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.”
Common sense is not so common.
Greed often overcomes common sense.
Greed kills.
Fear and greed are stronger than long-term resolve.
There is no vaccine for being overleveraged.
When you combine ignorance and leverage – you usually get some pretty scary results.
Operate only in your area of competence.
There is always more than one cockroach.
Stocks have a gravitational pull higher – over long periods of time equities will rise in value.
Long investing generates wealth.
Short selling protects wealth.
Be patient and learn how to sit on your hands.
Try to get a little smarter every day and read as much as humanly possible – an investment in knowledge pays the best dividends.
Investors sometimes think too little and calculate too much.
Read and reread Security Analysis (1934) by Graham and Dodd – it is the most important book on investing ever published.
History is a great teacher.
History rhymes.
What we have learned from history is that we haven’t learned from history.
Investment wisdom is always 20/20 when viewed in the rearview mirror.
Avoid “first-level thinking” and embrace “second-level thinking.”
Think for yourself – those who can make you believe absurdities can make you commit atrocities.
In investing, that what is comfortable – especially at the beginning – is most often not exceedingly profitable at the end.
Avoid the odor of “group stink” – mimicking the herd and the crowd’s folly invite mediocrity.
The more often a stupidity is repeated, the more it gets the appearance of wisdom.
Always have more questions than answers.
To be a successful investor you must have accounting/finance knowledge, you must work hard and you have to be keenly competitive.
The stock market is filled with individuals who know the price of everything but the value of nothing.
Directional call buying, when consumed as a steady appetite, is a “mug’s game” and is often a path to the poorhouse.
Never buy the stock of a company whose CEO wears more jewelry than your mother, wife, girlfriend or sister.
Avoid “the noise.”
Directional call buying, when consumed as a steady appetite, is a “mug’s game” and is often a path to the poorhouse.
Never buy the stock of a company whose CEO wears more jewelry than your mother, wife, girlfriend or sister.
Avoid “the noise.”
Reversion to the mean is a strong market influence.
On markets and individual equities… when you reach “station success,” get off!
Low stock prices are the ally of the rational buyer – high stock prices are the enemy of the rational buyer.
Being right or wrong is not as important as how much you make when you are right and how much you lose when you are wrong.
Too much of a good thing can be wonderful – look for compelling ideas and when you have conviction go ahead and overweight “bigly.”
New paradigms are a rare occurrence.
Pride goes before fall.
Consider opposing investment views and cultivate curiosity.
Maintain a healthy level of skepticism as you never know when the Cossacks might be approaching.
Though doubt is uncomfortable, certainty is ridiculous and sometimes dangerous.
When investing and trading, never let your mind dwell on personal problems and always control your emotions.
‘Rate of change’ is the most important statistic in investing.
In evaluating the attractiveness of a company always consider upside reward vs. downside risk and ‘margin of safety.’
Don’t stray from your investing and trading methodologies and timeframes.
“Know” what you own.
Immediately sell a stock on the announcement or discovery of an accounting irregularity.
Always follow the cash (flow).
When new ways of earnings are developed – like EBITDA (and before stock-based compensation) – substitute them with the word… “bullshit.”
Favor pouring over balance sheets and income statements than spending time on Twitter and r/wallstreetbets.
Always pay attention to what David Tepper and Stanley Druckenmiller are thinking/doing. (Trade/invest against them, at your own risk).
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.”
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I beg to differ.
The NUMBER ONE rule of winning at investing is to get politically connected and get insider trading from political friends. (BUT WAIT. That’s illegal.....right?)
Two. Don’t take investing advice from poor people. I had one guy telling me to buy a certain crypto. “buy buy buy” he said. “It’s going to the moon just like bitcoin and etherium and dog coin.” It lost 50% of it’s “value” the next morning.
I have never lost buying new software or equipment for my business. Never.
1. The influence of compounding interest that drives your overall interest cost up for 30-year mortgage also drives up the value of your $4.59 per month at 7%. Under your scenario, by the end of your 15th year you'd owe about $258,000 on the 30-year mortgage and would have more than $332,000 in your investment account.
2. One of the lessons an astute financial observer should have learned in 2008-09 is that the homeowner bears a ton of risk even if there is no mortgage on the property. If you paid $300,000 cash for a home in 2007 and then the market crashed a year later and it lost a third of its value, you're out $100,000 immediately. If you had put the $300,000 aside in 2007 and financed the entire purchase price of the property, you'd be underwater with a $300,000 mortgage on a home that's only worth $200,000 ... but you'd still have the $300,000 you DIDN'T pay in cash for the home. In the scenario with the large mortgage, it's the bank that carries the biggest risk. Even if you had to sell the home for a loss of $100,000 you could still fulfill your obligation and pay off the entire mortgage.
3. The other thing we learned in 2008 is that the world changed dramatically over the course of 30+ years -- to the point where a mortgage is one of the easiest forms of debt to renegotiate with a bank. It's almost impossible to default on a student loan. If you default on an auto loan your car will be repossessed. During the Bush administration Congress made it more difficult to default on credit card debt. But when the crap hit the fan in 2008, banks were bending over backwards to accommodate delinquent mortgage holders -- because they never want to take possession of an expensive asset that carries thousands of dollars a year in taxes and maintenance costs. If you own your home free and clear with NO mortgage, there's nobody bending over backwards to accommodate you!
Simple. Just go back one year in time and buy commodities ETFs.
I see CORN is still rocketing up.
As soon as I buy any, it will go down.
yeah, CORN is on my list ...
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