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Weekend Reads – 6/2/23

June 2, 2023 by Jon

Quote for the Week

Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. A boom–bust process is set in motion when a trend and a misconception positively reinforce each other. The process is liable to be tested by negative feedback along the way, giving rise to climaxes which may or may not turn out to be genuine. If a trend is strong enough to survive the test, both the trend and the misconception will be further reinforced. Eventually, market expectations become so far removed from reality that people are forced to recognize that a misconception is involved. A twilight period ensues during which doubts grow and more people lose faith, but the prevailing trend is sustained by inertia. As Chuck Prince, former head of Citigroup said during the twilight of the super bubble: ‘As long as the music is playing, you’ve got to get up and dance. We’re still dancing.’ Eventually, a point is reached when the trend is reversed, it then becomes self-reinforcing in the opposite direction. Boom–bust processes tend to be asymmetrical: booms are slow to develop and take a long time to become unsustainable, busts tend to be more abrupt, due to forced liquidation of unsustainable positions and the asymmetries introduced by leverage. — George Soros (source)

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Paul Tudor Jones: The Mental Obstacles of Investing

May 31, 2023 by Jon

Investing is a process of self-discovery. Investors rarely find their strategy on the first try. It takes a few attempts.

The reason is simple. First, new investors aren’t handed a menu of investment strategies to pick from when they start. Second, no strategy comes complete with a full list of behavioral requirements that make it a good fit. It’s trial and error, for the most part.

And even when investors find a strategy that fits them, they’re bound to be tested at times that causes them to question their decision. Paul Tudor Jones highlighted two tests every trader will face at least once in their life: Continue Reading…

Weekend Reads – 5/26/23

May 26, 2023 by Jon

Quote for the Week

I think one of the most pervasive problems in the financial markets is investment with too short a time horizon. The fact that people look at quarterly returns of mutual funds is incredibly dysfunctional. I mean, there’s no way that you can expect somebody quarter in and quarter out or month in and month out to produce superior returns. There just aren’t pricing anomalies that are significant that are going to resolve themselves in a matter of months or weeks and so it’s a silly game to play. By extending your time horizon to three years, or four years, or five years, it opens up a whole host of investment opportunities that aren’t available to people that are playing this silly, short-term game. — David Swensen (source)

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Wise Words from Sam Zell

June 1, 2023 by Jon

Sam Zell got his start in real estate as a junior at the University of Michigan. A friend’s landlord bought an adjacent house and planned to tear down both properties to build a 15-unit apartment building. Zell pitched the owner on managing the new building. The owner said yes. Zell and his friend got a free apartment out of the deal, a management business, and the rest is history.

By the time Zell graduated from law school, he managed about 4,000 apartments and owned over 100 more. After graduation, he sold the management business to Bob Lurie and headed to Chicago to play in a bigger market. Three years later, Lurie partnered with Zell in Chicago. They would go on to build one of the largest real estate portfolios in the country.

In 1973, the real estate market was in the tank. Too much building led to oversupply. Inflation was sky-high. Zell saw an opportunity. He and Lurie switched gears to focus on distressed properties.

They bought $4 billion worth of real estate by convincing lenders the only way they could carry the property was by paying an interest rate below inflation. They created an arbitrage play. In total, they took on $4 billion in debt at an average fixed rate of 6% while inflation was 9% to buy apartments at half the cost to build them new. That ability to buy property below replacement cost was a staple throughout his career. When the market turned, the property values rose, and they made their first fortune. Continue Reading…

Weekend Reads – 5/19/23

May 19, 2023 by Jon

Quote for the Week

Price does matter. You increase your profit potential immensely if you buy low. If I buy at 32 and the stock goes to 75, I make a good profit. But if I buy at 20 and it goes to 75, I make a much higher return. Even a great company can be priced too high if there’s a lot of glamour attached to it. In that sense, temporary bad news about a good company may create a buying opportunity. It’s my job to find unusual companies and then judge whether the price they’re selling at is too high. — Philip Fisher (source)

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Weekend Reads – 5/12/23

May 12, 2023 by Jon

Quote for the Week

The common thread that runs through all equity bull markets is confident expectations of higher earnings ahead. The common thread that ties the onset of all bear markets together is the loss of those confident expectations of higher earnings ahead. History shows that bull markets can go well beyond rational valuation levels as long as the outlook for future earnings is positive. — Peter Bernstein (source)

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