Investment Time Wasters | Part 3
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The Things That Waste Your Time | Part 3
The Hidden Time-Wasters in Investing
Marcus Padley | July 26th 2024 | Education Corner
Part 1 Part 2 Welcome to the third and final part of our series on "The Things That Waste Your Time." We've already covered the issues with reacting to urgent market news and the risks of overanalyzing resource stocks. Now, let's dive into some more subtle yet pervasive time-wasters in the investing world. We'll explore why broker research often serves more as a marketing tool than unbiased advice, the misguided adulation of Warren Buffett’s investment methods, the false sense of security provided by consensus estimates, and the dubious value of anonymous forums. If you're serious about cutting through the noise and focusing on what truly matters in your investment strategy, this is the article for you. So, let's cut the fluff and get to the heart of what really matters: making smarter, more informed investment decisions.Broker Research
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Do I really have to explain this one? Most broker research is a cross between a marketing document and sucking up to the companies the research is written about. In the hope of a corporate relationship if one doesn't exist, or to service the existing relationship if it already does. The analysts aren’t stupid, the research is worth reading, they've done more work than you, they have better access, they know more, but understand that it is not independent advice. Also understand that by the time you read it, if it actually does have some insight, all the important clients have had it for the last week already. You are there to ice the price not take advantage of it. Broker research is tainted with corporate purpose and is rarely written with the singular motive to make the end reader money. You can read about broker research in the articles below. Meanwhile here is an extract from the Marcus Today Shorter Melbourne Dictionary of stockbroker recommendations, which just about sums it up.
- BUY – It’s listed.
- HOLD – It’s a SELL and we’re not about to ruin years of relationship building between the analyst and the company, and the corporate department of the company.
- SELL – We pitched for a role in the capital raising and another broker beat us to it.
- We are moving from BUY to HOLD – SELL
- We are moving from HOLD to UNDERPERFORM - SELL
- UNDERWEIGHT - SELL
- Oversold – It's a terrible company but we’re the broker.
- BUY (on a small company from a big broker) – We are about to do a capital raising.
- Conviction BUY – Same as a BUY but we’re a small broker craving attention.
- For the Marcus Today Stock Market Dictionary - CLICK HERE
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Buffett
There are a number of ways to approach the glorious game of stock picking. Let me tell you what you already know, there is no Holy Grail and I get particularly irritated with the quotation, adulation and promotion of Warren Buffet. The idea that you can do it “The Warren Buffett Way”. It is my contention that ‘The Warren Buffett Way’ and the way investors and advisers alike have skimmed the surface and pretended to apply his methods has cost the average investor more money than it has ever made them. I have no problem with Warren Buffett himself, but with the popular delusion that we can and should emulate him. There is hardly a man in the street who does not quote Warren Buffettisms and hardly an adviser or investment product that does not claim an empathy with his investment style. But the truth is that there is only one Warren Buffett and only one person in the world that has his skill, patience, money, well-earned advantages and dedication to the task. But the rest of us? To think we can assess a profit & loss account between dropping kids at school and holding down a job is simply delusional as is the marketing of the idea that someone who is not Warren Buffett can emulate him and his success on our behalf. Seriously, if it was possible to imitate Warren Buffett and transplant Warren Buffett’s judgement into another fund manager would we not know about it. Wouldn’t his fund be the highest returning fund in the market and wouldn’t we all be invested and be billionaires? But there is no such fund manager and no such fund, because being Warren Buffett and exercising his judgement is not easy, it’s not even very hard, it’s impossible, because so many elements of his analysis are so subjective. Getting stocks right is a very personal thing. I’m afraid if you really want Warren Buffett to be your adviser or your fund manager, then there is no alternative but to ring him. He is the only one with the cortex and the neural channels, developed over decades of focus that, when faced with a potential investment, says yes when its right and no when its wrong more often than anyone else. You can’t replicate that..png)
Additionally, if you were to attempt to invest on the Warren Buffett template you will need his patience, but the reality is that you can’t afford it. No-one seems to realise that Buffett has a very different risk profile to mortal investors. Buffett is one of those investors that has his school fees and mortgage paid off. He can afford to be patient. If you don’t have more money than you need then I’m sorry but you cannot “Shut the stock market for ten years” because you can’t afford to. In other words you cannot adopt the value approach, buying stocks below intrinsic value and waiting for the rest of the market to catch on, because before they do you might have a few bills to pay. Let’s face it, you do not have the risk profile of Warren Buffett and because of that you cannot invest on the same timeframe, which is a critical part of the value investment thesis. You have to be patient. Most of you can’t afford to be.
There are only three ways to make money out of Warren Buffett. Buy shares in Berkshire Hathaway, write a book about him or use his name to market a product with the subtle implication that he endorses it.
On that basis Warren himself is hardly to blame for all this hoopla and if there is any blame at all it is ours. For skimming the surface of the biggest investment success story in the world.
There is no Warren Buffett Way for other investors. There is only picking stocks that go up in price and to do that you would be well advised to rely on you, just you. With your understanding, your time horizons, your risk profile and your expectations. Not Warren’s. Forget Warren. You are not Warren. You are you, rely on that or as close as you’re going to come to Warren Buffett is living in the same crappy house and driving the same crappy car for the rest of your life.
Consensus Estimates
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If you don’t already know there are two spreadsheets going around the Australian stock market (and the international markets). One is from Thomson Reuters (now Refinitiv) and the other one is from Bloomberg. Brokers do deals for cheap Refinitiv and Bloomberg terminals in return for providing these news outlets with all their forecasts.
Those forecasts are made available to the customers of these institutions as a value add and these forecasts re-appear in a thousand data-dependent research and software products. The only difference between many of these products is how much money has been spent on their website presentation. Some are very flash, some are very basic, but the core value add is exactly the same, a regurgitation of Refinitiv and Bloomberg consensus forecasts (look at the logos at the bottom of financial industry websites to see where their data comes from - the point of difference is website design).
Then you need to understand that these forecasts that are available to the market are already 'in the market', in other words, they are already discounted by the share prices. Net result, whilst you can use this data to search, sort and filter for companies to invest in, and can use these forecasts to put yourself above the few people who don't have access to them, but all you are really doing is re-sorting information that is already in the price. You will not make money out of widely disseminated information like this.
If BHP hits its consensus earnings forecast exactly, the share price will not move. The thing that moves the share price is when the unexpected happens because the expected is already priced in. On that basis, to make money out of shares you have to work out what’s going to happen that is unexpected. Let me repeat that - to make money out of shares you have to work out what’s going to happen that is unexpected.
That insight could come from many sources but it will not come from a spreadsheet of consensus estimates, and it will not come from a $1500 subscription to a fancy product that re-presents the same information everyone else has, even if it is encased in beautiful graphics. We should all have a subscription to one of these products, because access to what the market already expects is essential, so that we work out what the market doesn’t expect.
Bottom line, the only way to make money in shares is to work out what the market doesn’t know before the market knows it. But if you think you are going to gain an advantage, by knowing what everyone else knows, you are wasting your time.
Forums
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About the only thing that does pay off, when it comes to predicting share price movements, is an insight, to a company, an industry, a theme. To something that the market doesn’t know. When it comes to identifying insight one of the obvious places you would go is to some sort of stock-market forum. They provide the platform for the individual to have their say, a privilege previously reserved for media heads, many of which (the fund managers in particular) use a better-known platform called TV, radio and conferences to promote the stocks they already hold.
Credible forums run by credible organisations (Marcus Today Stock Discussion Group) offer value. But unfortunately, the bulk of other, anonymous forums tend to be very short term, very dense in their information (although some providers have done their best to create search functionality) and are lacking in integrity because of the anonymity. It’s a pity, because somewhere in there, there is doubtless some insight, that is being drowned out by self-interested spruiking and shareholder bias. In the end these dense short term anonymous forums are a waste of time.
That’s about it for things that waste your time. Hopefully, this series of articles didn’t waste your time and knowing what you know now, will save you some time. You can read Part 1 HERE and Part 2 HERE
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More about the author – Marcus Padley
Marcus Padley is a highly-recognised stockbroker and business media personality. He founded the Marcus Today Stock Market Newsletter in 1998. Over the years, the business has built a community of like-minded investors who want to survive and thrive in the stock market. This is achieved through a combination of daily stock market education, ideas and activities.
