As 2021 draws to a close, let’s review some of the lessons from the most popular posts this year.
After twelve years of doing this exercise at the end of each year, one thing stands out. I still have no idea what posts will rise to the top and which will flop. The list is entirely a product of your support. So thanks for reading and sharing!
The collection of posts below covers a range of topics. Most of them are based on something I’ve read this year. Two exceptions, however, are a response to the market craziness this year.
Right at the top, the market experienced a short squeeze that got everyone’s attention. Of course, it wasn’t the first time it happened (nor the last). So it became an opportunity for a history lesson. The other offers one perspective on how much optimism is priced into the market. The point is market history is filled with things that rhyme with the present. It offers investors a broader perspective on how things might turn out and relieve any angst and worry too.
As for the rest, it’s an assortment of people and topics. Buffett and Munger make an appearance. Peter Lynch and Bernard Baruch do too. Lou Simpson and Robert Kirby, two under-the-radar names, also show up. Investor behavior and common mistakes were also frequent and relevant themes this year.
There should be something for everybody. Let’s dive right in.
The Biggest Short Squeeze of the (Last) Century — 2020 kicked off with the GME short squeeze and this post was written in response to it. History is filled with speculators who tried to short an illiquid stock and got burned. The fight for control over Northern Pacific is an epic example of the risks of shorting a stock.
Lessons from the 2021 Berkshire Meeting — The biggest lesson from this year’s Berkshire meeting is that highly competitive markets naturally drive most companies to extinction. It’s difficult for companies to stay on top. Buffett even went on to show how devastating the extinction rate can be in new industries. Correctly picking which companies fall and which will take their place is a difficult task.
Wise Words on Investor Behavior — One of the most often repeated — yet frequently ignored — investing lessons is how to behave. If every new generation of investors spent more time focusing on behavior instead of everything else, they’d be richer for it.
Wise Words from Lou Simpson — Simpson is a relatively unknown investor who quietly racked up a 20% annual return for GEICO’s investment portfolio over 25 years. Thanks to a few rare interviews he shared a glimpse of his investment philosophy.
Peter Lynch on Common Investor Mistakes — Few great investors can simplify investing like Peter Lynch. As a guest on Wall Street Week, he did just that and more. His entire conversation with Louis Rukeyser revolved around the mistakes investors make most.
Lessons from Charlie Munger at the Daily Journal Meeting — There’s always a few highlights when Charlie Munger holds court at the Daily Journal Meetings. In this year’s Q&A session, he touched on behaving in a market boom, knowing when to sell, the best way to learn about businesses, and more.
Bernard Baruch’s Investing Rules — Bernard Baruch reluctantly shared a list of investing rules in his memoir based on the lessons he learned over his lifetime. His reluctance was warranted. He felt that most people either lacked the disciple to follow through or believed they were smart enough to be the exception to the rules.
The Stock Market Pendulum — Every year I come across someone I hadn’t read before. This year it was Robert Kirby. He gave a talk in April 1999 and used the analogy of a pendulum to describe the movement of markets and “that the market is screwy most of the time.” It’s also a useful way to explain investor behavior, risk management, and asset allocation.
This Time is Different — One way to measure the amount of optimism priced into the market is by tracking the number of stocks trading at extreme multiples. The number of stocks trading over 15x sales hit a high this year, something that hasn’t happened since 2000. The fact that 80% of those companies have no earnings is even more telling.
The Coffee Can Approach — Robert Kirby’s second appearance in the list is due to an investment strategy he’s known for. The idea of his coffee can portfolio came about by accident after reviewing a client’s husband’s portfolio. The client’s husband secretly followed Kirby’s recommendations to buy but ignored the advice the sell. In turn, it showed that doing nothing outperformed Kirby’s more active strategy.
Bernard Baruch’s Biggest Mistake — Baruch’s early investing career was mired in overtrading, leverage, and no cash reserve that often got him in trouble. Baruch’s costliest mistake came years later when he picked up his habits. It’s a great lesson on the cost of falling for stock tips and having some cash on the side when investing on margin.
Charlie Munger: What Makes a Great Investor — Charlie Munger offers three important lessons for investors: what it takes to be a great investor, why innovation is both good and bad for investors, and why biology provides a better framework for thinking about businesses.
In Search of Compounders — Henrik Bessembinder has done a wonderful job studying companies that compound for decades. The lessons from his latest research are summed up in the post.
- Going Big – The Better Letter
- Discretion – Klement on Investing
- Volatility Takes a Bite – C. Mayer
- Lessons from Bessembinder – Baillie Gifford
- Charlie Munger on Defying the Odds and Over-Interpreting Coincidences (podcast) – Think with Pinker
- The Many Worlds of Enough – More to That
- The Amazon Empire Strikes Back – Stratechery
- Reasons for Optimism After a Difficult Year – GatesNotes