Quality Value Investors' Creed
Quality Value Investors' Creed
More lessons on filtering the noise of Wall Street
Summary:
“The unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness.” -Warren Buffett.
Unlike the movies, there are no scripted endings or guaranteed outcomes when investing.
Who’s driving the sports car to a weekend retreat: the retail investor client or their financial advisor and newsletter provider?
A more profitable alternative for individual investors is to pursue the dream of building their beach or lake house, not their advisor or broker’s.
The creed of quality value investors mirrors the wisdom of legendary investor Warren Buffett—founder and chairman of Berkshire Hathaway, Inc. (NYSE: BRK.A, BRK.B)—the premier investor of our time who happens to live and work in Omaha, Nebraska, instead of Manhattan, New York.
The “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness. 1
-Warren Buffett
Buffett wrote the profound quote in his 2013 letter to Berkshire Hathaway shareholders. He proposes that inexperienced investors who are pragmatic about imperfections can obtain better long-term results than the informed, although shortsighted, professional. Successful investors on Main Street are aware of their inherent shortcomings that, in the eyes of the Wall Street elite, equate to unsophisticated, know-nothing amateurs.
As Buffett suggests, counter the noise by combining an alleged impaired vision of investment insight with common sense, low-cost, and risk-conscious asset allocation within a disciplined investment model. The return horizon is the slow, steady, long view in opposition to the get-rich-quick mentality of day traders, trend followers, and momentum investors.
The Juxtaposition of Wall Street
Within movie-making jargon, juxtaposing is the art of presenting two opposing ideas or characters in contrast to each other within a scene or storyline. If successful, the juxtaposition creates an illusion pulling the viewer into the director’s vision. Such is the value of entertainment. Whether it is worth the ten bucks per ticket and double that for popcorn, candy, and soft drinks depends on the movie. Nonetheless, many films fail to recoup budgets despite the high costs passed on to viewers. Movies are risky investments, indeed.
On Wall Street, the coupling of extraordinary investment return potential—or the recorded history of actual returns—and high fee structures justify elevating the costs for participating investors from projected or historical returns created by educated and credentialed professionals.
Unlike the movies, there are no scripted endings or guaranteed outcomes when investing. As talented film directors create persuasive art, the titans of Wall Street generate record-breaking revenue streams through enormous fees and commissions coupled with legal mirages of the potential for superb investment returns. Wall Street has crafted the art and nurtured the science of making investing a sophisticated institution, justifying overspending for results that underperform in many scenarios.
The Wall Street way tempts a movie director’s quest for an entertaining juxtaposition. Just ask Oliver Stone, co-writer and director of the classic drama Wall Street (Century City, CA, 20th Century Studios, 1987), featuring Michael Douglas as the antagonist Gordon Gekko, an unscrupulous corporate raider. Douglas won a best actor Academy Award for his archetypal portrayal of the 1980’s excess.
Yet, almost four decades later, extravagance in the financial services space remains rampant.
Outperforming Gordon Gekko
As reported on a widespread basis in the financial media, a minority of Wall Street traders and money managers beat the market consistently; the market is defined as the S&P 500 or any asset class the particular investment product benchmarks. Collecting fees and commissions and leveraging assets under management finances the annual profit and bonus windfalls on Wall Street more than its investment returns.
Supposing most professional portfolio managers underperform the broader market, why does the collective of individual and institutional investors continue to pour trillions of dollars into the advisory fee-sucking coffers?
Perhaps it is all we know. The Wall Street way induces customers to its mode of thinking via slick advertising campaigns, press release regurgitation from mainstream print and online media, and the proverbial talking heads on financial television stations. And well-intentioned human resource departments steer unwitting employees into high-priced one-size-fits-all retirement plans and risky company stock with an unknowing smile of loyalty to the status quo.
Then again, why argue with success in the era of the billionaire class and paparazzi-pervaded celebrities?
Who’s Driving the Sports Car?
There is an adage that says never take advice from a salesperson, yet investors let Wall Street institutions sell them biased information all day long. So let’s dig into this phenomenon after reading the required disclaimers and disclosures.
Disclaimer: Although Quality Value Investing (QVI) takes a skeptical view of Wall Street—a euphemism for professional or institutional investing anywhere in the world—it neither implies nor expresses specific issues with or negative references to any actual organizations or individuals existing or working in the financial services industry. Any perceived reference or offense to actual firms or real persons is coincidental and unintentional. In its general lament of the Wall Street way, QVI abstains from unproven conspiracy theories and presents a narrative nonfiction platform of commentary, critique, education, and parody. In this world, facts are exempt from any alternative paradigm; thus, the subjective thoughts shared throughout this post are QVI’s opinions and, therefore, independent from fact.
Disclosure: I/we have a beneficial long position in the shares of BRK.B through direct stock ownership. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Substack paid subscriptions). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: David J. Waldron’s Quality Value Investing newsletter posts, course modules, research reports, and model portfolios are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.