Quote for the Week

I regard my property largely as a trust. It is not mine absolutely. I take care of it on much the same principle as you would foster a valuable animal left in your charge. Of course my attitude in the premises was inherited. My father believed that the money left to one should be given over undiminished to the next generation. That also is my idea.

He believed that one who inherited property had the right to spend the income it yielded, but not to waste the principal.

About all that can be said is that my investments have been carefully chosen and have turned out well as a rule. A fortune cannot be built up around any fixed idea or, in other words, without the exercise of plain common sense. I buy when things are low and no one wants them. I keep them, just as I keep a considerable number of diamonds on hand, until they go up and people are anxious to buy. That is the general secret of business success. One thing, however, has been wrongly attributed to me, and that is speculating. I never speculate. Such stocks as belong to me were purchased simply as an investment, never on a margin. — Hetty Green, 1905 (source)

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B.H. Lidell Hart spent a lifetime writing about the history of military strategy and war. He summarized the many lessons in his writings in a little book called Why Don’t We Learn from History?.

The book is meant as a summary of the history of warfare, but it’s much more than that. It’s easily translatable to lessons on life, business, and investing.

Only Hart presents it with an inverted view of the repeated mistakes throughout history deeply rooted in human nature.

The book is filled with a lot of lessons and great quotes. So, I pulled a few favorites out and added my two cents below each, as it relates to investing.

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Quote for the Week

As Justice Holmes pointed out, though, “Certitude is not the test of certainty.” What I believe will happen in financial markets and what ends up happening have no necessary relationship. The future is uncertain, and the returns investors earn will depend on the nexus of actions taken and how events unfold. Financial history provides just that: history. Its ability to inform how we think about the future and to affect how we position assets would be dispositive if it were not for the most important feature of capital markets: nonstationarity.

Nonstationarity refers to the degree to which the future does not resemble the past. If it were not for nonstationarity, we could just look to the past and unfailingly predict the future. The richest people would be those with the best databases. Librarians would be firing young aspirants to wealth on reality TV shows. Nonstationarity means that investment judgments are probabilistic and that even the best investment process will lead to undesirable results from time to time. Investment theorist Peter Bernstein noted that even if the expected value of the future were known with certainty, the standard deviation around that value would guarantee results that diverged from the averages, sometimes dramatically, and not always positively. — Bill Miller (source)

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Alot of things must go right to perpetuate a massive fraud. It certainly did for Tino De Angelis and his salad oil swindle in the early 1960s.

How does someone commit fraud with salad oil, you ask? Tino started Allied, a vegetable oil refining business with the goal of becoming the industry leader. He needed growth to achieve that end. So, he borrowed money in a unique way.

Tino used Allied’s existing inventory as collateral for loans. Tanks full of soybean and cottonseed oil were pledged to secure loans. The initial loans came from exporters. Banks, brokerage firms, and more eventually became willing lenders because the warehousing receipts tied to Allied’s inventory carried the name American Express.

Tino scheme was simple. He only needed people to believe the vegetable oil existed, so he created that illusion. He built a network of over 70 tanks that allowed him to pump contents from one tank into another while inspectors checked the contents of a third.

And the contents? A few tanks held petroleum, gasoline, soap stock, and sludge. The majority held salt water…with a thin layer of oil floating on top. In the end, 1.85 billion pounds of inventory was unaccounted for!

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Quote for the Week

I refuse to attach a permanence to anything I see around me — including the pessimism I read today in The Wall Street Journal. With my 60 years of experience, I can’t tell you that any of the enormous developments I’ve witnessed, including two world wars and the spread of communism, have had any identifiable long-term effect on common stock investment.

When I started in the investment business, the first thing that happened was that World War I closed down the New York Stock Exchange for five months. It looked as if the end of the world had happened, but after a year and a half we were in the midst of a raging bull market.

Six months ago all you needed was a minimum of intelligence and a maximum of courage to be bullish. That’s changed, of course. Now it requires less courage but more intelligence to find the values. — Benjamin Graham (source)

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