Just before packing up my bags to depart for my secret cove for the weekend to finish the March newsletter, I ran across an article that I just couldn't let go without commenting on because it really made me sick to my stomach.
The article is of just one more of the thousands that the financial media continues to churn out about what a great investor Warren Buffett is.
Now, don't get me wrong. He is a great value investor. And he is also very good at distressed securities analysis.
But these two aspects are only a part of the investing process. If you are not good at other things, you will miss out on other, perhaps better opportunities. But Buffett's investment structure and style has worked quite well for him, so no one can take anything away from him as far as that is concened.
More important, Buffett sticks to certainty and leaves less certain investments to speculators; well, usually anyway. Sometimes, he has gotten a bit desperate like when he bought GE and GS, then went on TV and made his case for a bailout, which of course would help these investments tremendously.
One of the first things I try to emphasize is that you must stick to things you have more certainty about. The difficult part of this is understanding relative certainty. I will address in the future if someone reminds me.
Now, before you read the article, I wanted to point out a few things.
First, a statement by a Morningstar plant (i.e. he was intentionally mentioned as a way to market Morningstar in order to strengthen the advertsing dollars MarketWatch receives from Morningstar):
"Mutual-fund managers have incentive to do well on a year-in-year-out basis; if things don't go well for a year or two, they'll see outflows," he added.
No. Not exactly. The fact is that mutual fund managers don't really have much of an incentive to perform because mutual funds are marketing vehicles more than investment vehicles.
Sure, they would like to perform well. But when you are dinging investors with 3-5% in total fees, (many of which are not disclosed or are not properly disclosed) you can keep investors in your fund by penalty fees for early withdrawl, modeling the fund after an index (so as to keep the performance similar to the market) and other tactics.
Finally, as I have discussed previously, mutual funds are so limited in what they can do that for most investors, they are really worthless. And most mutual funds get slaughtered during bear markets.
I also wanted to point out how the author adds his plug for Morningstar. This useless company has been mounting a huge effort over the past three years to try and build its name as a legit research firm.
Let me be clear. Morningstar is a marketing shop for the mutual fund industry. It is completely useless. The "Morningstar fund ratings" mean NOTHING. If you happen to have mutual funds, I would not waste time worrying about how many stars it has.
Most people are lazy. They want things handed to them on a silver platter so they don't have to do the leg work. The Morningstar fund rating system caters to this mentality, just as so many other services do.
DO NOT FALL FOR THIS OR ANY OTHER SERVICE OFFERING YOU AN EPIPHANY.
There is no cut and dry simple method to rate a fund, stock or any other security.
If you think there is, then you are a sheep, and you will get taken.
Those of you who subscribe to the newsletter understand this.
I provide a good deal of guidance in the newsletter. But I usually don't come out and say "Buy this now it's set to soar" or "Sell this now" etc. because everyone is different. I do have securities that I like, and I discuss them. I also mention when I think they might be good to pick up. But I also include relative valuation analysis and technicals to help you see that they might not be for some investors.
Everyone has different skill sets, a different amount of time they are devoting to investing, different levels of risk tolerance and different objectives. So it is impossible and irresponsible for anyone to make such cut and dry buy and sell signals.
The best way is to invest is to have access to a comprehensive analysis of the economy and markets, and along with a basic analysis of the security, you should learn how that fits in with your own skills, objectives and so forth. That is how you become a great investor. There is no way around that. That is what I try to do in the newsletter.
Based upon what I have seen, I would consider Morningstar "analysts" to be completely useless, if not dangerous. They make Wall Street analysts look like geniuses.
You should note that I have seen Morningstar place ads in financial publications such as Barron's stating the following (paraphrased):
Wanted: Analysts for Morningstar. No experience necessary.
As you read the article, notice the plug for another book that uses the Buffett name as a way to sell copies, "How to Pick Stocks Like Warren Buffett."
I wrote an article warning investors about gettiing suckered into this marketing strategy, How the Media Uses Buffett to Make Money.
Give me ****** break! Yea ok, so you can buy a book and learn how to pick stocks like Warren Buffett. WRONG. But not that it would matter, as I have previously discussed.
While the author does point out some of the differences between Buffett's Bershire Hathaway and mutual funds, he fails to:
(1) Discuss the inherent limitations of mutual funds
(2) Emphasize the sweet deals Buffett gets
(3) Point out that Berkshire Hathaway doesn't charge the fees mutual funds do, which adds to his performance
Finally, on page 2 of the article, notice how the author basically constructs an advertisement for Templeton Growth Fund. This is what the article is all about. And using Buffett's name to attract the sheep provided a big audience.
Okay now here is the article. The title is "Beaten by Buffett." Read the first two comments. These guys seem to understand the BS.
I probably missed some things since I scanned through the article in about 30 seconds. If so, feel free to add to it in the comments. And of course, feel free to make any other constructive comments.
By the way, MarketWatch has a huge volume of amateur investors, many who seem to be sheep. Many of them stick to that site religiously. You might want to wake these people up. They are being taken, just like the sheep who watch CNBC and other financial media.
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