I wrote a book called The most important thing in 2011. The reason the book has that title because i would find myself in clients office and i would say the most important thing in investing is controlling risk and then 5 minutes later i would say the most important thing is to buy at low price and then 5 minutes later i would say the most important thing is to act as a contrarian.
In 2003, i wrote a memo called called The Most Important Thing . In there, i had listed 19 things, each of the things are most important things.
Investing is difficult, kind of, counter intuitive and kind of, turns back on itself all the time.
Personal philosophy comes from what you have taught by parents and teachers and your experiences. Experiences tell you what have been taught and have to be modified.
Below points are illustrate where the philosophy came from.
Simply to put,
Risk means more things can happen than will happen
—— Elroy Dimson
Should is not equal to Will. Lots of things that should happen fail to happen. And even if they don't fail to happen, they fail to happen on schedule.
—— Howard Marks
One of Howard Marks favourite sayings
Never forget the six foot tall man who drowned crossing the stream that was five feet deep on average.
We can't live by the averages
Overpriced is not same as going down tomorrow.
We have two classes of forecasters: Those who don't know -- and those who don't know they don't know
—— John Kenneth Galbraith, American economist
The difficulty of getting it right consistently This is what makes defensive investing so important
Winning tennis players win by hitting winning shots. Hits shots that opponents can't return. They're either so well placed, or so strategic or so fast and hard that opponent can't return them.
Amature tennis players win not by hitting winners but by avoiding hitting losers. We believe, if we push the ball over the net 20 times and our opponent can only do it 19. We believe we will out-steady him, outlast him and eventually he will hit it in the net or off the court. We will win the point without having hit a winner. So there are two styles of tennis and same is true for investing.
Charlie believes investing in losers game, because market is efficient and securities are priced right. I also believe investing is losers game but for different reasons like there are inefficiencies, i just think its hard to consistently take advantage of them and you have to be a exceptional person to take advantage of them on a consistent basis.
The reasons why pro can go for winners is because he is so well schooled, practiced and steady and talented that he knows that if he does this with his foot and this with his hip and this with his elbow and this with his wrist that the ball will go where he wants. He doesn't worry about miscues, wind, sun in his eyes or distraction. He is so well schooled. In tennis matches they keep track of something called unforced errors. They keep track of them is because there are very few. The pro doesn't make a lot of unforced errors. Amatures make unforced errors all the time.
If you buy triple-A bonds, there is only one way to go But if you buy single-B bonds and they survive, the surprises are like to be on the upside.
How do you make money as a investor ?
The people who don't know think the way you do it is by buying good assets, a good building, stock in a good company. Thats not the secret for success. The secret in success in investing buying things for less than they are worth.
Guy in the radio(NPR) in LA who i used to listen on the way to work says,
Well if you go into a store and you like the product, buy the stock.
Most important thing is "Figuring out what the value of an asset is" and also "relationship between price and value".
In Moody's guide to bonds in those years, "B Rated" was defined as "Fails to possess the characteristics of a desirable investment". In other words, its a bad investment.
Stocks are good buy at one price and bad buy at another price. What Moody is saying is B-Rated bonds are bad buy without any reference to price. Meaning there is no price for company that has some credit risk is worth investing in.
So when researching B-Rated companies, we had to weed out the ones that don't survive. Not finding the ones that will have favourable events but just excluding the ones that have unfavourable events.
Bond investing is negative art.
The greatness of your performance comes not from what you buy but from what you exclude.
What the wise man does in the beginning, the fool does in the end
Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average.
Being too far ahead of your time is indistinguishable from being wrong
All of these things, i think, say something about modesty and humility rather than cock sureness, which i think is the greatest risk.
Below were during questions section,