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I just read Seth Klarman's book, margin of safety
he stated that in the long run value investing becomes a positive sum game,
unlike short term trading which is alike to a poker game, a transfer of money between the players - a zero sum game
Can somebody explain to me howww??
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I've not read the book. But I am going to speculate how he envisages this to work.
In the long run, assuming that an economy grows, the pie will grow larger i.e. the overall value of everything has gone up (including businesses). Hence in the long run, it is a +ve sum game since value has been created over time.
In the short run, no value has been created, hence any transfer is a zero-sum game.
This is my guess at what the author might have implied.
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Simply by applying rational thinking, in a longer term (say 3 to 5 years at least, or longer), any well-organized and decent business under the care of a competent, driven, and honest management team and supervised by a responsible and indepedent BOD, should be able to accumulate some profits and cash reserve and also raise its equity (i.e. NAV) position - and hopefully also increase its recurrent earning capacity (as evidenced by higher yearly profits, ROE, etc.) - and this would mean the business should have a higher intrinsic value, which should support a higher market price of its shares. Along the way, the business should be able to pay out dividends from its recurrent profits - hopefully also at a rising rate, if its underlying profitability increases over time - which means its shareholders would also get a regular cash return from their investment. If the business also carries within it some valuable assets - e.g. a large investment portfolio or cash reserve in excess to its normal operating requirements, or valuable real estates, etc. - there could be occasional special cash payouts to its shareholders, especially when such assets are realizsed. Along the way, the positive economic characteristics of the underlying business or its assets may even attract a third-party who may be prepared to pay a good price to buy it over in its entirety. When this happens, the controlling and those bigger shareholders would most likely end up becoming very rich!
Therefore, value investing in the above fashion is a positive proposition!
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My view is that likely zero or negative.
1. A well managed company probably do not need to be listed. They can attract funds easily.
2. A listed firm do not mean that with our share purchase they will do better either
3. Transaction cost
4. Insiders would have taken a major chunks of the benefits thus skewing the game even if the balance turns out positive
5. Listing cost
Cory
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27-10-2012, 09:09 AM
(This post was last modified: 27-10-2012, 09:12 AM by Temperament.)
My answer is i always wonder about WB. He does "nothing much" except investment yet he is 1st to fifth among the wealthy people of the world, if i am not wrong.
Or correction, he is not investing, he is buying the whole or become the major share holder of any profitable company he can find. But he also started somewhere before he is "there," isn't it?
So, can we retailers "duplicate" a little, just a very little bit of what he is doing? No?
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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27-10-2012, 09:48 AM
(This post was last modified: 27-10-2012, 09:53 AM by money.)
(26-10-2012, 11:11 PM)ikur1 Wrote: I just read Seth Klarman's book, margin of safety
he stated that in the long run value investing becomes a positive sum game,
unlike short term trading which is alike to a poker game, a transfer of money between the players - a zero sum game
Can somebody explain to me howww??
hey is this book available in the library?
by the way, value investing is a positive sum game cos when u invest and hold the right companies, u earn dividends and the share price increases as a result of increased earnings (assuming same p/e). U do not depend on other traders to increase a valuation of your company. all shareholders gain, therefore positive sum.
if you do trading, for one who gains, another person loses, therefore zero sum
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In the Stock Market, basically there are 2 types of players:
A) The Investors.
B) The Traders, sometime also known as Speculators or Punters or Gamblers.
A) The investors invest with the companies. The companies provide products or services to their customers and make money from them. When they make money, they distribute part of the profit to shareholders as dividends and retain part of it to grow the company resulting in the increase of the share prices. The companies make money for their shareholders so it is a "Positive-Sum-Game”.
B) The traders trade between themselves so one group makes money at the expense of the other group. It is a “Zero-Sum-Game”.
A) Before the investors invest, they look at the fundamentals of the company. (Can be Growth Investors or Value Investors).
B) The traders look at the technical.
Retired @ 52 in 2007
Dip. Inv.
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(27-10-2012, 03:44 PM)Retired@52 Wrote: In the Stock Market, basically there are 2 types of players:
A) The Investors.
B) The Traders, sometime also known as Speculators or Punters or Gamblers.
A) The investors invest with the companies. The companies provide products or services to their customers and make money from them. When they make money, they distribute part of the profit to shareholders as dividends and retain part of it to grow the company resulting in the increase of the share prices. The companies make money for their shareholders so it is a "Positive-Sum-Game”.
B) The traders trade between themselves so one group makes money at the expense of the other group. It is a “Zero-Sum-Game”.
A) Before the investors invest, they look at the fundamentals of the company. (Can be Growth Investors or Value Investors).
B) The traders look at the technical.
Retired @ 52 in 2007
Dip. Inv.
I thought this is an enlightening statement. Retired since 2007 provide me more inspirations.On the whole, investor+trader, is it still zero-sum is the question.
Cory
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hey is this book available in the library?
by the way, value investing is a positive sum game cos when u invest and hold the right companies, u earn dividends and the share price increases as a result of increased earnings (assuming same p/e). U do not depend on other traders to increase a valuation of your company. all shareholders gain, therefore positive sum.
if you do trading, for one who gains, another person loses, therefore zero sum
[/quote]
i'm not sure, i got a copy from a friend of mine
it's out of print and i heard costs 1k plus on ebay!
but def recommended reading, good luck
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Don't think so. But I got it from the net.
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