Is Value Investing for Chumps or Wussies?
Tim Sykes has this habit of making fun of value investors (2).
So, value investors, listen up; you’re all a bunch of little sissy girls! You’ve become spoiled with the assets you manage, your mainstream credibility and the money you earn. I respect your strategy, but understand this:
I’m comin’ for you
One of his comments really caught my eye.
LOL, I lost money when I tried investing! If I stick to my trusty charts, I’m always safe. Only risk is getting halted or news. Tell me this, how long would it take to turn $12k into $2 million using value investing? Exactly, you’d be as old as Buffett. If you’re lucky.
The truth is trading is IDEAL for smaller investors looking to become wealthy.
Ok Tim, I will take you up on that challenge.
First let’s look at Buffett
http://en.wikipedia.org/wiki/Warren_Buffett
Now let’s look at the beginning of his investment career.
1956 Warren Buffet had 140,000 USD.
1962 Warren Buffet had 1,025,000 USD
You could argue that you should start counting at 1951 since that was when he had nothing. So let’s say he had nothing in 1951. That means in 11 years he went from nothing to 1 million 1968 dollars. Converting the 1962 dollars to 2006 it would mean anywhere between 6 to 14 million dollars.
When I first looked at that number I was in complete awe, as I did not believe Warren was that GOOD. Tim, sorry, but you are completely wrong on this one. Value investing is actually the better vehicle. Trading is easy come and easy go.
Here comes the question why do traders trade, if value investing makes better money? Easy, trading is quick money. I compare trading to X sports, and value investing to fishing. X-sports are definitely more fun and there is a nice rush. But you can very easily break your arms, die and what have you. And very often traders have shelf lives. It happens because styles go in and out of fashion. With fishing its about being at the right place at the right time. You wait until the fish comes to you, not you to the fish. Fishing is downright boring to many because there is no rush like an X-Sport. Yet both are sports and both have their successes and downfalls. You can go weeks without catching anything.
Hello There Mr Roboto!
(the song and era says it all... http://www.devspace.com)
7 Comments Add your ownSubscribe
1. Timothy Sykes | February 18th, 2008 at 4:08 pm
True Buffett did it, but he’s one in a million and that was 50 years ago! Where are all of today’s value investors making such returns? I know there are thousands, maybe tens of thousands of traders who can make such returns, probly through the use of leverage, which I look down on.
More importantly, value investors are booooooooooooring. Trading builds character. You don’t just value a company’s worth, you have to value a company’s worth during infinite slices of time.
2. Christian Gross | February 18th, 2008 at 5:32 pm
I don’t agree that because Buffett did it 50 years ago it is not possible today. It is possible today.
To say value investing is just valuing the worth of a company is actually not correct. That is one of the pieces, but you also need know when to time your purchases. Even value investors want returns.
Where I disgree completely is the booring and character bits. I personally don’t think the market is about building character. Its about plotting your moments to win. Nothing to do with character, but cold calculating actions.
Want to really know something interesting about value investing? If you do it right you get to play the cards when everybody else is panicing. You get to scoop up when everybody is crying chicken little.
Take the instance where Buffett wanted to bail out the bond re-insurers. That was classic Buffet. Buy on the mega cheap and piss off people because they had to admit that Buffett is right and holding all of the cards.
3. Timothy Sykes | February 18th, 2008 at 6:08 pm
You don’t think the market builds character because with your strategy, you’ll never build character! We can go back and forth, but its just too boring to me–different strokes for different folks.
Just know that I’m gonna spice things up because I’ve become all too aware that the vast majority know little about the stock market–they just don’t care. That is sad. Value investors are directly responsible for this, you think its only about gains and losses, you miss the thousands of beautiful subtleties. You’ve read my book you know what I mean. Ego aside, it’s time I show you sissies how to get people interested in this wonderful game
4. Doug | February 20th, 2008 at 6:56 am
Value investing may be boring - but at its core, “investing” is not about the thrill of speed - its about getting more value than you paid for. Let’s not forget that lots of traders lose money. True, many make substantial sums, but many more find life quite difficult.
Recently, trading has been great, because there has been enormous volatility, but even shark traders have been known to go bust.
The thing about value investing is that it success is generally driven by a few positions - Buffett’s single greatest investment was his $11 million purchase of 15% of the Washington Post in 1974. At the time, the paper was trading at a market cap of $85 million, when the lowest estimate he could put on it was $400 million. Such investment opportunities are rare, but today that investment is worth $1.5-$1.7bn and produces more dividend income every year than Buffett’s original investment.
That’s the kind of boring I want. True, I don’t make many transactions and I often do not often get the thrill of saying “I made X dollars today (unless there is a tender for my shares), but I generate solid returns in pursuit of my own objectives and I am not slavishly devoted to following the markets.
5. Timothy Sykes | February 20th, 2008 at 8:07 am
“I am not slavishly devoted to following the markets.” Couldn’t have said it any better myself. But perhaps you havent read my book, if you did, you’d see that microcap trading is very diffferent from the rest, due to the nature of the beast, the best opportunities–like your Wash Post–only come about every few weeks or months. If you enter at these incredibly irrational points, ll you have to do is sit back and watch your profits grow. Thats how some of my best profits have come and why while I think trading is better than investing, microcap trading is better than the rest of trading. Contrary to popular belief, my strategy is at the top of the food chain, not the bottom, I just gotta show you all what I mean!
6. Doug | February 20th, 2008 at 10:53 am
Tim,
I checked your site and your story is quite compelling. I agree with you that micro-caps are *usually* the right place to be, since there is far less study done on the companies and often wide disparities between price and intrinsic value (in both directions).
What role do you see mentality playing in the difference between successful and unsuccessful trading?
7. Timothy Sykes - Stock Tra&hellip | February 20th, 2008 at 9:09 pm
[…] Check it out, a little sissy value investor tries not to be boring! […]
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