Stock picking

Sam_J12

I disagree with a lot of the posters here who say investing in individual shares is not worthwhile. I think if you put effort in to learn about investing and have the discipline in what you invest in, then you can be very successful by buying individual stocks. Basically invest in good companies when you are getting a decent price to do so. Some stocks are almost no brainers. For example, you pretty much can't go wrong with buying Berkshire Hathaway right now as it is an incredibly well run company and is trading at a significant discount to its intrinsic value. I would be willing to bet (and have bet) that it is likely to significantly beat most tracker funds in the long term.

Glen_Clark

Sam_J12 wrote: »

I disagree with a lot of the posters here who say investing in individual shares is not worthwhile. I think if you put effort in to learn about investing and have the discipline in what you invest in, then you can be very successful by buying individual stocks. Basically invest in good companies when you are getting a decent price to do so. Some stocks are almost no brainers. For example, you pretty much can't go wrong with buying Berkshire Hathaway right now as it is an incredibly well run company and is trading at a significant discount to its intrinsic value. I would be willing to bet (and have bet) that it is likely to significantly beat most tracker funds in the long term.

Problem with picking individual shares is we only see part of the picture to base our decisions on. Berkshire Hathaway did well because its been run by a genius - who cautioned against investing in companies which depend on above average management to maintain their profitability, because such management doesn't last forever. When Buffet has gone you are left with a company which needs to beat the trackers by a large margin just to cover its charges for the large number of well paid people it employs.
PS: you need to look closer at the 'discount' - often another hugely complex and ambiguous task in itself, because a lot of the assets may not be traded shares, but in things that are difficult to value and haven't been valued recently.

grey_gym_sock

Sam_J12 wrote: »

I think if you put effort in to learn about investing and have the discipline in what you invest in, then you can be very successful by buying individual stocks. Basically invest in good companies when you are getting a decent price to do so.

as an abstract statement, this is probably true. but which are the good companies? what counts as a decent price? this is what most investors (most of whom are professionals) are trying to work out. can you do better than them? there is no simple formula.

For example, you pretty much can't go wrong with buying Berkshire Hathaway right now as it is an incredibly well run company and is trading at a significant discount to its intrinsic value. I would be willing to bet (and have bet) that it is likely to significantly beat most tracker funds in the long term.

you've slipped in another hugely problematic term there, "intrinsic value" - something which is entirely a matter of opinion. berkshire is currently apparently trading at c. 1.32X its book value - book value includes the listed shares berkshire holds at their current market price, and its wholly-owned businesses mostly at what it paid for them + further capital it's invested in them. now, the wholly-owned businesses are very likely worth more than that, but how much more? it's a matter of opinion.

we do know that buffett is happy to buy back berkshire shares at up to 1.2X book value, so presumably he thinks intrinsic value is higher than that. on the basis of that, i'd be confident that berkshire shares are not wildly overvalued at the current price, but whether they're great value or just fair, i'm not so sure. and remember that, with most companies, what price the directors are prepared to buy back shares at is no guide to intrinsic value at all.

grey_gym_sock

Glen_Clark wrote: »

When Buffet has gone you are left with a company which needs to beat the trackers by a large margin just to cover its charges for the large number of well paid people it employs.

central costs at berkshire at actually very low. they only have something like 30 ppl working there, which is a minimal cost spread across such a large company. effectively, it is a conglomerate, with a large number of subsidiaries with separate management (plus a big share portfolio).

since buffett's method involves not making too many changes, it may continue to look very much like his company for some time after he's gone. but who knows what happens after that?

Glen_Clark

grey_gym_sock wrote: »

. effectively, (Berkshire Hathaway) is a conglomerate, with a large number of subsidiaries with separate management.

Don't they all need paying from investor's funds too?
As we have all got older I have watched some of my friends slowing down mentally, even starting to lose their marbles for want of a better expression, some of them used to very sharp and clever, and I wonder if it couldn't happen to Warren Buffet

grey_gym_sock

Glen_Clark wrote: »

Don't they all need paying from investor's funds too?

the subsidiaries have managers who need paying. but if the choice is to buy berkshire (which has subsidiaries which including a utility company, a railroad, and so on), or to buy a portfolio of quoted shares (including a utility company, an railroad, etc), then the quoted shares also have managers.

i expect that the top managers of the subsidiaries are very well paid. but they would be if they were running quoted companies, too. and some of the other costs which quoted companies would have - corporate advisors, etc - are cut out, or only needed once, at HQ.

As we have all got older I have watched some of my friends slowing down mentally, even starting to lose their marbles for want of a better expression, some of them used to very sharp and clever, and I wonder if it couldn't happen to Warren Buffet

yes, it's a danger. though the board of berkshire is supposed to have been officially given the task of telling buffett to go if they think that's happening.

Thrugelmir

Sam_J12 wrote: »

For example, you pretty much can't go wrong with buying Berkshire Hathaway right now as it is an incredibly well run company and is trading at a significant discount to its intrinsic value.

I wouldn't classify Berkshire as a single share. The nature of the business is far more complex than that. You are paying someone in effect to manage investments for you.

As for performance. Really?

Shares of Berkshire's A and B shares are each down about 13% so far in 2015. The A shares (BRKA) are for the 1% -- they cost just under $195,000 apiece. The B shares (BRKB) trade for about $130.

The last time the Oracle of Omaha's company did so poorly was in 2008, when both classes of Berkshire's stock fell 32%.
Of course, 2008 was a lousy year for just about everyone.

This year, Buffett is lagging the market. The S&P 500 is down ... but only by 2%.