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By TMFOtter
September 21, 2001

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THOMASPAYNE Said:

I beg to differ that investors today started with the same money as Buffett. $ 2,000 today is worth far less than during Buffett's time. Why don't you index that and talk numbers in real dollars.

Buffett began his partnership with $10000 of his own money in 1953, having earned much of that by arbitraging stocks working at Ben Graham's side before that. He was not a man of zero means, but $10,000, then and now, was not enough to buy whole companies. Quibbling about what that indexes to is meaningless, because the point that was being made (by you) was that people do not have enough money to support his buy and hold approach. Even when his ability to eat depended upon his stock picking prowess he was using a similar approach to equities. In other words, one cannot impugn his level of wealth as making him "different" without considering how it is that he came to that wealth.

Why is it that every example given is always one of the survivors? For every GE there are at least 10 companies that fail. Woolworth was once a high flyer. Where is it today? What if your grandfather had invested in Westinghouse Electric instead of GE? What if your grandfather invested in conglomerate Ogden corp in 1961. Back then a pretty good company. Today not worth much more than it was in 1960. OK, How many worthless Railroad stocks did he own? If you have any reasoning ability, then you can see that holding a stock for 48 years is secondary to picking a great stock. This renders the buy/hold argument defenseless.

Let's do some math, sports fans.

Let's say that the guy bought 100 shares of GE, 100 of Woolworth, 100 of US Steel, 100 of Ogden, yadda, yadda. We must assume now that he has lost all of his investments in every other company besides GE, though he did receive a dividend on all of these companies during his holding period. (Which wouldn't be true, USX and Woolworth, in the form of Venator, are still trading today). He's still a millionaire many times over, with portfolio returns that cause most people to drool. Why? Because he hit a single winner. AND he has never paid a dime of taxes on those unrealized capital gains. One need not be right with every decision to do very well investing.

Buy and Hold is only defenseless when it is applied without any view of business realities. Buy and Hold cannot protect one from bad buy decisions, which JDS Unipahse at $150 undoubtedly was, as Lucent at nearly any price was. That Buffett makes better buy decisions than most is irrefutable.

I recently did a study of the Nifty 50 from the late 1960's. If one bought those at their HIGHEST point in 1968 and held them through to today, that person has kicked the fire out of the indices. And yet those people had to wait until 1982 before they even saw any positive gains. This gain includes the failed companies like Polaroid.

Look, you bring up good points about being business-focused. You also make good points about being willing to change with the times. But at the same time, "the times" are what led people into investing in hard drive companies in the first place. I believe that the best investors are those who are able to be ahead of the times and remain focused upon businesses, and those who are fully cognizant that investing demands both the appreciation of assets and the protection of capital.

As for your daringly inappropriate question about how I've done since the beginning of this year (again, a period of time I consider to be meaningless) the majority of my money is in two companies: Berkshire Hathaway and White Mountains Insurance, but I also hold growing stakes in Cable & Wireless and American Express. I recently also sold my position in Church & Dwight. Any losses I have I do in fact blame myself for, never blamed anyone else. Some of those losses are due to temporary impairment issues, others are permanent. I do not care about those I believe to be temporary; I ask myself every day how I missed the signs of those that will turn out to be permanent.

All of the things you say are true about "good investors". A great investor buys into any one company with the hope that the best time to take a profit is "never".

Bill Mann

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