Investing Wisdom
Investing Wisdom
I thought I would change it up tonight and move away from highlighting daily market signals and focus on core tenets of some of the sharpest minds in the investing universe. Now I did not develop the entire list. That was the job of the publishers of one of my favorite publications Value Investor Insights. They cobbled together 44 pages of collective wisdom from interviews over the past four years. They then coalesced a list of the 12 most fundamental characteristics of value investors to share with their readers. Here goes {my notes included}:
- They tend to buy what's out of favor rather than what's popular. {Think like a contrarian.}
- They focus on intrinsic company value and buy only when there is a substantial margin of safety, rather than trying to guess where the herd will go next. {Focus on fundamentals, not hunches.}
- They understand and profit from reversion to the mean rather than projecting the recent past indefinitely into the future. {Avoid recency bias during euphoric upswings and dramatic downturns. Trends are made to be broken.}
- They understand the beating the market requires a portfolio that looks different than the market. {Do not be afraid to be different than the index you are trying to beat and avoid investing in a particular style box.}
- They focus on absolute returns, rather than outperforming a benchmark, and on avoiding permanent loss. {Realize that you may not keep pace in parabolic moves higher, but we want to avoid years like 2008.}
- They typically invest with a multi-year time horizon rather than focusing on the month or the quarter. {Be patient before making an investment and while invested.}
- They pride themselves on in-depth and proprietary analysis of "variant perceptions," rather than acting on tips or relying on Wall Street analysts. {Detailed analysis and reading are keys to their success.}
- They spend far more time reading things like business publications and financial reports than watching the ticker or television shows about the market. {I repeat, detailed analysis and reading are keys to their success.}
- They focus more on analyzing and understanding micro factors, such as a company's margins and future growth prospects, and less on trying to predict the direction of interest rates, commodity prices or the overall economy. {As Yogi Berra said, "Predicting is hard, especially about the future." Focus on specifics not where the S&P will finish this year.}
- They cast a wide net, seeking mispriced securities across industries and types and sized of companies rather than accepting artificial limitations on market capitalization or other criteria. {Again, if we find a manager we have a high degree of confidence in then why do we want to push him/her into a very specific corner of the market, why not let him/her ply their trades across the globe and across market caps.}
- They make their own decisions and are willing to be held accountable for them, not seeking safety in what everyone else is buying or decision-making by committee. {Again avoid group think and be willing to take a calculated risk and be held accountable for your decisions.}
- They admit their mistakes and seek constantly to learn from them. {As Warren Buffett said, "If you were a golfer and every shot you hit was a hole in one, the game would get boring and you would quit. Every once in a while you need to find yourself in the woods to keep it interesting." Just ask Tiger Woods who even after winning multiple major completely changed his swing in order to continue to improve his game.}
