Compounding investing wisdom...
by Jon
Ben Graham believed the great 1920s bull market would end disastrously, yet kept investing as though it wouldn’t happen.
You might think that’s worthy of praise, somehow. He stuck to his guns and never strayed from his strategy.
Well, you’d be wrong. One of the brightest minds on Wall Street strayed from his strategy and couldn’t follow his gut.
Graham explained everything, even questioning his reasons, in his memoirs: Continue Reading…
by Jon
History is a funny thing. Despite being over and done with, it’s constantly changing. It’s fluid. Our understanding of history is in a state of flux.
Our knowledge of any past event is always incomplete, probably inaccurate, beclouded by ambivalent evidence and biased historians, and perhaps distorted by our own patriotic or religious partisanship. “Most history is guessing, and the rest is prejudice.”
To top it off, we may not have the knowledge — yet or ever — to piece it all together. New ideas and discoveries constantly rewrite what we thought we knew about the past.
So historians make do with what they have. The result is an incomplete, biased, and often simplistic story that brings order to past events.
That’s roughly how The Lessons of History, a book by Will and Ariel Durant, presents it. And it relates surprisingly well to investing. For instance, the above describes how media present headlines and narratives around market moves. Continue Reading…
by Jon
Peter Lynch is known for his versatility. “Not picky” is probably a better description since he deployed a wide range of strategies during his career to earn market-beating returns.
As described in his book, One Up on Wall Street, he’d invest in anything — slow growers, stalwarts, fast growers, cyclicals, turnarounds, and asset plays. He even borrowed Ben Graham’s net-net strategy to invest in Dot-com stocks after the bubble burst.
But how did he put that skill to use when constructing his portfolio?
In a 1985 interview, he described his strategy behind the Magellan Fund. Lynch divided the fund into three buckets — conservative stocks, growth stocks, and special situations: 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 – 1925). Over the first three years, 1926 to 1928, 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 surprisingly, 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
In rummaging around my stuff on Peter Lynch, I found the 1988 Barron’s Roundtable. The Roundtable, for those who don’t know, is a chance for fund companies to show off their star manager’s, talk their book, get some free press out it, and Barron’s can feed the demand for stock tips.
Tips aside, it’s Peter Lynch and the ’88 edition is interesting for a few reasons:
Or Lynch didn’t show it. Continue Reading…
by Jon
The Berkshire meeting was last weekend and I thought I’d share a few highlights. But before I begin, this years meeting was a little dry on content.
There’s always some repetition across past meetings but this year, similar questions were asked several times. I counted three questions about buybacks and, at least, two about circle of competence. And there more Berkshire specific questions than usual (a good thing for shareholders).
If you missed the meeting, CNBC has video and transcripts of it in its entirety (links below). Continue Reading…