Novel Investor • Page 6 of 13 • Compounding investing wisdom...

Happy Hour: A Battle Plan to Buy

July 27, 2018

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Jon

When markets are in free fall, and bargains abound, investors should be elated. The question is: do you buy as opportunities arise or hold out for a better (lower) price?

This question was posed by Bruce Greenwald to a 2008 panel. Here was Seth Klarman’s answer:

I think that you buy one security at time. And if somebody wants to sell you something at at sixty cents, that’s worth par, you buy it because you don’t know if tomorrow someone will sell it to you at 50 or if it will be at 70 or 90.

That’s good advice in general because timing the bottom of anything is impossible without a lot of luck. It’s not even worth trying.

However, I think it helps to remember how investors reacted in ’08. Very few were ecstatic. Almost everyone was nervous, afraid, paralyzed, panicked… How many investors claimed to be “waiting for a better opportunity” while sitting on cash? Continue Reading…
Bernard Baruch: The Stock Market is a Barometer

July 25, 2018

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Jon

The Dow peaked intra-day at 386 on September 3, 1929. It closed that day at 381, an all-time closing high.

That high was seared into memory because the Great Crash would happen soon after. For 25 years, the Dow would struggle to do much of anything.

The unexpected happened on November 23, 1954. The Dow made a new high (a new intra-day high was hit the next day, the 24th).

Then a newer high was made. And another one. And again…until the Dow closed out 1954 at 404, with a 44% return (without dividends).

This was such a big deal that Congress opened a hearing on whether the stock market was too euphoric. They feared a repeat of 1929. So they called dozens of the best and brightest people to testify on the state of the market.

Bernard Baruch was one of those people. Baruch was an early Wall Street legend who began his career in 1891, set up his own firm in 1903, bought a seat on the NYSE, and became a millionaire by age 30.

Anyways, his testimony in The Stock Market Study offered a few highlights worth sharing, especially one equating the stock market with a barometer. Continue Reading…
Happy Hour: On Process: Moneyball, Casinos, and You

July 20, 2018

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Jon

In The Little Book of Behavioral Investing, James Montier relates a story by Paul DePodesta, of Moneyball fame, in the 16th chapter of the book.

That chapter also happens to be a shortened version of the 2008 research piece that Seth Klarman refers to in the last post.

DePodesta’s story weaves together casinos, baseball, and the importance of a good process. It begins with him playing blackjack in Vegas: Continue Reading…
Ben Graham’s 1920’s Hedging Strategy

July 13, 2018

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Jon

Out of curiosity, I went digging for more info on the strategy Ben Graham used in his early fund back in the 1920s.

As was pointed out in the last post, he was buying undervalued stocks (the long-only portion) found through his own fundamental analysis, along with a separate hedging strategy, and some margin debt thrown in for good measure.

There’s was nothing really funky going on beyond that. Graham was very much focused on risk — minimizing losses — but, unlike his post ’29 strategies, he clearly was trying to maximize gains too.

In an article written in 1920, Graham outlined his hedging strategy. Continue Reading…
Happy Hour: Quarterly Reading – Summer ’18

July 6, 2018

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Jon

We’re halfway through the year, so this is another quarterly update on my attempt to read more books this year.

Mostly, this is for my own accountability but if you see something interesting, even better. You can find the last quarter’s reading list here.

These are the books I’ve read over the last quarter. Continue Reading…
Total Returns for the First Half of 2018

July 2, 2018

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Jon

Anyone expecting a repeat of last year’s performance has to be disappointed. Global stock markets left much to be desired for the first half of 2018. Of course, markets can crush high hopes sometimes.

Usually, when that happens, bond markets offer a little recompense. That didn’t happen over the last six months. The few bond indexes I track for the asset tables (and many others) have all performed worse than 3-month T-Bills YTD.

That shouldn’t be a surprise though. Broadly, global stock markets have performed well since 2008. That wasn’t going to continue forever. And it’s hard to squeeze a high return out of low-yield bonds. Those two things combined are enough to reset expectations for the next several years.

The brings me to a few ultimate unanswered questions. How do investors react if low expected stock returns materialize in a low bond yield world? How many “long-term” investors stick with their strategy? Will investors take on more risk in the hopes of getting a higher return? Are they prepared if they’re wrong? Will they accept low or negative returns over the next few years? Continue Reading…

Happy Hour: A Battle Plan to Buy

Bernard Baruch: The Stock Market is a Barometer

Happy Hour: On Process: Moneyball, Casinos, and You

Ben Graham’s 1920’s Hedging Strategy

Happy Hour: Quarterly Reading – Summer ’18

Total Returns for the First Half of 2018