Compounding investing wisdom...
…at particular times a great many stupid people have a great deal of stupid money.
Walter Bagehot has come up with some wonderful lines in his day. That line, in particular, perfectly describes a recurring theme in financial history.
He wrote those words in 1856 about an event that happened in 1720 — The South Sea Bubble. He was describing human nature’s role in turning smart money into stupid money during manias and panics: Continue Reading…
Buy the Book: Print
Seth Klarman’s rare classic is about managing risk. Borrowing Ben Graham’s primary concept for the title, the book teaches how to think about the value investing philosophy and why it works.
Buffett’s Partnership Letters hold a number of lessons for everyone. Some stand out more than others because Warren Buffett repeats them throughout the letters. Those lessons are worth repeating again.
It is always startling to see how relatively small differences in rates add up to very significant sums over a period of years.
Exponential growth doesn’t come naturally to everyone. Mostly because it’s hard to imagine the huge amount of growth that happens on the backend based on what we see on the frontend.
To help his partners understand it, Buffett wrote three versions of alternate history to explain it. He rewrote the history of Christopher Columbus, da Vinci’s Mona Lisa, and the sale of Manhattan. His stories offer a fun way to rewrite historical outcomes and show the power of compounding. Continue Reading…
The Buffett Partnership Letters are classic reading for any value investor. Readers get an inside view of Warren Buffett’s investment philosophy — seeing where it did and did not evolve — early in his career.
Howard Marks has been on a tear with his memos lately. In the latest, out this week, he answers the important question, “Should I wait for the bottom?”
In short, the answer is no. Since bottoms are only found out after the fact, buying on the downswing offers more opportunities than the alternative — waiting for some “all clear” signal.
The old saying goes, “The perfect is the enemy of the good.” Likewise, waiting for the bottom can keep investors from making good purchases. The investor’s goal should be to make a large number of good buys, not just a few perfect ones. Think about your normal behavior. Before every purchase, do you insist on being sure the thing in question will never be available lower? That is, that you’re buying at the bottom? I doubt it. You probably buy because you think you’re getting a good asset at an attractive price. Isn’t that enough? And I trust you sell because you think the selling price is adequate or more, not becaue you’re convinced the price can never go higher. To insist on buying only at bottoms and selling only at tops would be paralyzing…
The bottom line for me is that I’m not at all troubled saying (a) markets may be considerably lower sometime in the coming months and (b) we’re buying today when we find good value. I don’t find these statements inconsistent.
With as fast as the market’ moved in the past two weeks, the question might be updated to: “Did I miss the bottom?” Continue Reading…
Warren Buffett used a three-bucket approach in his portfolio during his partnership days. It’s a nice example of how to think about portfolio construction.
Each of Buffett’s buckets filled a role in meeting his long term objective. That objective can be broken down into two parts:
The only way he achieves either objective is by building a portfolio that looks nothing like the Dow. How did he do it?
First, he used a conservative deep value strategy. Stocks selling at a deep discount, with a wide margin of safety, offered a lot of room to be wrong on valuation but still make money.
With that strategy as a base, the three buckets did the rest — what he called Generals, Workouts, and Controls: Continue Reading…
Get the Letters: