how many hrs/week of work needed to beat the S&P500?

[joker122]

I just read The Essential Buffett by Robert Hagstrom and it got me pretty excited. After studying not merely the investment strategies of Buffett, Graham, and other focus portfolio/value investors, but their underlying philosophies and tenets as well, it seems that anyone willing to do the analysis and follow the tenets can beat the historical S&P500 yeild of ~10%.

What the book never makes clear is just how much analysis is nessecary so gain the "full and clear understanding of a business" that Buffett and others demand before investing a single dollar into that business. And to be sure, a comprehensive understanding of a business is needed to determine the intrinsic value of the business, which is the essence of focus investing.

Does anyone have any idea how much dedication/time/effort needed to realize the superior returns that many focus investors have in the past? I mean I really have no ballpark whatsoever. Is it possible to do without working in finance/investing?

I have no background in business or finance. I am totally a liberal arts guy (English major, Philosophy minor). I have read three books on investing since I've become interested in the subject about a month ago so I have a modest yet not insignificant understanding of the market.

What it comes down to is this: I'm basically trying to decide weather to put a good deal of money that I currently hold into an index fund and watch it collect 10% for the next 30 years OR really do the work nessecary to see a 15-20% return. I just want to know approximately how much work that would be.

Thanks alot.

[RedJoker]

I think the opinion on this forum is that you should read the past 5 years of 10-Ks to get a good understanding of the business. You'll also need to do a lot of studying to understand what you are looking at.

You probably wouldn't want to be holding down a full-time job to try and beat the market. It's possible, just not very easy.

[jively]

[ QUOTE ]
[...]it seems that anyone willing to do the analysis and follow the tenets can beat the historical S&P500 yeild of ~10%.
[...]
Does anyone have any idea how much dedication/time/effort needed to realize the superior returns that many focus investors have in the past?

[/ QUOTE ]
Check out the risk/reward graph on Figure 2 of this link. Over the 35-year period, $1 in the S&P 500 grew to a little over $40 with a 15% standard deviation. In the portfolio 100, an aggressive globally diversified passive stock portfolio, tilted towards small, value, and emerging markets stocks, $1 grew to over $120 with about the same risk.

Or look at portfolio 50, with 60% in a globally diversified passive stock portfolio, tilted to small and value stocks, and 40% in high quality short- and intermediate-term fixed income funds. $1 grew to $55 or so with significantly less risk.

And those who like tech stocks should find that "N" Nasdaq investment with lower long-term results and much higher risk.

Now, these passive portfolios don't require any forecasting. It might take less than 1 hour per year to make the trades, and rebalance each year.

So, I think it's very easy to beat the S&P 500, with the same or less risk by looking at other asset classes of stocks, and it does not require any individual stock research.

Still excited?

-Tom

[joker122]

"So, I think it's very easy to beat the S&P 500, with the same or less risk by looking at other asset classes of stocks, and it does not require any individual stock research.
"

can you reccomend some reading to this effect?

[edtost]

past results are not necessarily predicative of future performance.

[gull]

[ QUOTE ]
"So, I think it's very easy to beat the S&P 500, with the same or less risk by looking at other asset classes of stocks, and it does not require any individual stock research.
"

can you reccomend some reading to this effect?

[/ QUOTE ]

Yes. Anything about asset allocation. The IFA website linked to above has a good but very thorough introduction to it.

[nightlyraver]

I know that many people dislike him (but MANY love him), but you should really read Jim Cramer's book, Sane Investing in an Insane World. He addresses this very issue, not on the level of a Warren Buffet type, but on the level of the average investor who works a full time job.

In his book he talks about doing 1 hour of homework per week per stock. Therefore, he advocates that you do not buy more than 10 stocks (except in certain situations) and no fewer than 5 so you can be diversified.

He makes a very good argument, and in a couple of years I will let you know how it is working out for me. But in any case, realize that prices are all about supply and demand of the security itself. When Warren Buffet does his research, this is not necessarily what he is looking at, since he often buys sizable chuncks of the underlying company (due to the fact that he buys so much stock) and that he is looking WAY further into the future than most of us.

[hawk59]

joker,

there are firms that have a lot of employees that work 80 hours a week and that don't outperform. in berkshire's latest A/R he talks about walter schloss who has outperformed the market for 40 years, walter has no college degree and works a couple hours a day.

[SplawnDarts]

If you wanted to outperform the S&P, you could easily do it on 20 hours a year.

4 times a year, spend 5 hours finding 1 stock with low PE, good earnings growth, positive analyst sentiment, simple corporate structure, and good financials. Buy it. Then every quarter, hold it if those conditions persist, and sell it if they don't and buy a new one.

Your expectation will be many times that of the S&P. Your standard deviation will also be much higher, but that wasn't a specified concern of the original post.

[BeL0wMe]

[ QUOTE ]
If you wanted to outperform the S&P, you could easily do it on 0 hours a year.


[/ QUOTE ]

Buy VTSMX
Outperform SPX
????
Profit!