically have the termperament to be successful active

Well, check back with me in 20yrs and I'll let you know if I managed to
get myself into the elite circle.

-Mike

Re: Can Buffett beat the market, now?

Mike S wrote:
> David Wilkinson <> wrote:
>
>>I looked up Mechanical Investing on Google and it came up with
>>Investopaedia which did not seem to define it at all It just covered the
>>whole of TA in a vague way without any real advice at all or proof that
>>it works. What is "Mechanical Investing" in detail?
>
>
> Well, Trend Following talks more about the traders who do trend following
> and their investment philosophies. The stuff is out of my league.
> I don't do options, create screens & model behavior in the markets. Hedge
> fund type investing is out of my league.
>
> Mechanical Investing - I learned about it from a Motley Fool board. A friend
> of mine started doing MI in 98 and he's beat the market. He's on the boards
> and says that people who follow MI beat the market.

Well, the UK Motley Fool certainly do not encourage mechanical investing
any more. They used to run a portfolio using O'Higgins' "Beat the Dow"
methods but applied to the FT30 shares. This did so badly over a number
of years that they closed it down. The Foolish Four is not encouraged
either.

The only thing they support in this line is a "Value" portfolio called
the PYAD26, which is a set of stocks that pass a screen or screens and
so is Mechanical Investing in a sense. I am not sure there is not a
subjective element in there too.

They do encourage buying and holding a broad market index fund, which is
also mechanical.
>
>
>
>
>
> -Mike

Re: Can Buffett beat the market, now?

Mike S wrote:
> ANDEX is effectively closed off for me too. Given their strategy I'd
> expect them to perform better during a bear market then they did.

Yahoo has ANDEX listed as $250K min, whereas my brokerage has it
closed. Class shares may apply directly from the source, though I
haven't been there, or looked through comparisons between hedge fund
classifications. I'd as soon work within sector momentum, unless I'm
being pushed back against the MMA/CD wall - where I could attempt to
engage ANDEX as last-ditch retrenchment line. I'm not sure how
institutional hedging is laid out - but something I read left an
impression hedges operate from the set objective, a percentage profit,
as an aim apart from market momentum. One step further over hedging
would seem directly contrarian - haven't any experience there, either.

Re: Can Buffett beat the market, now?

Mike S wrote:
> Loose On the Lead <> wrote:
> > I think I agree with you literally but not in spirit. Most people do
> > not realistically have the termperament to be successful active
>
> Well, check back with me in 20yrs and I'll let you know if I managed to
> get myself into the elite circle.

First of all, reading what I wrote, I'm not clear on what a
termperament is. :-(

Second, just a question, not implying anything...do you expect to be
practicing the same investment strategy 20 years from now?

Darin

Re: Can Buffett beat the market, now?

Flasherly wrote:
>
> Mike S wrote:
> > ANDEX is effectively closed off for me too. Given their strategy I'd
> > expect them to perform better during a bear market then they did.
>
> Yahoo has ANDEX listed as $250K min, whereas my brokerage has it
> closed. Class shares may apply directly from the source, though I
> haven't been there,

Yahoo also lists the minimum at $500 for IRAs, so if Yahoo were correct,
then these shares would certainly be open to some new retail investors.

But while Yahoo's financial data are great for something quick and
dirty, they are not especially reliable. For example, the $500 minimum
for IRAs is wrong.

Sometimes funds will close through third parties but remain open for
direct investors (e.g. Buffalo Small Cap,
); however ANDEX is closed to all
new accounts. Always go to the source (the prospectus):

"Effective September 1, 2005, Institutional Class Shares of the Analytic
Defensive Equity Fund (the "Fund") will be closed to new investors."

(pdf p. 2)

The expense listed is also wrong (though Morningstar has the same
error). Yahoo says that it is 0.99%. The prospectus says:

"Total Annual Fund Operating Expenses* 1.70%.

* The actual total annual fund operating expenses ... were less ...
because the adviser voluntarily agreed to waive all or a portion of its
fees ... to keep the total annual operating expenses from exceeding a
cap of 0.99%. Effective April 1, 2005, the adviser increased this
voluntary cap ... to 1.35%. The adviser may discontinue all or part of
its waiver at any time."

So the current expense ratio, after waiver, is 1.35%. Since all else is
equal, one may reasonably expect performance to be 0.36% worse than it
would have been had the original waiver been maintained.

--
Mark Freeland

Re: Can Buffett beat the market, now?

Loose On the Lead <> wrote:
> Second, just a question, not implying anything...do you expect to be
> practicing the same investment strategy 20 years from now?

I just don't have the interest to day trade, "mechanically invest" or
even to go out and buy a lot of individual stocks. I want to do better
than the market but even if I don't alway do that I won't be losing any
sleep over it as long as I'm making decent gains.

I would imagine that I'm still invested abroad, probably not in commodities
and will have a more bullish outlook on things in a few years (perhaps
not 20, I haven't thought out that far ahead).

-Mike

Re: Can Buffett beat the market, now?

Mark Freeland wrote:
> > Yahoo has ANDEX listed as $250K min, whereas my brokerage has it
> > closed. Class shares may apply directly from the source, though I
> > haven't been there,

> But while Yahoo's financial data are great for something quick and
> dirty, they are not especially reliable. For example, the $500 minimum
> for IRAs is wrong.

> "Total Annual Fund Operating Expenses* 1.70%. * The actual total annual fund operating expenses ... were less ... because the adviser voluntarily agreed to waive all or a portion of its fees ... to keep the total annual operating expenses from exceeding a
cap of 0.99%. Effective April 1, 2005, the adviser increased this
voluntary cap ... to 1.35%. The adviser may discontinue all or part of
its waiver at any time."

>So the current expense ratio, after waiver, is 1.35%. Since all else is equal, one may reasonably expect performance to be 0.36% worse than it would have been had the original waiver been maintained.

Yahoo's total package is nice because of its graphs, plotting my
favorite movers' NAVs, one against another, alongside a nicely
integrated newsfeed, which I'd prefer to be more selectable for a daily
business agenda within specific issues. But, I find Yahoo insular
while looking over other services for a broader rating among sector
groupings. Not enough chasing-of- the-winners between me and Yahoo.
Where Yahoo is especially Quick&Dirty is for the moment-to-moment feel
over a market spread. I think it's amazing - too much more, and I
suspect investing might become overshadowed, overall, in matrices of
measures. I prefer, conditionally, to take on far more issues than is
usually recommended, and to give credit where it's due, I can't see
myself "broadly" investing without Yahoo (without a similar system for
gathering and organizing information).

Good advice to apply to anything particular about a fund prospectus and
3rd-party website distributions (even my broker has the ER at 1.23% for
ANDEX).

Re: Can Buffett beat the market, now?

David Wilkinson <> wrote:
> Well, the UK Motley Fool certainly do not encourage mechanical investing
> any more. They used to run a portfolio using O'Higgins' "Beat the Dow"
> methods but applied to the FT30 shares. This did so badly over a number
> of years that they closed it down. The Foolish Four is not encouraged
> either.

Check out siliconinvestor.com, fool.com and some other message board oriented
US sites about mechanical investing. Maybe the info is more easily shared in
the states.

Mechanical Investing is the way to go. I lurk here but that happy-guy who is
posting with hie web URL has the right approach with things.

Mechanical Investing is basically you come up with a plan (perhaps a seasonal
approach) and you just issues the buys and sells based on some key indicators
(time of the year for example). It's completely "mechanical" in that sense.

Whatever system you come up with you can back test with stock market data.
See just how well you would've done over all these years!

I'm a big believer in mechanical investing.

-Roger

Re: Can Buffett beat the market, now?

Roger wrote:
> David Wilkinson <> wrote:
>
>>Well, the UK Motley Fool certainly do not encourage mechanical investing
>>any more. They used to run a portfolio using O'Higgins' "Beat the Dow"
>>methods but applied to the FT30 shares. This did so badly over a number
>>of years that they closed it down. The Foolish Four is not encouraged
>>either.
>
>
> Check out siliconinvestor.com, fool.com and some other message board oriented
> US sites about mechanical investing. Maybe the info is more easily shared in
> the states.
>
> Mechanical Investing is the way to go. I lurk here but that happy-guy who is
> posting with hie web URL has the right approach with things.
>
> Mechanical Investing is basically you come up with a plan (perhaps a seasonal
> approach) and you just issues the buys and sells based on some key indicators
> (time of the year for example). It's completely "mechanical" in that sense.
>
> Whatever system you come up with you can back test with stock market data.
> See just how well you would've done over all these years!
>
> I'm a big believer in mechanical investing.
>
> -Roger

OK, you mention a seasonal approach, so I looked at the "Best 6-months
method" from the book "All about Market Timing" by Leslie N Masonson,
page 103. This is the "Sell in May and go away; Buy back in on St
Swithun's day" method.

Applying this to the S&P500 for the year to date

Jan 3, buy @ 1202.1

Apr 30, sell @ 1156.8

Nov 1, buy @ 1202.8

Dec 9 ,still holding @ 1259.4

Overall gain, without costs = 0.8%

Buy & Hold gain = 4.8%

After costs the method would be even worse and it shows a substantial
loss compared to B&H.

Try another popular method using moving averages. buy when the price
moves above the 200-day SMA and sell when below it.

Jan 3, buy @ 1202.1

Apr 15 sell @ 1142.6

Apr 21, buy @ 1159.9

Apr 22, sell @ 1152.1

Apr 25, buy @ 1162.1

Apr 26, sell @ 1151.7

Apr 27, buy @ 1156.4

Apr 28, sell @ 1143.2

Apr 29, buy @ 1156.8

Oct 5, sell @ 1196.4

Oct 28, buy @ 1198.4

Dec 9, still holding @ 1259.4

Overall gain, without costs, = 0.5%

Again this is less than B&H and does not include the costs of the 6 buy
and sell cycles during the year.

Neither of these published methods works in their future.

Obviously if you try enough methods then some will work but the future
results are probably random for any method you try and you don't know
which will be the successful methods in advance. In an earlier post I
quoted Sharpe et al on the 7 main fallacies in formulating mechanical
investing strategies. Once again the EMH is verified.

Re: Can Buffett beat the market, now?

Roger wrote:
> David Wilkinson <> wrote:
>
>>Well, the UK Motley Fool certainly do not encourage mechanical investing
>>any more. They used to run a portfolio using O'Higgins' "Beat the Dow"
>>methods but applied to the FT30 shares. This did so badly over a number
>>of years that they closed it down. The Foolish Four is not encouraged
>>either.
>
>
> Check out siliconinvestor.com, fool.com and some other message board oriented
> US sites about mechanical investing. Maybe the info is more easily shared in
> the states.
>
> Mechanical Investing is the way to go. I lurk here but that happy-guy who is
> posting with hie web URL has the right approach with things.
>
> Mechanical Investing is basically you come up with a plan (perhaps a seasonal
> approach) and you just issues the buys and sells based on some key indicators
> (time of the year for example). It's completely "mechanical" in that sense.
>
> Whatever system you come up with you can back test with stock market data.
> See just how well you would've done over all these years!
>
> I'm a big believer in mechanical investing.
>
> -Roger

Or look at another popular mechanical investing strategy, the "Dogs of
the Dow". From the
website the ytd performance of the 2005 dogs is a loss of 9.7%. This
does not include dividends, commissions or taxes so the effective value
may be a little better but it is still more than 10% down on B&H of the
S&P500 at a 4.8% gain.

Re: Can Buffett beat the market, now?

"David Wilkinson" <> wrote in message
news:dngpp6$8la$
> Roger wrote:
> > David Wilkinson <> wrote:
> >
> >>Well, the UK Motley Fool certainly do not encourage mechanical investing
> >>any more. They used to run a portfolio using O'Higgins' "Beat the Dow"
> >>methods but applied to the FT30 shares. This did so badly over a number
> >>of years that they closed it down. The Foolish Four is not encouraged
> >>either.
> >
> >
> > Check out siliconinvestor.com, fool.com and some other message board
oriented
> > US sites about mechanical investing. Maybe the info is more easily
shared in
> > the states.
> >
> > Mechanical Investing is the way to go. I lurk here but that happy-guy
who is
> > posting with hie web URL has the right approach with things.
> >
> > Mechanical Investing is basically you come up with a plan (perhaps a
seasonal
> > approach) and you just issues the buys and sells based on some key
indicators
> > (time of the year for example). It's completely "mechanical" in that
sense.
> >
> > Whatever system you come up with you can back test with stock market
data.
> > See just how well you would've done over all these years!
> >
> > I'm a big believer in mechanical investing.
> >
> > -Roger
>
> Or look at another popular mechanical investing strategy, the "Dogs of
> the Dow". From the
> website the ytd performance of the 2005 dogs is a loss of 9.7%. This
> does not include dividends, commissions or taxes so the effective value
> may be a little better but it is still more than 10% down on B&H of the
> S&P500 at a 4.8% gain.



I believe there is a happy medium.

I would not use mechanical methods to *select* the assets
I invest in. ('Buffetology books arent much help either).
Dogs of the Dow, stock screeners, TA etc, are mindless.

Selecting investments requires commercial skills, enterprise
and a reasonably developed 'world view'. These are skills
which you acquire and hone over a lifetime.

But having selected your investment asset, your funds
can be *deployed* in a mechanical manner.

Examples include :

* Dollar Cost Averaging
* Value Averaging
* Use margin when interest rates are rising and/or your portfolio value
is falling, repay debt when interest rates are falling and/or your
portfolio value is rising.
* Buying Listed Investment vehicles at predetermind discounts to NAV

Interested in your views.

Re: Can Buffett beat the market, now?

Fitzroy <> wrote:
> I believe there is a happy medium.
> I would not use mechanical methods to *select* the assets
> I invest in. ('Buffetology books arent much help either).
> Dogs of the Dow, stock screeners, TA etc, are mindless.

I think Dave has looked at some crappy MI systems.

I don't use MI myself. But Sy Harding has written about the
the seasonal MI system he uses and it was holding from 10/31 to
to 5/04. And he has the charts showing what the gains are back
tested about 50-60yrs.

He goes into the reasons why it works so well and also takes into
account other technical indicators where you'd get out of the
market altogether.

He beats buy and hold very easily.

It would only work in a retirement account of some sort because
there you're not constantly paying taxes.

Re: Can Buffett beat the market, now?

Mike S wrote:
> Fitzroy <> wrote:
>
>>I believe there is a happy medium.
>>I would not use mechanical methods to *select* the assets
>>I invest in. ('Buffetology books arent much help either).
>>Dogs of the Dow, stock screeners, TA etc, are mindless.
>
>
> I think Dave has looked at some crappy MI systems.
>
> I don't use MI myself. But Sy Harding has written about the
> the seasonal MI system he uses and it was holding from 10/31 to
> to 5/04. And he has the charts showing what the gains are back
> tested about 50-60yrs.
>
> He goes into the reasons why it works so well and also takes into
> account other technical indicators where you'd get out of the
> market altogether.
>
> He beats buy and hold very easily.
>
> It would only work in a retirement account of some sort because
> there you're not constantly paying taxes.
>
>
Mike The seasonal method I quoted also has a brilliant record from back
testing. From 1950 through to 2003 applied to the DJIA with dividends
reinvested based on the S&P500:

Buy & Hold: Total return 7.7% annually

Best 6 Months method: Total return 12.9% annually

The 5.2% advantage makes a huge difference over 53 years.

The point I was making is that methods like this that back-test well but
have no obvious connection between the parameter used (the date in this
case) and the return obtained are unlikely to work in the future. For
2005 this one did not work.

Of course it is easy to say that they are long term and you need to wait
for more years but the book I quoted from was published in 2004 so there
have not been that many years available. You have to test these things
on a substantial period not used in their formulation. Otherwise you can
be caught by one of these coincidental correlations like the hemline one
or the one about which team wins the superbowl.

The Sy Harding Street Smart method is also quoted in the book I used. It
uses MACD to modify the "Sell in May.." Best 6-months method. This did
well from 1998-2002.

As for crappy MI systems the Dogs of the Dow also back-tested very well
until it was published and began to be widely used. It was so well
thought of that mutual funds started using it, I understand, and the
website still recommends it to this day, even though its performance
advantage seems to be zero now. This is an example of a method that has
some logic to it but self-cancels due to widespread use boosting the
prices of the shares indicated so their advantage is lost.

Re: Can Buffett beat the market, now?

Dave,

That's why I don't do MI. But the only people who beat the market are
value investors, market timers & people who have some sort of trading
system in place (or they follow business cycles).

I'd like to think it's luck but there are too manye examples of people
keeping these sorts of returns going for a few decades.

But Sy gives a lot of reasons as to why his seasonal system works
(taxes, mutual fund dividends etc...) and if you udnerstand that you'll
understand why it only starts working in the 1940's.

Same could be said for the presidential cycle.

I think there is really something to the market timing that can help
preserve capital.

-Mike

David Wilkinson <> wrote:
>>
> Mike The seasonal method I quoted also has a brilliant record from back
> testing. From 1950 through to 2003 applied to the DJIA with dividends
> reinvested based on the S&P500:
>
> Buy & Hold: Total return 7.7% annually
>
> Best 6 Months method: Total return 12.9% annually
>
> The 5.2% advantage makes a huge difference over 53 years.
>
> The point I was making is that methods like this that back-test well but
> have no obvious connection between the parameter used (the date in this
> case) and the return obtained are unlikely to work in the future. For
> 2005 this one did not work.
>
> Of course it is easy to say that they are long term and you need to wait
> for more years but the book I quoted from was published in 2004 so there
> have not been that many years available. You have to test these things
> on a substantial period not used in their formulation. Otherwise you can
> be caught by one of these coincidental correlations like the hemline one
> or the one about which team wins the superbowl.
>
> The Sy Harding Street Smart method is also quoted in the book I used. It
> uses MACD to modify the "Sell in May.." Best 6-months method. This did
> well from 1998-2002.
>
> As for crappy MI systems the Dogs of the Dow also back-tested very well
> until it was published and began to be widely used. It was so well
> thought of that mutual funds started using it, I understand, and the
> website still recommends it to this day, even though its performance
> advantage seems to be zero now. This is an example of a method that has
> some logic to it but self-cancels due to widespread use boosting the
> prices of the shares indicated so their advantage is lost.

Re: Can Buffett beat the market, now?

Mike

I looked at Sy Harding's website and it shows similar pictures to those
in the "All about market timing" book. However, in order to see the
exact dates he used for buy and sell you need to be a subscriber, which
I am not but you might be. Using MACD to pick the actual dates near to
May 1 and Nov 1 seems a bit subjective and not entirely mechanical so I
would be interested in which dates he chose for the DJIA in 2004 and
2005. Can you tell me the dates?

David

Mike Stone wrote:
> Dave,
>
> That's why I don't do MI. But the only people who beat the market are
> value investors, market timers & people who have some sort of trading
> system in place (or they follow business cycles).
>
> I'd like to think it's luck but there are too manye examples of people
> keeping these sorts of returns going for a few decades.
>
> But Sy gives a lot of reasons as to why his seasonal system works
> (taxes, mutual fund dividends etc...) and if you udnerstand that you'll
> understand why it only starts working in the 1940's.
>
> Same could be said for the presidential cycle.
>
> I think there is really something to the market timing that can help
> preserve capital.
>
> -Mike
>

Re: Can Buffett beat the market, now?

David Wilkinson <> wrote:

> I looked at Sy Harding's website and it shows similar pictures to those
> in the "All about market timing" book. However, in order to see the
> exact dates he used for buy and sell you need to be a subscriber, which
> I am not but you might be. Using MACD to pick the actual dates near to
> May 1 and Nov 1 seems a bit subjective and not entirely mechanical so I
> would be interested in which dates he chose for the DJIA in 2004 and
> 2005. Can you tell me the dates?

I don't subscribe but I noticed there was a free sample copy for
download. Here are his returns with the DJIA:

1998 +26.5%
1999 +35.1%
2000 +2.1%
2001 +11.1%
2002 +3.1%
2003 +11.2%
2004 +8.1%

140.2% vs 55.1%

I think he should use a reverse index fund for years like 2001 & 2002.
His returns for 7yrs would be over 200% then.

-Mike

Re: Can Buffett beat the market, now?

One more thing - it looks like he gets the >100% return by investing in gold/oil
also.

Haven't really read thru the sample issue all the way yet.

Re: Can Buffett beat the market, now?

"Loose On the Lead" <> wrote in message
news:
>
> You could also Google for "superinvestors buffett doddsville" and see
> what you turn up.
>
Yawn, that duddsville dudes again.

> You can find many, many examples of trading strategies like the above
> that have worked forever, if only you're willing to acknowledge them.
>
Maybe someone should try one of those strategies instead betting on the
BEARX.

Re: Can Buffett beat the market, now?

TK Sung wrote:
> "Loose On the Lead" <> wrote in message
> news:
> >
> > You could also Google for "superinvestors buffett doddsville" and see
> > what you turn up.
> >
> Yawn, that duddsville dudes again.

Exactly what I'm talking about. You're presented with examples, and
you dismiss them by yawning. Obviously, it's not possible to convince
someone like that of anything.

> > You can find many, many examples of trading strategies like the above
> > that have worked forever, if only you're willing to acknowledge them.
> >
> Maybe someone should try one of those strategies instead betting on the
> BEARX.

Why? They wouldn't win the contest.

Darin