Sound familiar? And this was before "unicorns" existed...

During the later stages of the bull market culminating in 1929, the public acquired a completely different attitude towards the investment merits of common stocks.  Why did the investing public turn its attention from dividends, from asset values, and from average earnings and transfer it almost exclusively to the earnings trend, ie the changes in earnings expected in the future?  The answer was, first, that the records of the past were proving to be an undependable guide to investment; and, second, that the rewards offered by the future had become irresistibly alluring.

Along with this idea as to what constituted the basis for common stock selection emerged a companion theory that stocks represented the most profitable and therefore the most desirable media for long-term investment.  This gospel was based on a certain amount of research, showing that diversified lists of common stocks had regularly increased in value over stated intervals of time for many years past.

These statements sound innocent and plausible.  Yet they concealed two theoretical weaknesses that could and did result in untold mischief.  The first of these defects was that they abolished the fundamental distinction between investment and speculation.  The second was that they ignored price of a stock in determining whether or not it was a desirable purchase.

The notion that the desirability of a common stock was entirely independent of its price seems incredibly absurd.  Yet the new-era theory led directly to this thesis.  An alluring corollary of this principle was that making money in the stock market was now the easiest thing in the world.  It was only necessary to buy "good" stocks, regardless of price, and then let nature take her upward course.  The results of such a doctrine could not fail to be tragic.

Graham and Dodd, Securities Analysis 1934 

On value...

No asset is so good that it can't become a bad investment if bought at too high a price.  And there are few assets so bad that they can't be a good investment when bought cheap enough.

Howard Marks, Oaktree


People get in trouble when they forget that in the long run, stocks won't appreciate faster than corporate profits.

Warren Buffett


On Keynesianism...

Keynesianism is like psychoanalysis:  If you feel good and don't use therapy, you are said to be in denial.  If you feel bad and don't use therapy, you are stupid.  If you are on therapy and feel good, that is thanks to therapy.  If you are on therapy and feel bad, then you need more therapy.



Selling Stocks...

At least 10 times the calories are spent analyzing the buy decision in a stock versus the sell decision.  One should have as much of a framework and discipline for selling stocks as for buying them.  there are 5 ways to sell securities:

1.  As soon as you realize you've made a mistake.

2.  Getting tomorrow's prices today.  At times, stocks hit valuations best left for others.

3.  Rebalancing--as a stock gets outsized in a portfolio.  This helps with the initial sale decision.

4.  To make room for a new idea.

5.  When a company's outlook is changing.

Bull Markets...

Bull markets are like sex...they feel best right before the end.

Barton Biggs


Even though markets look their very best when they are setting new highs, that is often the best time to sell.

Paul Tudor Jones


Benjamin Graham

Two insightful and related quotes from one of the greats:


Have the courage of your knowledge and experience.  If you have formed a conclusion from the facts and if your judgment is sound, act on it--even though others may hesitate to differ.  You are neither right nor wrong because the crowd disagrees with you.  You are right because your data and reasoning are right.


In the world of securities, courage becomes the supreme virtue after adequate knowledge and tested judgment are at hand.


-Ben Graham



Anyone out there thinking?

Multitasking is not only not thinking, it impairs your ability to think.  Thinking means concentrating on one thing long enough to develop an idea about it.  Not learning other people's ideas, or memorizing a body of information, however much those sometimes may be useful.  Developing your own ideas.  In short, thinking for yourself.  You simply cannot do that in bursts of 20 seconds at a time, constantly interrupted by Facebook messages or Twitter tweets...

--William Deresiewicz, United States Military Academy speech



The dangers of investing based on "news"...

Traders and investors get into more trouble and make more expensively wrong decisions by following news than for any other reason.  So heavily influenced by the news, the majority get lost in the maze, unable to see what smart money is doing.  News is also important to smart money because they understand the role news plays in the market game, and they can usually act most effectively under the protective cover of news.  They know that news misleads the opposing game player into selling them stocks when the smart money wishes to buy and into buying their stocks when the smart money decides that the time has arrived for distribution.  As a market aid, news is of little or no value in playing the market game successfully.  News is generally for suckers.  It misleads more often than it guides. It creates mistimed fears, which provoke selling at the wrong time and raises hopes, which encourage the buying of stocks at the wrong time.  The reason news has very little relationship to what the market is going to do is simply because the market is moving on tomorrow's news, and the current news is a stale factor to the market.

-Joseph Granville, New Strategy of Daily Stock Market Timing for Maximum Profit, 1976

Poker, investing, and games worth playing...

As a young man, I wanted to become a better poker player.  To that end, I worked hard to learn the odds regarding each hand, and how to detect tells in other players.  At that point, my uncle pulled me aside and doled out some advice -- "Jim, I wouldn't spend any time getting better, I'd spend my time finding weak games."

-Jim Rutt, CEO Network Solutions

So that's how capitalism works...

"The profits of today make the investments of tomorrow that will create the jobs of the day after."

-Helmut Schmidt, former chancellor of Germany, with perhaps the most succinct definition of capitalism out there.  Worth remembering the next time you hear a politician talk about "creating jobs."

On idiosyncratic portfolios...

Establishing and maintaining an unconventional investment portfolio requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom.

-David Swenson, Chief Investment Officer Yale University

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