Sunday, 1 July 2018

The true measure of a successful investor

The true measure of a successful investor is not a comparison of performance against a stated index, but rather how well a portfolio performs during down markets.

Warren Buffett is unique in measuring himself annually against changes in book value (the simple calculation of assets minus liabilities).  He then compares this annual percentage against the S&P 500 with dividends to determine if he has added value or not. 

Buffett has not only added value.  He has done the remarkable.  Buyiing earnings of companies at attractive prices with outstanding management and with remarkable competitive advantages have all led to mind-blogging increases in book value.

A metric that Warren Buffett never reports or comments on is the actual market price of his stock.  He reports the value of his business because he can control purchases, ongoing management, asset purchases and sales, liabilities, and other things that affect changes in book value.  Conversely, he ignores the share price because often it has nothing to do with what is going on inside the business.

Value is inside.  Price is outside.

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