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Xinyun Hang  

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  • How Warren Buffett Is Different From Most Investors [View article]
    I ask that you actually define your statements in order to support your argument, and you decide instead to tell me to go read a book? Interesting choice.

    As for the matter of correlations, I know what correlations between classes of investments are and why they're important in the short term. My question is why you should be concerned about them ("why they're important") if you're truly managing money for the long term. If you believe that the price of financial instruments is at all connected to the value of their future cash flows, then correlations truly _don't matter_ in the long term.
    Sep 14, 2012. 12:59 PM | Likes Like |Link to Comment
  • How Warren Buffett Is Different From Most Investors [View article]
    Please explain these "investment techniques" which are the source of Buffett's investment performance. Are they the "portfolio management techniques" and "business model" you alluded to earlier?

    Incidentally, I think your distinction between "learn" and "emulate" is arbitrary--no one who believes that ordinary investors can emulate Buffett thinks that they can literally "emulate" him in the sense of acquiring billion dollar companies. Saying that they do is a straw man.

    Along those lines, you brought up the Goldman deal as something Buffett did that can't be emulated because we don't have the billions of dollars required to be invited into special deals with Goldman Sachs.

    My argument is that you can still learn from (or emulate) the Goldman deal even if you don't get access to deals of the exact same structure. In my mind, what's important about the Goldman deal is why Buffett chose to invest and why he chose the structure he did, not the exact details. Do you not believe that there's something to emulate in that thought process?

    Incidentally, for someone who accuses me of playing shell games, you haven't actually addressed many of my actual questions. I reiterate:

    --You didn't explain why correlations matter.
    --You didn't explain your statement about "advanced-notice, inside information."
    --You didn't explain why DQ's shareholders couldn't simply sell their shares in the public market.

    Finally, you never explained what evidence you have to say that Buffett's advocacy is purely self-serving.
    Sep 13, 2012. 11:34 AM | Likes Like |Link to Comment
  • How Warren Buffett Is Different From Most Investors [View article]
    "(Saying that it's a straw man to say that Buffett can't be emulated because he's a billionaire)"

    You brought up the fact that Buffett was invited into a deal with Goldman "because [he had] piles of cash, and, more importantly, the ability to confer on the borrower the implicit approval of the Oracle-that they were a solid company." as one difference which makes Buffett impossible to emulate. Buffett was invited to make that deal in large part because of his financial standing, and arguing that the average investor can't learn from the deal because the average investor doesn't have that financial standing implies that no investor can learn from someone with superior financial standing.

    Look, you're obviously not simply listing ways in which the average investor is _literally_ different from most investors (if you were, you could mention that most of us aren't octagenarian residents of Omaha).

    You're listing ways in which Buffett is different that make him impossible to emulate, and if in doing so you mention things like his acquisitions of entire companies or his large private investments, you're thus implying that average investors can't emulate (including learn from) any investor with resources that they don't have.

    "the many ways I've shown that most investors simply can't emulate the portfolio-management strategies that Buffett, bless his crony heart, employs. "

    Do you think that these portfolio management strategies are the cause of most (or all) of Buffett's outperformance? If so, then your argument is valid and average investors can't learn from Buffett to achieve outperformance.

    However, if that's not true and most of Buffett's outperformance comes from universal investing principles that can be learned, than continuously talking about how Buffett's portfolio management principles is no more relevant to this decision than saying that Buffett is different because he used to drive a Lincoln Town Car and we didn't.

    Incidentally, you argue that I created a straw man in describing your views on the "death tax" and Warren Buffett, but I'm curious about a couple of related questions--do you think Warren Buffett is deceiving the public in his motives for advocating the "death tax," and do you think said advocacy is unethical? If the answer is yes to both questions, why and how do you square that view with your view that people should be able to advocate whatever they want in their self interest?
    Sep 11, 2012. 03:10 AM | Likes Like |Link to Comment
  • How Warren Buffett Is Different From Most Investors [View article]
    First of all, you're not just "[describing] ways in which Buffett's investment approach differs from that available to the typical investor." You're describing differences which the typical investor can't emulate, many of which you criticize.

    Anyway, to rebut your points:

    "Yeah. So what? That doesn't mean all of its shares floated publicly! You understand that public companies (like DQ at the time of its acquisition) typically have large private shareholders, right?"

    I do understand that fact. You do understand that said shareholders can sell their shares in the public markets, right?

    "Buffett has acquired other companies and stakes in companies under similar circumstances. That's one of the reasons he supports the death tax, always in the garb of a folksy populist. Which reminds me of another point of differentiation:

    -- most investors aren't vulture investors."

    "No, I don't believe [people shouldn't lobby for things that benefit them] at all -- I believe just the opposite. But let's not confuse successful lobbying and advanced-notice, inside information with value investing."

    These two statements are at odds with one another. First you say that Buffett is disingenuous in supporting the death tax based on supposed populist values because he's actually doing so for his own benefit. Then you say that people have every right to oppose the death tax even though doing so helps them, implying that it's not the self-interest you oppose, but the self-interest in the guise of higher ideals.

    However, since you have literally zero proof that Buffett supports the death tax from self-interest as opposed to higher ideals, are you saying that people only support public policy issues from self interest and have no other ideals? I suppose that's a view you can take, though in that case I'd be curious as to hear your political views...

    Also, I have no clue what you mean about "advanced-notice, inside information." If you're saying that Buffett insider trades, that's obviously an accusation that requires evidence. If you're merely saying that he has special access to executives, that's certainly true, but seriously, are you arguing that the average investor can't emulate anyone with any special advantage? What do you do with people with better educations, more time, more money, or who are simply more intelligent? Saying you can only emulate people with _exactly the same_ advantages seems a bit excessive.

    "The point -- and please try to focus on what I'm plainly saying and not on what I “seem to believe” here -- is that if I can create a portfolio combining, say, three investment styles, and your portfolio management strategy is limited (for whatever reason) to just one style, (a) our relative performance results cannot be compared in any meaningful way, and (b) there is no valid expectation that your performance can track mine, because (c) you cannot emulate the portfolio management strategies available to me. Anyone who insinuates otherwise is trying to sell you something, and lying to do it."

    You seem to believe that investing is divided into various "styles" exclusive from one another. I disagree. In my opinion, there is only one method of successful common stock investment--buying companies (in part or in whole) that are selling for less than the discounted value of their future free cash flows. Under that definition, the same principles apply to every purchase of any part of a company, be it acquiring an entire company, buying shares in the open market, or making a private market transaction.

    If such general principles exist, and Buffett understands them well and illustrates them, then Buffett's example can teach them in all sorts of situations.

    "Very little of what they may learn from this crony can be applied to portfolio strategy at the retail level, however -- and much less in the "new normal" environment of sky-high cross-correlations "

    May I ask why correlations matter? If the price of everything goes down together, then something's going to be inordinately cheap. If you buy that thing, it will eventually go up to meet its intrinsic value. If Buffett is good at finding that thing* and his example can teach you to find that thing, then you can learn from him.

    * Yes, you can make an argument that Buffett's ability to find undervalued assets is purely based on his special access, but you need some sort of proof for that.
    Sep 6, 2012. 11:21 AM | Likes Like |Link to Comment
  • How Warren Buffett Is Different From Most Investors [View article]
    Okay, so the items on your "running list" seem to be focused on criticisms of Buffett and/or things that give him an unfair edge that ordinary investors can't emulate.

    If so, is your most recent criticism that Buffett is different from most investors because he's a billionaire, and thus we can't learn from him* because of that?

    That seems to be an odd argument, to say the least, given that it seems to imply that the most successful investors are off limits in terms of learning lessons.

    * Except, as you mentioned above, about crony capitalism
    Sep 6, 2012. 10:59 AM | 2 Likes Like |Link to Comment
  • Evidence is mounting that Monsanto's (MON) genetically modified corn is losing its effectiveness to bugs, the EPA says, with studies finding that rootworms on two Illinois farms had become resistant to insecticide that the corn produces. Corn accounted for $4.81B of Monsanto's sales last year, or 41% of the total. [View news story]
    I think this is different (this is talking about corn genetically engineered to resist bugs, as opposed to pesticides*), but yeah, I guess you could make a general argument that "pests" (weeds or bugs) are adapting.

    * I assume you're actually talking about about a pesticide, given that Roundup kills weeds, not bugs.
    Sep 5, 2012. 10:08 AM | Likes Like |Link to Comment
  • How Warren Buffett Is Different From Most Investors [View article]
    You seem to assume that after Buffet began to acquire entire companies, all of his outperformance comes from that.

    If so, how do you explain the way that Buffett's public holdings continue to outperform the market? (http://bit.ly/TXeeMl)

    Also, responding to some of your other points:

    "-- most investors don’t lobby for higher death taxes (a) to support forced asset sales by families hit by large tax bills, which the investor might then purchase at a discount, as in Buffett’s purchase of Dairy Queen (to name but one), not to mention (b) to support the sale of their insurance companies’ estate-planning services to families facing the tax"

    Dairy Queen was a publicly traded company when it was acquired. Also, and perhaps more importantly, you seem to believe that people shouldn't be allowed to advocate public policy measures that benefit themselves in any way because such advocacy will always be self serving. Thus, do you believe that wealthy people should be forced to abstain on commenting on estate tax issues?

    " As in the article here, the suggestion is always that minority equity holders can emulate Buffett's mindset or style. They simply cannot, because they can't emulate the business model or portfolio management techniques of private equity or acquisitions. "

    As mentioned above, you seem to believe that Buffett's recent accomplishments are purely based on his acquisition strategies. This seems unlikely, given that he's generally uninvolved in the daily operations of his holdings, but even if it's true, it doesn't mean that you can't learn from Buffett's acquisitions. He's obviously successful at least in part because he selects high quality companies to acquire in whole, many of which are publicly traded. Thus you can learn from him as to what companies make good investments, even if you can't acquire them in whole like he does.
    Sep 5, 2012. 10:04 AM | 2 Likes Like |Link to Comment
  • Evidence is mounting that Monsanto's (MON) genetically modified corn is losing its effectiveness to bugs, the EPA says, with studies finding that rootworms on two Illinois farms had become resistant to insecticide that the corn produces. Corn accounted for $4.81B of Monsanto's sales last year, or 41% of the total. [View news story]
    According to the article cited, an EPA statement.
    Sep 5, 2012. 09:35 AM | Likes Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    I'm not exactly sure what you mean by "First, their margins requirements are easier. Second, their cost is less;" however, my point is that the CIO is no longer in the hedging business.
    Jul 26, 2012. 07:33 PM | Likes Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    Because you know, when essentially every bank says that they'd prefer if interest rates were higher, they're...collectively expressing a death wish?

    Low rates help borrowers; banks are lenders.
    Jul 15, 2012. 07:30 PM | 1 Like Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    Here's the latest quote from Jamie Dimon himself:

    "Dimon notes the CIO won’t have a synthetic credit portfolio anymore 'and will focus on its core mandate of conservatively investing excess deposits to earn a fair return.'"

    http://on.wsj.com/NJs84A

    Also, you didn't respond to my point that in a normalized environment, the CIO probably doesn't contribute significantly to earnings (at least not enough to change JPMorgan Chase from being a good investment to being a "terrible" one).

    In short, either banks are too opaque to be investible or they're not; this loss doesn't really affect things (except to perhaps increase the argument for the "too opaque" side).
    Jul 15, 2012. 07:27 PM | 1 Like Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    I actually just noticed an interesting point about the title (speaking of which, did the author come up with it, or was it given by SeekingAlpha's editors?). The title describes JPMorgan Chase as "now a terrible investment," as if formerly with the CIO's profits, it was a good one. However, even if you reduce profits by 30%, the bank is still trading at roughly 11 times earnings, which if not a wonderful multiple is at least not a "terrible" one.
    Jul 15, 2012. 11:50 AM | 1 Like Like |Link to Comment
  • How JPMorgan Just Lost A Huge Source Of Profits, Now A Terrible Investment [View article]
    First of all, I think you misunderstand what the purpose of the CIO is--it's not only meant to hedge risks, it also invests excess deposits on behalf of the bank (in fact, I'm pretty sure that's its primary purpose). Thus, I'm pretty sure that it's supposed to be generally profitable.

    Along those lines, it's not as if the CIO is going to disappear just because of this event, so saying that JPMorgan Chase has lost a huge source of profits is a bit excessive.

    Beyond that, saying that the CIO is responsible for 30% of net income is probably excessive--that number comes from the depths of the financial crisis, where most of the bank's other units were presumably not as profitable as usual. To get a better idea of the importance of the CIO to the bank's profits, it would make more sense to go back to at least 2006 to get an idea of what its normalized contribution to profits is.

    Of course, it's perfectly reasonable to argue that the large banks are too opaque to invest in, but you don't need to make excessively dramatic statements about the recent JPMorgan crisis to do so.
    Jul 15, 2012. 08:28 AM | 2 Likes Like |Link to Comment
  • Charlie Munger: Civilized People Don't Buy Gold [View article]
    Based on your argument, I'm assuming that you were a big investor in internet stocks in early 2000?
    Jul 9, 2012. 12:04 PM | Likes Like |Link to Comment
  • Charlie Munger: Civilized People Don't Buy Gold [View article]
    The Rothschilds got their start in gold...trading. There's a slight difference between making money facilitating trade in something and trying to make money by sticking something in a vault.

    Your second comment totally misses the point--nobody argues that gold isn't a good store of value in the face of (potential) chaos, the issue is its value as an investment to provide income and/or capital appreciation.
    Jul 9, 2012. 12:03 PM | Likes Like |Link to Comment
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