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Kindle Notes & Highlights
“If something can’t go on forever, it won’t.” This
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dangerous words in investing, “This time is different,
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“As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works. . . . The failure of great banks . . . and mercantile firms . . . are the symptoms incident to the disease, not the disease itself.”
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For it is in the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion.
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However, yet another pitfall of the X-system is an unwillingness to recognize our mistakes and errors as such. Instead we gloss over them.
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“We will learn an enormous amount in the very short term, quite a bit in the medium term, and absolutely nothing in the long term. That would be the historical precedent.”
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written record of the decisions we take and the reasons behind those decisions—an investment diary, if you will.
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Alchemy of Finance
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This study demonstrates why a real-time investment diary can be a very real benefit to investors because it helps to hold us true to our thoughts at the actual point in time, rather than our reassessed version of events after we know the outcomes. An investment diary is a simple but very effective method of learning from mistakes, and should form a central part of your approach to investment.
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counterfactual thinking plays in our judgments. When dealing with losses, the urge to reach for an action bias is exceptionally high.
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baseball metaphor in his brilliant book, Margin of Safety,
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“All men’s miseries derive from not being able to sit in a quiet room alone.”
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“It is impossible to produce superior performance unless you do something different from the majority,” or
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“While I warned about the bubbles I believed were developing in the stock and housing markets, I did so very gently, and felt vulnerable expressing such quirky views. Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated.”
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“The hardest thing over the years has been having the courage to go against
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“You can’t be a good value investor without being an independent thinker—you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value.”
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first, reasonably good intelligence; second, sound principles of operation; and third, and most important, firmness of character.”
Stop losses can act as triggers to prevent you sliding down the slippery slope of the disposition effect.
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Figuring out how to act in the face of losses is one of the biggest challenges any investor can face. As
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add value as a value investor is how you behave on those down-25 percent situations. Sometimes you should buy more, sometimes you should get out, and sometimes you should stay put. . . . We probably hold tight 40 percent
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Make a clear distinction when selling between “compounders” and
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cigar butt stocks. Once the cigar butts come back, you know to get out because they’re just going to go down again. With
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More Than You Know
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The management of return is impossible, the management of risk is illusory, but process is the one thing
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“The time to reflect on your investing methods is when you are most successful, not when you are making the most mistakes, ”
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“The value approach is inherently sound . . . devote yourself to that principle. Stick to it, and don ’t be led astray.”
Working out which biases you suffer from the most, and addressing these first, should help improve returns.
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As we have seen time and time again in this Little Book, some of the worlds greatest investors (from Sir John Templeton ’s research on a quiet day to George Soros’s diaries, from Bruce Berkowitz’s kill the company to Michael Steinhardt’s selling the entire portfolio) have integrated measures into the way in which they approach investment to act as a guard against mindless investing.
