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The Uncomfortable Truth

May 22, 2020 by Jon

What’s the biggest determinant of investing success? Smarts, information, strategy, or skill are all worthy possibilities.

But one stands out above all the others:

The truly successful stock market investors of history have been no more intelligent than most less successful investors. In most instances — they have had no better sources of information than other investors. The qualities they have had in common have rather been qualities of temperament, which is why no one has ever found out how to get rich by taking courses or reading a book or reading articles (including this one). But those temperamental qualities are crucial and relate to the points I have been trying to make here: the road to success in investing is paved with independence of spirit, decisiveness, and the courage of one’s convictions. — Peter Bernstein

The market naturally triggers emotional responses that lead to mistakes. Those best equipped to handle those triggers are more likely to succeed.

That shouldn’t come as a surprise. Most things in life worth achieving require mental toughness to get through the obstacles that are certain to arise. And investing is full of obstacles. Continue Reading…

Warren Buffett: The Best Reason for Selling

May 20, 2020 by Jon

In a perfect world — assuming everything goes as planned — the best time to sell an investment is at its peak price. In reality, that’s called luck.

That’s why selling is an imperfect art. The overwhelming outcome for most sell decisions is too soon or too late.

Warren Buffett actually recognized it early on to never expect perfection:

Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results. The better sales will be the frosting on the cake.

It’s a byproduct of Ben Graham’s concept of a margin of safety. A wide margin of safety (between price and value) leaves room for error but you still make a profit. Continue Reading…

Wise Words on Forecasting

May 15, 2020 by Jon

In a matter of two months, a miraculous number of people became experts in virology in order to predict something they know nothing about.

That’s the state of the market today. It also happens to be the state of the market every day — minus the new armchair virologists.

Investors want to know what happens next. We take comfort in thinking we know — especially in extremely uncertain times like these.

The problem lies in predicting a multitude of factors, their effects on businesses, on markets, on people’s behavior, and any randomness that might occur in the process, all while staying unbiased.

In short, we’re not great at predicting the future. In fact, we’re exceptionally bad at predicting the major turning points that have a huge impact on markets.

Yet, investing is about the future so we can’t exactly get away from it. As investors, our decisions always involve some level of uncertainty. Continue Reading…

Peter Bernstein: The Lesson of History

May 13, 2020 by Jon

In investing, nothing is written in stone. Yet, investors often operate as if the opposite is true…to their own detriment.

One mistake investors make is to focus too much on the averages of history while ignoring the deviation from the averages that always seem to happen in the short term. The clearest example of this is the stock market itself, via the S&P 500. It’s never, not once, earned its average annual return in a single year. Check for yourself.

Then there are the investing rules of thumb we all rely on because they work…most of the time. The mistake, of course, is to never question them.

Peter Bernstein reiterates this point in summing up market history. Investing is guided by the past but the future is not limited to what has already happened. A level of uncertainty, however small, always exists that can surprise us: Continue Reading…

Dazed and Confused About the Market

May 8, 2020 by Jon

April’s unemployment numbers jumped to 14.7%. The market was up 13% in April!

Earlier this week, Disney cut its dividend after reporting a 93% drop in earnings. The next day, it’s stock was up 4%!

How can the market move higher with so much bad economic news around? It defies common sense. Or does it?

If you’re confused about what’s going on in the stock market, I thought I’d add to it with some help from Peter Bernstein: Continue Reading…

Notes from the 2020 Berkshire Meeting

May 6, 2020 by Jon

The Berkshire Hathaway annual meeting this past weekend had a few notable differences this year. Missing from the meeting were Charlie Munger’s witty quips, a packed stadium, and the often-repeated meaning-of-life questions.

Instead, it took on a more serious tone. For Buffett, the focus is on the survival of Berkshire. The single message: risk management. The lesson is making sure money is available when you need it most.

These are the notes: Continue Reading…

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