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Kindle Notes & Highlights
“When a lamb goes to the slaughter, the lamb might kill the butcher. But we always bet on the butcher.”
Instead I compared different securities of the same company with the object of finding relative mispricing, from which I could construct a hedged position, long the relatively undervalued, short the relatively overvalued, from which I could extract a positive return despite stock market ups and downs.
The most important reason to wind down the operation was that time was worth more to me than the extra money.
I declined because Meriwether had a history at Salomon of being a major risk taker and the partnership’s theorists were, I believed, lacking in “street smarts” and practical investment experience.
The EMH is a theory that can never be logically proved. All you can argue is that it is a good or not-so-good description of reality.
Get good information early.
As Buffett says, “Only swing at the fat pitches.”
Other winning strategies include superior security analysis by the gifted few and the methods of the better hedge funds.
When you have identified an opportunity, invest ahead of the crowd.
To beat the market, focus on investments well within your knowledge and ability to evaluate, your “circle of competence.”
The lesson of leverage is this: Assume that the worst imaginable outcome will occur and ask whether you can tolerate it. If the answer is no, then reduce your borrowing.
Some key features of the Kelly Criterion are: (1) The investor or bettor generally avoids total loss; (2) the bigger the edge, the larger the bet; (3) the smaller the risk, the larger the bet.
Investing heavily in extremely favorable situations is characteristic of a Kelly bettor.
