Compounding investing wisdom...
by Jon
In The Little Book of Behavioral Investing, James Montier relates a story by Paul DePodesta, of Moneyball fame, in the 16th chapter of the book.
That chapter also happens to be a shortened version of the 2008 research piece that Seth Klarman refers to in the last post.
DePodesta’s story weaves together casinos, baseball, and the importance of a good process. It begins with him playing blackjack in Vegas: Continue Reading…
by Jon
Athletes have routines. They have routines within routines.
From practices to pre-game to game time to post-game, from getting up in the morning, to the meals they eat, to the music they listen to, to getting taped up and dressed, stepping into the batters box (baseball), shooting free throws (basketball), getting into and out of the blocks (track, swimming), or starting their approach (too long to list), athletes have a process for everything.
It’s habitual, muscle memory stuff for the body and mind. It’s repetition at its finest.
It’s done for one simple reason: it helps with intense focus on the task at hand because it’s one of the few things athletes can control.
Good outcomes are the product of a sound process repeated often. But good outcomes are not always guaranteed.
Seth Klarman explains why investors should be more like athletes, with the help of James Montier: Continue Reading…
by Jon
Out of curiosity, I went digging for more info on the strategy Ben Graham used in his early fund back in the 1920s.
As was pointed out in the last post, he was buying undervalued stocks (the long-only portion) found through his own fundamental analysis, along with a separate hedging strategy, and some margin debt thrown in for good measure.
There’s was nothing really funky going on beyond that. Graham was very much focused on risk — minimizing losses — but, unlike his post ’29 strategies, he clearly was trying to maximize gains too.
In an article written in 1920, Graham outlined his hedging strategy. Continue Reading…
by Jon
Sometimes beating the market isn’t all it’s cracked up to be. Just ask Ben Graham.
Graham set up his second fund, the Graham Joint Account, in 1926 (after closing down his first fund set up with Louis Harris, Grahar Corp., run from 1923 – ’25). Over the first three years, 1926 to ’28, Graham’s new fund would earn 25.7% annually against the Dow’s 20.2%. He handily beat the market on the way up.
And he beat it on the way down…
From 1929 to 1932, Graham’s fund lost 70% compared to the Dow’s 80% loss (a beating alright). If he was chasing relative returns, he succeeded.
But Graham knew he failed. He barely survived the worst four year period ever in the stock market.
Not surprising, it would leave a lasting impression on him. James Grant explained exactly what went wrong during a 2008 Graham and Dodd event: Continue Reading…
by Jon
We’re halfway through the year, so this is another quarterly update on my attempt to read more books this year.
Mostly, this is for my own accountability but if you see something interesting, even better. You can find the last quarter’s reading list here.
These are the books I’ve read over the last quarter. Continue Reading…
by Jon
Anyone expecting a repeat of last year’s performance has to be disappointed. Global stock markets left much to be desired for the first half of 2018. Of course, markets can crush high hopes sometimes.
Usually, when that happens, bond markets offer a little recompense. That didn’t happen over the last six months. The few bond indexes I track for the asset tables (and many others) have all performed worse than 3-month T-Bills YTD.
That shouldn’t be a surprise though. Broadly, global stock markets have performed well since 2008. That wasn’t going to continue forever. And it’s hard to squeeze a high return out of low-yield bonds. Those two things combined are enough to reset expectations for the next several years.
The brings me to a few ultimate unanswered questions. How do investors react if low expected stock returns materialize in a low bond yield world? How many “long-term” investors stick with their strategy? Will investors take on more risk in the hopes of getting a higher return? Are they prepared if they’re wrong? Will they accept low or negative returns over the next few years? Continue Reading…
