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1.0 out of 5 stars
Propagating misconceptions about Buffett, Jun 5 2003
First of all, the author does describe early Buffett activities as some sort of shady active trading/arbitrage, i.e. anything but value investing. That is a plus, and Timothy Vick should be credited for honestly admitting that. Reading from page 13, Buffett's estimated net worth in 1969, the year he shut down his speculative Buffett partership, was $20 to $25 million. You can disregard everything else in this book, because once you have made $20 million through active trading/arbitrage, does it really matter what you do for the rest of your life?If Buffett made his fortune and got his start in investing through active trading, what's the point of extolling buying and holding and value investing?
Let me rephrase the question, can a buy-and-hold value investor make $20 million in 12 years starting with 50K ? Of course not. If you want to get rich, AVOID value investing. So, once you are as rich as Buffett was in 1969, you can certainly afford to condemn active traders and speculators because A) you don't have to ever work and can live off dividends or interest on Treasuries B) you can settle for 10% or so percent annualized return on your value stocks. Second, the author lists Buffett's core holdings (AXP, G, KO, WPO, MTB, etc) and claims they have had a fabulous return over the years, and these "value investments" are the reason Berkshire book value was going up 25% or so annually. False and wrong. If you do the math, market price of most of these stocks went up from 5% to 10% annually (one or two exceptions at 18%). So much for fabulous stock picking! So why did Berkshire book value go up so fast? The answer is, probably because Buffett is a great manager and did a good job running his core insurance businesses and managing the cash flow of the companies he acquired and controlled. You have to understand the difference between buying and holding stocks you have no control over (value investing), and successfully running a business you own, taking over and controlling other companies, and awarding yourself compensation exceeding the gains of other shareholders (what Buffett has done throughout most of his career, but not lately). Is running a large insurance company equivalent to value investing? Probably not. There is a big difference between holding a piece of paper and running/cotrolling a business.
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