The other day I saw this article which said that Warren Buffett is not a long term investor. It claims he is just looking for a good trade. I disagree with the article. A trader to me is a person who bets against another person on the price of a security, typically another trader. A trader puts less weight on the underlying value of the security in their decision making. You can spot a trader from his phrases like: "risk on risk off periods", "stay out of the market until the dust settles".
A value investor like Buffett doesn't think about what the market is doing; he just cares about the fundamentals of his security relative to the price. Buffett has said many times that he doesn't care if the market closes for a year. He buys his investments because he expects them to be profitable as investments, not as trades. Many people misunderstand his turnover (trading frequency) as a sign that he is not a long term investor. Buffett is a value investor, he will go wherever there is value. If he sees a great value he would use his cash or sell his least desirable investment and use the proceeds to buy that great value. So would I. So a value investor can do a lot of trades. It isn't likely but it can happen.
As a example of value trading, I have traded Cisco (CSCO) often for the last 4 years. CSCO is the world's dominate networking gear maker, I have owned it since the high flying dotcom bubble. Since then its shares have gone from $82 to about $19 today. It has a P/E of 14. And it is still a growth company with wonderful margines. Sure, gone are the days when high-tech had all the glamour. But these days people forget that high tech companies credit for their growth. And the P/E of 14 is even more impressive if you consider Cisco's balance sheet. Cisco has a net-net of $5 a share. Net-net is the equity on the balance sheet if you valued all intangibles and fixed assets at zero. Therefore the $5 per share is money back to the shareholder. If you subtract that out of the stock price you get a P/E of 10!
CSCO right now at $19 would appear to be a great buy, but just imagine that a month ago it was $15. I decided $15 was too good to pass up and bought. In fact, in general I have used this reasoning to buy CSCO at below $19 and to sell above that since the fall of 2008. The following table shows my CSCO trades in the last 4 years.
| Date | No. of Shares | Share price | Net stock position | Net cash position |
|---|---|---|---|---|
| Initial reference | 0 | 0 | ||
| 11/12/08 | bought 750 | 16.8 | 750 | -12600 |
| 08/11/09 | sold 750 | 22.3 | 0 | 4125 |
| 03/23/10 | sold 120 | 26.7 | -120 | 7329 |
| 04/07/10 | sold 125 | 26.5 | -245 | 10641.5 |
| 04/12/10 | sold 150 | 26.5 | -395 | 14616.5 |
| 04/12/10 | sold 125 | 26.4 | -520 | 17916.5 |
| 04/20/10 | sold 125 | 27.3 | -645 | 21329 |
| 04/23/10 | sold 150 | 27.5 | -795 | 25454 |
| 12/07/10 | bought 130 | 19.17 | -665 | 22961.9 |
| 02/10/11 | bought 550 | 18.93 | -115 | 12550.4 |
| 03/11/11 | bought 500 | 17.81 | 385 | 3645.4 |
| 03/15/11 | bought 505 | 17.44 | 890 | -5161.8 |
| 04/11/11 | bought 550 | 17.5 | 1440 | -14786.8 |
| 06/07/11 | bought 450 | 15.9 | 1890 | -21941.8 |
| 08/08/11 | bought 500 | 14.3 | 2390 | -29091.8 |
| 10/27/11 | sold 500 | 18.48 | 1890 | -19851.8 |
| 11/07/11 | sold 435 | 19.88 | 1455 | -11204 |
| 07/25/12 | bought 800 | 15.1 | 2255 | -23284 |
| 08/28/12 | sold 800 | 19.2 | 1455 | -7924 |
| If later | I sell remainder 1455 | 19.1 | 0 | 19866.5 |
Note I said I traded CSCO often, for traders that may not seem like a lot, but it is for me! The second last column show how much is my stock position from the trades. The last column shows how much cash I have spent (if it is negative) or how much I have gained (if it is positive). Right now from the last 4 years I have 1455 shares. The last row shows that if I closed out these CSCO trades tomorrow, the result of all these trades would be a $19,866.50 gain.
I put the table here to show that at I tend to buy when the shares dip below $19. It is just too good a value then. When it is above $19 it is still a good value but I do want limit my exposure so I sell some. The higher it rises above $19 the more I want to reduce my position to the point where I would completely sell everything at some point in the high $20's. I don't call myself a trader because I do this, I feel I am a value investor who trades CSCO frequently.
Disclosure: In addition to the shares I own in the table, I also own some shares as leftovers from my purchases during the dotcom bubble. I ignored those old shares from the discussion.
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