Novel Investor • Compounding investing wisdom...

Investor Returns When the Market Seems to Go Nowhere

July 22, 2015

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Jon

Show a chart of a bear market and I guarantee someone will say: The market went nowhere for years. What a terrible investment! Who would want to own stocks that long just to break even? How are you supposed to make money if it happens again?

Of course, it’s true. The market did go nowhere. Invested money went somewhere. An index, like the S&P 500, is not the same as investor returns.

To the untrained eye, the assumption is investors made no money during that time. I’m sure many investors didn’t. But some investors did. And neither’s returns looked anything like the chart. Continue Reading…
Happy Hour: Munger on Cash Hogs

July 17, 2015

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Jon

I ran across a PDF where Charlie Munger explains the important difference between companies that make more money than they know what to do with (cash cows) versus companies that always need cash to maintain growth (cash hogs).

So cash cows are obviously better than hogs. And the best cash cows have some type moat – pricing power, economies of scale – and a great capital allocator. See’s Candy is a good example. Continue Reading…
A Reason to Avoid High Yield Bonds

July 15, 2015

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Jon

I’m not a fan of high yield bonds. I say this because I subscribe to the view that stocks drive returns while bonds help cushion any falls.

I know this because when the stock market acts crazy, investors consistently run from stocks into bonds for safety. High-quality government bonds benefit and help offset stock losses.

However, high yield bonds don’t. Continue Reading…
Happy Hour: China Rout

July 10, 2015

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Jon

In the last post, I mentioned that China’s stock market is in freefall since about the middle of June and how it would be a great case study in investor behavior.

My lack of elaboration caused some confusion around the statement and the chart. So I thought I’d clear one thing up – the MSCI China Index is very different from China’s stock market.

Continue Reading…
Asset Class, Sector, & Country Returns for 1H ’15

July 8, 2015

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Jon

I update the asset class, sector, and country returns twice a year – at the half way point and year end. The end of June means it’s time for an update. But before I get into the actual results I want to point out a few things to take notice of beyond the numbers.

The charts are a simple visual tool that helps to explain a few simple concepts like how returns change from one year to next, how a diversified portfolio gives up the best returns in order to never get the worst returns, and how so many investors fall victim to chasing the past. Continue Reading…
Happy Hour: Serial Compounder

July 2, 2015

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Jon

I’m posting this a day early because I’m getting a jumpstart on the holiday weekend. Yesterday, I watched a Talks at Goggle video (embedded below) on Tom Gayner. Value investors out there might recognize the name.

Gayner is the CIO of Markel Corp, an insurance company modeled after Berkshire Hathaway. In the video, Gayner talks about his story, how he evolved as a value investor, and what he looks for in a company. He offers up his four points on what he looks for: Continue Reading…

Investor Returns When the Market Seems to Go Nowhere

Happy Hour: Munger on Cash Hogs

A Reason to Avoid High Yield Bonds

Happy Hour: China Rout

Asset Class, Sector, & Country Returns for 1H ’15

Happy Hour: Serial Compounder