"More than You Know"

Four attributes generally set this group apart from the majority of active equity mutual fund managers:

• Portfolio turnover. As a whole, this group of investors had about 35 percent turnover in 2006, which stands in stark contrast to turnover for all equity funds of 89 percent. The S&P 500 index fund turnover was 7 percent. Stated differently, the successful group had an average holding period of approximately three years, versus roughly one year for the average fund.3 

• Portfolio concentration. The long-term outperformers tend to have higher portfolio concentration than the index. For example, these portfolios have, on average 35 percent of assets in their top ten holdings, versus 20 percent for the S&P 500.

• Investment style. The vast majority of the above-market performers espouse an intrinsic-value investment approach; they seek stocks with prices that are less than their value. In his famous "Superinvestors of Graham-and-Doddsville" speech, Warren Buffett argued that this investment approach is common to many successful investors.

• Geographic location. Only a small fraction of high-performing investors hail from the East Coast financial centers, New York or Boston. These alpha generators are based in cities like Chicago, Memphis, Omaha, and Baltimore.

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You only bet when the odds are highly in favor - Result does not matter

Any time you make a bet with the best of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose the bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet.

You only bet on the winning horse, The point of this exercise is to illustrate that even a horse with a very high likelihood of winning can be either a very good or a very bad bet, and that the difference between the two is determined by only one thing: the odds
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Long-term success in any of these probabilistic exercises shares some common features.
four of them:
• Focus. nothing sticks better than the circle of competence
• Lots of situations. examine tons of information before an iota of action
• Limited opportunities. Odds are in favor only 10% of the time - 50% corrections happen 3% of the time and 30% corrections happen 10% of the time - These are the times to bet
• Ante.Investing has far higher odds of winning just because of the option to stay out; focus not on the frequency of correctness but on the magnitude of correctness (maximize the expected value)
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In a rules based system with fewer degrees of freedom, machine trounces experts. On the other hand, complex systems with a multitude of strategies and far higher degrees of freedom, experts who have knowledge of broadranging subjects (foxes) do better than specialists.

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Positive return probability increases as the horizon increases, hence successful investors often say short term volatility does not matter.

We regret losses 2.5 times more than similar-sized gains:

• 5% loss same as 12.5% gain
• 10% loss is same as 25% gain
• 20% loss is same as 50% gain (wow)

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Assessing management => assessing 1) leadership 2) incentive structure and 3) capital allocation

eg. Sun TV (spice jet); First Source (CESC to Firstsource) - one of the better ones

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Wisdom of the hive and negative feedback cycles

• Wisdom of the hive is easy to digest, but collective wisdom in a stock market situation seems like an oxymoron - Otherwise, what explains the consistent recurrence of excesses; 

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