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February 14 - June 1, 2021
It is the definition of the time period for the investment return and the predictability of the returns that often distinguish an investment from a speculation.
Let me make it quite clear that this is not a book for speculators: I am not going to promise you overnight riches.
inflation is the exception rather than the rule and that historical periods of rapid technological progress and peacetime
Investing requires work, make no mistake about it.
A successful investor is generally a well-rounded individual who puts a natural curiosity and an intellectual interest to work.
The firm-foundation theory argues that each investment instrument, be it a common stock or a piece of real estate, has a firm anchor of something called intrinsic value, which can be determined by careful analysis of present conditions and future prospects.
It was his opinion that professional investors prefer to devote their energies not to estimating intrinsic values, but rather to analyzing how the crowd of investors is likely to behave in the future and how during periods of optimism they tend to build their hopes into castles in the air.
According to Keynes, the firm-foundation theory involves too much work and is of doubtful value.
beauty-judging contest in which one must select the six prettiest faces out of a hundred photographs, with the prize going to the person whose selections most nearly conform to those of the group as a whole. The smart player recognizes that personal criteria of beauty are irrelevant in determining the contest winner. A better strategy is to select those faces the other players are likely to fancy.
perfectly all right to pay three times what something is worth as long as later on you can find some innocent to pay five times what it’s worth.
wash sales, created the impression that something big was afoot.
history teaches us that very sharp increases in stock prices are seldom followed by a gradual return to relative price stability.
they anticipated that some greater fools would take the shares off their hands at even more inflated prices.
word that no one understands entitles you to double your entire score.
Part of the genius of the financial market is that if a product is demanded, it is produced.
This magical, surefire new creation was called a conglomerate.
Ostensibly, the conglomerate would achieve higher sales and earnings than would have been possible for the independent entities alone.
Like the stock market, journalism is subject to the laws of supply and demand. Since investors wanted more information about Internet investing opportunities, the supply of magazines increased to fill the need.
Many businesses were managed not for the creation of long-run value but for the immediate gratification of speculators.
The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits.
we shall see later, an investor who simply buys and holds a broad-based portfolio of stocks can make reasonably generous long-run returns. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges.
But it was the infectious greed of individual investors and their susceptibility to get-rich-quick schemes that allowed the bubble to expand.
The ability to avoid such horrendous mistakes is probably the most important factor in preserving one’s capital and allowing it to grow.
the bursting of bubbles has invariably been followed by severe disruptions in real economic activity.
Bubbles are particularly dangerous when they are associated with a credit boom and widespread increases in leverage both for consumers and for financial institutions.
in every case, the market did correct itself. The market eventually corrects any irrationality—albeit in its own slow, inexorable fashion.
am also persuaded by the wisdom of Benjamin Graham, author of Security Analysis, who wrote that in the final analysis the stock market is not a voting mechanism but a weighing mechanism.
The market might correct its “mistake” by revaluing all stocks downward, rather than raising the price for Biodegradable Bottling.
Buy only companies that are expected to have above-average earnings growth for five or more years.
Never pay more for a stock than its firm foundation of value.
The point is, the technicians often play an important role in the greening of the brokers.
The weak form of the random-walk theory says only that stock prices cannot be predicted on the basis of past stock prices.
Many in Wall Street refuse to accept the fact that no reliable pattern can be discerned from past records to aid the analyst in predicting future growth.
Analysts can’t predict consistent long-run growth, because it does not exist.
A good analyst will argue, however, that there’s much more to predicting than just examining the past record. Some will even admit that the past record is not a perfect measurement.
The point is that we should not take for granted the reliability and accuracy of any judge, no matter how expert.
These are (1) the influence of random events, (2) the production of dubious reported earnings through “creative” accounting procedures, (3) errors made by the analysts themselves, (4) the loss of the best analysts to the sales desk or to portfolio management, and (5) the conflicts of interest facing securities analysts at firms with large investment banking operations.
Generally too lazy to make their own earnings projections, they prefer to copy the forecasts of other analysts or to swallow the “guidance” released by corporate managements without even chewing.
But I do imply that the average analyst is just that—a well-paid and usually highly intelligent person who has an extraordinarily difficult job and does it in a rather mediocre fashion.
In short, they are really very human beings.
Many of the best security analysts are not paid to analyze securities. They are often very high-powered institutional salespeople, or they are promoted to the prestigious and lucrative position of portfolio manager.
Analysts are still influenced by the fear that very negative comments about a company could result in a loss of underwriting business in the future.
Investors have done no better with the average mutual fund than they could have done by purchasing and holding an unmanaged broad stock index.
Just as past earnings growth cannot predict future earnings, neither can past fund performance predict future results.
It is simply impossible to count on any fund or any investment manager to consistently beat the market—even when the past record suggests some unusual investment skill.
Fundamental analysis is no better than technical analysis in enabling investors to capture above-average returns.
The “semi-strong” form says that no public information will help the analyst select undervalued securities.
The “strong” form says that absolutely nothing that is known or even knowable about a company will benefit the fundamental analyst.
