February 13, 2014

Doug Kass praises Warren Buffett philosophy of value

I have learned over a few decades that holding onto dogma (bullish or bearish) is not a way to deliver superior investment returns. Rather, one should listen to The Oracle of Omaha's words above. Indeed, one should listen to all of The Oracle's words! 

Warren Buffett's lesson is that while optimism is the enemy of the rational buyer, there is always a price that an investor and/or trader can pay to acquire value.

I always think in terms of reward vs. risk on the stock market and for specific equities. I create a fair market value based on a scenario analysis of economic, profit and interest rate assumptions. At present, my calculation leads me to believe that fair market value resides around 1645 for the S&P 500, but my process is a guideline and not meant to be hardened or precise in forecast.

There is simply no special sauce and no calculation of fair market value that is right - again, the formula is a signpost and an exercise in determining where stocks should be valued given a set of dependent variables.

During the last week, I have written that I expect the S&P 500 will be in a range of between 1625 on the downside and 1925 on the upside for 2014. The reward (+11%) vs. risk (-7%) in the U.S. stock market, for the first time in months, has now turned more favorable. (Note: The U.S. stock market, using my fair market valuation is still not yet statistically attractive, as reward and risk seems to be more or less in balance.)

via http://www.thestreet.com/story/12305464/1/kass-risk-happens-very-fast.html