Comment by rchaud | Hacker News Reader

Comment by rchaud | Hacker News Reader

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In Buffett's day, value investing made a lot of sense and allowed Buffett to put out wise-sounding soundbites like "I don't invest in what I don't understand" and helped shore up the folksy image of Berkshire Hathaway, who owned ostensibly uncomplicated companies like Heinz.

But today we live in a world where the way to make money is through regulatory arbitrage (Uber) or startups chasing risky business models. Additionally, accounting trickery is orders of magnitude more elaborate today, and high frequency trading may have permanently impacted traditional models of volatility.

Of course, this applies only to publicly traded companies. My overall point is that determining value from fundamentals alone is nowhere near as straightforward as it used to be.

Sorry but no. It ALWAYS makes sense to sell high and buy low, even if you're buying the exact same company. In other words, just find one value play if you want, and follow the cycle.

The skill is in determining what high and low is - i.e. you do need to have a sense of what the asset is worth. The easy answer is - figure out what its worth to you. i.e. what level of earnings or dividend does it seem attractive, and then accordingly, what is too cheap and what is too expensive. Obviously, take into account debt and other liabilities if you can.

That's why its necessary to understand the basic business model.

The tricky part is the temperament to do nothing when others are in a frenzy. Only a few transactions in your entire lifespan will determine the vast majority of your performance.

That is an oversimplification that assumes that markets are efficient and there is no information asymmetry and evrryone operates on a long investment time horizon. If Warren Buffett and I both invested in Goldman Sachs in 2008, I would have to base my decision based on quarterly earnings reports and my guesses on the direction of Fed's monetary policy. Buffett on the other hand would be invited inside the Goldman boardroom and likely told of the company's situation without the sort of CFO doublespeak that occurs during an earnings call.

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