Advice From Warren Buffett
ฝัง
- เผยแพร่เมื่อ 12 เม.ย. 2019
- Meet with PWL Capital: calendly.com/d/3vm-t2j-h3p
Can You Beat Warren Buffett? I can sum up some of the most common arguments I hear against index investing with a single name: Warren Buffett.
Buffett is chairman and CEO of American conglomerate Berkshire Hathaway, Inc. He’s also long been one of the richest people in the world. His personal net worth was last estimated at just over $84 USD billion.
Buffett also is perceived to be a stock-picker but in this video, I'm going to tell you why Warren Buffet is not a reason to pick stocks.
Referenced in this video:
The World's Billionaires - en.wikipedia.org/wiki/The_Wor...
Berkshire Hathaway’s Annual Shareholder Letters - berkshirehathaway.com/letters/...
Berkshire Hathaway 1996 Shareholder Letter - berkshirehathaway.com/letters...
Berkshire Hathaway 2013 Shareholder Letter - berkshirehathaway.com/letters/...
On Persistence in Mutual Fund Performance - www.jstor.org/stable/2329556?...
Luck versus Skill in the Cross-Section of Mutual Fund Returns - mba.tuck.dartmouth.edu/bespene...
Berkshire Hathaway 2016 Shareholder Letter - berkshirehathaway.com/letters/...
Berkshire Hathaway 2012 Shareholder Letter - www.berkshirehathaway.com/let...
Buffett's Alpha - www.cfapubs.org/doi/pdf/10.24...
A Common Sense Confession: I’ve Been Unfaithful to Market-Cap Weighting - www.pwlcapital.com/common-sen...
Get access to more investing ideas, insights and white papers here.
www.pwlcapital.com/teams/pass...
------------------
Follow Ben Felix on
- Twitter: / benjaminwfelix
- LinkedIn: / benjaminwfelix
PWL Capital Blog Post: www.pwlcapital.com/can-you-be...
Follow PWL Capital on:
- Twitter: / pwlcapital
- Facebook: / pwlcapital
- LinkedIn: / pwl-capital
You can find the Rational Reminder podcast on
Google Podcasts:
www.google.com/podcasts?feed=...
Apple Podcasts:
itunes.apple.com/ca/podcast/t...
Spotify Podcasts:
open.spotify.com/show/6RHWTH9...
------------------
![CAMPปลิ้น | EP.75[2/2] คุยแบบนี้แล้วจะจบกี่โมงพ่ะย่ะค่ะ!!!](http://i.ytimg.com/vi/N6E8njWH7Zg/mqdefault.jpg)
Here's another look at BRK through a factor lens. Worth the read if you found this video interesting. blogs.cfainstitute.org/investor/2019/04/15/warren-buffett-the-greatest-factor-investor-of-all-time/
I'm very interested in your opinion. Sure, I agree that Index Fund investing is superior to investing in actively managed mutual funds. However, I'm curious if you believe that actively managed funds DO consistently out-perform the market, ignoring fees. The reason that I'm interested in the fee-less comparison is because an individual investor does not charge themselves a fee to manage their own investments! (Platforms like Robinhood also do not charge a transaction fee.) So, I'm wondering, within what percentile of active management performance would an individual investor need to be in order to reasonably out-perform the index. If, as an individual investor who is charging myself $0 fees, I only need to out-perform 5% of active managers then the case for individual active management is quite strong! However, if I need to be in the 99th percentile of active management then perhaps I'm over-confident in my abilities.
Personally, I invest entirely passively in Vanguard index funds for my employer 401k and personal Roth IRA. However, I'm experimenting with actively managing ~1-2% of my portfolio individually to see whether or not I can get good at it. Books like the Intelligent Investor by Benjamin Graham seem to make the case that active individual management is not only possible, but probable, if you've got the time to invest into doing your homework. Which, I do. And have a disciplined, long term, approach, which I hope I do!
@@mquettan3 I think that this video sufficiently expresses my opinion: th-cam.com/video/AecvTErBQY8/w-d-xo.html. I have a video coming out in a few weeks on diversification which also addresses your question.
@@BenFelixCSI Thank you! I do believe this video answers my question on what your opinion may be but the argument presented feels a bit weak due to not exploring how active mangers actually perform. The video discusses how an individual stock performs. Not how an active manager's portfolio performs. Often, active managers do much more than buy an individual stock at any arbitrary price and hold for the lifetime of the company.
Dear Mr. Felix! I am physics researcher, however I have discovered my passion towards wealth building and investing and Iam thinking of possible career change in future. I would like to become as knowledgable as you! Please, could you recommend a book, or a series of books which would be good start to my financial and investing education? Currently I dont know much. btw Iam from Europe. Thanks, Vladimir.
@@TheThunder48 I believe the most wonderful book is and always will be "The Intelligent Investor" by Benjamin Graham.
Another great book is The Little Book of Common Sense Investing by John Bogle
The funniest part about hs is the fact that saying to yourself "I am an idiot, best I can do is be a disciplined idiot" is one of the best financial approaches in life.
Not an idiot, an ignorant, in the strict, non-insult sense of the word. "I know that I know nothing".
Index Funds is to Ben Felix as Toyotas are to Scotty Kilmer.
Which ETF best tracks the Toyota Celica?
REV UP YOUR INVESTMENTS !!
Haha, love it! This is my side of TH-cam !
Active management is an endless money pit....
hum........ or to the Islamic State.
"Do you think you can replicate Warren Buffet's results?" and he said it with a straight face.
He already told you how to replicate it.
@@kyrie4451 exactly! Factor investing strategy
Read and take notes from Dodd and Graham’s Security Analysis and I don’t see why you shouldn’t be able to.
literally pick blue chips and wait 50 years
Why is your channel so underrated? I don't get it.
I think you give the best "advice" out there.
Thank you. I appreciate the kind words.
I was just about to type something similar, but I have come to notice that unfortunately the most valuable content on TH-cam has the least amount of appreciation, it’s actually quite an extraordinarily phenomenon. But god bless you for your giving, this channel is absolutely priceless, I give as much as I can back to society and thanks to the value I get from here hopefully I’ll one day be able to give more so win win, your work does not go unnoticed.
Thank you again
@@tinorosmg9374 One of the best, scientifically sound channels relating to my field has ... 400+ subscribers! 400+ to a guy who's been successful for 30 years! Others that are a mere sham or, simply put, complete garbage amass tens of thousands of subscribers. I think, you may have discovered "the great YT paradoxon" by accident :)
Maybe because a lot of people become misguided by get rich quick schemes instead of paying attention & having faith in something that actually work with a little bit of effort. People are lazy & quickly dismissive. 😴
And not one mention of a specific stock, index fund or ETF
"Diversification is protection against ignorance"
This is not an argument against index investing, it's an argument that almost every single individual investor should go with index investing, since few of us have either the training or the time to do our homework sufficiently well (no, watching a few youtube videos does not count as "training").
Fantastic content. One extra aspect of Buffett's success that is often overlooked is the fact that he is a mentoring businessman, a very good one. Countless famous CEO's reach out to him for advice. So it's easy to imagine that if Buffett has a stake in a company, that company will have the tendency to be well managed. Not to mention the PR effect: if your company makes it to Berkshire's list, which many investors watch, there will be a tail wind on the price of that stock.
When evaluating Buffett's performance as an investor, we need to keep in mind that he doesn't merely decide when to buy or sell a particular stock. Buffett typically tries to improve the businesses that he invests in. He makes changes to their management, imposes budgetary discipline, encourages change in their marketing, etc. Not all of his 'interference' proves productive, but much of it does. In short, many of the businesses Buffett invests in do better than their peers BECAUSE Buffett invested in them. My buying or selling GM stock will have no noticiable affect on the stock's long term performance. My investment does not fundamentally change the company. That's NOT true when Buffett buys, say, a homefurnishings retailer. He changes the company -- generally for the better -- and those changes yield better performance, which is part of his stellar track record.
David Walser this is false. He buys companies with sound management and prefers to make very little changes unless 100% necessary due to changing business climate.
This is completely fake news. BRK does not interfere with management whatsoever.
Your wrong my guy very wrong you clearly haven’t researched when he did buy a company and messed it up and decided to only invest in companies with great management already in place
Can you do a video on Catherine Wood's Ark Invest actively managed ETFs?
dude you should have 8 million subs instead of 8k.
Thanks Lawrence. I appreciate that!
30k subs... Wow this channel has grown a lot over the past month
TH-cam sure took it's sweet time recommending this to me, insta subbed now it's over at 49k
77K now, just hope our portfolio grow as fast as this channel sub count
For an average investor this channel is above their intelligence and limited knowledge..
The average investor is full of fears, superstition and very emotional....Add to it poor knowledge of basic math, statistics and twisted conditioning in their logic and will be surprised why this channel has so many....
And that's, also the reason why D.Ramsey is so popular....
Grateful to be a subscriber to this one.
So now I have to learn index picking
Funny!
Can we stop Dave Ramsey telling everyone to use active management next? 😛
Just because it worked for him doesn't mean it's going to work for everyone. Then again, that applies to anything in life. Reading between the lines is key however, since most people give advice in a manner of telling you what they would do if they were in your situation, but proceed to insist that you should still do your own research, seek your own 'why,' and ultimately make your own decisions... Even if they're stubborn AF.
If they've got a history of good results as he suggests, then it is not a bad idea he proposes.
Often he claims for himself that he uses low turnover S&P 500 funds.
@@Judaka that's like saying, you flip a coin and it lands tails 5 times, now it had a good history of going tails so the next coin flip has a good chance of being tails again... thats incorrect
@@catalepsy8916 No, it's like the same horse did well in every race for the past 20 races and saying there's a good chance that horse will do well in the next race. It isn't just complete randomness but there are no guarantees either.
A key thing: HOW do Buffet's stocks outperform?
The secret is Insurance cash, from GEICO, General Re, National Indemnity, etc. All the monthly premiums paid to these insurance companies generates free cash flow, which is then used as LOW COST capital to finance other businesses!
How many active fund managers do that, or can do that?
Another great video...after stumbling upon you, I 've now watched a great deal of these common sense videos and I find them very informative. Many thanks
Love that smirk at 2:24 regarding "professional investors".
Great video, great channel! Clear, straight to the point, in depth, with data. Thank you very much.
I'm so glad I found your channel. Thank you.
Important video. Also, the growth of Berkshire is not merely down to the market securities they hold. A lot of their revenue comes from their total holdings like Geico, well timed arbitrage opportunities, preferred stocks, private equity, etc.
Buffet does a great job with both his share repurchases and companies he purchases.
- Buys into his company when it is trading relatively cheap and typically buys quality companies at a deal.
A lot of companies do a poor job with share repurchases & company acquisitions.
Dividends can help a company from making stupid decisions with cash flow.
Investing in a company strictly because of a dividend is a poor choice, but buying a quality company that also provides a dividend is not a poor choice.
Your presentations are fabulous when it comes to succinct summaries with both insight and logical evidence.
Worth a sub solid content. Subbed!
ben... I've learned so much from you! I've forwarded your videos to many of my friends... thanks for putting this out there for us!
Thank you!
Great quality content and videos - thanks for sharing!
Much gratitude for your information. 🙏🙏
Damn, Ben! I'm delighted to finally have found a channel with quality, research-informed content! A rare sight, these days! Subscribed!
Awesome! Thank you!
Great explanation from you Felix! Just a quick question from me, being a professional fund manager yourself who holds the titles of CFA, MBA and the likes, isn't passive investing the exact opposite of what you do daily as a fund manager (i.e. stock picking/active investing) to produce above market average result for your fund investors? I am asking as I have recently just obtained my Finance degree and I find being a huge believer in passive investing doesn't help me to land a job in the investment industry in my own country as stock picking or active investing is still the major norm here. Thanks for your reply in advance.
Same here
You pushed him into a corner with this question, as it reveals the implicit presupposition in this video. His [Ben's] job is a scam.
@@economicon9257 I thought i was the only one thinking this.
Not true at all. Ben uses Dimensional Fund Advisors' evidence based passive products. The value real portfolio managers like Ben Felix and the other guys at PWL Capital generate isn't (largly unsuccesful) stock picking like active managers. Instead they help clients (mostly wealthy families) in assessing their risk tolerance, asset allocation, asset location, efficient tax strategies, general financial advice like:"Should I rent or buy? Should I pay back my mortgage or invest my money?". As you can see there still are a ton of reasons one might choose to have a passive portfolio manager/financial advisor such as PWL Capital. Additionally some people just do not feel comfortable managing $10+ million in assets on their own, need behavioural coaching/emotional reassurance during market downturns or just someone knowledgable to talk to.
@@fabiolindner in essence you are just implying is a "money manager" no different from others.
One of the the best channel!
Love this video! Thanks Ben! Just a question whats your thoughts on options trading?
1st i've heard of factor investing. Great video
Sorry but factor investing doesn't explain Buffet's success because value stocks are not riskier. There are many studies that show that value stocks aren't riskier than growth stocks, that is to say they don't return consistently worse than growth stocks when the state of the market is bad, on the contrary they still can outperform the growth stocks.
The most well known is probably "Contrarian Investment, Extrapolation, and Risk
" which concludes value strategies have an excess return not because they are riskier but they exploit the sub-optimal behavior of the typical investor (who overbuys glamour stocks).
Hi, I'm from Brazil. Thanks for your advises.
One of your best videos IMO
Lovely. Nice work, as always.
Ben, you covered something I have been looking into as I am retiring is there a different strategy for withdrawal than for investment. I have used dollar cost averaging into index funds over the last 35 years and we have done well. As I have told my friends I am actually betting on the growth of the entirety of the market over time. Now I am going to take out money. I have seen the "reverse of your age" concept, but my wife and I are both willing to ignore the bumps of the market and look at the slope of performance. I noticed you mentioned Buffet's advice to a trustee of 10% bonds/cash and 90% index funds. I have see a paper, which I haven't been able to find again that put forth 80%/20% as the best in retirement. I also hope that someone so succinct and research based can show the whole picture of growing for retirement and taking retirement. I thank you for all the time you have put in so far. You have given me clarity in many of my muddled thoughts.
Love your work
great videos keep up the good work. subbed.
Thank you!
Great videos thanks. I am learning a lot from u. Thanks for share.
*this video contains such a wealth of smart information that you need to watch it twice!*
Another great video!
Great video!! Can you make one about REITs? Thanks for your advices.
You're not the first person to ask, bu I don't have a whole lot to say. Anything in particular that you want to learn?
Hi Ben, I heard REITs in the US are a bit heavier in tax than a regular stock dividend. Is same in Canada?
Would you recommend to get a good percentage of REITs into a TFSA portfolio to take advantage of the free tax? Thanks
@@BenFelixCSI REIT has a very consistent yield. WIth no real growth. No consistent would this be. I know ETF investing will get you 5-8% depending on your risk.(Compound). REIT does seem a very good endgoal when recession come ? (Inverted Yield curve etc)
3:50
The "Know nothing" mentality actually benefits far beyond stocks and finances.
If you are in the "I know nothing" mentality, it becomes MUCH easier to recognize your weaknesses or flaws.
Brilliant video
New fave channel.
Started living your channel
Great video as usual, Ben!
Excellent presentation!!
The best. Thanks Ben!
Great videos Ben. Really learning a lot from them.
I really like your video
love your videos
Hi Ben, I'd like to thank you for your great videos. Among the videos out there you are a breath of fresh air with your clarity data and citations. You might have already known him, but I also find NYU's Prof. Aswath Damodaran's videos to be very informative and enlightening.
just invested in VEQT. Thanks Ben!
I'll just put $1 in the S&P 500 and wait 1,000 years. That should do the trick.
doubles your money every 10 years if i am not mistaken. in 20 years that dollar might turn into 4. In about 200 years you will be a millionaire.
@@phillipmartinez2436 yeah then account for inflation
raymondinho yea lol in 1000 years...buying something that was 1$ today would be like 999.99$ in the year 3020 xd
Phillip Martinez still risky there’s three times where you wouldn’t have made zip for 20 years. Market goes up over time but it has no grasp of the length of time.
$1 on the S&P, after 1000 years will yield 2.6x10^33 USD, no kidding.
I’ve always felt that Warren Buffet had to be a combination of high skill and high luck which will make his success almost impossible to replicate. You not only have to be as brilliant as he is but also as lucky. We don’t like to talk about luck in American culture, indeed buffet is skilled and smart and has worked very hard. But after examining his career I’m convinced he also had a great degree of luck (or being at the right place at the right time), which of course increases with work (continually putting yourself in the right places), but it’s the time that is not under our control. Warrens massive success is something like being the rock at the peak of a very tall mountain. That there is a rock at the top is insignificant, one rock had to end up at the top, being at the top says nothing about that rocks ability or intelligence which in the rocks case is none(it’s a rock). But that there is a process which allowed the rock (that met the conditions itself) the conditions to end up thousands of feet above the ground.
Excellent video Ben! After watching you for about the last year I've decided to reshape my whole portfolio I have with Questrade: I am 50% US, 25% EAFE, 15% CAN and 10% Emerging in both TFSA and non-registered, and decided to try to capture small and value factors in the RRSP with 50% VB and 50% VBR. So far so good :) Love all that I've learned and learn from you on this channel and your podcast! Keep up the great work!
Very nice! Well done. Great to know the channel has had an impact. I don't know about VB though. You may remember this video th-cam.com/video/uErHwq4M6pg/w-d-xo.html
That Was Awesome!! 👌🏾
One thing I don't think gets enough attention in these discussions is the definition of risk.
Buffett points out that when Wall Street refers to risk they tend to be referring to beta but beta is not risk, beta is beta.
Risk at least the way normal people think about it as it applies to them is more nebulous.
Howard Marks describes risk in terms of the dispersion of possible outcomes... Essentially uncertainty playing a role.
Arguably, what real people care about in real life is the probability of loss & the magnitude of loss across those probabilities. This is NOT what is measured in the studies, in fact it's difficult to measure because risk always exists in the future and the future is uncertain.
Thus, we are forced to reason about risk from first principles, which incidentally is how Buffett arrived at value investing among other things.
Unfortunately, once again, Wall Street and academics do a poor job of defining value investing & growth investing. Value being defined as the ratio of price to book value. The problem is real value investing isn't about the ratio of price to book value it is the ratio of price to intrinsic value and intrinsic value isn't the same as book value. Technically, Ben Graham originally used net current asset value in his strategy, but anyone who has run a real business will know that neither book value nor net current asset value represents the real intrinsic value of most companies. This is a quirk of accounting, which does a very poor job of accounting for intangibles such as network effects, brand value, etc
Final point, academic studies, though nice sources of information tend to be very poor at accounting for outliers as by definition the statistics are composed of averages and averages are deceptive.
So yes, most people should probably just do index investing but there's a lot missing from the general analysis on wall street and in academic circles on the subject.
Can you make a video on Peter Lynch and his investing style..
The low-volatility anomaly observes that low-volatility stocks have higher returns than high-volatility stocks in most markets studied. Low-volatility is an example of a stock market anomaly since it contradicts many financial theories' central prediction that taking higher risk must compensate with higher returns. Can you please explain the low-volatility factor premium?
Your approach reeks of trust and smarts-very attractive
FANTASTIC!!! TY!
Great content in all your videos Ben. What's even more amazing is the level of detail in your responses to the many questions raised. I see you've responded to this already but would like to add that given a long time horizon the accumulation phase is not nearly as complex as the decumulation phase. Given that many baby boomers are entering this phase it would be great to see more videos on this subject. I believe your viewership would/should increase significantly once your channel gets more publicity given the high level of practical concepts covered.
Harold Govender I am interested in the answer to your question.....
Thank you for presenting this data. Where have you been all my life! :)
Amazing video! Congrats
Thanks!
Ben,
Great video and info. The only thing I can say in favor of stock-picking is you have to own a very large number of stocks to eliminate the idiosyncratic risks (firm specific risks) which is very costly for an average investor.
Buffett claims otherwise though. He says that his personal portfolio consists of just one stock
Can you do another video on factors? What are the different types of factors, and what they look at.
I am adjusting my strategy based on new learnings
thank you for pointing me in the right way
Study,discipline and patience will definitely help to achieve goals.
Hello Benjamin! thank you so much for doing this work and sharing your knowledge with us. Do you offer some one-on-one sessions as well to help people start off?
The only time I ever considered investing in stocks was when publicly available information about future product was misinterpreted by media covering it, and my personal expertise which I knew was rare made it a clear winner that hadn't shown up in the stock price yet. What stopped me was the large fee for the transaction for amounts I could afford when I went to my local bank to ask, this was before internet banking. I would of doubled my money under a year, while that stock would of peaked around quadruple price, but my analysis pointed at doubling the value, while quadruppling was the overreaction after the product launch.
Okay. Only time as adult. As I child I wanted some stocks my parents were selling in exchange for the money they had put in my personal savings account. The stock went up 400 fold to its peak. The company could of gone bankrupt instead at its low point, so it was pure luck for my country that it didn't and I didn't have any other reason than avoid selling low behind picking it. My parents declined my request.
This is a very informative video. Thanks Ben.
Very good video. Thanks for sharing!
Thank you!
My thoughts exactly!!
Great channel. I’m not sure that you’re interpreting Buffet’s quote regarding picking out 10 professionals who can consistently beat the S&P the same way that I am. I believe that Buffet is not saying that he has only met 10 above average investors in his life. Rather he is saying that he was only able to identify these above average investors before they built a track record of success.
This makes sense when you consider how alpha is generated these days - unorthodox and uncrowded trades generate the most alpha. Such strategies, by definition, don’t have a track record (otherwise the general public would know whether the strategy would be successful ahead of time). So in the first place, being able to understand a winning and successful strategy before it has been implemented is a difficult task. It isn’t so much that these people are unicorns but the process by which you can identify these above average investors is itself very uncertain.
If you think of these investors like companies, Buffett I think is alluding to the question: if above average investors exist, why aren’t they all consolidated under one firm and paid/employed before they build that track record, with the track record the factor that makes such above average investors overpaid (once the above average investor can provide proof of his success he charges above average fees that leave his clients no better off than if they invested in an ETF index with only few exceptions like renaissance’s one fund).
Very interesting analysis. Exposing you to certain factors, I need to did deeper on this.
Ben, Thanks for all your videos. I am watching them and learning from them. Here is my dilemma. Factors are identified based on the past data. These factors explain the performance of difference portfolios in the past. But what is the guarantee that they persist. Perhaps Warrens techniques are not captured by factors alone. In the future, if Warren's performance differ from the factor investing will it result in identification of additional factors after the fact? I am beginning to trust less and less of any complex explanation of past returns. It could just a result of overfitting to specific time period. Please create a video on this question.
Great vid Ben, the problem with index funds is that is zero fun -:)
if draining your money is fun to you... :P
Keep 10-20% of your portfolio for fun put the rest in an index fund. That's what I do.
What a great video!
Love your channel. You are the Joscha Bach for finance. Well not quite but sorta
Good job.
Good video. Love the white hair that your graphic artists added to the monocle-wearing character! :)
Edit: I realize, though, that this character, as representing Mr. Buffett, is not wearing his usual monocle.
Love the comments, though, on dividend investing. Too often, companies pay a dividend because it adds what I would call as an artificial floor to their stock price. In any industry, including REITs, I would argue it would be better to reinvest in the business, assuming you have high quality management, than return most of the company's capital to shareholders (especially through buybacks - I hate buybacks). Well, I should clarity - I hate so-called "normal course issuer bids" because they buy back just a small percentage of outstanding shares it often is little more than the shares the company issues in a given year. If a company truly has no other way to reinvest in their business, perhaps from a sale of a substantial portion of the business, then they should do a "substantial issuer bid" to buy back a significant portion of their shares.
Cheers,
Doug
Ben, hello!
I found your channel here in TH-cam after conversation with Felipe Spritzer (CEO of Portfel - Brazil). I’m financial advisor too..
Anyway, I’d like to thank for the videos. It’s a great content with a lot of background. Thank you.
Ben, I really hope that you (and others!) read this and respond.
An index fund could replicate the results of a value investor only if all of the information was quantifiable and if the data was statistically significant (the data set needs to be large enough to be able to be useful). If you leave these out, it will be perilous for you and for those you advice to achieve the expected results. Those events that do not have enough data (these include rare or 'six sigma' events by some) or those things that are extremely difficult to quantify can still be of grave practical importance. Just because something is unlikely to happen or you don't have data on it (yet) doesn't mean that it can't be The most important to your plan. For example, the market crash in 2008-2009 wiped out all previous gains of those instruments that were leveraged and unleveraged that had the most to do with the crash. Another example is the practical significance of a change in technology on future returns - it cannot be quantified because the data doesn't exist yet.
I suggest that you address these 'black swan' events in your portfolio creation instead of assuming that the fat tails do not exist (assuming that I understand you correctly, which I would be pleased to be set straight). Please note that this is NOT a plug for active management or stock picking per se, but for the adaptation of your algorithm to be 'asymmetrically' positioned to avoid the lose of capital during low probability, yet practically significant events and developing economic shifts. Obviously, overreaction or allowing these willing asymmetries to be the only 'factor' is counterproductive. I simply advocate that perhaps the 'right' answer is a sub-optimal one from the perspective of statistics?
Bravo for all of the work you (and others) do to wade through these comments!
Fat tails absolutely exist. The best way to address black swan events is through diversification. This was detailed in a way that I cannot replicate in a comment in the book *Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility* www.amazon.ca/Reducing-Risk-Black-Swans-Volatility/dp/0615992978
@@BenFelixCSI Great comment. I had a quick read and then tried to find an article that summarizes this well. Here is what I found: www.advisorperspectives.com/articles/2018/03/12/a-comprehensive-strategy-to-reduce-black-swan-risk
Comment on the strategy: it doesn't go far enough and relies too much on historical data and not enough on 'what if' analysis. The black swans I am most worried about with factor investing are events that have not occurred before. When determining what could happen, I would like to find an analysis of how far do things need to go to 'break' the factor investing model - not a relative historical analysis of improved gains - no one who has read the literature needs to be convinced of that. The appendix of this book (using Monte Carlo simulation) doesn't do it. Any suggestions for further reading are appreciated.
For example, why is Taleb's entourage encouraging out of the money put options as effected even though they don't match up with historical returns as effective? When would they be effective? Do you protect against these types of risks?
I don't really understand the argument that Buffett didn't do well because he chose good stock but rather that the stocks he chose demonstrated these factors that made them good picks. It seems to me the bottom line either way is, he chose good stocks. It also seems quite odd to say picking stocks well doesn't count, because (if) a given passive fund would also pick stocks well given the same principles of stock-picking.
I mean, you are a proponent of factor investing while simultaneously claiming it's not possible to tell a good stock from bad ones. Obviously it's either or if there are some telltale factors to them.
Excellent video and take on Buffet's approach to investing. It's interesting to note that as indexation has increased over the last ten years, Berkshire's ability to outperform the S&P 500 has diminished. Question: given Berkshire's early discovery of factor investing along with the competitive advantage it gave them, won't using this approach become less effective as indexation and active managers use of factor investing becomes more prominent?
I came from Canal do Holder chanell. Great video.
After so many good videos by so many good TH-camr and all the research that is present, it is hard for me to believe that there is a significant fraction of laymen and investors who believe that there is any argument against index funds.
Free leverage from insurance company float, and buying distressed shares in bulk are things that BRK can do that we cannot. Any investment style can look super with free leverage and economies of scale. Insurance float and bulk purchases aside, Warren Buffett is a wise man in the financial world, and definitely someone who seems to have exceptional advice.
Hi Ben, most EFTs weren’t really available until 2008 according to most sources. Dave has been helping people for 25 years or more. You can fault him for not updating to ETFs from mutual funds but mutual funds were the only game for small investors in that era and were far better than stock picking or broker accounts. Even the studies you cite in support of efts are relatively recent. Dave shares what he knows.And they have apparently worked for him. His thoughts on how to diversify mutual funds has helped me think through ETFs. He is not above criticism and I appreciate your facts based route without impugning his character. I will watch for two decades and see if you 1) help as many people as Dave and 2) have the longevity and stay current. That’s not to say your analysis is not helpful. It’s very good advice. I think it’s also true that Canadians have been more thoroughly ripped off by high fees in mutual funds especially by the banks so we are ahead of the curve. Beat the Banks was very helpful in that regard. Good work and thanks. But I owe similar thanks to Dave for helping my wife and I early on so wanted to balance some of the piling on comments.
One thing we need to acknowledge about stock picking though is the FUN factor. It is so much more fun than index funds... when you get it right especially ;). Obviously investing is not about fun but prosperity. So I would suggest to split your portfolio 90-10 and use the 10% for sensible (not gambling) stock picking and the rest for your future.
I think factor investing will only on paper as 99% of what academics do. IF any fund manager managing a factor-based index would be able to make what Buffet, Lynch or Greenblatt made, than they are simply stupid not to invest their money and become the 3rd richest person in the world. Buffet's ideas are so linear: find a great business, use the float from the insurance company, forget about it for 20 years.
I know that I obviously know nothing.
So I‘ve started to monthly invest in an MSCI World and an MSCI EM in an 80:20 ratio. This will continue for the next 21 years until I retire. And I‘m confident to make at least 5% p.a. on average. Which is definitely fine for me
Thanks for your superb videos and best regards from Bavaria/Germany
Sehr gut, das gleiche habe ich nämlich auch vor!
Thank you, Ben, for your insightful videos.
Regarding this video, on Buffet: I was wondering if you could recommend some Factors ETFs that would be (good) alternatives to purchasing BRK-B.
Unfortunately most products marketed as factor funds offer weak factor exposure for a relatively high fee. I wrote about it in detail here www.pwlcapital.com/resources/factor-investing-with-etfs/
Well done Ben !!!
I really like the way you explain things on your channel! Easy, clear, straight. Awesome content, keep up the great work!
Greetings from Germany
Ben, a very nice and clear review of Buffett, stock picking and factor investing. One other element is Buffett’s use of leverage from the insurance float that also played a part in his phenomenal results. Another video to forward to my dividend growth investor friends! Thanks!
Thanks Grant!
Warren Buffet's annualized returns are quoted to be 21.7% from 1965-2014, which outperformed S&P500 by 11.8%. The expected risk premium one can obtain from factor exposure is quoted to be 4.29% for value stocks and 0.08% for small cap stocks as you mentioned in your other video.
Even if one could construct a portfolio of factor based ETFs with exposure to all the factors you mentioned, including market beta, size, value, momentum, betting against beta, quality and leverage factors, would one be able to outperform the market by 11.8% annually for 50 years?
In the AQR paper they did exactly what you described and found that the performance of their hypothetical factor portfolio matched Buffett's.
@@BenFelixCSI Thanks for the reply.
I looked up the paper called Buffet's Alpha. One thing to note is that the degree of tilt to different factors did not stay constant.
The paper states, "we capture Buffett’s stock selection tilts by running a regression of his
monthly beta-adjusted returns on the factors that help explain his performance as described in Section 6" (Frazzini Kabiller Pedersen 2013).
The hypothetical Buffet-style portfolio may explain how Buffet achieved market outperformance, but going forward, it would be very difficult for an individual investor/investment firm (or even Buffet himself) to outperform the market by 11.8% annually for next 50 years, whether one uses low cost small cap value/other factor ETFs or through an active management firm with a factor tilt such as Dimensional Fund Advisors, even with 1.7x leverage.
In MSCI's paper titled, "Deploying Multi-Factor Index
Allocations in Institutional Portfolios"
A factor index consisting of the following strategic allocations
MSCI World Value Weighted Index 25%
MSCI World Risk Weighted Index 25%
MSCI World Quality Index 25%
MSCI World Momentum Index 25%
outperformed MSCI World by only 2.5%. (6.7%-4.2%) from May 1999 to September 2013.
Great video, complete agree!
Thanks!
cool video that ties into the whole factor hype
Thanks! Factors have turned into hype, but they started as the core of our understanding of financial markets. The hype is fund companies selling that understanding.
IFA did an investigation on leading active management managers. They concluded that no managers passed the statistical confidence level to be distinguished as skilled. I wonder if you can make a video on how many years Warren Buffett need to maintain his good performance to pass the statistical confidence level?