Buy the Book: Men and Rubber tells the story of the early automobile industry and how Harvey Firestone built a small tire company into a leader in the industry. His autobiography offers timeless insights into starting and running a business.
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Weekend Reads – 6/9/23
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Quote for the Week
Financial markets, then, are volatile and unpredictable. Importantly, the markets themselves are far more volatile than the underlying businesses that they represent, which collectively account for their aggregate market capitalization. Put another way, investors are more volatile than investments. Economic reality governs the returns earned by our businesses, and Black Swans are unlikely. But emotions and perceptions — the swings of hope, greed, and fear among the participants in our financial system — govern the returns earned in our markets. Emotional factors magnify or minimize this central core of economic reality, and Black Swans can appear at any time. — John Bogle (source)
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How to Stop Being Your Own Worst Enemy (in Investing)
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The most overlooked aspect of investing is behavior. Instead, we focus on intelligence, timing, forecasting, and a host of other things we believe carry more weight in the returns we earn. Some of it matters, but not nearly as much as we hope.
Of course, Ben Graham tried getting the importance of behavior across decades ago. He plainly explains it in the introduction to The Intelligent Investor: “For indeed, the investor’s chief problem — and even his worst enemy — is likely to be himself.” If you can overcome yourself, you’ll be better off than most investors.
Here’s the thing.
Humans have been hardwired over the centuries with quick natural responses that enhanced our survivability. Thousands of years ago, survival required focusing on what’s around the corner instead of what’s far off in the distance. So we became great at leaping to the first conclusion rather than thinking things through.
That works great if we want to avoid being mauled by an animal, but works terribly if we want to survive in the stock market. Simply, human nature hasn’t kept pace with our changing environment. Continue Reading…
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Weekend Reads – 6/2/23
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Quote for the Week
Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. A boom–bust process is set in motion when a trend and a misconception positively reinforce each other. The process is liable to be tested by negative feedback along the way, giving rise to climaxes which may or may not turn out to be genuine. If a trend is strong enough to survive the test, both the trend and the misconception will be further reinforced. Eventually, market expectations become so far removed from reality that people are forced to recognize that a misconception is involved. A twilight period ensues during which doubts grow and more people lose faith, but the prevailing trend is sustained by inertia. As Chuck Prince, former head of Citigroup said during the twilight of the super bubble: ‘As long as the music is playing, you’ve got to get up and dance. We’re still dancing.’ Eventually, a point is reached when the trend is reversed, it then becomes self-reinforcing in the opposite direction. Boom–bust processes tend to be asymmetrical: booms are slow to develop and take a long time to become unsustainable, busts tend to be more abrupt, due to forced liquidation of unsustainable positions and the asymmetries introduced by leverage. — George Soros (source)
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Paul Tudor Jones: The Mental Obstacles of Investing
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Investing is a process of self-discovery. Investors rarely find their strategy on the first try. It takes a few attempts.
The reason is simple. First, new investors aren’t handed a menu of investment strategies to pick from when they start. Second, no strategy comes complete with a full list of behavioral requirements that make it a good fit. It’s trial and error, for the most part.
And even when investors find a strategy that fits them, they’re bound to be tested at times that causes them to question their decision. Paul Tudor Jones highlighted two tests every trader will face at least once in their life: Continue Reading…
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Weekend Reads – 5/26/23
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Quote for the Week
I think one of the most pervasive problems in the financial markets is investment with too short a time horizon. The fact that people look at quarterly returns of mutual funds is incredibly dysfunctional. I mean, there’s no way that you can expect somebody quarter in and quarter out or month in and month out to produce superior returns. There just aren’t pricing anomalies that are significant that are going to resolve themselves in a matter of months or weeks and so it’s a silly game to play. By extending your time horizon to three years, or four years, or five years, it opens up a whole host of investment opportunities that aren’t available to people that are playing this silly, short-term game. — David Swensen (source)