Novel Investor • Page 11 of 13 • Compounding investing wisdom...

Happy Hour: Doing Nothing

April 21, 2017

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Jon

Most of the Peter Lynch stuff I’ve dug up recently are archived articles from pre-internet days. One of his better articles did make it online. His 1995 article titled Fear of Crashing was republished just last month.

The title says it all. There must have been some worry of a crash back in 1995 since Lynch decided to address it.

Of course, fears of a crash pop up on a regular basis. But it starts with doubt. Pundits make their annual claims why this is the year the bear market returns. If the stories seem plausible, it might sow seeds of doubt. Doubt can lead investors to try to avoid the next correction. Continue Reading…
Happy Hour: Falling Short

April 14, 2017

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Jon

The latest SPIVA Scorecard on the U.S. fund industry was released this week. Only 8% of large-cap, 5% of mid-cap, and 7% of small-cap fund managers beat their benchmarks over the past 15 years.

That’s pitiful. It shouldn’t be a surprise either.

Common sense says there are too many mutual funds to manage and not enough great money managers to go around. Just like anything else that requires skill, there’s a limited number of “best” people. The rest are average, mediocre, or worse. Continue Reading…
Happy Hour: Jelly Beans and the Stock Market

April 7, 2017

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Jon

Joel Greenblatt recently did a Talks at Google (video is embedded below). You might remember him from such books as The Little Book that Beats the Market and You Can Be a Stock Market Genius. He also ran a very concentrated portfolio that produced mind-boggling returns.

Greenblatt told the story about recently teaching a class of 9th graders. He started the class with an experiment. He brought in a big jar full of jelly beans, passed out index cards, and asked the kids to guess the number of jelly beans in the jar.

So the kids tried to count the individual jelly beans or the rows of jelly beans or found some other ways to come up with their best guess. Then they wrote their guess on their card. Continue Reading…
Charlie Munger on Dexter Shoes and Handling Mistakes

April 5, 2017

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Jon

Mistakes are part of investing. There’s no way around it. So you might as well expect mistakes eventually, learn from it, and move forward. Just make sure that those mistakes don’t set you back so much that you can’t move forward.

Being properly diversified is one way to do that. In other words, you can make a few mistakes but your other investments make up for it and more.

Margin of safety is another. Leaving room for error goes a long way in reducing losses.

After the this year’s Daily Journal Annual meeting, Charlie Munger stuck around for more questions (a transcript of that Q&A session in the Library). He was asked how he handles learning from mistakes, which led to another question on Dexter Shoes. Here’s what he said: Continue Reading…
Happy Hour: Differing Point of View

March 31, 2017

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Jon

Debt can be very helpful or hurtful. In business, debt is called leverage for a reason. It can grow a business and increase earnings. But misusing debt can turn that leverage into an anchor.

James Montier at GMO points out the misuse of debt to fund share buybacks (along with a few other things) and how it relates to the current market prices, in his latest paper Six Impossible Things Before Breakfast.

The debt for buybacks issue has been pointed out numerous times before, but it’s been largely overlooked or ignored. Buying back shares is a short term fix to show “growing” earnings per share. If you’re just looking at this on the surface, earnings per share is higher. Everything’s great, move along. Continue Reading…
Charlie Munger on Change and Patience

March 30, 2017

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Jon

I’m in the middle of transcribing Charlie Munger’s unofficial Q&A session after the recent DJCO meeting. He was kind enough to stick around afterward for pictures and questions and someone was nice enough to record some of it.

Charlie shared a lot of interesting thoughts and I wanted to quickly share a bit of it here. The transcript will be available in the Library once I finish.

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Question: Charlie, do you think businesses are becoming more fragile with technology and transparency? Continue Reading…

Happy Hour: Doing Nothing

Happy Hour: Falling Short

Happy Hour: Jelly Beans and the Stock Market

Charlie Munger on Dexter Shoes and Handling Mistakes

Happy Hour: Differing Point of View

Charlie Munger on Change and Patience