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What would Warren Buffett do if he were a "small" investor in today's market, and what sort of returns would he be looking to dial in? Did his own recent candid answer represent a defining moment in modern investing?
A good friend, someone I admire quite a lot, has been a practicing physician for the last 35 years. I am always amazed at how kind, thorough, fearless, tireless, generous, capable, knowledgeable and effective this man is at diagnosing and treating the sick, uplifting the downtoddens' spirit and sense of hope, and never giving up or taking no for an answer when it comes to the welfare of his patients. His boundless optimism is well rooted in preparation, practice, and hard work that never ends.
I asked him what motivated and guided him in his remarkably successful endeavor to uplift and heal the afflicted and improve the quality of the lives he touches, and he told me " I just ask myself what would Jesus do, and try to emulate this strategy." Oh, I reflected, is that all? This memory came to mind when I read the Strategy Lab question recently concerning Warren Buffett and investing in today's fascinating environment. "What would Warren do?" has become almost a religious mantra in itself over the last several decades. True, there is only one Warren Buffett, but as illustrated by John Reese's excellent strategy, the embodiment of the masters' lessons skillfully honed as an elegant infrastructure of stock picking distillations and methodologies is likely to guide us to market-beating returns. And I sense this is just the beginning.
At the same time, as I look at the astonishing array of evolutionary and even revolutionary tools available to the 21st century investor, I can't help feeling a sense of awe and a rush of excitement at the good fortune a small scale investor like myself has, what with all the resource streams emergent and available at this historic time. And also, what could be if I were to simply apply the above disciplines to my investing efforts much more diligently still. Because a relentless, single-minded focus is a major hallmark of the best of the best, ala Warren Buffett. And a Eureka! sense that the time is NOW to actualize this destiny- patient, unyielding, resolute, vigilant. That is a great value of these types of contests and forums. What I see happening, and am duly inspired to be a part of in a more dynamic and rigorous way, is a gathering of minds, and a cohesion and synergy morphing into increasingly tested and verifiable systems of systems, and a real increased opportunity to stay connected and focused thereby. The coalescence and maturation of these systematic approaches and their "proofs" seem to me to constitute a defining moment in modern investing, and a real paradigm shift in the making.
Now that there are social network-style, track-able living records of small investor strategies, trades and returns, the playing field is really starting to level. Indeed, since I have been following, reading, researching and implementing the ideas, suggestions and advice that sites like MSN Money, Motley Fool, The Street, Marketocracy and so on have been facilitating, my returns have not only done better than the market indexes; I am somewhat astonished at my yearly returns these last several years. The Navelliers, Markmans, Kirks, Jubaks, Kams, Heebners and other professional luminaries have consistently racked up some pretty impressive returns for the most part. CGM Focus has been just stunning. And whoa! Warren Buffett's Berkshire Hathaway was up big these last few years. This compounded on top of the long-term returns for long-term fund holders, one could do far worse but not much better. I think increasing concentration of stock picks while increasing volatility and risk, at the very least theoretically, also serves to provide an opportunity to narrow the focus to a few of the very best stock picks from the many thousands at hand. And thereby outstanding overall returns.
Now we have a universally track-able, conveyable, sharable, and provable international database allowing the "small fish" to benefit from the insights and successes of the "big and small fish". Of course, some managers concentrate their portfolio (say, CGM Focus), while others are/ were far more cosmopolitan and enveloping in scope (say, Peter Lynch). The ultimate concentrated portfolio would be a single "bull's eye" hit, like the fortunate folks who bought into Berkshire-Hathaway or Walmart, or a single super-fund like Lynch's Magellan or Heebner's Focus fund..
Concentration is usually a bad idea, unless you happened to choose a few of those stocks/ funds like Bershire Hathaway or CGM Focus, Walmart, Apple, or HDFC in sufficient dollar volume, and ride them through to victory. Indeed, an optimally concentrated portfolio has a good chance of trouncing the indexes. It thus becomes more so than ever the quality of one's choices on any level that becomes paramount. And why the array of support tools as are now available socially in the investing world are so important. The returns of the very best newsletter and fund managers over time range from between 12 to 20%, very rarely arcing above this percentile. Which really illustrates just how difficult it is to beat the market! And yet some are consistently doing just that, and we will get to see in full public view just how long this shall endure, and hopefully become better investors because of it. And in my reckoning, that is a revolution in modern investing. And the allure of this approach is, if one were to place between $25,000 and $100,000 into one or two buoyant funds or stocks ike CGM Focus then watch it grow ten years later into your "retirement fund", you'd be doing the financial "dance of joy". It is similarly in separating out these very few ultra-performers where things tend to get, shall we say, dicey. So buyer beware! Diversification vs. concentration- the proof is in the pudding, but the recipe one of life's great mysteries to solve.
Indeed, Mr. Buffett himself has occasionally ruminated on how grand the opportunities would be to make extremely substantial returns on investment if he were able to operate at a much smaller scale of investing stake once again. By his reckoning, the world would still be his oyster, and his returns would once again have the chance to balloon. Because there are always great emerging companies to discover. And that is one reason Buffett is Buffett. And a few handfuls or so of the all-star great stock pickers of the last decade or two also show us that it is indeed possible to handily beat the indexes despite, maybe even because of challenging, complex and at times adversarial market conditions. Now we get the chance to prove our mettle in a more highly conscious manner.
One manager I am especially impressed with is Ken Heebner and his CGM funds. Also Louis Navellier, although I would like to see his advisory newsletters return to the practice of recommending precise specific stocks rather than a basket from which the individual investor must narrow the choices from within. I have marveled at Jon Markman's skills over a fairly broad spectrum of analytic acumen and strategic development and styles, Jamie Duglosch the "Rational Investor" and of course Warren Buffett, which is why I still own a few shares in his investment company. The recent work of such luminaries as the Gardner brothers and their "Foolish" web-site and CAPS, Ken Kam's Marketocracy, Jon Reiss's synergized Masters approach, Stockpickr, and others have really whetted my own appetite for wholeheartedly-and-mindedly pursuing investing in a more focused and professional manner. It is especially astonishing how MSN Money has matured into a champion publisher of so many of these and many other master investors' "in-sites" and forums, and this has greatly influenced and benefited my own investing these last several years.
I am so very grateful to be able to practice implementing this excellent higher level of investing involvement in this age when so many fantastic professional and fellow amateur investors are communicating, sharing, and forging new paths to communal and individual potential success in this amazing and vital field. I get the feeling we've just scratched the surface! Much gratitude to these illustrious trailblazers for giving us that opportunity to excel at the "real life investing game".
As far as recent trades, I added to my position in YHOO over the last several days. Low 20's was just too compelling a dip to pass up on, and I would not shy away from buying in at these levels for a real investing account. As of today, my stake has risen a cumulative 13% in a short time-frame, and I think it will continue to ascend as the market forces continue to exert a positive pressure on a seemingly beleaguered, yet highly valuable internet company to even higher quick gains. Still, on a fast trade like this, it couldn't hurt to take some profits after such a fast rise in stock appreciation. After all, Bulls make money, bears make money, but pigs get slaughtered- unless, that is, you bought into Berkshire Hathaway and stayed greedy for, oh, say 20 or 30 years!
Regards,
Jeff Kalnitz
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