The key question in markets is always what is discounted. Excess returns are earned when expectations — what is discounted — are different from what occurs.
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One of the most powerful sources of mispricing is the tendency to over-weight or over-emphasize current conditions.
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Growth is an input into the calculation of value. Companies that grow are usually more valuable than companies that don’t.
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The reason to own commodities may be that one believes they provide equity like returns with little correlation with equities. The time to own commodities is (or at least has been) when they are down, when everybody has lost money in them, and when they trade below the cost of production.
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We practice the Taoist wei wu wei, the “doing not doing” as regards our portfolio, otherwise known as creative non action.
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Two things seem pretty clear to me: first, no one can consistently buy at the low or sell at the high (except liars, as Bernard Baruch said), and second, lowest average cost wins.
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Systematic outperformance requires variant perception: one must believe something different from what the market believes, and one must be right.
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The most important question in investing is what is discounted, or put slightly differently, what are the expectations embedded in the valuation?
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The most common error in investing is confusing business fundamentals with investment merit.
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Being wrong is something anyone involved in capital markets has to get used to, though being used to it and being comfortable with it are two different things.
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The reason commodity prices are so volatile is that they are commodities, economically undistinguishable items except for price.
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The market doesn’t lack for analysts and commentators who mine the data for patterns and declare how the future will look based on how past patterns evolved. I wish it was that easy.
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My view is that it is different every time, and that the relevant analytical exercise is to figure out what the differences are, what the similarities with past periods are, and what it all means, so that one can make sensible investment decisions.
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Complex adaptive systems such as markets and economies are characterized by imbalances. They are non-linear, non-equilibrium systems; the imbalances are a reflection of the systems’ adaptation to change.
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Most companies that sport lofty valuations fail to generate results that justify them.
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We believe successful investing involves anticipating change, not reacting to it.
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Investing is all about probabilities, and just because there appears to be a strong consensus prices are going to keep going up, doesn’t mean that is wrong, or right. The consensus does tend to be wrong at the turning points, being invariably bullish at the top and bearish at the bottom.
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In general, you can get a good sense of what to buy now by looking to see what the worst performing assets or groups were over the past five or six years.
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One can predict the course of a comet more easily than one can predict the course of Citigroup’s stock. The attractiveness, of course, is that you can make more money successfully predicting a stock than you can a comet.
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We have three criteria. If it’s publicly traded, liquid and amenable to modeling, we trade it.
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We like a reasonable amount of volatility. In our business we want some action.
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