First of all I must
declare my hand – I have read a lot of investor books and to me the
Buffett philosophy is the only one that is credible and rational IMHO. Trading is a high risk activity unless
you have inside knowledge which will get you in hot water. You rightly observe discipline is
everything (and I have met more than a few people in recent months who bought shares at high levels in recent times and sold
out when the going got more difficult, i.e. went with the mob – and lost
a lot of money!)
Buffett of course dismisses
TA as “hocus pocus” – but logically it may be an aid re
timing buys and sales – but the buying patterns that TA relies on must be
regarded as second or even third tier data – so RATIONALLY there is no
escaping the core importance of fundamental analysis. Buffett is a bit more than just a buy
& hold operator as the following often quoted statement of his illustrates …
“Stocks are simple. All you do is
buy shares in a great business for less than the business is intrinsically
worth, with managers of the highest integrity and ability. Then you own those
shares forever. "
Well even this great
quote is rather simplistic – (Buffett does sell stocks!) But we are all suckers at sometimes in
our lives for slick rhetoric without stopping to work out what it really means!
A friend of mine with little share
market knowledge quite recently went to a seminar on options trading …. I
am amazed in these days of Fair Trading Acts etc these people can still get
away with their promotional approach.
The weight of evidence is that trading is very risky, and I would be
interested to see if those few who consistently make money can attribute this
to more than good fortune – I would be certainly interested in how they
can justify their risk reward equation.
The real trouble with
the Buffett like approach is its pretty boring – ‘Buffett like
stocks’ don’t have very active message Boards or attract a lot of
commentary – and the Companies themselves do pretty ordinary things -
usually – and of course your sharebroker goes broke waiting for you to do
the next transaction. Lastly no one
will talk to you at those parties if you say you bought X stock 15 years ago
and the dividends have paid back your original outlay and the current price is
now several hundred % above the purchase price. The chap that drives up in his MERC
Sports (on HP of course) and tells how he made 100% in a few days will always
get all the attention and seem very charismatic!
So you are back to “boring”
– but in more ways than one richer for it!