The ability to not be getting margin calls, not be having redemptions, not be scared out of your mind when something’s gone against you is probably the most enhancing thing to long term returns.
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In order to earn excess returns, one has to anticipate changes in expectations, not react to them.
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Rates of return on stocks are a function of three things: beginning dividend yields, growth of earnings, and changes in valuation.
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What I believe will happen in financial markets and what ends up happening have no necessary relationship. The future is uncertain, and the returns investors earn will depend on the nexus of actions taken and how events unfold.
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One of the markers, in my opinion, of a high future return is where the worst rate of return has been during the preceding five or six years.
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Our approach can be summarized with the phrase “lowest average cost wins.”
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Over the very long run, it is the economics of investing — enterprise — that has determined total return; the evanescent emotions of investing — speculation — so important over the short run, have ultimately proven to be virtually meaningless.
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Investing performance is what happens when events collide with an existing portfolio.
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I don’t think the objective of investment should ever be to take a risk in order to get a return. I think the objective of shrewd investment should be to find opportunities which offer a larger return than the average, combined with adequate safety.
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The actual results of an investment over a long term of years very seldom agree with the initial expectation.
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I am willing to trade the pains (forget about the pleasures) of substantial short term variance in exchange for maximization of long term performance. However, I am not willing to incur risk of substantial permanent capital loss in seeking to better long term performance.
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The big profits I have made were through very long planning, waiting and watching.
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I feel the same way about managing that I do about investing: It’s just not necessary to do extraordinary things to get extraordinary results.
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The greater the potential reward in a value portfolio, the less risk there is.
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In business, you don’t have to do extraordinary things to get extraordinary results. You have to have a sound approach, but you don’t have to be brilliant.
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So long as a capitalist system persists and the financial markets hold together, equities do have a built-in long-term rate of return. That rate of return is a nominal measure of the economy.
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Every basis point of return — let alone every 100 basis points — has a staggering difference in outcomes in the long run. That’s why you stay focused on the long term and the rate of return; that is where the difference is, that is what you want and need to capture.
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The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig.
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I don’t want to spend my time trying to earn a lot of little profits. I want very, very big profits that I’m ready to wait for.
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The prevailing view has been that the market will earn a high rate of return if the holding period is long enough, but entry point is what really matters.
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If the stock market has a period of outperformance of its long-term return, it is inevitably followed by some period of underperformance. But people being optimistic and greedy by nature take the recent short-term outperformance of stocks as a sign of good things to come, rather than a warning of bad things to come.
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In my experience, large increases in assets under management adversely affect returns.
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Managers do not create large alphas by being conventional. They do so by taking the risk of being wrong and alone.
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Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred.
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The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.
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Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return.
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The point of investing, after all, is not to have a great story to tell; the point of investing is to make money with limited risk.
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As an investor you never have perfect information, and the biggest profits are always available when competition and information are scarce.
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The payoff to fundamental analysis rises proportionately with the difficulty of performing it.
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Higher risk investments often erode one’s capital and produce lower returns — the worst of all investment worlds. Higher-returns-for-higher-risks only applies on average and over time.
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You have to say to yourself, “If I’m right, how much am I going to make? If I’m wrong, how much am I going to lose?” That’s the risk/reward ratio.
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All you have to do, really, is find the best hundred stocks in the S&P 500 and find another few hundred outside the S&P 500, to beat the market.
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I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one or two of ’em go up big time, you produce a fabulous result.
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For some reason, you lose money rapidly in the stock market but don’t make it rapidly.
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Diversification of risk matters not just defensively, but because it maximizes returns as well, because we expose ourselves to all of the opportunities that there may be out there.
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Unless you are that rarest of birds, someone who is cool under the rapid-fire, high-pressure decision making required to maximize your returns, let others take such risks, and allow your portfolio to plug along at a slower speed. In investing, tortoises tend to win far more often than hares over the turns of the market cycle.
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In the end, the value of your portfolio is not what somebody tells you is likely to happen over the long run but how much other investors out there are going to be willing to pay you for your assets.
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If a stock has gone sideways for a couple of years, and the fundamentals are decent, and you can find something new that’s positive in the company, then if you’re wrong, the stock will probably continue to go sideways, and you won’t lose a lot of money. But if you’re right, that stock is going north.
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In my investing career, the best gains usually have come in the third or fourth year, not in the third or fourth week or the third or fourth month.
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The very existence of doubt creates the conditions for a big gain in the stock once the fears are put to rest. The trick is to put your fears to rest by doing the research and checking the facts — before the competition does.
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You only need a few really big stocks in a lifetime to make a lot of money.
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One or two good stocks can make up for lots of losers, and produce superior results.
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If you are selling because of a missed earnings report or the trend of the market or something, you’ve stopped looking at the rate of return the company can achieve over time.
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There is no clear evidence from experience that the investment policy which is socially advantageous coincides with that which is most profitable.
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Being “right” doesn’t lead to superior performance if the consensus forecast is also right.
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If all that can be promised is an average result, how can managers expect to be paid large fees for providing that average result?
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The point is to consider risk control, loss avoidance, at least as important as return.
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