Compounding investing wisdom...
You can add to this to the list of most important things every investor should know.
Know what you own!
Peter Lynch thought that was the “single most important thing” for investors. He quickly followed it up with: know why you own it.
It seems simple enough but how many people do? We have a world of information at our fingertips but I doubt much has changed since Lynch uttered those words over two decades ago. Continue Reading…
Most of the Peter Lynch stuff I’ve dug up recently are archived articles from pre-internet days. One of his better articles did make it online. His 1995 article titled Fear of Crashing was republished just last month.
The title says it all. There must have been some worry of a crash back in 1995 since Lynch decided to address it.
Of course, fears of a crash pop up on a regular basis. But it starts with doubt. Pundits make their annual claims why this is the year the bear market returns. If the stories seem plausible, it might sow seeds of doubt. Doubt can lead investors to try to avoid the next correction. Continue Reading…
The latest SPIVA Scorecard on the U.S. fund industry was released this week. Only 8% of large-cap, 5% of mid-cap, and 7% of small-cap fund managers beat their benchmarks over the past 15 years.
That’s pitiful. It shouldn’t be a surprise either.
Common sense says there are too many mutual funds to manage and not enough great money managers to go around. Just like anything else that requires skill, there’s a limited number of “best” people. The rest are average, mediocre, or worse. Continue Reading…
Joel Greenblatt recently did a Talks at Google (video is embedded below). You might remember him from such books as The Little Book that Beats the Market and You Can Be a Stock Market Genius. He also ran a very concentrated portfolio that produced mind-boggling returns.
Greenblatt told the story about recently teaching a class of 9th graders. He started the class with an experiment. He brought in a big jar full of jelly beans, passed out index cards, and asked the kids to guess the number of jelly beans in the jar.
So the kids tried to count the individual jelly beans or the rows of jelly beans or found some other ways to come up with their best guess. Then they wrote their guess on their card. Continue Reading…
Mistakes are part of investing. There’s no way around it. So you might as well expect mistakes eventually, learn from it, and move forward. Just make sure that those mistakes don’t set you back so much that you can’t move forward.
Being properly diversified is one way to do that. In other words, you can make a few mistakes but your other investments make up for it and more.
Margin of safety is another. Leaving room for error goes a long way in reducing losses.
After the this year’s Daily Journal Annual meeting, Charlie Munger stuck around for more questions (a transcript of that Q&A session in the Library). He was asked how he handles learning from mistakes, which led to another question on Dexter Shoes. Here’s what he said: Continue Reading…
Debt can be very helpful or hurtful. In business, debt is called leverage for a reason. It can grow a business and increase earnings. But misusing debt can turn that leverage into an anchor.
James Montier at GMO points out the misuse of debt to fund share buybacks (along with a few other things) and how it relates to the current market prices, in his latest paper Six Impossible Things Before Breakfast.
The debt for buybacks issue has been pointed out numerous times before, but it’s been largely overlooked or ignored. Buying back shares is a short term fix to show “growing” earnings per share. If you’re just looking at this on the surface, earnings per share is higher. Everything’s great, move along. Continue Reading…