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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Quote for the Week

In the stock market, the most important organ is the stomach. It’s not the brain…

Do you really have faith that 10 years, 20 years, 30 years from now common stocks are the place to be. If you believe in that, you should have some money in equity funds. It’s a question of what’s your tolerance for pain. There will still be declines. It might be tomorrow. It might be a year from now. Who knows when it’s going to happen? The question is: Are you ready — do you have the stomach for this?

Most people do really well because they just hang in there. — Peter Lynch (source)

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The best investors are masters of subtraction. They played the game long enough to simplify their investment philosophy down to a few key principles. And it did wonders for their portfolio.

The goal of investing should be to eliminate things that have a high probability of producing losses. These are things that you know won’t work. Things you don’t understand well. Things that are too complex. Things that are distractions and noise. Things that lead to mistakes. Things that are irrelevant, unimportant, and unnecessary to your process. Anything that doesn’t fit what you’re trying to do should be cut out.

The problem for most investors is we know none of this when we start out. Each one of us must go through the slow and sometimes painful experience of figuring it out.

Yet the idea of improving things by subtraction flies in the face of human nature. Our typical response to problem-solving is to make things more complex. Addition is our default.

In a series of studies by Adams, Klotz, et al, the overwhelming result was to add rather than subtract features to solve a problem. Continue Reading…