[c2]

It's patently false the claim that individual investors generally don't beat the market, or that the ones that do only do so by chance.

Warren Buffet, a very famous investor you may have heard of, even mentions that he knows plenty of small individual investors who follow many tenets of the philosophy of value investing and they have consistently beat the market.

I, personally, have been individually investing, following the principals of value investing, knowing the companies I invest in, and asset allocation, diversification across industries, and I have slaughtered the market for over 20 years.

All the points he raised in the article are valid, but they read like pop culture one liners. If you are serious about investing I recommend reading Ben Graham's Intelligent Investor and Security Analysis, and follow along with Buffet's letter to shareholders.

Understanding the stock market takes time, and you won't find the answers in a 1000 word blog post.

[danteembermage]

I think the key here is that you are "buying" stocks rather than "trading" stocks. If you invest Warren Buffet style you make a significant investment in a company you think is a good value and you never sell. Thus, your transactions costs are exactly the same as someone buying a broad market ETF and you have more fun at the expense of a little diversification for a while. But once you get to 15 stocks you're basically diversified as long as you didn't industry clump.

So, the only reason not to trade is that you should expect to do exactly as well as the market and pay a bunch of transactions costs which makes you strictly worse off, but the Buffet approach doesn't pay more than you would have anyway.

A point not mentioned is that individual investors can have planning horizons 3 to 50 years long while a lot of Wall Street money is on a 3 month put up or shut up investment time frame. Strategies that take a long time to mature are tough to do when you can get performance-fired for not having your thesis pan out fast enough. You don't have that restriction with your own money.

[charleslmunger]

>but the Buffet approach doesn't pay more than you would have anyway.

https://www.google.com/finance?q=NYSE:BRK.A

[danteembermage]

Sorry, maybe I wasn't being clear. When I said "Doesn't pay more than you would have" what I meant was "Doesn't pay more [transactions costs e.g. fees and bid / ask spread] than you would have [had you just pursued an indexing strategy" In that light the current price of Berkshire Hathaway isn't particularly relevant because even if I just bought Berkshire stock I would still pay the spread. In fact the current B/A spread on BRK.A is 183218.7-174644 = 8574.7 which is considerably higher in percentage terms than a stock with more volume. Of course that's probably exactly how Uncle Warren wants it given he's let the price go so high with out a split.

[tempestn]

How many value investors actually manage to have positive three-factor alpha[1] though? Sure, adding a value tilt gives you an expectation of beating the market. Doing so on a risk-adjusted basis, after taking into account both increased volatility and the idiosyncratic risks of value stocks, is more difficult.

That said, if one is not sensitive to those idiosyncratic risks - ie if they have good job security and/or a large financial cushion - a value tilt can indeed provide an edge over the market. I personally would rather get it with low cost value index funds though, rather than taking on the non-systematic risks of investing in individual stocks.

[1] https://en.wikipedia.org/wiki/Fama%E2%80%93French_three-fact...

[madebylaw]

I came here to say exactly this. I have been following Buffet/Graham's value investing principles for ~ 5 years and have well outperformed the market (S&P) in that time span. If you follow their approach, it's pretty clear to see when a valuable company is being undervalued by the market (this was happening a bunch during the '08/09 financial crises).

Mind you, it's much easier to buy index funds and sit on them than actively maintaining a value portfolio which you should be re-examining every 6 months, but it can be very worthwhile.

[icebraining]

It's patently false the claim that individual investors [that] beat the market (...) only do so by chance.

I ask this as a perfect ignorant, so I don't have a position on this argument: how can you tell?

[charleslmunger]

Warren Buffet wrote about this a while ago: http://www.tilsonfunds.com/superinvestors.html

[charlieflowers]

>> ... even mentions that he knows plenty of small individual investors who follow many tenets of the philosophy of value investing and they have consistently beat the market Can anyone tell us who a few of them are? I'd like to know how many of them might exist, how consistently they've beaten the market, and for how long.

And if those answers are strong, I'd like to invest some money with them.

[slykat]

For a good summary of the value investing philosophy checkout these books: Intelligent Investor by Benjamin Graham Margin of Safety by Seth Klarman

If you want to know this group of high performing value investors, c2 is referring to Buffet's article called "The Superinvestors of Graham-and-Doddsville". It's a pretty fascinating read. You'll have a hard time investing in most of these folks as they are all early proteges of Ben Graham (father of value investing) and as such many are dead or retired.

Regardless, I highly recommend reading those as they give you an idea of why some think a strong value investor can beat EMT & the market.