Compounding investing wisdom...
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…
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…
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)
Freeman-Shor studied over 1,800 investments made by fund managers under his leadership to see if there were similar habits that led to their success or failure. He shares the common habits found around losing and winning investments that improve and hurt returns.
Practically everything in markets is cyclical. Bull markets become bear markets which turn into bull markets…and the cycle repeats. What’s old is new again, so to speak.
An inflection point marks the shift from a bull to a bear market (or vice versa). It’s the turning point in the market cycle. They also tend to be turning points for investors as well. Often to their detriment.
Just ask John Neff. He experienced numerous inflection points throughout his career. Each moment his strategy seemed to stop working. One thing stood out that was key to his success: Continue Reading…
Most of us spend a lot of our time doing something that human beings just don’t do very well. Predicting things. What earnings will be in a few years. When interest rates will peak. What inflation will be. One of the most consuming uses of our time, in fact, has been accumulating information to help us make forecasts of all those things we think we have to predict. Where’s the evidenced that it works? I’ve been looking for it. Really. Here are my conclusions: Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same. And when it comes to forecasting—as opposed to doing something—a lot of expertise is no better than a little expertise. And may even be worse. The consolation prize is pretty consoling, actually. It’s that you can be a successful investor without being a perpetual forecaster. Not only that, I can tell you from personal experience that one of the most liberating experiences you can have is to be asked to look over your firm’s economic outlook and to say, “We don’t have one.” — Dean Williams (Source)
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