Investing is hard. Big Mistakes and Moats

A Stoic would agree with this quote from the above book:

The most important thing successful investors have in common is worrying about what they can control. They don’t waste time worrying about which way the market will go or what the Federal Reserve will do or what inflation or interest rates will be next year.  They stay within their circle of competence, however narrow that might be.

Other useful quotes:

In my nearly fifty years of experience in Wall Street I have found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do; and that is a pretty vital change in attitude — Ben Graham

Investment success accrues not so much to the brilliant as to the disciplined.– William Bernstein

Investors who confine themselves to what they know, as difficult as that may be, have a considerable advantage over everyone else — Seth Klarman

Genius is a rising market — John Galbraith

In a winner’s game the outcome is determined by the correct actions of the winner.  In a loser’s game, the outcome is determined by mistakes made by the loser. — Charlie Ellis

How could economics not be behavioral? If it isn’t behavioral, what the hell is it?  — Charlie Munger

You need patience, discipline, and an ability to take losses without going crazy — Charlie Munger, 2005

You will do a great disservice to yourselves, to your clients, and to your businesses, if you view behavioral finance mainly as a window onto the world. In truth, it is also a mirror that you must hold up to yourselves. — Jason Zweig

If I could sum up the lesson of the above 175-page book at $35, it would be that IF you invest long-term in compounders or franchise companies that redeploy their capital at high rates of return, then expect to suffer through multiple 50% to 60% declines in stock price as you hold on for the long-term.  And remember that a price decline of 50% does not necessarily indicate a bargain.

You can see the 50% sell-off in Bershire’s stock in 1999/2000 while you can barely make out the multiple 50% or more declines in AMZN over the past twenty years.   Investing is HARD!

https://traviswiedower.files.wordpress.com/2018/12/Finding-Durable-Moats-is-the-Key-to-Finding-Good-Investments.pdf

You must factor in those facts with your own psychology.

A reader asked: When do you buy gold for a portfolio?

No one has the perfect answer.  Just remember that gold is money and not an investment. Gold just sits there in the vault as a STORE of Wealth.  Here is a good article, though:  http://www.myrmikan.com/pub/Myrmikan_Research_2018_01_15.pdf

8 responses to “Investing is hard. Big Mistakes and Moats

  1. “The most important thing successful investors have in common is worrying about what they can control.”

    I disagree. The common distinguishing characteristic of great investors is that they think for themselves.

    Great investors always try to understand themselves, which is done by a process of thought. When they experience an emotion, they don’t try to repress it, change it directly, or accept it as being outside of their control. They understand that said emotion is not causeless, and that they should seek to grasp the principle that they’ve implicitly accepted that caused said emotion and correct it, if needed.

    Worrying about what’s within your control is important, but how do you determine what’s within your control? As far as I can tell, Stoicism holds that pretty much everything important is outside of your control.

    • http://classics.mit.edu/Epictetus/epicench.html

      Best to read that to gain an understanding of Stoic philosophy.

      When they experience an emotion, they don’t try to repress it, change it directly, or accept it as being outside of their control.

      Stoics would suggest that your emotions ARE within your control. Your child dies suddenly of an accident–you choose your reaction. You can choose to be sad or or accepting. Stoics embrace their emotions but try to realize that those emotions are transient.

      • “You can choose to be sad or or accepting.”

        I don’t see those as mutually exclusive. You can accept the reality that your child has died, but you can also acknowledge that they were a tremendous value in your life, so experiencing sadness and mourning your loss is perfectly legitimate and rational.

        • I agree that those two emotions are not mutually exclusive.

          One argument against Stoicism would be that Stoics are too accepting of fate and therefore they are too passive. However, first read the
          works of Marcus Aurelius, Epictetus, and Cicero and before reaching any conclusions.

          Some of the Stoic practices I find are useful such as catastrophizing. Before a meeting, event, or action, you imagine various possibilities especially negative and difficult circumstances. You go on a blind date. Your date doesn’t show up. Your date stares at her iPhone all day. Etc. You are more prepared for the unexpected which helps you maintain your equilibrium and peace. Act in accordance with nature. As Kant says, “Act only according to that maxim whereby you can at the same time will that should become a universal law. This is like the golden Rule: Do unto others as you would have them do unto you. Also, “Act in such a way that you treat humanity, whether in your own person or in the person of any other, never merely as a means to an end, but always at the same time as an end.”

          If I hold the door open for you as you enter the store BECAUSE I then want you to do something for me, then my intent is treating you as a means to an end. My intent should be to treat you with kindness and respect because I wish for that to be a Universal Law. We are all creatures of God (if you believe in God) or if you do not believe, then you act in accordance with right action.

          • “If I hold the door open for you as you enter the store BECAUSE I then want you to do something for me, then my intent is treating you as a means to an end. My intent should be to treat you with kindness and respect because I wish for that to be a Universal Law.”

            Well then, in effect, you DO want them to do something for you, if you are acting in that way in an attempt to bring closer the way you think the world should be, which you do because it ultimately benefits YOU.

          • Yes, I agree with your statement.

          • I find it very helpful to “think in principles”, instead of just concrete-bound rules.

            What is the principle behind “catastrophizing”? From what I can see, it is that the basis for acting at all is to achieve certain purposes, and there is typically a range of options within which you can act to achieve those purposes. Because you have options and it’s not just one concrete path you must follow, then you won’t be devastated when things don’t go exactly as you planned.

            To give a basic example, let’s say that you have the purpose of eating healthy. One day, you plan to eat salmon that night. However, you go to the market and see that they’re out of salmon. Because you keep in mind your primary purpose, which is to eat healthy, you understand that the salmon was merely one option within a range of options to choose from, so it is no problem whatsoever that there is no salmon and that you have to choose some other option.

  2. Truly, is there a “self” entity riding along inside the body, making choices from free will, or do decisions & actions just happen – the result of thoughts / preferences / emotions that appear UNCHOSEN in consciousness (the result of DNA and life experience)?

    When cats, bugs, frogs seek shelter, avoid danger, find food, reproduce, is it b/c there is a little frog entity inside making those choices or does it happen automatically? Does plant photosynthesis require a photosynthesiz-er inside to do the work?

    If the goal is to travel more lightly, question whether this stressed out, overburdened “self” to whom all this is happening even exists. Life still has its painful moments but at least there isn’t the “poor, always deficient, fragile me” garbage narrative being added on top of it.

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