Compounding investing wisdom...
As 2022 comes to a close, it’s a great time to review some lessons from the more popular posts of the year.
Some of the broader lessons are tied to this year’s market decline and what inflated it.
The collection of posts below covers a range of topics. The posts are a product of things I’ve read or reread over the past 12 months and produced a larger-than-normal output this year. The blog grew by: Continue Reading…
The Great Crash was a defining moment in market history. Galbraith breaks down the events that led to the speculative excess of the late 1920s, details the last wild year, and the market’s collapse. It’s a warning for when the next speculative bubble comes around.
A bear market in everything best describes 2022. Stocks, bonds, real estate, used cars, crypto, sentiment, fraudsters…everything is going down this year.
Of the major market indexes, the Dow and S&P 500 each fell more than 20% before recovering to a 5% loss and 14% loss respectively. The Nasdaq faired worse, dropping more than 30% before recovering to its current 26% loss year to date.
The losses should be no surprise by now. The carnage in Nasdaq stocks, especially, has been covered extensively. Excessive hope and a great story can do wonders for stock prices but eventually, companies need to deliver. Many have not. Continue Reading…
Alan “Ace” Greenberg became CEO of Bear Stearns in 1978. His witty, humorous memos, covering two decades, set the tone, maintained morale, and repeated his simple business philosophy backed by common sense.
David Swensen managed Yale’s endowment for 35 years and transformed how institutions managed money. His Yale model took a simple idea and applied an unconventional approach to great success.
Swensen’s simple idea was that time horizon plays an important role in determining asset allocation. The time horizon for college endowments is basically endless. It allowed Swensen to tilt the portfolio to an equity-oriented allocation to take advantage of that extreme long-term view.
While a typical allocation holds a mix of traditional asset classes like U.S. and foreign stocks and bonds, Swensen shied away from that. Instead, his unconventional approach leaned heavily on what is now called alternative investments.
For example, in 2008, only 30% of Yale’s endowment was invested in traditional asset classes. 70% was in real assets, hedge funds, absolute return strategies, private equity, and venture capital. That asset mix allowed him to focus more on the least efficient markets. His goal was equity-like returns over long periods using uncorrelated assets. And it worked!
Swensen knew that every investor has three tools at their disposal to generate returns: asset allocation, market timing, and security selection. Research shows that market timing doesn’t work. In fact, it’s a net negative. It generates higher turnover, higher fees, and fails to do what’s intended. Returns tend to be worse when market timing is involved. Continue Reading…
There is no secret formula for business success. Donald Keough inverts the question “How to succeed in business?” He looks back on numerous mistakes in his sixty-year career and identifies common factors that led to business failure so you avoid the same fate.
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