“The problem is that extraordinary performance comes only from correct nonconsensus forecasts, but nonconsensus forecasts are hard to make, hard to make correctly and hard to act on.” – Howard Marks2. Fundamental analysis can be learned, and it is indeed difficult, but good temperament is what separates the best investors from the pack.
3. Daniel Kahneman’s work on heuristics and biases (read: Thinking Fast and Slow) serves as the foundation of solid investor temperament and behavioral finance.
4. Warren Buffett reads for hours every day, and so should you.
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.” – Charlie Munger5. There is no easy road. The moment you believe the road is easy is the moment you put yourself at great risk.
6. The psychological benefits of a low turnover portfolio are greater than the tax benefits.
7. An investment framework is necessary for successful investing.
8. The investment framework should not be law–but rather principles through which ideas and decisions should be filtered.
9. Read Charlie Munger to be a better decision maker.
10. Read Howard Marks to understand risk like never before.
11. Warren Buffett’s biography, Warren Buffett and the Business of Life, is a must-read for every investor.
12. Downside protection is the most important characteristic in any investment. As Jae Jun once told me in an interview:
“Make sure the downside is protected and then the upside will take care of itself.” – Jae Jun(click to tweet the above quote)
13. Another thing Jae Jun told me:
“There is no such thing as getting rich quick. Fall in love with the process and journey, not the money.” – Jae Jun14. What the stock’s price was yesterday doesn’t matter.
15. It’s one thing to say you’re a contrarian investor. It’s quite another thing to actually be a contrarian consistently.
16. You don’t have to be right more often than you are wrong to be a successful investor. What matters is the magnitude of your correctness (more on this topic here).
17. Good management means nothing if the business model is weak.
18. Find out where the cash is coming from and ensure that its source is sustainable.
19. Margin holds your cash hostage and forces you to miss out on great opportunities.
20. Ultimately, investor success over the long haul is determined by how well the investor manages risk.
21. Risk control is everything. One big mistake can wipe out years of work.
“The road to long-term investment success runs through risk control more than through aggressiveness. Over a full career, most investors’ results will be determined more by how many losers they have, and how bad they are, than by the greatness of their winners. Skilled risk control is the mark of the superior investor” – Howard Marks22. Keep a journal to record your investment decisions. Evaluate yourself based on your process of arriving at those decisions, not based on the outcomes.
23. Get away from the news. How can you hear the signal without tuning out the noise?
24. Sometimes no action is the best action, or as Munger refers to such a task: embrace some good ole’ “assiduity”.
25. Read widely. Knowledge of a wide range of topics is more helpful for investors than expertise in one subject.
To be continued next week..