It is a much safer and easier way in the long run by which to make investment profi ts to buy £ 1 notes at 15 s. than to sell £ 1 notes at 15 s. in the hope of repurchasing them at 12 s. 6 d .
The market is fond of making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks. Even a mere lack of interest or enthusiasm may impel a price decline to absurdly low levels.
When Edgar Lawrence Smith published his seminal book in 1924, his key conclusion — that through the operation of retained earnings, stocks were effectively “ compound interest machines ” — launched the cult of the common stock.
Very few investors buy any stock for the sake of something which is going to happen more than six months hence, even though its probability is exceedingly high; and it is out of taking advantage of this psychological peculiarity that most money is made.
As an early value investor, Keynes believed that “ ‘ Be Quiet ’ is our best motto ” — short-term price fluctuations could be ignored as mere “ noise ” and the disciplined investor should patiently wait for the market to reassert itself as a weighing machine rather than a voting machine.
One way to remain contrarian is buy only when prices are dropping inspite of seeing losses in the portfolio and the share price is below its intrinsic value.
This buy - and - hold strategy was not only the natural complement to an investment philosophy that assessed stocks on the basis of future income streams, but it also offered long - term investors the not inconsiderable advantages of signifi cantly lower transaction costs, and allowed them to reap the enormous power of compound interest.
. . . it is out of these big units of the small number of securities about which one feels absolutely happy that all one ’ s profi ts are made . . .Out of the ordinary mixed bag of investments nobody ever makes anything.
As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one ’ s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.
Only way to make money is to exploit the mob behavior
Brokers and investment managers have a vested interest in promoting active markets, and even orthodox fi nancial theory conspires with the speculator to assert the pre - eminence of short - term price movements over long - term income fl ow by defi ning “ risk ” as volatility in prices rather than volatility of earnings.
The inactive investor who takes up an obstinate attitude about his holdings and refuses to change his opinion merely because facts and circumstances have changed is one who in the long run comes to grievous loss.
The overweening conceit which the greater part of men have of their own abilities . . . and . . . their absurd presumption in their own good fortune . . . There is no man living, who, when in tolerable health and spirits, has not some share of it. The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued . .
Overconfidence bias!
It is remarkable how much long - term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, “ It ’ s
the strong swimmers who drown.
The value investor — realizing that a stock price is transitory, a snapshot of jostling views and emotions — views Mr. Market ’ s prices as nothing more than a possible entry or exit point on to the market.
(1) a careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time;
(2) a steadfast holding of these in fairly large units through thick and thin, perhaps for several years, until either they have fulfilled their promise or it is evident that they were purchased on a mistake;
(3) a balanced investment position, i.e. a variety of risks in spite of individual holdings being large, and if possible opposed risks (e.g. a holding of gold shares amongst other equities, since they are likely to move in opposite directions when there are general fluctuations).
investing in fairly large units is something which requires deliberate practice!
He was a Parliamentary orator of high order, a historian and devotee of music, the drama and the ballet. While at Cambridge University, he founded an arts theatre there because he wanted to go to a good theatre. A successful farmer, he was an expert on development of grass feeding stuffs. (mental models)
Keynes ’ six key investment rules, which have been embraced by some of the world ’ s most successful stock market investors, suggest that the value investor should:
1. Focus on the estimated intrinsic value of a stock — as represented by the projected earnings of the particular security — rather than attempt to divine market trends. (reasonably easy, I think projected cash flow not earnings)
2. Ensure that a sufficiently large margin of safety — the difference between a stock ’ s assessed intrinsic value and price — exists in respect of purchased stocks. (practice patience, wait for the fat pitch)
3. Apply independent judgment in valuing stocks, which may often imply a contrarian investment policy. (always remain contrarian, if it seems stupid)
4. Limit transaction costs and ignore the distractions of constant price quotation by maintaining a steadfast holding of stocks. (v. tough)
5. Practice a policy of portfolio concentration by committing relatively large sums of capital to stock market “ stunners .” (large sums is v. tough)
6. Maintain the appropriate temperament by balancing “ equanimity and patience ” with the ability to act decisively. (achievable)
Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing,” he wrote. If people are so uncertain, how are decisions made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.” They are not, as rational economic theory would dictate, “the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
The market is fond of making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks. Even a mere lack of interest or enthusiasm may impel a price decline to absurdly low levels.
When Edgar Lawrence Smith published his seminal book in 1924, his key conclusion — that through the operation of retained earnings, stocks were effectively “ compound interest machines ” — launched the cult of the common stock.
Very few investors buy any stock for the sake of something which is going to happen more than six months hence, even though its probability is exceedingly high; and it is out of taking advantage of this psychological peculiarity that most money is made.
As an early value investor, Keynes believed that “ ‘ Be Quiet ’ is our best motto ” — short-term price fluctuations could be ignored as mere “ noise ” and the disciplined investor should patiently wait for the market to reassert itself as a weighing machine rather than a voting machine.
One way to remain contrarian is buy only when prices are dropping inspite of seeing losses in the portfolio and the share price is below its intrinsic value.
This buy - and - hold strategy was not only the natural complement to an investment philosophy that assessed stocks on the basis of future income streams, but it also offered long - term investors the not inconsiderable advantages of signifi cantly lower transaction costs, and allowed them to reap the enormous power of compound interest.
. . . it is out of these big units of the small number of securities about which one feels absolutely happy that all one ’ s profi ts are made . . .Out of the ordinary mixed bag of investments nobody ever makes anything.
As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one ’ s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.
Only way to make money is to exploit the mob behavior
Brokers and investment managers have a vested interest in promoting active markets, and even orthodox fi nancial theory conspires with the speculator to assert the pre - eminence of short - term price movements over long - term income fl ow by defi ning “ risk ” as volatility in prices rather than volatility of earnings.
The inactive investor who takes up an obstinate attitude about his holdings and refuses to change his opinion merely because facts and circumstances have changed is one who in the long run comes to grievous loss.
The overweening conceit which the greater part of men have of their own abilities . . . and . . . their absurd presumption in their own good fortune . . . There is no man living, who, when in tolerable health and spirits, has not some share of it. The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued . .
Overconfidence bias!
It is remarkable how much long - term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, “ It ’ s
the strong swimmers who drown.
The value investor — realizing that a stock price is transitory, a snapshot of jostling views and emotions — views Mr. Market ’ s prices as nothing more than a possible entry or exit point on to the market.
(1) a careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments at the time;
(2) a steadfast holding of these in fairly large units through thick and thin, perhaps for several years, until either they have fulfilled their promise or it is evident that they were purchased on a mistake;
(3) a balanced investment position, i.e. a variety of risks in spite of individual holdings being large, and if possible opposed risks (e.g. a holding of gold shares amongst other equities, since they are likely to move in opposite directions when there are general fluctuations).
investing in fairly large units is something which requires deliberate practice!
He was a Parliamentary orator of high order, a historian and devotee of music, the drama and the ballet. While at Cambridge University, he founded an arts theatre there because he wanted to go to a good theatre. A successful farmer, he was an expert on development of grass feeding stuffs. (mental models)
Keynes ’ six key investment rules, which have been embraced by some of the world ’ s most successful stock market investors, suggest that the value investor should:
1. Focus on the estimated intrinsic value of a stock — as represented by the projected earnings of the particular security — rather than attempt to divine market trends. (reasonably easy, I think projected cash flow not earnings)
2. Ensure that a sufficiently large margin of safety — the difference between a stock ’ s assessed intrinsic value and price — exists in respect of purchased stocks. (practice patience, wait for the fat pitch)
3. Apply independent judgment in valuing stocks, which may often imply a contrarian investment policy. (always remain contrarian, if it seems stupid)
4. Limit transaction costs and ignore the distractions of constant price quotation by maintaining a steadfast holding of stocks. (v. tough)
5. Practice a policy of portfolio concentration by committing relatively large sums of capital to stock market “ stunners .” (large sums is v. tough)
6. Maintain the appropriate temperament by balancing “ equanimity and patience ” with the ability to act decisively. (achievable)
Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing,” he wrote. If people are so uncertain, how are decisions made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.” They are not, as rational economic theory would dictate, “the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
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