Novel Investor

Compounding investing wisdom...

Ben Graham on the Risk of Bull Market Optimism

by Jon

The cycle of optimism and pessimism drives markets. Ben Graham understood this well enough to point it out whenever he saw an excessive amount of either one in the market.

One of those times was 1958, where Graham warned of the risks inherent in the bull market of the time. According to Graham, the big risk was how optimism slowly creeps into an investor’s thought process (the same thing happens with pessimism during a bear market). He noticed that people were projecting lofty expectations around earnings growth (of course, optimism isn’t limited to just earnings).

Future assumptions plugged into in math formulas, infect investment decisions with an optimistic viewpoint. And when everyone thinks that way, it gets reflected in prices. When optimism is priced in, investors end up paying a high price for lofty expectations. Continue Reading…

Happy Hour: A Little Tech

by Jon

Recode held its Code Conference this week, which had several great interviews. There’s a link to all the full interviews below. Some took a slight political bent – no surprise considering the climate – but still retained its tech focus.

As a side note: I get why people worry about tech being too disruptive, but this has been going on since the industrial revolution. Nobody knows beforehand all the hazards a new innovation might bring until after the fact, as we found out with the social media “hacking” and “fake news” in the recent election.

The general takeaway is that innovation often gets messy but the thing about tech is that it continues to innovate and disrupt itself during those messy times (the real issue is our tendency to project the big problems as everlasting as if we’ve lost our ability to find solutions). Continue Reading…

There are No Bad Assets, Just Bad Prices

by Jon

I read through two Marc Andreessen interviews this weekend. There was the usual discussion around the dot-com era which offered a nice walk down memory lane having experienced it first hand.

But he also offered a different view from the general perception around internet companies after the dot-com crash, which struck a cord.

Andreessen ended one interview with this:

There are no bad ideas. There are only early ideas.

He briefly explains it in the first interview but actually expands on it further in the second interview: Continue Reading…

Happy Hour: Summer Reading

by Jon

With the Memorial Day weekend ahead, now is a great time to expand your horizons with a few good books this summer. If you’re not sure where to start, I’ve got you covered. I collect reading lists.

Several book lists popped up the past few weeks that should offer something for everyone (not just investing books). The lists below should give you ideas for putting your own summer reading list together. Continue Reading…

Buffett on the First Things You Have to Learn

by Jon

Buffett on being inactiveI’ve been going over a lecture and Q&A Warren Buffett gave at the University of Florida back in 1998. During the Q&A, Buffett discussed some the first things investors must learn early on.

After reading the transcript, three things jumped as nice reminders worth sharing. Buffett made the first one obvious. I think the other two fit with it. Learning all three early on will help avoid a lot of mistakes down the road.

Towards the end, Buffett highlighted one of the first things you have to learn about stocks, which he learned from The Intelligent Investor: Continue Reading…

Happy Hour: The More It Changes…

by Jon

The “this time is different” calls are nothing new. It happened in the late ’20s and again in the late ’90s. Another such time was around 1960 and Ben Graham offered a brilliant take on the viewpoint.

At the time, most people thought the business world was “radically different and more favorable than that of the past.” Stock valuations were higher and many believed higher multiples were warranted going forward.

During a talk at UCLA, Graham addressed whether “this time is different” or if it was just a typical bull market: Continue Reading…

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