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Lessons from the 2021 Berkshire Meeting

May 7, 2021

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Jon

The broad lesson from this year’s Berkshire annual meeting is that successful investing is hard. Especially when it appears to be easy.

Of course, that will likely be the lesson when we look back on this period a decade from now too. But until then, Warren Buffett and Charlie Munger will again be labeled “old and out of touch” with the new reality.

Before diving in with the lessons, here’s a quick tip: if you want to listen to the entire meeting, bump the speed up to 1.2x or higher. It goes by faster and Buffett and Munger sound 30 years younger.

Let’s dive in.

It’s hard for companies to stay on top.

Buffett showed a list of the 20 largest companies, by market cap, in the world today. Continue Reading…
The Theory of Stock Exchange Speculation by Arthur Crump

May 5, 2021

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Buy the Book: Print | eBook

Arthur Crump warns of the many obstacles, behavioral and otherwise, speculators face in the markets. The 1874 classic sits as another example that speculating has been a difficult endeavor for a very long time.

The Notes

Continue Reading…
Howard Marks: The “Negative Art” of Investing

April 30, 2021

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Jon

Howard Marks once describes his investment philosophy like this:

My philosophy of investing was built primarily on experiences but also on things I read: John Kenneth Galbraith’s ideas about cycles, the importance of contrarianism and being a countercyclical, and the importance of not being a forecaster, and Charlie Ellis’s article on “The Loser’s Game” — the desirability of just keeping the ball in play rather than trying to hit home runs.

Strategies that swing for the fences can experience random catastrophic strikeouts that ruin a game. Marks wants to stay in the game as long as possible, so he’ll forgo home runs for singles, doubles, and even walks. It’s like a small ball approach to investing, to continue the baseball analogy.

The point is, Marks wants to avoid as many mistakes as possible and not lose. To do that, he follows a process he learned from Ben Graham called the negative art. Here’s how he described it: Continue Reading…
Peter Lynch on Portfolio Construction

April 23, 2021

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Jon

Peter Lynch is known for his versatility. He deployed a wide range of strategies during his career to earn market-beating returns.

As described in his book, One Up on Wall Street, he’d invest in anything — slow growers, stalwarts, fast growers, cyclicals, turnarounds, and asset plays. He even borrowed Ben Graham’s net-net strategy to invest in Dot-com stocks after the bubble burst.

But how did he put that skill to use regarding portfolio construction?

In a 1985 interview, he described how he constructed the Magellan Fund. Lynch divided the fund into three buckets — conservative stocks, growth stocks, and special situations: Continue Reading…
Seth Klarman: Consistency in a Bubble

April 21, 2021

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Jon

Imagine writing out your investment strategy every year. What would it be? Would it be consistent? Or would it change every few years?

Now, imagine writing it down during the longest bull market in history. Would it change then?

Fund managers do this almost annually to remind clients, partners, or shareholders about the underlying goals of the fund. On some level, it probably acts as a self-reminder, offering reassurance that their strategy does work, just not right now. And looking back, it becomes a telling sign of whether they stayed consistent, especially during the rough years.

Seth Klarman’s letters are a good example of consistency. His letters not only show what it takes to stick to your knitting but to do it in the face of a massive bubble that makes your strategy look foolish. Continue Reading…
Too Good To Be True

April 16, 2021

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Jon

For as long as there have been markets, there have been charlatans, con-artists, and fraudsters getting rich selling hope to the uninformed. In every case, the returns turned out to be “too good to be true.”

Charles Ponzi is probably the most infamous. He wasn’t the first to do it, but they named the scam after him anyway. He defrauded clients with promises of 50% returns in a month and a half or 100% in three months investing in postal stamps.

Of course, there was no investing going on. The only strategy Ponzi followed was to rob Peter to pay Paul. He used money from new clients to pay old clients. As long as he maintained a big enough supply of new clients, he could keep the fraud running. Ponzi’s scheme latest about three years before it finally fell apart.

So right away, there are things to watch out for from Ponzi’s scheme. The returns are unbelievably high and the claimed method of earning them is complex.

Now, Ponzi pails in comparison to Bernie Madoff. Historic market crashes tend to expose fraud going on right under our noses. The 2008 financial crisis was no exception. Multiple cases came to light but Madoff’s was the biggest. Continue Reading…

Lessons from the 2021 Berkshire Meeting

The Theory of Stock Exchange Speculation by Arthur Crump

The Notes

Howard Marks: The “Negative Art” of Investing

Peter Lynch on Portfolio Construction

Seth Klarman: Consistency in a Bubble

Too Good To Be True