Novel Investor • Compounding investing wisdom...

Where Less is More

April 3, 2019

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Jon

Compounding works because somebody started something decades ago and never stopped. When you combine consistency with a simple investment plan some wonderful things happen.

Unfortunately, simplicity is often overlooked.

And I’m not just talking about investment plans. Yes, the finance industry is notorious for coming up with complex strategies to warrant the high fees they’re charging. Can a simpler strategy produce similar results? Most likely. But who would pay a similar high fee for it?

I may be going out on a limb here, but it seems to me that if the industry spent more energy on getting clients/customers to maintain consistency and less energy on creating elaborate strategies, both the industry and their clients would be better off in the long run. Conveniently, consistent compounding benefits both investors and those who charge low fees too. Continue Reading…
Concentrated Investing by Benello, Van Biema, Carlisle

April 1, 2019

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Buy the Book: Print | eBook

Concentrated Investing profiles eight investors with different investment styles to figure out the principles behind their returns. Was it due to their behavior, the source of capital, the number of investment, or position sizing? The authors answer those questions then look at what the data says.

The Notes

Continue Reading…
Lessons from Keynes the Investor

March 27, 2019

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Jon

In one volume in the 30 volume set that makes up The Collected Writings of John Maynard Keynes lies practically everything you need to know about Keynes the investor. The entire volume is a collection of economic articles and correspondence, but it’s the first chapter that is the most informative.

That’s where you learn about his performance history both personal and professional, his economic views around some major historical events, and how he thought about investments and markets at the time.

The history alone makes it interesting. But because it’s Keynes, that chance to critique an economist’s investment performance makes it appealing on another level.

Arguably he makes it difficult to do. He didn’t have a great start but he learned quickly and finished strong…for the most part. His professional track record was great, running the Chest Fund and advising for two insurance companies and several investment trusts.

His personal account was easier to criticize, as the first lesson shows. Continue Reading…
John Maynard Keynes on Concentration

March 22, 2019

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Jon

I shared Charlie Munger’s take on concentrated portfolios a few weeks ago. For similar reasons, I thought I’d share John Maynard Keynes’s view on it as well.

Keynes’s reasoning comes as a response to criticism from Francis Scott for taking a too large position in Elder Dempster stock. He initially explained his reason for buying like so:

…finding a security which was good, which we had not got and of which a large block could actually be purchased — an accumulation of circumstances I had not come across for months — I lost my head. I was also suffering from my chronic delusion that one good share is safer than ten bad ones, and I am always forgetting that hardly anyone else shares this particular delusion.

Pointed as that last sentence is, it shows that the unpopularity of concentrated portfolios is nothing new.

Even more, it shows how a majority of people can see one thing as risky while others don’t and both can make a sensible argument to their correctness. Scott replied with his opposing view, which fits the argument against concentration still used today. Continue Reading…
John Maynard Keynes’s Investment Policy

March 20, 2019

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Jon

After managing King’s College investment funds for almost 14 years, John Maynard Keynes decided to run a post-mortem on his investment results.

He had stats for three indexes and three other institutions to compare to his results. And he had a unique set of experiences to draw from thanks to shifting ideas on what a best investment policy should be.

The period he analyzed ran from January 1929 to December 1938. Despite the terrible starting point, the results were clear. Whatever he was doing, was working.

(Keynes managed The Chest and Fund B for the College shown in the image above.)

He relayed the lessons from his experiences and the post-mortem in a memo to the Estates Committee in May 1938. Continue Reading…
Seth Klarman: What If Everyone was a Securities Analyst?

March 15, 2019

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Jon

Seth Klarman offered up a simple thought experiment. What if everyone was a securities analyst, would the market finally be efficient?

Klarman’s thought experiment came in a response to Louis Lowenstein’s Searching for Rational Investors in a Perfect Storm. Lowenstein was questioning the existence of rational actors, purported by EMT, amid the Dotcom rubble. It’s reminiscent of Buffett’s The Superinvestors of Graham and Doddsville.

Klarman’s criticism of efficient markets is no surprise. He and his clients have thrived off of the inefficiencies for several decades.

His criticism gets to the root cause of why. Emotions. He tacks on an additional important point that probably gets overlooked by many. Brainpower has limits when you mix money with emotions. Continue Reading…

Where Less is More

Concentrated Investing by Benello, Van Biema, Carlisle

The Notes

Lessons from Keynes the Investor

John Maynard Keynes on Concentration

John Maynard Keynes’s Investment Policy

Seth Klarman: What If Everyone was a Securities Analyst?