The exact same thing

The problem with bull markets is there is nothing much to do for the intelligent investor but there is everyone wanting to do something. Like the other day, even my father and my father-in-law now wants to invest in equity mutual funds. Which is not such a bad thing actually – but the timing suggests that it is time to repeat the same old stuff.

So as many times in the past, I went to the ‘Gita’ of value investing “The Intelligent Investor”, and again read some of the underlined writings that need to be repeated at times of such excitement in the markets.

So here goes – some excerpts that are especially to be remembered now. Nothing new, the same old stuff or “the exact same thing” as Jason Zweig says, again:

  1. No statement is more true and better applicable to Wall Street than the famous warning of Santayana: “Those who do not remember the past are condemned to repeat it”.
  2. We have not known a single person who has consistently or lastingly made money by thus “following the market”. We do not hesitate to declare this approach is as fallacious as it is popular.
  3. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to “earning power” and assume that prosperity is equivalent to safety.
  4. The investor’s chief problem – and even his worst enemy – is likely to be himself
  5. Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues.
  6. The beauty of periodic re-balancing is that it forces you to base your investing decisions on a simple, objective standard.
  7. A great company is not a great investment if you pay too much for the stock.
  8. Even the intelligent investor is likely to need considerable will power to keep from following the crowd.
  9. The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him- but only to the extent that it serves your interests.
  10. The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.
  11. High valuations entail high risks.
  12. Investment is most intelligent when it is most businesslike.
  13. Successful investing is about managing risk, not avoiding it. Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.

And finally, this one which is right at the beginning of the book in the foreword by Buffett.

“By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.”

 

And there they go again!

..and again!!

That’s the title of a memo sent by the famous investor Howard Marks of Oaktree Capital to his clients recently. And it refers to how he is happiest writing when bull markets start going far, risk aversion disappears and there’s money all around inflating potential bubbles.

It is quite a long memo listing and describing various indicators that seem to be currently aligning together suggesting the prevalence of such a bubble type situation. For those interested in reading it, you can download it here.

But for those who don’t have the inclination or the time to go through the indicators, the what to do section at the end is what is most relevant. And honestly speaking it is nothing new, but it is well worth repeating.

There is no one size fits all action for all – so his answers are more like an essay on the one hand, and philosophy on the other. But the message is clear: There is a time to chase returns and there is a time to assess risk. And the time for caution is here, and the time for assessing low risk options is here.

So for individual intelligent investors, it is nothing new really. Dhirendra Kumar of Value Research Online in his well meaning article here says that it is well worth repeating the old stuff now.

The steps stay the same. They still constitute sticking to your asset allocation, re-balancing your portfolio if it has gone a bit out of whack, continuing to make investments as per your plan, and neglect the markets with a long term orientation.

The problem with this is that there is nothing new. But it still needs repetition, because it is tough to follow in practice.

Jason Zweig – the famous columnist and editor of the book “The Intelligent Investor” once wrote in a column titled “Saving Investors from themselves” (Please make it a point to read it here) that when asked how he defined his job, he said “My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.”

In my case, fortunately I don’t have to write so often, there is no editor, and readers shouldn’t mind repetition for their own sake. It will save them from themselves.

This is clearly the time to repeat the same old stuff.

As Howard Marks said in his memo, this approach of taking low risk options will not necessarily give you the highest returns, but what it will ensure is that you survive.

Here is what he says towards the ending sections of his memo which are well worth remembering:

“If you refuse to fall into line in carefree markets like today’s, it’s likely that, for a while, you will (a) lag in terms of return (b) look like a old fogey. But neither of those is much of a price to pay if it means keeping your head (and capital)  when others eventually lose theirs.” “They will also make you a long term survivor. I can’t help thinking that’s a prerequisite for investment success.”

So there they go again. And hence it is indeed time to stick to the old stuff, even more so.

 

Worth reading and listening 07/07

Some articles and talks that I found worth reading and listening to over last few days:

Video: Why Bruce Berkowitz still likes stocks others hate? LINK

Get Rich Slowly – Jason Zweig LINK

Video: Mohnish Pabrai Talks at Google LINK

 

 

Worth Reading 16/06

Some articles that I found worth reading this week:

Pay Attention to Asset Allocation in this Bull Market  LINK

Active Value Investing: Is it really better?  LINK

Is the Product Attractive? Mental Models and Moats  LINK

The Seduction of Pessimism  LINK

Video Interview: The Contrarian Gene|Seth Klarman (~15 min)  LINK

Video Interview: Buffett, Jorge Paulo Lemann|Brazil Conference (~55 min)  LINK

“Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we’re trying to do. It’s imperfect, but that’s what it’s all about.” -Warren Buffett

Importance of Rebalancing for the Defensive Investor

Often investors – specially those who call themselves defensive – can’t make up their mind on when to sell, as they have no particular reasons for doing so – except looking at market levels. A good answer to that comes from systematic and regular rebalancing (almost scheduled or using some similar discipline).

Came across a good article that explains rebalancing – more important with elevated market levels almost across the board. Should be a good reminder for defensive investors to take stock.

Read it here

Short Story: Space

On a cold evening in November, the Air India flight from Mumbai started its descent to land at the international airport in San Francisco. In the flight were Mr and Mrs Joshi who were visiting their son and daughter-in-law. A retired government of India employee, the seventy year old Mr Joshi and his sixty-five year old wife had visited their son earlier a few years back when he had just completed his studies. But this was their first visit after their son’s wedding five years back in Mumbai.

Meanwhile, their son Ketan and his wife Anusha checked the flight status online.

“Looks like it is on time. Should we start?” Ketan asked his wife.

“Give me 10 minutes. Just replying to this email” Anusha replied.

As they left their home, Ketan realised that perhaps they were already a bit late. It was a cold November evening, and he did not expect the traffic to be heavy. So he thought if he took the highway, they would make it on time.

“Let’s go through Redwood city” Anusha interrupted Ketan’s thoughts. “I realized that we need to pick up some groceries. Your parents will need them.”

Anusha had already told her friends as well as colleagues in office about the impending visit of her in-laws, and how it was going to invade her space and add to all the overhead activities in her life.

As she picked up some items from the grocery store, Ketan asked her to hurry up.

“It’s for your parents. Otherwise I will have to answer why there’s nothing in the fridge” she smirked back at Ketan. She was horror-struck at the prospect of facing such potential situations.

“By the way, do we have extra blankets? It is quite cold” asked Ketan.

“There are some in the storeroom” Anusha responded nonchalantly.

“But are they usable?” Ketan inquired, not quite sure whether they had been used in a while.

“They should be ok for your parents” Anusha told Ketan. “And your father can also use some of your old jackets lying in your wardrobe” she grinned back at her husband.

“Ok cool” Ketan stopped the conversation.

“Hey by the way, we don’t have extra mattresses” he remembered after a while.

“Yes – you will have to rent them out. In any case, they will need those harder ones” Anusha warned almost with a tone of admonition, thinking about all the adjustments she was going to face in the next couple of months.

“Ok – let’s pick them on the way, and put them in the car.”

After a while, Anusha remembered “What about the pooja stuff for your father? I hope he is not going to stick to that here also?”

“Of course. Guess we need that too. Let’s take it from the Indian store. May be we can pick up some Indian food too” Ketan told his wife.

“But I am not going to cook” Anusha scowled back.

“Ok, chill. My mother will cook” Ketan chose the path of least resistance to maintain the peace. And then added with a grin “By the way, my parents are coming to see you.”

“No they are coming to see you” Anusha reprimanded him.

Meanwhile Mr and Mrs Joshi’s flight had landed and they had finished their immigration formalities. Luckily their baggage also arrived in quick time. Mr Joshi put it on the trolley and started walking to the exit.

At the exit, their eyes searched for their son and daughter-in-law but they were nowhere to be seen. Most of the passengers left within about half an hour after that.

“I think we are late” Ketan said, as he pushed the mattresses into his car’s boot. Most of the car was already full with all the things they had bought on the way.

“But we were buying things for your parents so that they don’t have to adjust.” Then looking at the car, she said “Hope your parents don’t have a lot of luggage. There’s no space. What if we get another cab?”

As they reached the airport, they parked their car and walked to the exit. Ketan saw his parents standing alone with their luggage trolley. He realised that they are going to need a cab for it.

“Hope we are not too late” he said to his father.

“No, not at all. We just landed” Mr Joshi replied, happy to see his son, though that was more than an hour back.

As they prepared to leave the airport, Ketan called for a cab, and gave him the address of their home. As he put the luggage in the boot, and his parents sat in the cab, he explained “Sorry for that. But don’t worry, the cabbie will follow us.”

“No problem” Mr Joshi reassured his son.

Anusha tried to bring a cordial expression on her face. She smiled at her in-laws and said “There’s no space in our car, so we called the cab.” And forcing a jolly grin, she continued, “Welcome to our home!”

Interesting conversation: Mohnish Pabrai with Steve Pomeranz

Came across an interesting conversation that the famous value investor Mohnish Pabrai had with Steve Pomeranz.

He talks about what value investing is, why individual companies matter to him more than broader markets (though not advised for normal passive or ‘defensive’ investors), the importance of temperament which should be a strange mix of patience and decisiveness, and contrary to popular perception – how entrepreneurs are actually looking for low risk opportunities with high potential returns.

You can listen to it at https://beta.prx.org/stories/207163

The audio has many other topics – the Pabrai talk is from minutes 9 to 18, and again from minutes 40 to 55 or so.

Some details of the talk are also at this link: http://www.stevepomeranz.com/mohnish-pabrai/

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