Quote for the Week

The difficult thing for the financial adviser and the client—and I learned this when I managed money—is that no one can really identify how he or she is going to react when surprises come along, and yet surprises are inevitably going to come. Somehow investment consultants need to condition people to this fact. I give a lot of talks where I stand up and say, “We don’t know what the future holds,” and I see all of the heads nodding up and down. But people act as if they do know what the future holds, and that’s what gets them into trouble.

So it’s crucial that consultants try to get through to people that it’s impossible to know the future and that surprise is inevitable. As a result, we have to limit the nature of our bets, we have to be obsessive about diversification, we shouldn’t try to be too smart, we shouldn’t try to shoot the moon. All of these are very simple ideas, and people will accept them ahead of time, but it’s hard for them to live with humbly structured portfolios. However, they have to do so if they’re going to survive. The main thing that an investment consultant can do is to get through this idea that you can’t act as though you know the future if you want to be a survivor. The future may be better than you think, and it’s not necessarily going to be worse. But even if it’s better than you think, that’s also hard to handle. It’s that kind of philosophical teaching that consultants have to understand in their hearts, and then get it into the hearts of investors. Once you’ve got the philosophical grasp, the rest is easy. — Peter Bernstein (source)

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Quote for the Week

It’s no secret that traders and market timers who come in and out of the market will miss some of the bad months, but they will also miss some of the good ones as well. When the market goes up, it often goes up rapidly. If you jumped in and out of the market and missed the best 40 months during the last 40 years, you would have reduced your average annual return from more than 11% to around 3% (less than you would have gotten from a money market fund). Market timing is speculating and it rarely, if ever, pays off. — Peter Lynch, 2001 (source)

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It’s time to wrap up 2023. Most of what gets posted on this blog is a byproduct of what I read. There are exceptions, of course, like the quarterly updates. The goal is to share what I learn and, in turn, see how well I understand it.

And there’s been some timeless lessons this year. However, not all of it showed up in the blog feed. The blog added:

• 65 new blog posts.
• 14 new book notes. That brings the total notes to 84 books so far.
• 168 new quotes. There are now 1,080 quotes in the collection from some of the brightest minds in finance. Risk management and Peter Lynch quotes were the most popular this year.
• 131 new pieces in the Library.
• 713 excerpts from those pieces in the Library. There are now over 1,328 sorted by investing topic and author available to members.

The fun part of writing the past 14 years is seeing what others find interesting. Which topics fall flat? Which are a hit? It’s still a surprise each time I hit publish. Continue Reading…

Quote for the Week

Every once in awhile, people can keep a horse a secret who is making his first start, and there is a tendency towards larceny in the hearts of horseplayers. But this doesn’t happen very often and this is a pretty well­-regulated sport. Nevertheless, participants in racing (owners, trainers, etc.) would rather steal a nickel than earn a dime. They all think that they’ve got big secret information. Just for the sport of it, I once kept track of a year’s worth of tips that I received – the ROI was horrendous, less than 50 percent. I worked at the tracks in New York for several years. They had betting windows on the back stretch just for the help and the trainers. Out of morbid curiosity, I looked to see how well those windows did -­ the take was much higher there than anywhere else at the track. I am personally skeptical of pronouncements by people who claim to have specialized knowledge because most of the time, they are saying it for reasons of ego – they want to look important, and I am immediately skeptical. It pays to be skeptical. — Steven Crist (source)

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The story of 2023 is one of alleviating the market worries of 2022. Higher inflation, higher interest rates, recession, and further market declines were predictions pushed for 2023.

Then again, there’s always something to worry about. Except, as is often the case, the last thing you have to worry about is what everyone’s talking about. Because the odds are good that those concerns are already priced into the market.

Unfortunately, the biggest risks are the risks we don’t think up. In other words, we build our portfolio to protect from surprises, not the common market concerns everyone expects.

So how did those 2023 worries fair? Continue Reading…

Quote for the Week

My father had this best friend and client. He also had this other client who was a big blowhard. And he was always working for the big blowhard and he wasn’t ever working for his wonderful client whom I admired. I said, “Why do you do this?” He said, “Charlie, you idiot.” He says, “The big blowhard is an endless source of legal troubles. He’s always in trouble! Overreaching and misbehaving and so forth. Where as, Grant McFadden treats everybody right. The employees, the customers, everything. He gets involved with some psychotic, he walks over there and makes a graceful exit immediately. A man like that doesn’t need a lawyer.” And my father was trying to teach me something and it really worked. I spent my whole life trying to be like Grant McFadden. And I want to tell you, it works. It really works!

Peter Kaufman is always telling me, if the crooks only knew how much money you could make by being honest, they’d all behave differently. Warren has a wonderful saying I like. He says, “You take the high road. It’s never crowded.” And it’s worked. — Charlie Munger (source)

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