Sept 2014 Memo - Key takeaways
Sources of Investment risk or Permanent Loss are 1) investor's ability to ride out the volatility (excess focus on price) and 2) investing in a company with poor financials/dramatic change in competitive landscape etc.
while 1) is a behavioral aspect of investing 2) is closest to science and errors could be prevented with strong research process and sufficient checks and balances
JKG :) - "We have two classes of forecasters - those who don't know and those who don't know they don't know"
Future should be viewed as range of possibilities - In order to achieve alpha, investors should consistently bet on stocks with asymmetric profit outcomes i.e. lower downsides and higher upsides;
Economic decisions should be based on expected value; not sure about the relationship between return and risk - this is probably the perception of risk vs return and in this seems to be the holy grail of investing i.e. WB's perception of risk at a point in time could be spectacularly different from an above average investor's perception of risk; perhaps risk is just an opinion and cannot be combined at a macro level
Nice:
Risk of low returns vs Risk of FOMO; But between 1968 and 1973, many of the Nifty Fifty lost 80-90% of value - why?
"At Present I consider risk control more important than usual"
"The less prudence with which others are conducting their affairs, the greater prudence we should incorporate in our affairs"
Sources of Investment risk or Permanent Loss are 1) investor's ability to ride out the volatility (excess focus on price) and 2) investing in a company with poor financials/dramatic change in competitive landscape etc.
while 1) is a behavioral aspect of investing 2) is closest to science and errors could be prevented with strong research process and sufficient checks and balances
JKG :) - "We have two classes of forecasters - those who don't know and those who don't know they don't know"
Future should be viewed as range of possibilities - In order to achieve alpha, investors should consistently bet on stocks with asymmetric profit outcomes i.e. lower downsides and higher upsides;
Economic decisions should be based on expected value; not sure about the relationship between return and risk - this is probably the perception of risk vs return and in this seems to be the holy grail of investing i.e. WB's perception of risk at a point in time could be spectacularly different from an above average investor's perception of risk; perhaps risk is just an opinion and cannot be combined at a macro level
Nice:
Risk of low returns vs Risk of FOMO; But between 1968 and 1973, many of the Nifty Fifty lost 80-90% of value - why?
"At Present I consider risk control more important than usual"
"The less prudence with which others are conducting their affairs, the greater prudence we should incorporate in our affairs"
btw I was reading one of his old 2011 memos and he was saying pretty much the same thing. no value in markets and one should be fearful. s&p was 1300 then and 2000 now. The perils of being famous and forecasting ;-)
ReplyDelete:-) - I will go on the witch hunt too...I like one of his earlier handouts called the realist's creed; it will interesting to see if he ever called the market inexpensive?
ReplyDelete