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Doug Kass' 50 Laws Of Investing
Real Investment Advice ^ | 05/05/2021 | Lance Roberts

Posted on 05/05/2021 8:44:08 AM PDT by SeekAndFind

Over the years I have published numerous articles with “investing laws” from some of the great investors in history. These laws, or rules, are born of experience, tested by markets, and survived time.

Here are some of our previous posts:

Throughout history, individuals have been drawn into the more speculative stages of the financial market under the assumption that “this time is different.” Of course, as we now know with the benefit of hindsight, 1929, 1972, 1999, and 2007 were not different. They were just the peak of speculative investing frenzies.

Most importantly, what separates these individuals from all others was their ability to learn from those mistakes, adapt, and capitalize on that knowledge in the future.

Experience is an expensive commodity to acquire, which is why it is always cheaper to learn from the mistakes of others.

Importantly, you will notice that many of the same lessons are not new. This is because there are only a few basic “truths” of investing that all of the great investors have learned over time.

The next major down market cycle is coming, it is just a question of when? These rules can help you navigate those waters more safely, because “you’re different this time.”

The Rules 1-10

The Rules 11-20

The Rules 21-30

Rules 31-40

Rules 41-50

2-Bonus Rules

The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” – Howard Marks

The biggest driver of long-term investment returns is the minimization of psychological investment mistakes. As Baron Rothschild once stated: “Buy when there is blood in the streets.” This simply means that when investors are “panic selling,” you want to be the one that they are selling to at deeply discounted prices. The opposite is also true. As Howard Marks opined: “The absolute best buying opportunities come when asset holders are forced to sell.”

As an investor, it is simply your job to step away from your “emotions” for a moment and look objectively at the market around you. Is it currently dominated by “greed” or “fear?” Your long-term returns will depend greatly not only on how you answer that question but how you manage the inherent risk.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

As I stated at the beginning of this missive, every great investor throughout history has had one core philosophy in common; the management of the inherent risk of investing to conserve and preserve investment capital.

“If you run out of chips, you are out of the game.”


Doug Kass is the president of Seabreeze Partners Management Inc. Until 1996, he was senior portfolio manager at Omega Advisors, a $6 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972.

He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."

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TOPICS: Business/Economy; Society
KEYWORDS: invest; investment; market
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To: RedStateRocker

“Rule 1: Get rich slowly. Spend less than you make, put 10 percent or more into investments”

I put 15% of my earnings into diversified investments for 35 years. I’m enjoying retirement now, earning more on my investments than I spend every year.

Even at only 5%, every dollar you put away on a regular basis will yield almost $100 in 35 years. If you can invest wisely and earn 10% annually, that will yield about 300 times your regular amount.

I taught financial accounting during that time. I had two required spreadsheets for all accounting students:

1. A future value of a regular group of payments model that included 45 years of payments. (the retirement investment model for 20 year old students)

2. A 30 year real estate loan showing cumulative interest until the principal is paid off versus a 15 year version of the same.

Smart students got the message and I get thank you notes from graduates from time to time.


21 posted on 05/05/2021 10:21:39 AM PDT by Poser (Cogito ergo Spam - I think, therefore I ham)
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To: SeekAndFind

.


22 posted on 05/05/2021 10:31:48 AM PDT by sjm_888
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To: RedStateRocker
Your three rules are excellent and I have lived by them.

Been investing at least 10% of my income since 1987. Which is the definition of spending less than you make. I stick with market index funds tied to S&P 500.

I use the "buy and hold" strategy over the long term.

34 years later, I'm sitting pretty well as I approach retirement. Yes, I've had some awful years (the late 2000s come to mind) but never panicked for a minute. In fact, I upped my percentage of investing in stocks so I could buy in at lower rates.

I'm expecting another "crash" like we saw in 2008 but I'm sitting tight and riding it out.

23 posted on 05/05/2021 10:38:48 AM PDT by SamAdams76 (By stealing Trump's second term, the Left gets Trump for 8 more years instead of just four.)
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To: SamAdams76

Stock market crash:

The only time people run OUT of the store when there’s a sale on.


24 posted on 05/05/2021 10:45:32 AM PDT by RedStateRocker ("Never miss a good chance to Shut Up" - Will Rogers)
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To: RedStateRocker

Good one!


25 posted on 05/05/2021 10:48:00 AM PDT by SamAdams76 (By stealing Trump's second term, the Left gets Trump for 8 more years instead of just four.)
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To: Poser
Tell me if I might be smarter than your smart students:

1. Never amortize a mortgage for 15 years, even if you want to pay it off in 15 years. Instead, get yourself a 30-year mortgage.

2. Figure out the difference between the monthly payment on a 30-year mortgage and the monthly payment on a 15-year mortgage.

3. Make the minimum payment on your 30-year mortgage. Every month, take an amount equal to the difference between the 30-year mortgage and the difference between a 15-year mortgage and invest it in a diversified group of low-cost index funds. In effect, you've disciplined yourself to pay off the mortgage in 15 years but instead invested in YOURSELF every month.

4. Under almost any reasonable investment scenario over 15 years you'll end Year 15 with far more money in your investment account than you still owe on the 30-year mortgage. You can then pay off the balance of the 30-year mortgage at that point in time and still have a six-figure balance in your investment account.

The rationale here is simple: Over a long term, a diversified investment portfolio will get you a far better average return than the interest rate you can get on a conventional residential mortgage.

Why would you ever prepay a loan with a 3% to 4% interest rate when your extra money can be more productive elsewhere?

26 posted on 05/05/2021 11:11:22 AM PDT by Alberta's Child ("And once in a night I dreamed you were there; I canceled my flight from going nowhere.")
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To: RedStateRocker

When the market goes down a lot (>30%), that is a “Buy Low” signal. Start. Continue monthly until it’s down only 20%, then slow down. Continue slowly until down only 10%.

After that, dollar cost average in very slowly only as necessary.

When the market goes up 50% in short order (2020), stop buying. Let cash pile up. You’re going to want it when the next Buy Low opportunity arrives.


27 posted on 05/05/2021 11:19:07 AM PDT by Uncle Miltie (GMO opponents who took the covid jab are now GMOs themselves.)
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To: Uncle Miltie

I just dollar cost average every paycheck, no matter what the market is doing. Same amount (as a percentage of gross), regardless of what is happening. Been doing it since 1986. I couldn’t care less about a 35% correction or a 50% surge.


28 posted on 05/05/2021 11:25:02 AM PDT by RedStateRocker ("Never miss a good chance to Shut Up" - Will Rogers)
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To: SeekAndFind

Rule 1: Buy stock that is going up.
Rule 2: Sell stock after making profit and the stock is going down.

Or buy low, sell high


29 posted on 05/05/2021 11:26:58 AM PDT by minnesota_bound (I need more money. )
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To: Alberta's Child

To answer your question:
Because debt is bad. Always, under any circumstance. To owe anyone anything is to be no better than a slave.
Never, not for any reason, not for any potential gain. Yes, I had a mortgage; paying it off ASAP was the best thing I ever did for my sanity.

Debt=bad, like Cancer, like Socialism, like child molestation, completely bad; the only action is to get out of it ASAP at any cost.

Maybe other people are not wired that way; I know people who like gambling, too; utterly repugnant to me but it’s a free country.


30 posted on 05/05/2021 11:28:59 AM PDT by RedStateRocker ("Never miss a good chance to Shut Up" - Will Rogers)
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To: RedStateRocker
That's a very interesting post. It goes to the heart of what I always saw as the biggest differentiator between two of the prominent financial gurus I have always found to be interesting, informative and trustworthy: David Ramsey and Ric Edelman.

You are of the same mindset as Ramsey in your philosophical approach to debt.

I'm probably closer to Edelman in this one key respect: I see debt as nothing more than a tool, and therefore ascribe no value judgement to it.

It doesn't mean I think you're wrong. In fact, I think you're right in most respects. HOWEVER, I have another financial rule that has served me well over the years: Never borrow more money than you can afford to repay in 48 hours.

When you look at it that way, it turns out that debt isn't really DEBT at all when you manage it correctly ... it's a financial tool that helps you spread your risk and give you a high degree of flexibility with your finances.

In some cases, NOT borrowing money is a bad financial move -- especially if it is done prudently and is always done with this other rule in mind: When borrowing money to pay for a major asset, never let the loan term exceed the functional life of an asset. It's OK to sign a three-year car loan for a vehicle you intend to own for ten years, for example -- even if you can afford to pay cash for it (for the reasons I laid out above).

Here's an example of a case where NOT borrowing money for an asset is almost always a bad idea: MAJOR INFRASTRUCTURE.

If you are a state government and you have a major highway/bridge project in the works that's going to cost $300 million, should you (A) finance it out of your current revenues, or (B) issue bonds to pay for it over 25-30 years?

I work in this area for a living, and I can tell you with absolute certainty that (A) is a terrible idea. And here's why:

1. You are forcing existing taxpayer to cover the full cost of an asset that may be in place long after they are gone.

2. The person who moves into the state the day after the highway/bridge corridor is constructed gets to use it for 30+ years without ever paying a penny for its construction.

Note Item #2 above. I would make the case that this is a terrible approach to governance that actually encourages taxpayers to abuse the system and treat public assets irresponsibly.

31 posted on 05/05/2021 11:47:40 AM PDT by Alberta's Child ("And once in a night I dreamed you were there; I canceled my flight from going nowhere.")
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To: Alberta's Child

I think you have more balls than I have :-)


32 posted on 05/05/2021 11:49:07 AM PDT by RedStateRocker ("Never miss a good chance to Shut Up" - Will Rogers)
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To: JayGalt

bump for later


33 posted on 05/05/2021 12:06:38 PM PDT by GOPJ (January 6th - Patriot March Against Voter Fraud.)
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To: RedStateRocker
LOL!

I actually don't have ANY.

Seriously -- I work as a civil engineer, and we are extremely cautious by nature. But our analytical side can also make us look at financial matters a little more objectively than most.

Good example ...

Suppose you are looking at buying a $30,000 car and you have a choice between paying cash and financing it over five years at a 4% interest rate (that comes to a monthly payment of about $550 if you put $0 down). If you are debt-averse by nature it makes all the sense in the world to pay cash. But even if you are NOT comfortable with the idea of going into debt, think of what a car loan could do for you:

1. If you can afford the $550 monthly payment, you can borrow the $30,000 and hold onto your cash.

2. If you are disciplined enough to invest the cash wisely you can pay the loan off while the $30,000 cash grows in value.

3. Don't think of the debt as the primary motivating factor in this consideration. Think of how much flexibility you have by holding onto the cash.

4. If you run into a financial hardship in two years you can either pay the car loan off with part of your $30,000 investment account which will likely be worth a lot more than what you owe on the car even if you invest it safely.

5. If you pay off the car over five years, you get to the end of year five with BOTH a fully-paid car AND an investment account that would be worth at least $32,000 even if you invested it in very low-risk investments.

34 posted on 05/05/2021 12:14:56 PM PDT by Alberta's Child ("And once in a night I dreamed you were there; I canceled my flight from going nowhere.")
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To: Alberta's Child

Yes, you are completely right.

For me, it comes down to time-value of money vs psychological security of being debt-free. And the value of being debt-free wins by several orders of magnitude. After all, I use money to acquire things that bring me happiness; nothing makes me happier than owing nobody anything.


35 posted on 05/05/2021 12:50:15 PM PDT by RedStateRocker ("Never miss a good chance to Shut Up" - Will Rogers)
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To: SeekAndFind

bfl


36 posted on 05/05/2021 1:56:21 PM PDT by spankalib
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To: Alberta's Child

Let’s assume you buy a 300K house at 4%

Your monthly interest at the beginning is $1000
The difference in payments would be 786.82
If you made 7% annually on the 786.82 you would earn $4.59 per month.

Technically, over 30 years you might make out, but you taking a risk for small money. 2009 could happen again any time.


37 posted on 05/05/2021 2:00:23 PM PDT by Poser (Cogito ergo Spam - I think, therefore I ham)
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To: ConservativeInPA

Law #0 “Never fight the FED.” is similar to your #1 but comes befoe it. I went massively long in March 2009 the minute ALL THE WORLDS CENTRAL BANKS STEPPED INTO THE VOID. The rest is history.


38 posted on 05/05/2021 3:12:37 PM PDT by BiglyCommentary
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To: grey_whiskers

“They take it a couple percent in the OTHER direction, then the big move”.

Common tactic in the futures market by the big players. They get the small players and mindless trading systems going in the opposite direction to give them better entry prices.


39 posted on 05/05/2021 3:17:38 PM PDT by BiglyCommentary
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To: Alberta's Child

Agree on 110% re debt. Its like a very sharp knife that can do wonders in the hands of the skilled but in the hands of fools or the simple will just wind up getting them bloodied.


40 posted on 05/05/2021 3:23:09 PM PDT by BiglyCommentary
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