Buy the Book: Ice Age details the history of the discovery of the cycle of ice ages. It covers the people behind it and what causes the Earth to cycle from extended periods of a cooler ice age to a warmer interglacial and back again.
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Investing Lessons from a 1906 Classic
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Thomas Gibson had a front-row seat to the speculative madness in Wall Street at the start of the 1900s. He saw traders succeed and (mostly) fail on a regular basis for a decade. In those few successes and many failures, some common themes stood out.
For instance, ignorance, overtrading, and negligence were the main reasons people lost money.
The business method, as he called it, was absent. More often than not, speculators treated the market as a casino rather a place to buy and sell shares of businesses for cash. They knew little about the companies behind the shares they bought — relying on tips over research.
Worst of all, they seemed to do everything backward. The height of speculation was always at market peaks when prices and enthusiasm were highest. But when opportunities were prevalent at lower prices, that interest and enthusiasm had dried up. It seemed as though they wanted quick riches, with little to no effort, or not at all. Slowly wouldn’t do.
Gibson wrapped up those experiences in his first book published in 1906. The Pitfalls of Speculation is a perfect example of how long sound investing principles have been around and how rarely investors heed them. You’ll find some highlights from the book below: Continue Reading…
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Stupid Money
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…at particular times a great many stupid people have a great deal of stupid money.
Walter Bagehot has come up with some wonderful lines in his day. That line, in particular, perfectly describes a recurring theme in financial history.
Bagehot wrote that line in 1856 about an event that happened in 1720 — The South Sea Bubble. He was describing human nature’s role in turning smart money into stupid money during manias and panics: Continue Reading…
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Seth Klarman: When Enron Looked Like A Steal
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Twenty years ago this month, the Enron scandal came to light. It was one of the biggest falls from grace for a Wall Street darling in recent history. It was the largest bankruptcy at the time (2001). That is, until a year later when Worldcom filed and more recently with the financial crisis.
The fraud at Enron destroyed the accounting firm Arthur Andersen. It led to new regulations with Sarbanes-Oxley Act. A book, The Smartest Guys in the Room, was written about it (then made into a movie with the same name). But worst of all, the shareholders were wiped out.
If there is one lesson to take away from Enron’s collapse, it is the risk of having a huge chunk of your net worth tied to the existence of one company. A lot of decent shareholders, including employees, were completely oblivious to the fraud going on at the top. They were all wiped out!
Unfortunately, while bankruptcy often has a nasty ending for stockholders, it’s not the end of the story. Another world of investing exists around failing companies.
A bankrupt company still has assets, which are sold off to pay its creditors. Secured creditors, like bondholders, are paid first. Unsecured creditors, like banks, employees, and suppliers are next, if there’s any money left. The stockholders are always last and typically get nothing. Continue Reading…
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Wise Words from Warren Buffett
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Most people will point to Warren Buffett’s spectacular track record as a thing that sets him apart. And it’s certainly impressive. His results show what great returns and a long runway can accomplish. Of course, only one of those things is easily copied.
Everyone is drawn to Buffett’s returns but the biggest lesson is the advantage of investing early in life. Buffett made his first investment at the age of 11. That started a 78 year (and counting) long experiment for compounding to work its magic.
No special skills or knowledge are required with compounding. It’s the one thing everyone can take advantage of with a little bit of money and time and patience. Patience is key. It also, likely, causes the most trouble.
Buffett seemed almost destined to build an empire. He had a business mindset at an early age. He hustled gum and Coca-Cola bottles door to door, bought a 40-acre farm, and built a pinball machine business before he went off to college.
Buffett’s investment track record officially began in 1956 with the Buffett Partnership. He ran it until 1968, producing a 32% annual return (25% for his limited partners). But before he closed up shop, he bought shares in a declining textile company known as Berkshire Hathaway. It was trading below its net current asset value. Continue Reading…