I don’t think it’s as simple as him being right and wrong. There are different strategies used by different people and many can be successful if managed consistently. Think of his approach as managing a sleepy book yield portfolio. Often those portfolios do surprisingly well as they avoid knee jerk reactionary trading. I’ve heard PM’s with billions of fixed income book yield under management say this same thing. I’ve watched them ride crazy losses through a cycle and then ultimately wind up at a gain. The corollary that gains aren’t real until you sell can also have value. It drove me nuts when I first encountered it coming from a more total return background (and that still being my focus), but I’ve learned to appreciate some of the lessons from it.
The obvious exception would be an investment that experienced a structural shift or loss such as a bankruptcy or loss of assets.
In that particular investment, I doubt the final chapter has been written yet but it’s not my area of coverage so I don’t know.
Personally, I think it’s easy to see that managing portfolios this way can wind up with suboptimal performance as I’ve seen a lot of guys hang on to losses forever just to ultimately sell a penny above their cost so they can win the moral victory. In the mean time, they missed opportunities in better investments or the opportunity to step out and catch the investment at a better point lower in the cycle. But I wouldn’t immediately discount the guy’s opinion without a full context and understanding of how good this guy is or isn’t at investing.
The game result is more analogous to a forward contract, since it has a fixed expiry. In fact, the price of the game result is reflected in betting odds, which are tradable and therefore have a market price at any time until expiry. If you own the forward contract and the score moves against you, your forward contract will trade lower, hence it does have lower value.
It’s fallacious to say that an uncertain thing can be treated as 100% uncertain, and so, can be hidden and revealed only at the terminal time. The probability of those things ending at some terminal value is influenced by current prices and so, current prices matter to your outcome.
“We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.” – Warren Buffett, 1977 Berkshire Hathaway Letter to Shareholders
Greenie thinking too much like an accountant. Maybe it was a hedge trade. There is a reason you are ironing yourself your short sleeve button down shirts every morning to work for him.
Maybe I’ve spent too much time sitting in front of clients trying to explain why certain stock picks haven’t done what I expected them to do but I don’t view an unrealised loss in a portfolio the same as a realised loss. It’s all about what my current view on the stock. ie if I’ve made a mistake and I don’t expect it to rebound I realise the loss but if I still have faith in the my case then I wouldn’t necessarily view it as a loss.
But then I only buy mega-caps, country ETFs, and debt of “too big to fail” names…and only at multi-year lows. Is APPL, ICBC, China or Brazil going to go bankrupt?? Probably you just collect dividends for years while sitting on the unrealized loss, and then you’re back in the money.
On questionable names though you have to see if something has materially changed, and if you shouldn’t just eat it (opportunity cost).
Let’s say you bought a stock for $120 and it is now trading for $100. If you claim your stock is still worth $120, then you can also buy another unit of equivalent stock for $100, and say that additional unit is also worth $120. The two shares are identical, after all.
Not really. Bossu’s argument is that his stock is worth what he paid for it, until he realizes the gain or loss. It doesn’t really take fundamental value into account. Bossu must therefore assume that all owners of that stock must mark their positions to his arbitrary historical valuation. Otherwise, two identical units would be different in value. This is like saying two electrons have a different charge.
