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  • Howard Marks: The Riskiest Things

    September 12, 2018

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    Jon

    In the updated version of The Most Important Thing, Howard Marks, Seth Klarman, Joel Greenblatt, and others have their comments interspersed throughout the already great text.

    The added comments are instructive. Marks takes a unique approach by breaking down his comments into four themes that run throughout the book — the riskiest things being one.

    Most of his riskiest things revolve around behavior and ignoring imbalances in the market (there is some overlap too). The point: If you can recognize and avoid the riskiest things in investing, you’ll save yourself from a lot of pain and misery.

    1. Paying for Perfection

    The biggest losers — be they Nifty-Fifty stocks in 1969, internet stocks in 1999, or mortgage vehicles in 2006 — had something in common; no one could find a flaw. There are lots of ways to describe this condition: “priced for perfection,” “on the pedestal of popularity,” and “nothing can go wrong.” Nothing’s perfect, however, and everything eventually turns out to have flaws. When you pay for perfection, you don’t get what you expected, and the high price you pay exposes you to risk of loss when reality comes to light. This is truly one of the riskiest things.

    Continue Reading…


  • Happy Hour: Klarman’s Version of Mr. Market

    September 7, 2018

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    Jon

    I’ve said numerous times, the most important lesson in The Intelligent Investor is Ben Graham’s Parable of Mr. Market. It’s a simple story for how the market works, how some investors view price movement, and how you should really view price movement.

    But it’s also one of those stories that are easy to understand but harder to actually put into practice when market prices move wildly.

    That said, I think it helps to see the market through the lens of (childish) behavior – temper tantrums, throwing fits, impulsiveness, hysteria…it’s all possible and more. You can take advantage of opportunities Mr. Market offers or you can do nothing but whatever you do, don’t let Mr. Market’s mood drive your own.

    So whenever I come across a good version, told by someone other than Graham, I save it or post it here, as a reminder that the stock market is an exchange for pieces of businesses, not paper. The prices reflect Mr. Market’s mood toward the paper, not necessarily the value of the business.

    Seth Klarman tells a great version in his book worth sharing: Continue Reading…


  • Seth Klarman on Buffett’s “Never Lose Money” Rule

    September 5, 2018

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    Jon

    One of Warren Buffett many cryptic quotes that stand out is:

    Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.

    I’m sure a lot of people take this literally and do their best to never lose money ever. That, of course, is the wrong way to approach it.

    So it helps to not take Buffett so literally, in this case.

    Buffett’s message is a simple, though confusing, one that Seth Klarman does a great job deciphering in Margin of Safety: Continue Reading…


  • Happy Hour: Narrative and the Market Cycle

    August 31, 2018

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    Jon

    I spent some time this week catching up on a backlog of videos I’ve wanted to watch. Two stood out.

    The first is a Q&A with Howard Marks. The second is a conversation with Ben Hunt. The two conversations fit well together.

    Wharton: Investor Series featuring Howard Marks

    The hour-long Q&A session with Marks kicks off with how margin safety fits into distressed debt investing. Of course, it’s no different than any intelligent strategy. As Marks explains it, “If you can make those judgments on the basis of conservative assumptions and still end up with good room for profit, then that’s a source for margin of error.”

    The purpose of Ben Graham’s margin of safety is to give yourself room to make mistakes and not lose much (or still come out ahead). Most people should understand that. Continue Reading…


  • Lying Liars that Lie with Data

    August 29, 2018

    ·

    Jon

    There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact. — Mark Twain

    Many a statistic is false on its face. It gets by only because the magic of numbers brings about a suspension of common sense. — Darrell Huff

    Data is easily manipulated. That is to say, it can be made deceptive, misleading, or be a big fat lie. It happens everywhere someone wants to make a point fit their narrative or agenda. Politics and advertising are some of the biggest manipulators around.

    The world of finance is no slouch either. It happens with earnings…well, adjusted earnings. When you absolutely, positively have to show a good quarter, just conveniently leave out a few expenses.

    In How to Lie with Statistics, Darrell Huff takes a witty approach to all the ways people can deceptively turn raw data into biased “facts” and how to spot it: Continue Reading…


  • Happy Hour: The 1950s Shifting Investor Tide

    August 24, 2018

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    Jon

    The only constant in markets is change. Take the 1950s.

    The first detailed study the stock market was done in 1952 on shareholder demographics in the U.S. The book is 140 pages of tables and charts breaking down businesses and share ownership in the U.S. (someone shared a link to it earlier this week, don’t remember who).

    The most obvious thing that stands out is the huge difference in the sector/ industry breakdown in 1952 compared to today. Continue Reading…


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