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:
- 70 new blog posts. The most popular are below.
- 19 new book notes to different books, bringing the total to 70 book notes so far. Richer, Wiser, Happier was the most popular and the best investing book, about more than investing, I read last year.
- 85 new quotes, plus 104 yet to be categorized and published. That’s 912 published quotes related to finance. Bear market quotes were the most popular this year.
- 126 new pieces to the Library.
- 615 individual notes, with 321 more to publish, of the best nuggets of wisdom from great investors (sourced from what’s in the Library), organized by topic and author, and made available to paying members. (It’s a new project and about halfway done).
The one thing that never ceases to surprise me is what draws the most interest. Something I find most interesting completely flops while the post I spend the least amount of time on blows up. I have yet to find a consistent pattern after 13 years.
Many of the lessons are a byproduct of this year’s market decline and what inflated it in the first place. Some are more timeless than others. The dangers of speculative excess sit atop the list. The Great Depression made an appearance too. There’s even a lesson from baseball.
Of course, the bear markets are the second best time, only behind bull markets, to get back to investing basics. Asset allocation, process over outcome, and keeping things simple were three popular topics and are key to surviving bear markets.
Finally, this is the last post for 2022. I’m ending the year a week earlier than usual for my sanity (burnout kicked in around August).
Thank you for reading and sharing! None of these posts would be nearly as popular if not for readers like you.
Have a Happy Holidays and a prosperous New Year!
Note: The asset class quilts will be updated the first week of January. One change for 2023: I plan to only write one post most weeks. Everything else remains the same.
The Hidden Market Crash — The major market indexes are a good proxy for “the market” most of the time but sometimes they miss the bigger picture. Large subsections of stocks, not represented by the major indexes, were well into a bear market by the end of 2021. The wild speculation was already coming to an end. Some investors learned that great stories are not enough to keep stock prices inflated forever.
Bill Miller’s Biggest Loss — The importance of position sizing is often overlooked. One of Bill Miller’s biggest losses ever had a negligible impact on his fund’s overall return because he asked the right question. “How much can we invest in it if it goes to zero and with the overall portfolio, still beat the market?” He sized the position based on the odds of a total loss.
Addition by Subtraction — Humans have a natural tendency to solve problems by addition. We look to add rather than subtract features to fix problems. That bias towards adding things is found in investing but, it turns out, simplifying — subtraction — should be our default response. The best investors spend their time figuring out what doesn’t work for them and avoid it. Simplifying their investment process down to a few key principles does wonders for their portfolio.
Asset Allocation Drives Returns — David Swensen describes the three tools available to every investor that drives investment returns. Security selection, market timing, and asset allocation. Two of the three typically lead to worse returns. Making asset allocation key.
The Importance of Slugging Percentage in Investing — Bill Miller argued that slugging percentage is more important than success rate when it comes to baseball and investing. It’s not how often you’re right. What matters is how much money you make when you’re right compared to how much you lose when you’re wrong.
3 Keys to Successful Investing — Successful investing can be summed up as: knowing when the odds are in your favor, money management, and knowing yourself. Of course, the first two are difficult to do and not everyone has the knowledge or necessary edge to figure it out. That leaves knowing yourself as the most important factor in investing.
Investing Lessons from the Great Depression — Benjamin Roth kept a diary throughout the Great Depression and was one of the better books I read this year. It offers some unique insights into that period in history and some timeless lessons for investors.
Skill vs. Luck: Failing to Lose — Not knowing the difference between results due to skill and lucky breaks can lead investors to learn the wrong lessons. This becomes especially easy to do in the short run. The best way to combat this is to separate process from outcome. Focusing on the things that work in the long run, that tilt the odds in your favor is what successful investing is about.
Lessons from the 2021 Berkshire Letter — Lessons from Warren Buffett’s letter to shareholders is an annual event. This year’s letter came with lessons on being a business picker, quickly fixing investing mistakes, how buybacks done right improve performance, and why being comfortable with your investments is key.
Surviving the “Averages” — There is enough historical market data to produce “averages” for any metric we want. But we can’t build our portfolios based on the averages. It only takes a few surprising events to destroy decades of compounding. Portfolios must be built to survive the variations that not only produced the “average” but have yet to occur in the future.
Lessons from Charlie Munger at the 2022 DJCO Meeting — There is always something to learn from Charlie Munger. This year’s lessons from the DJCO meeting covered learning to live with market swings, not trying to time the market, technological progress, and creative destruction.
This Time Wasn’t Different — One of the recurring patterns in market bubbles is the repeated phrase “this time is different.” As many found out for the first time this past year, it wasn’t. Speculative bubbles inflate on hopes and dreams for the future only be to crushed by reality. The pattern has occurred throughout history too many times to count. Yet there’s good news. Opportunities can be found in the rubble of every market crash.
Wise Words Series — I started this series a few years ago. It’s a byproduct of reading about the great investors over the years in an attempt to learn from them. The end result is a collection of quotes and longer nuggets of wisdom that I can draw from to share insights on investing. These four “wise words” posts were the most read this year.
- Wise Words from Robert Wilson
- Wise Words from Charley Ellis
- Wise Words from Walter Schloss
- Wise Words from John Neff
- Lucky Fools – Humble Dollar
- Walter J. Schloss: An Investor for All Seasons – Kingswell
- Financial Gaslighting – The Better Letter
- The Myth of the Secret Genius – B. Klaas
- We Do Not Know Which Events Will Make History – Klement on Investing
- Is the World Getting Harder to Predict? – Punk Rock Bio
- 52 things I learned in 2022 – Magnetic
- AI Homework – Stratechery
- The 100 Greatest Innovations of 2022 – Popular Science
- The Science of Christmas Trees – New Yorker