Quote for the Week

Most people think of common stocks as speculative media. They are not, in my opinion. Good common stocks are investment media which are subject to speculative influences. The speculative influences are not the common stocks; they are in the minds of the people who buy and sell them. The problem of investment in common stocks is either to insulate yourselves from the speculative influences, or else to adjust your investment policy so that you can take advantage of the speculative fluctuations that are imposed upon the basic investment quality of common stocks. — Benjamin Graham (source)

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Quote for the Week

Most of us spend a lot of our time doing something that human beings just don’t do very well. Predicting things. What earnings will be in a few years. When interest rates will peak. What inflation will be. One of the most consuming uses of our time, in fact, has been accumulating information to help us make forecasts of all those things we think we have to predict. Where’s the evidenced that it works? I’ve been looking for it. Really. Here are my conclusions: Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same. And when it comes to forecasting—as opposed to doing something—a lot of expertise is no better than a little expertise. And may even be worse. The consolation prize is pretty consoling, actually. It’s that you can be a successful investor without being a perpetual forecaster. Not only that, I can tell you from personal experience that one of the most liberating experiences you can have is to be asked to look over your firm’s economic outlook and to say, “We don’t have one.” — Dean Williams (Source)

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Here’s what I’ve been reading for the past three months:
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Interesting things happen when market participants believe every new company will be a market leader over the next decade or two. We saw what that wild optimism looked and felt like over the last few years.

Over the three-year span, from 2019 to 2021, the S&P 500 doubled and the Nasdaq did over 1.5x better. It felt like you couldn’t lose. Yet, here we are.

Ben Graham spent a lifetime warning of the risk of eternal optimism priced into markets. Any price can be justified with enough of it:

The market action…throws an interesting sidelight on the hazards necessarily involved in buying issues on their expected future earning power. The theory that a low current rate of profit can be disregarded, provided there is strong assurance of steady future increase, has the peculiar weakness that it proves too much. For it could be used to justify any price, no matter how fantastic, merely by looking far enough ahead and making these remote profits the basis of current investment. The danger is of course that at any time the market may turn a little less far-sighted and look to the present or the near future for its measure of value.

If that doesn’t describe the market’s recent bout of optimism and the hazards incurred in 2022… And Graham wrote that in 1927! Continue Reading…

As 2022 comes to a close, it’s a great time to review some lessons from the more popular posts of the year.

Some of the broader lessons are tied to this year’s market decline and what inflated it.

The collection of posts below covers a range of topics. The posts are a product of things I’ve read or reread over the past 12 months and produced a larger-than-normal output this year. The blog grew by: Continue Reading…