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Berkshire Hathaway
Can an average Joe pull this off?

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By MainiacJoe
December 7, 2001

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I've been reading about investing for about two years now. The more I learn, the more I realize there is to learn. I am just starting out in investing at 30, so my portfolio is quite small right now, about $10,000 split up among my Roth, my wife's Roth, and her company retirement plan. I do know, however, that even that is enough with my timeframe to let compounding do its magic, and I am planning to contribute aggressively in the next decade. I'm not worried about the future, but I do want to do my due diligence, and happily I enjoy the subject matter immensely.

I've had periods where I am excited about technical analysis, or stupid options tricks, or quantitative screens. Eventually I realized that I did not need to take on that much risk because my timeframe wasn't forcing me to. Most recently, therefore, I've been looking at conservative get-rich-slow strategies, mainly Warren/Graham security analysis and passive asset allocation with index funds.

Right now I am leaning towards the latter, for this simple reason: I don't think I can do what Warren does. I just don't think I have the necessary resources, time or skill.

I'm right now finishing up an entry-level investing class at the university where I work. One assignment involved keeping a journal of news tidbits about the seven companies we chose for the obligatory stock-picking contest. I was amazed at the sheer intricacy of running a business. Even after discarding the 90% of fluff (I actually read one online article that equated "long-term view" with the quarter after this one!) there is just so much to keep track of if you are going to really know a business: industry pressures, raw materials commodity issues, consumer confidence, etc. I had the thought that to really know how a business works, you'd have to run it; but then maybe CEOs get fired because even that isn't enough.

I don't think I can even find out the necessary information. I mean, Warren can dial up any CEO in the country and get an interview, but I may as well be the panhandler on the sidewalk outside corporate headquarters. Mutual fund managers could probably justify a vacation in Africa by flying to Zimbabwe to inspect the latest mine on-site. I'm stuck with what I can scrape up in the media, and I have a pretty low opinion of its quality.

But even if I learn what I need to learn, what if I learn that the company isn't a good investment. Do I really have the time to thoroughly investigate a even few companies?

Then there is the skill factor. Security Analysis has been around what, 60 years? Buffett has been very successful, Peter Lynch was very successful, but what about the thousands and thousands of anonymous failures? I truly don't know if I have the necessary skill. The only way to find out is to try, and I won't know for a decade or two. Lots of things in life, you must go ahead and do them and figure out in the rear-view mirror if you did the right thing. Here, though, is it really worth the risk of finding out the hard way that I'm a clueless moron when I can just go with index funds?

When I talk about a lack of skill, I might sound like an efficient market die-hard, but I'm not. I believe Warren is absolutely right when he says that noticing that the market is usually efficient does not justify concluding that it is always efficient. I am just quite concerned that I might not have the necessary skill and resources to reliably (I'd be very happy with a .500 batting average) identify inefficiencies. And of course, identifying unfavorable inefficiencies is just as important as identifying favorable ones.

I hope this doesn't sound like trolling. Instead, think of it as worries out of inexperience, and probably some timidity as well. I would be very interested to hear success stories from you all. I'd really, really like to have some sort of active role in my investing as passive index fund investing sounds about as fun as watching paint dry. Maybe I'm just being paranoid, but I am concerned about preserving capital first. I know Warren heartily endorses index funds for those who don't want to pick stocks like he does. Well, I want to, but I'm just not sure I can pull it off.

- Joe

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