Quote for the Week

The truth is: Investing is not easy; making money isn’t easy. How can it be easy? Everybody wants to make money. It is a very competitive activity. But if you are disciplined, if you study, and if you can keep your emotions under control, then you can do these things. But one of the real keys is to keep your emotions under control. Everything in the environment conspires to make us do the wrong thing, to buy when things are going well and prices are high — and to sell when things are going poorly and prices are lower, which is the exact opposite of what we should do. But it all comes from emotion. We have to resist. — Howard Marks (source)

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Here’s what I’ve been reading for the past three months:

• The Buffett Essays Symposium — It’s an annotated transcript of a 1996 symposium held alongside the release of The Essays of Warren Buffett. Buffett was in attendance, of course, along with Charlie Munger and others to discuss issues on corporate governance, accounting, investing, M&A, and more. The book is a nice supplement to The Essays. (notes)
• How We Know What Isn’t So — Thomas Gilovich looks at human judgment and why we fall prey to mistaken beliefs and fallacies. He uses research and examples to show how cognitive biases, like the hot hand fallacy, the Barnum effect, and others, cause errors in decision-making. He closes the book with suggestions on how best to avoid erroneous beliefs. (notes)
• Make Something Wonderful: Steve Jobs in His Own Words — The book is a curated collection of Steve Jobs’s emails, writing, speeches, and more from throughout his life. You get his thoughts on creativity, technology, and business, and how those views changed over time. Overall, the book is a history of his life. Copies are free at the Steve Jobs Archive. (notes)
• The Victorian Internet: The Remarkable Story of the Telegraph — Tom Standage tells the story of the invention of the telegraph. From the first optical telegraph invented in France to the electric telegraph, the new invention cut communication time from days to minutes and changed the world. The book also offers some broader lessons on how the public views new inventions, first with skepticism then enthusiasm, and how early adopters drive the technology forward. Notes to come.

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Quote for the Week

Before I came down to Wall Street in 1914 the future of the stock market had already been forecast — once for all — in the famous dictum of JP. Morgan the elder: “It will fluctuate.” It is a safe prediction for me to make that, in future years as in the past, common stocks will advance too far and decline too far, and that investors, like speculators — and institutions, like individuals — will have their periods of enchantment and disenchantment with equities. — Ben Graham (source)

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Despite the selloff over the last two months, the broader markets are positive through three quarters of 2023. U.S., international, and emerging market indexes declined in August and September.

The S&P 500 finished the third quarter with a 13.1% return year to date, down from 16.9% at the end of the second quarter. The international market index closed the quarter at 7.6%, down from 12.1% in Q2. Emerging markets dropped to 2.2% at the end of Q3, down from 5.1% in Q2.

Both REITs and high-yield bonds (Agg index) turned negative for 2023, due to third-quarter declines. But cash (a basket of short-term T-Bills) and high-yield bonds buck the trend with gains over the last three months. High-yield bonds rose to 6% on the year, while cash rose to 3.7% year to date.

A note before getting to the 2023 numbers. The asset class, sector, international markets, and emerging market return quilts are up-to-date through the third quarter. Hit the links for each one.

There are four tables below. The sector, developed market, and emerging market tables break down 2023 returns by month. The global returns table shows 2023 returns by quarter.

Nine months into the year, the tables offer a few broader lessons for investors: Continue Reading…

Quote for the Week

When the markets were shaken by the Russian situation, a lot of the normal relationships between different markets were thrown off — say, the relationship between the prices of corporate bonds and treasury bonds. When these relationships get out of line, they can be a profitable opportunity because eventually they can be expected to return to normal. But this time they did not return to normal or, at least, not soon enough. The analytical system that Long-Term Capital Management used to exploit such opportunities works 99.9 percent of the time. But because they had borrowed so heavily, that very unusual deviation of the markets, which might occur 0.1 percent of the time, caused them almost to run out of capital…

If Long-Term Capital had been forced to liquidate, the deviations from the normal behavior of bonds and other investments would have been even greater and the effects on the banks would have been even worse. That is why the New York Federal Reserve intervened. One really interesting thing is that it showed how faulty are the methods banks use to assess and manage risks. — George Soros (source)

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Quote for the Week

The really hard part about investment policy is not figuring out the best feasible combination. While it takes some time and analytical discipline, this part of the problem-solving is far from advanced science.

The really hard part is managing ourselves: our expectations and our interim behavior. Walt Kelly’s Pogo puts it as “we have met the enemy and he is us.” Most investors are too optimistic about the long run and much too optimistic about how well they will do compared to the averages, so they set themselves up for disappointment.

Even worse, most investors do harm to their longer-term investment results by trying and trying again to do better: changing managers and changing asset mix at the wrong time and in the wrong way. — Charles Ellis (source)

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