The Cult of Warren Buffett
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My first trip to the Berkshire Hathaway annual meeting in Omaha was over 20 years ago, in 2002. It was quite an initiation into the cult of Warren Buffett.
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The Surprising Ways In Which Losing Money Can Help You Build Wealth
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I had just made an investment mistake. And not just one mistake – I somehow managed to combine three different mistakes on a single investment recommendation. I was a senior investment analyst on a team managing billions, and it was time to decide what to do next.
Read MoreHow To Put Together An Investing Soccer Team That Can Win
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With the World Cup coming up, I thought it was timely to share a mental model that I find helpful in constructing a portfolio. Don’t get me wrong, I am not trying to gamify investing. Far from it – I take my responsibility for our capital very seriously. However, I frequently find that other disciplines have a lot to offer in helping me think about how to best invest, and this is one of those times.
Read MoreThe Simple Value Investing Formula That Makes Everything Clear
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Years ago, I was reading an investor letter of a fund manager, and came across a formula that made everything clear: Change in Price = Price going to Value + Change in Value + Noise
Recently I had a chance to reflect on this formula and deepen my understanding. The result was a new perspective which is helpful in categorizing investments and getting more insight into the portfolio.
Read MoreWhat Are The Dangers And Rewards Of Doubling Down On Your Investments?
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The research note sent electric shocks through Fidelity’s investment department. It was sent by a senior analyst with over 5 years of investing experience who was expected to become a portfolio manager within a few years. It stated: “Any portfolio manager who doesn’t buy this stock, doesn’t deserve to be a PM.”
Read More5 Important Things To Do Before the Market Bubble Bursts
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Yes, you are living through a bubble in the financial markets. No, this is not an article about how to time the market. No, you don’t know when the bubble will burst (and neither do I). Yes, there are still things that you can do that will set you up for investing success.
Read MoreThe Story Stock Market
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I was watching our stock prices drift down, day by day. The market value of our portfolio slowly decline. No fundamental news. Just a steady drip-drip-drip of lower stock market prices.
Read MoreInvesting Patterns
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At the heart of investing is understanding why something is mis-priced. Contrary to the belief casually held by many, “it’s cheap” or “it’s a good company” or “it’s growing rapidly” is not a sufficient reason to believe that a mis-pricing exists.
Read MoreWhat A Strange Investing Environment We Are In!
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The investing environment we find ourselves in today is like some strange, twisted forest where old rules seem to no longer apply.
Read MoreHow To Invest Safely Amidst the Coronavirus Market Meltdown
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Fear is rampant. Investors are reverting to their worst behavioral biases and habits in such an environment. You need to do better than the crowds and continue to invest rationally. Here is how.
Read More10 Important Questions to Consider Before Investing in a Company
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1. Do I understand the business?
2. Can I (approximately) estimate the key financial characteristics 10 years out?
3 …
Read MoreHow I Spotted a Fraud (Before It Was Too Late)
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I couldn’t fall asleep. As I was tossing in bed, I felt that I almost had it figured out. Figured out what was wrong with the company that I had recommended that the investment firm that I had worked for invest tens of millions of dollars in. That was before my mind started to put the pieces together and warn me that something wasn’t quite right. And then I had it: the management team was manipulating earnings to make them seem much larger than they really were, and I had just figured out exactly how they were doing it.
Read MoreHow to Invest for the Long-Term in a Turbulent Market
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Long-term investing doesn’t happen by accident. You need to be prepared. There are three things that can allow you to use market volatility to your advantage: the right structure, a long-term investment process and a behavioral checklist to allow you to remain rational when everyone else is being anything but.
Read MoreDon’t Make These 5 Investing Mistakes That General Electric Investors Made
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If GE investors had been told about the recent challenges at the company 15 years ago, would any of them have believed them to be possible? Investors who invested in GE stock 15 years ago have lost more than 40% of their capital through the end of October 2018. This compares with a gain of over 250% over the same time period in the S&P 500 index, which tracks the performance of large U.S. stocks. What can we learn from the challenges at GE to become better investors?
Read MoreCircle of Competence
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Warren Buffett wrote in his 1996 letter to Berkshire Hathaway shareholders: “You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Read More5 Exemplary CEO Annual Letters Worth Reading
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What makes a great annual letter from the CEO to the shareholders? The typical, generic annual letter that I read adds little to the numbers and sometimes obfuscates more than it illuminates. The best letters go beyond the numbers and help shareholders get a deeper understanding of the company, how it is performing and the decision-making process the management team employs. In this article I examine the aspects of a great annual letter and provide five examples.
Read MorePortfolio Concentration: How Much Is Optimal?
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Diversification is sometimes described as “the only free lunch” in investing. But is it? Not in the kind of fundamental value investing that I do.
Increased diversification comes with two potential costs:
At a certain point, new investments are likely to yield increasingly lower returns.
The time required to underwrite new investments reduces the quality of the underwriting of existing investments.
Balancing Conviction and Flexibility in Investing
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Conviction is a necessary quality for any investor – lack thereof can lead to an inability to stay the course on a successful contrarian investment. Yet without flexibility investors can easily fall prey to various behavioral biases such as anchoring and overconfidence and fail to correctly change their minds when the evidence merits doing so.
Read MoreWhat Do the Best Investors Do That the Rest Don’t?
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Charlie Munger, the Vice Chairman of Berkshire Hathaway and Warren Buffett’s partner said something simple yet profound at the 2017 Berkshire Hathaway Annual Meeting: “A lot of other people are trying to be brilliant and we are just trying to stay rational. And it’s a big advantage.” Some might think that becoming an excellent investor requires off-the-charts intelligence or some highly proprietary model that leads to an edge that nobody else can replicate. That is not what experience has shown.
Read MoreHow and Why to Be a Long-Term Investor
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Having a long-term time horizon can help you avoid making poor short-term investment decisions. A multi-year time horizon can also give you an advantage toward achieving superior returns by allowing you to make high-potential investments that others with a shorter timeframe would avoid. This article will elaborate on why being a long-term investor can help you achieve better returns, and illustrate how you can go about doing so.
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