Novel Investor

Compounding investing wisdom...

Lessons from the 2022 Berkshire Letter

by Jon

Warren Buffett released his annual letter over the past weekend. It was, again, one of the shorter Berkshire shareholder letters on record. Though, it was not short on substance.

Buffett touched on a number of topics that offer lessons for investors summarized below. He also included a collection of pithy quotes from his partner Charlie Munger from an, I’m assuming, yet to be released, podcast which the worth the time to read. Let’s dive in.

Business Pickers

Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.

Buffett’s point is too often overlooked, especially, when people chase rising stock prices in a bull market or try to escape falling prices in bear market. When you buy a stock, you’re buying ownership in a business. The performance of the stock will mirror the performance of the business over the long run. Continue Reading…

Weekend Reads – 2/24/23

by Jon

Quote for the Week

One of the first lessons I heard about pendulums and the swing of investor behavior regarded something I was taught in the early 1970s: the three stages of a bull market. These succinctly capture the essence of investor psychology.

The first stage comes when a few people begin to realize that there will be improvement. The second stage occurs when most people realize that improvement is already taking place. The third stage comes when everyone thinks that things will be getting better forever. Clearly, the first is early; the last is laughably late. One of my favorite adages – perhaps my favorite of all – is that what the wise man does in the beginning, the fool does in the end. So it’s the buyer in the third stage – who buys when optimism is incorporated, under the assumption that things will always get better – who pays the price. — Howard Marks (source)

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Little Bets by Peter Sims

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Little Bets book coverBuy the Book: Print | eBook

Little Bets describes the process innovators often go through. Innovation is the byproduct of dozens to hundreds to thousands of small successes and failures that allow innovators to learn and adapt and achieve a successful outcome.

The Notes

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Lessons from Charlie Munger at the 2023 DJCO Meeting

by Jon

Charlie Munger held court at the Daily Journal annual meeting this week. The 99-year-old answered questions for about two and a half hours.

The questions mostly revolved around investing and life. As is typical of Munger, he offered several quotable responses and lessons along the way.

I highlighted a few of the broader lessons below. You can find a link at the end to watch the annual meeting in full. Continue Reading…

Wise Words on Investing Mistakes

by Jon

Mistakes will be made. It’s a normal part of investing. The question is what will you do when you make one and how bad will the outcome be?

Big mistakes are the issue.

An extreme example is you bet all your savings on a single stock — a tip you got from a friend. It has some early success only to tumble 30%. And this is where biases creep in to deter the best decision possible.

You’re maybe too confident things will turn around. Everyone says, “it’s due for a bounce.” All you want is to recover your losses.

So you hold on. Except, it falls further — 50%, then 70%. Finally, you give in and sell at a 90% loss.

With 10% of what you started with, you’re stuck with the incredible task of rebuilding it back up. Of course, blindly following a stock tip or betting it all on a “sure thing” are only two of a countless number of ways to part with your money. Continue Reading…

Weekend Reads – 2/3/23

by Jon

Quote for the Week

Most people think of common stocks as speculative media. They are not, in my opinion. Good common stocks are investment media which are subject to speculative influences. The speculative influences are not the common stocks; they are in the minds of the people who buy and sell them. The problem of investment in common stocks is either to insulate yourselves from the speculative influences, or else to adjust your investment policy so that you can take advantage of the speculative fluctuations that are imposed upon the basic investment quality of common stocks. — Benjamin Graham (source)

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