Contrariwise, if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.
~ Lewis Carroll
When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion.
~ Dale Carnegie
Mastering others is strength. Mastering yourself is true power.
~ Lao Tzu
Your goal should be to find an investment approach that works for you. You will need to determine your investment edge.
You should read:
the Preface from Deep Value (Toby Carlisle)
Chapter 20_Margin of Safety Concept
Buffett Klarman and Graham on Mr Market
Behavioral Portfolio Management
Questions from the readings:
- Do you agree that deep value investing is an investment triumph disguised as business disaster?
- What do you see as the biggest investment risk(s) in “deep value investing?”
- When do stocks appear most attractive and when is the risk highest?
- What is considered the main margin of safety metric?
- What are investors rewarded for?
- What concept must you truly grasp to be a successful deep value investor?
- Why do prices move more than intrinsic value?
- True or False: A good value investor understands and takes advantage of the behavioral biases of others because he has already eliminated them in him/herself?
- Deep value investing often means buying distressed assets but can you buy a franchise (see attachment of Wal-Mart or a company able to grow with profits above its cost of capital due to barriers to entry) at deep value prices? Name two investments by Buffett that might fit that criteria? WMT_50 Year SRC Chart
- How can we think of activist investing?
- What are your goals for this course?
- How do Mr. Graham and Mr. Buffett view buying a share of stock?
- What do you do if you can’t find an attractive investment?
- What is Mr. Market’s purpose?
- How are prices set? in Philadelphia it’s worth fifty Bucks (video)
- Are prices based on subjective or objective valuation?
- If you are playing poker and you don’t know who the sucker is—why is that a problem? Who’s the sucker? Playing the sucker (video) What EMOTIONAL error did the SUCKER display? When did the sucker CEASE to be a sucker? What is the main error–man, especially male, beginning investors—exhibit?
- What is the key to investment success?
- What TYPE of market participant seeks Mr. Market for investment guidance? Do you notice any conflicts, ironies or problems? Or can it be a way to improve your investment results?
- How do many investors react to huge market volatility?
- Did Mr. Graham give you a way to access the valuation of a common stock? Explain.
- Extra credit: Did Graham ever give a FORMULA for determining intrinsic value? Be careful and read the footnotes to the formula he presents and why he offers it to readers. See Intelligent Investor.
- What is the biggest mistake investors make when buying securities? How would you prevent that? What does Graham do?
- What is the danger in growth stock investing?
- What is a good or bad stock/investment?
- When during the past fifty years were the greatest American companies (Franchises mostly) bad investments. Why?
- What is the best approach to take in investing.
- What is risk?
- Why do so many “smart” people fail at investing or at least do less well than simple stock indexes over time?
You can email me at Aldridge56@aol.com with LESSON 1 in the title with questions and answers or post here in the comments section. If you don’t have time or wish to pass then come back to this lesson later.
- What are the five investment criteria in the Behavioral Portfolio Management?
- What is the cult of emotion?
- Is it possible for emotion to help you as an investor?
I will be asking for one or two volunteers who wish to research the article BEHAVIORAL PORTFOLIO MANAGEMENT. You will need to read the articles below and then determine if the author’s five criteria will work. Over this course, I will probably assign twenty or so special projects. Then we will share your work/efforts.
SSRN_Behavioral Measures of Expected Market Return
SSRN The Importance of Investment Strategy_Howard
SSRN Behavioral Portfolio Management_Thomas
Making Money Out of Emotions How investors fail because of their own brain. Solution: Pre-program your portfolio.
I will post the review of the lesson/readings by the end of the week. There will be supplementary material posted throughout the week. You will also be emailed any postings.