Novel Investor • Compounding investing wisdom...

Happy Hour: Official Correction

February 9, 2018

·

Jon

We have an official correction!

Sorry if that comes off a bit too happy about the market’s poor performance. As great as last year’s performance was, it was frustratingly boring for someone looking for bargain prices.

Yesterday, the Dow and S&P 500 both finished 10% below their previous high from two weeks ago.

If we learned anything this week, it’s that market volatility still exists. In other words, the past year was abnormal for volatility.

But for those of us with a long-term perspective, this is good news (net buyers of stocks should want lower prices). Continue Reading…
Oh Yeah? Forecasting Follies Around the ’29 Crash

February 7, 2018

·

Jon

Irving Fisher summed up the attitude of the late 1920s perfectly. His “permanently high plateau” epitomized the euphoria of the time and called for the end of financial cycles.

There was a lot to be excited about.

The ’20s economy offered only brief, mild recessions with exceptional growth and an extended bull market. One new innovation after another led a belief that scientific invention would cure all of life’s problems…and it was right around the corner.

And new financial “innovations” – investment trusts (new for the U.S.) and buying on margin (investors and trusts could buy stocks for 10-20% down with the other 80-90% paid back after selling for a tidy profit) – made it easier for average people to profit from the stock market.

In the heat of it all, some of the smartest financial minds, business leaders, and politicians were certain the 1920s brought about a new economic age. Continue Reading…
Howard Marks: Lessons from a Crisis

January 31, 2018

·

Jon

The best lessons are about learning what not to do. Great investors like Buffett and Klarman and others drill home the point of avoiding big mistakes. They understand how a loss can be compounded by a mental or emotional misstep, making recovery that much harder.

Like a lot of us, the great investors start out learning this first-hand. Painful experience — from time in the market — can be a great teacher. Mistakes are part of the process.

But they quickly realize there are more efficient, less painful ways of learning from other’s mistakes. As Howard Marks says, you just have to pay attention:

The markets are a classroom where lessons are taught every day. The keys to investment success lie in observing and learning.

The great thing about hindsight is, it always points out what everyone did wrong. Continue Reading…
Happy Hour: Latest Marks Memo on Weighing the Risk

January 26, 2018

·

Jon

Howard Marks is out with a new Memo this week. He offers his view on where the market’s stand today and a lengthy discussion on the impact of the tax cuts.

The short version on tax cuts is it’s short-term positive, long-term negative – mostly good for businesses, but for individuals it depends. He covers some second-order consequences for the tax in general and the new state and local tax deduction limit specifically. It’s worth reading through.

The rest of the memo is spent reviewing things he’s repeated the last few years. So if you’ve read any Memos the last couple years, it will sound familiar: Continue Reading…
Howard Marks: The Importance of Second-Level Thinking

January 24, 2018

·

Jon

Charlie Ellis once gave a speech in which he related the three ways to beat the market. You can be smarter than everyone else, you can outwork everyone else, or you can behave better than everyone else.

It turns out none of those are easy.

A lot of investors try to outwork the next person without realizing that all the other next persons are trying to do the same thing.

And the trouble with being smarter than everyone else is that nobody looks or feels smarter until after the fact. The smartest investors tend to do things that nobody else is doing and often seem wrong at the time. Continue Reading…
Happy Hour: Opposing View

January 19, 2018

·

Jon

There’s a difference between crypto-currencies and blockchain. Keeping the two separate is important.

One – the blockchain – is a technology. It may or may not be the next best thing since sliced bread. Mass adoption is not guaranteed and if it is, it will take time. It could follow the path of the internet. Or it could be the next Segway or Betamax or Laserdisc…you get the point. It’s too early to tell but that’s what makes it interesting.

The other – the coins – is a means of exchange. The coins may or may not be a necessary part of the technology (companies are using the blockchain without the coins).

Until that’s settled, it’s being used to gamble and speculate in. People see the prices going up really fast, see other people making a killing, get caught up in the enthusiasm, and “invest” because they want to get theirs. They’re not doing research, don’t understand the technology behind it, or why a certain coin was created. They hear about a new coin offering and buy it at X, hoping to sell it later for 20X or 100X. But this only works if prices always rise (they don’t). Continue Reading…

Happy Hour: Official Correction

Oh Yeah? Forecasting Follies Around the ’29 Crash

Howard Marks: Lessons from a Crisis

Happy Hour: Latest Marks Memo on Weighing the Risk

Howard Marks: The Importance of Second-Level Thinking

Happy Hour: Opposing View