The Master of Money: "The Snowball: Warren Buffett and the Business of Life" review(tnr.com)
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The Master of Money: "The Snowball: Warren Buffett and the Business of Life" review
http://www.tnr.com/story_print.html?id=12ef5554-1023-4be9-ad93-681003b280ef
8 comments
I read it recently and liked it quite a bit. I think one of the things that stuck out for me is that he and Graham were taking this sort of 'quant' (using the term very loosely, as some people here do that, and I don't really know about it in detail) approach back in the 50ies - they absolutely poured over the stats in an era when that wasn't as easy as it is now. Now, Buffet is big enough to be able to do stuff ordinary investors can't, like buy entire companies.
In other words, perhaps part of his success belongs to a bygone era that won't come around again.
In other words, perhaps part of his success belongs to a bygone era that won't come around again.
Graham and Buffet engaged in"fundamental analysis", which attemptes to determin an implicit value of a company based on business (accounting/financial) information. The traditional source of this information is from balance sheets, income statements, sales figures, and talking with management.
This is drastically different from "quant analysis", which tries to determine a stock price, or engage in arbitrage, from previous movements, relations to other stocks, and a host of other data largely irrelevant to computing the implicit value of a company. This information comes from real-time data streams from god-knows-where.
This is drastically different from "quant analysis", which tries to determine a stock price, or engage in arbitrage, from previous movements, relations to other stocks, and a host of other data largely irrelevant to computing the implicit value of a company. This information comes from real-time data streams from god-knows-where.
A fair number of quants use traditional valuation measures. In fact, one of the reasons that by-the-numbers value investing is so hard now is that so many funds are just buying the bottom 10% of companies by price/book, and shorting the top 10%; that compresses the price differences, meaning that value investors have to get more subjective.
To the extent that anybody was a quant back then, Graham probably counted: he did use lots of statistical rules, and he didn't use very much else.
To the extent that anybody was a quant back then, Graham probably counted: he did use lots of statistical rules, and he didn't use very much else.
Ok, I'll explain what I mean better:
By looking at certain bits of data, they attempted to find these 'cigar butt' companies - Graham more than Buffett. The way they did that was to comb through a lot of data in a way that can now be done by a computer extremely quickly. So perhaps 'quant' is wrong... shall we say 'data driven'? Of course that's not all Buffet did/does, but it just struck me as an edge that he had then that he couldn't have now.
By looking at certain bits of data, they attempted to find these 'cigar butt' companies - Graham more than Buffett. The way they did that was to comb through a lot of data in a way that can now be done by a computer extremely quickly. So perhaps 'quant' is wrong... shall we say 'data driven'? Of course that's not all Buffet did/does, but it just struck me as an edge that he had then that he couldn't have now.
that and buffett has been outspoken against quants. he has also been accused of 'being in the right place at the right time' or 'lucky' quite a few times, but this is not the case.
another good book on buffett which has some sections dedicated to buffett vs quants and buffett vs 'its all luck' ppl is "The making of an American Capitalist" (http://www.amazon.com/Buffett-American-Capitalist-Roger-Lowe...) -- first book I got on him, perhaps the best (got snowball, haven't read it yet).
another good book on buffett which has some sections dedicated to buffett vs quants and buffett vs 'its all luck' ppl is "The making of an American Capitalist" (http://www.amazon.com/Buffett-American-Capitalist-Roger-Lowe...) -- first book I got on him, perhaps the best (got snowball, haven't read it yet).
The books go well together. "Making of" is way more hagiographic, and less detailed.
What would be really great would be a wikified list of his transactions, linked to the financial statements and news stories that were current at the time.
What would be really great would be a wikified list of his transactions, linked to the financial statements and news stories that were current at the time.
Great article worth the long read.
Oh, wow. I thought Lewis was in finance, but apparently he doesn't realize that the peak-to-trough performance of one member of an average is very likely to be higher than the peak-to-trough performance of that average. This is true, even with a two-stock index:
Note that A and B both had a larger peak to trough loss than the average. And yet, the average consists of A and B.
e railed against derivatives as weapons of mass destruction, and now turns out to have been sitting on a $68 billion pile of credit default swaps and exotic put options on various stock market indexes.
He complains specifically about counterparty risk. Someone who read what he said would know that; someone who heard thirdhand quotes might not. The derivatives he holds don't have any counterparty risk for him, because he's getting all the cash up front and paying out based on future events.