Novel Investor

Compounding investing wisdom...

Lessons from a 300 Year Old Book on Markets

by Jon

The earliest known book describing any stock exchange was written in 1688. Aptly titled, Confusion of Confusions, Joseph de la Vega describes stock and options trading (mostly of Dutch East India Company stock) on the Amsterdam stock market through a conversation between Shareholder, Merchant, and Philosopher.

The book is a defining example of how little markets have changed in over three centuries. From the early reference to the game and its primary players to the scheming and manipulation to the influential emotions of greed, fear, and panic, the lessons are old, yet still relevant today.

It starts with a fitting description of stock markets: Continue Reading…

Quarterly Reading – Winter ’19

by Jon

It’s time for another quarterly reading update (these updates are mostly for my own accountability, but if you find something that interests you, great). Several projects ate into reading time, which meant fewer books over the past three months. The plan is to get back into it in 2019.

Here’s what I’ve been reading over the past quarter: Continue Reading…

Stan Druckenmiller’s Worst Mistake Ever

by Jon

One of the best ways to learn about investing is through second-hand experience by learning what not to do from the mistakes of others. It’s the most cost-effective, resource-abundant way to learn since history is filled with other people’s mistakes. The other option is first-hand. It’s expensive but stickier — less easily forgotten.

There’s one downside though. Knowing won’t make you immune from repeating it. All the information in the world is useless when emotions drive decisions.

Take Stan Druckenmiller.

He’s arguably one of the best investors ever. He averaged 30% per year over a 30-year career, with no losing year. And he once turned a $1 million donation to a school, invested over five years, into a $35.6 million windfall.

A return like that is not easy. It requires taking extremely concentrated bets with a lot of leverage and most importantly an openmindedness to change your mind when you’re wrong. Continue Reading…

2018: A Year in Returns

by Jon

Shelby Davis once said, “Bear markets make people a lot of money, they just don’t know it at the time.” Based on some fancy rounding, the S&P 500 hit the unwritten 20% decline rule (19.77% for sticklers) for a bear market based on 2018’s September high to the Christmas Eve low (thanks Santa).

Yet, despite that, the S&P 500 finished the year with a -4.4% total return. Global markets looked less pretty. And cash was king again.

Unless, of course, you’re a net buyer of stocks. To paraphrase Davis — bear markets are a great buying opportunity, they just don’t feel like it at the time. That feeling is the hard part for new investors and the rest of us who forgot how the last bear market felt.

Now, not all bear markets are like the last bear market. The lesson from that one was that it was excruciatingly hard for many investors to buy but also the greatest buying opportunity for anyone with time on their side. Continue Reading…

Thoughts on 2018. Looking Ahead to 2019

by Jon

So if I asked you how the market performed this year, what would you say? Positive? Negative? How much?

With two weeks left to the year, the S&P 500 returned 1.01% on a total return basis so far. With all the volatility this year from two corrections, I would not be shocked if anyone thought it was worse.

If the year ends positive, the S&P 500 will have ten straight years without a loss. It’d be a first.

Nine-year streaks have happened twice since 1926 — the current streak from 2009 to 2017 and the nine-year period from 1991 to 1999. A ten-year positive streak is not normal by historical standards. Neither is nine years for that matter. Continue Reading…

What I Learned from the Most Popular Posts of 2018

by Jon

With a couple weeks left to the year, it’s time for a review.

Like last year, I spent most of 2018 sharing what I found in books, articles, interviews, etc. And like every year, I still have no clue why some posts get traction over others.

Big names certainly help, as you’ll likely notice below. But beyond that, the sort of randomness to it remains a mystery to me. Regardless of why, when it does happen, it’s always a nice surprise and I appreciate it!

The broad lesson from this year, much like every year, is this: The studying of strategies, factors, and allocations is pointless if you don’t have the prerequisite behavior to go with it. Compounding misbehavior, mistakes, and poor decisions are the easiest way to go broke. Doing the opposite (more often than not), finding a strategy you can stick with, one that fits your quirks (along with a regular saving schedule), is how to grow wealth.

The secret is there are no secrets. The lessons in the posts below span over 130 years. None of it is new or groundbreaking. It’s all grounded in common sense. Someone just said it differently enough to strike a chord.

Here are the most read posts of 2018: Continue Reading…

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