Warren Buffett Is a Socialist!

For over ten years now, I have been a member of the West Bloomfield chapter of the American Association of Individual Investors (AAII), a group I began attending as a first step in exploring a career move I’ve been deliberating upon most of my life, that is transitioning from the business management side of industry (which is where I’ve made my career for 35 years) over to the portofolio management side.
I’ve always been fascinated by investments and had originally meant to make this my major at USC until a couple of finance professors, whether justifiably or not, painted such a bleak picture of this career option that I decided against it. I’ve always wondered whether I was right to listen to them. These past few years that I have been so involved in managing the estate portfolio has really brought this passion of mine very much to the front burner.

The AAII group is vitriolically opposed to the traditional "buy and hold" strategies that are taught at the nation’s business schools and insist that short-term trading is the only way to go. I’ve always been a firm believer in buy-and-hold myself, as was my father before me, and we’ve both done quite well. So I’ve always been skeptical of the AAII. However, my attendance to their meetings finally paid off two years ago when I met Waterford investment advisor Bert Ward and was introduced to the revolutionary investment strategies taught by his mentor, Wall Street guru Michael Price.

Before I go any further, I need to confess that yesterday’s posting about George’s radio program was not entirely altruistic. I had ulterior motives. I’m hoping for a little quid pro quo here. I’m going to talk to all of you about Michael Price and the market data subscription service he champions called FastTrack (and which he uses to run his own $400 million dollar hedge fund) and I’d like to know from you specifically George what your sentiments are. What do you know about Michael Price? What do you know about FastTrack?

But let’s begin at the beginning. I’ve had a love-hate affair going with the AAII since I joined. I believe in buy-and-hold and I believe that I can prove quantitatively that it works better than any other investing system. The fact that the greatest investor in history - Warren Buffett - uses it and has consequently become history’s second weathiest individual (next to Bill Gates) should be proof enough to ANYONE that it works. But not to the AAII. Several months ago, someone in the group gave a presentation on Buffett’s strategies only to be booed by this very rude crowd, one particularly arrogant ass actually standing and shouting, "WARREN BUFFETT IS A SOCIALIST!"

That’s how far out in the ozone some of these people are. Hell, if Buffett’s a socialist, that means everyone is - except of course them! How do you maintain any credibility at all with those kinds of attitudes? That is how much against buy-and-hold they are. They are strictly short-term traders and use computer programs to tell them which stocks to buy and sell and when. They claim there’s no excuse why anyone using their techniques cannot have 50 to 80 percent returns every year on their holdings. And they scoff at anyone who suggests this just isn’t possible. They are even more belligerent against those of us who are willing to "settle" for market averages, which in their view is what buy-and-hold is. (Hint: that’s not buy-and-hold and their belligernce only serves to reinforce my own world view that those who violently oppose something generally don’t understand it.)

Of course, they never disclose their performance, something they consider to be a private matter, so there’s no way of proving or disproving their claims. But consider this. Just do the math. Assume a salary of $50,000/yr, assume you’ll follow the traditional rule of socking away 10% into your 401k, and then apply a 50% return to this every year. Well, even at 10% it will only take about a dozen years before your portfolio will be generating an annual return equal to your salary. (That’s the power of compounding!) And because of this same compounding, every 3 to 4 years after that, it will double again. At 50%, you will have 5 times your annual salary in a dozen years, and that doubling again every 3 to 4 years after. So even in a modest job, if you start this at age 25, you’ll be able to retire with millions before you’re 50.

But of course you’re not going to do this in a modest job. We all know that anyone capable of these kinds of results would be snatched up by Wall Street in a New York minute and paid millions, tens of millions, HUNDREDS OF MILLIONS to manage a fund for them. Again, do the math. If this were really possible, you wouldn’t be managing a personal retirement account from income from a $50,000/yr job. You’d be on Wall Street and would very quickly be on the road to making not millions, but billions.

Well, I attend these meetings and I listen to all this flashy rhetoric and my USC training and financial analysis background kicks in and I start doing the math. 1+1 does not equal 2. Rather, 1+1 equals there is nary a soul in this room that looks or acts anything like a millionaire, let alone a billionaire. So do I want to believe them?

I don’t know. They are of course not the only ones who so ardently believe in short-term trading and think all of us looking strictly at the longterm are a bunch of suckers. I don’t know, but I sure am curious to learn more. I don’t know. Yes, I want to believe them but not without a whole lot of evidence. Yes, I want to believe them. They are so passionate about it. They are all a bunch of retired engineers and techies who just love pulling all these numbers out of their computers and analyzing the hell out of them looking for the next big gold mine and using algorithms that I cannot even begin to understand. So yes, I’ve been going to these meetings for ten years hoping to eventually hear something that makes sense.

Two years ago, it finally happened. Bert Ward, MBA, CFP (Certified Financial Planner), retired GM manager, President of Ward Capital Management of Waterford since 1999, and ardent disciple of Wall Street’s Michael Price since taking the Price seminar in 1996, gave a 90 minute presentation on the power of the Michael Price strategy and of the specific powers of the FastTrack market data service at the AAII in the fall of 2008. The presentation was necessarily a teaser given the fact that Price himself spends six days giving his seminar on the strategy. Bert promised a two-day condensed version for the bargain price of $250 (which really is a bargain for a two-day seminar) which he would hold late in the spring of ’09. Spring became fall and fall became Halloween. I had waited a year to take this class and had to forfeit because of the twin conspiracies of my birthday coupled with the O’Neill wedding. That first seminar was 12 hours over two days on the same weekend and people came out with their brains fried but wanting more FastTrack, MUCH more FastTrack! So a year later, he held the seminar one more time, this time for 16 hours over two separate weekends, a much better plan.

So, after a two year wait, I finally got to attend the seminar on September 25th and October 9th. The Michael Price strategies struck me as something that might answer my abundant questions about the whole approach the AAII takes to investing. For one thing, I was impressed by the fact that he wasn’t promising these stratospheric returns but something more in the neighborhood of a far more reasonable 14-15% against historic market returns of 8 to 11 percent. This was refreshing. A get-rich-quick scheme that was promising neither riches nor anything quick. Rather the promise was that with discipline, consistent management, and an intelligent plan, the Price strategy combined with FastTrack could allow us to gain a couple points advantage on the market. And over time, those couple of points would pay big dividends. He also promised us that this was going to be one of the most difficult strategies we’d ever learn, but with the proviso that anything worthwhile always requires work. Now I’m finally hearing something after all these years that makes sense.

So that’s how I found myself at the Wingate Hotel in Auburn Hills for two weekends earlier this month. But before I get into that, for those of you who know little or nothing about investing, I will first provide my own brief primer on the basics of finance so that what I say will make some sense. Professor George, I’ll be particularly interested in your impressions on my primer. Do you think I could teach this stuff? Because I’m thinking of doing just that! Stay tuned for the next posting.