Dear disgruntled reader,
I wanted to leave you with a riddle to ponder over the Holidays. Let’s take two classic Buffett statements and analyze them:
1) Our favourite holding period is forever
2) All investing is value investing
These two statements, though undeniably Buffettesque, are hard to reconcile. Let’s say value investing is buying dollars for 50 cents (a potential double). And let’s say “forever” is something like 20 years. What’s a double over 20 years? Not a whole lot: 4% annualized. Buffett has on average delivered 38x over 20 years (ie ~20% annualized). Even taking out the leverage Buffett gets from his insurance float, he has delivered at least double digits annualized. How do you reconcile these two statements? Could there be a source of returns other than some alleged discount to an “intrinsic value”?
My next post will be in January. Read my archives if you need something to tide you over. Finally, at the risk of appearing weak and subservient, I would like to extend to you the obligatory year-end greetings.
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