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A Few Lessons from The Battle for Investment Survival

September 18, 2019

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Jon

Investing is more art than science because psychology affects prices. That’s what makes investing difficult.

Yet, the difficulty is what most investors underestimate at first. Gerald Loeb points out the difficulties of investing throughout his book, The Battle for Investment Survival, before finally summarizing it:

The most important things any reader of these chapters can learn are likewise that investment and speculation are difficult, not easy; uncertain, not clearcut; treacherous, not logical. Here, more than anywhere in the world, is the land of illusion. Things are not what they seem. Two and two don’t always make four. “Stocks were made to sell.” Caveat emptor —”Let the buyer beware.”

And that’s the first of many lessons from the book. Here’s another. Losing is part of the battle: Continue Reading…
The Battle for Investment Survival by Gerald Loeb

September 18, 2019

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Buy the Book: Print

Gerald Loeb takes the contrary view that preservation capital requires some level of speculation to earn a return high enough to overcome the inevitable “losses” investors will experience in their lifetime.

The Notes

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Philip Carret on Forecasting Market Swings

September 11, 2019

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Jon

There’s a long history of market timing methods that work some of the time. Yet, the search for the holy grail strategy to get in and out of the market before every turn has been a failed endeavor. That hasn’t stopped people from searching or trying the latest and greatest method that worked twice in a row.

I’ve been reading a series of articles written by Philip Carret in 1926-27. Buffett was a big fan of his (so I did some digging). Carret would base a book on the series — The Art of Speculation — titled with the same name.

Despite the title, Carret was a value investor. He would go on to found one of the first mutual funds in 1928, ran it for the next 55 years while beating the market in the process. He also had a solid understanding of market history, market cycles, and the tendencies of its participants.

In one article, he points out why market timing methods fail eventually and how difficult forecasting can be. Continue Reading…
Quantitative Value by Wesley Gray & Tobias Carlisle

September 9, 2019

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Buy the Book: Print | eBook

All investors are susceptible to behavioral mistakes that then leads to poor returns. Gray and Carlisle create a quantitative value strategy that exploits the typical investors’ flaws while building temperament into their model.

The Notes

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Galbraith: ’29 Financial Innovation Run Amok

September 6, 2019

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Jon
John Kenneth Galbraith kicked off 1987 with a warning of excessive speculation in the stock market. Black Monday came nine months later. A 22% loss for the Dow. The worst single-day drop in market history.

Was it prescience or luck? Who cares. Galbraith, as usual, offered a history lesson worth learning.

He specifically covers four parallels between 1929 and 1987.
1. Speculation, euphoria, and greed take hold
2. Financial innovation run amok, fueled by debt
3. Inevitable punishment of those previously viewed as financial “geniuses”
4. Policy changes meant to “stimulate the economy” just flowed into the market
The second is worth highlighting because of the long history of financial innovation run amok.

By the late ’20s, companies were creating companies out of thin air, issuing bonds and a minority of the stock to the public. The newly created companies had no other purpose but to own stock.

But it didn’t end there. The new company would create a company, issue a minority of stock to the public, and the process would repeat all the way down. Investment trusts would do the same. The entire process drove the market. And easy access to leverage magnified it.

The “innovation” was seen as ingenious at the time, yet looking back it all seems ridiculous. As Galbraith concludes — we prematurely ascribe genius to anyone associated with large amounts of money. It’s a repeated trend that gets investors into trouble. Continue Reading…
Chuck Akre’s Three-Legged Stool

August 30, 2019

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Jon

What would you rather have: $1 million in a month (31 days) or a penny that doubles every day for 31 days?

What about $2 million in a month versus the doubling penny? $5 million?

It’s a fun math puzzle that explains compounding. If you do the math, the penny takes a while to get rolling.

Ten days in, the doubling penny only sits at about $5. At 18 days, it finally passes $1,000. It clears $100,000 on day 25. Then the real impact kicks in. Over the last six days, it eclipses $1 million by a factor of 10. As investment analogies go, it’s a good one. Time is a fundamental ingredient for investing success.

I was reminded of the puzzle because Chuck Akre used it to kick off a presentation on his investment process. Compounding plays an important part of his process, just as it does in everyone’s.

Only Akre looks for companies that compound at a high rate of return over a long period of time. He uses the concept of a three-legged stool to explain how he does it: Continue Reading…

A Few Lessons from The Battle for Investment Survival

The Battle for Investment Survival by Gerald Loeb

The Notes

Philip Carret on Forecasting Market Swings

Quantitative Value by Wesley Gray & Tobias Carlisle

The Notes

Galbraith: ’29 Financial Innovation Run Amok

Chuck Akre’s Three-Legged Stool