100 Things I Learned From Investing (51-75)
52. Growth investing only makes sense when it is accompanied by value (and that is rare).
53. Time and time again I’ve found that the bets I put the most money on usually do the best. This supports the idea that diversification for the sake of diversification makes little sense (if any sense at all). If you diversify, do it for the sake of protection from your own ignorance, not to obtain a better investment position.
Or, take it from Munger:
“Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results” – Charlie Munger
54. In #6, found here, I said:
“The psychological benefits of a low-turnover portfolio are greater than the tax benefits.”
But don’t forget that the tax benefits are great, too. Furthermore, empirical research suggests that portfolios with lower turnover perform better.
55. “Return has to be evaluated relative to the amount of risk taken to achieve it” – Howard Marks
(click to tweet the above quote)
56. Having 2 monitors does not improve investment performance (but it does make me feel smarter!).
57. If you aren’t willing to allocate at least 5% of your portfolio to a particular stock, chances are you shouldn’t invest in it at all.
58. The price you paid for a stock is completely irrelevant in making portfolio decisions (other than tax implications). The market doesn’t care what price you paid.
59. Make a decision journal. Record your reasoning behind every transaction you make. Periodically go back and evaluate these decisions.
60. Want to be a good investor? Put in 10,000 hours of deliberate practice. According to Malcom Gladwell (Outliers) and Geoff Calvin (Talent is Overrated), that is what it takes to be a talented outlier.
61. Don’t stagnate. Keep learning and growing. Constantly challenge the analytical systems in your brain and rely less and less on intuition and its evil partner in crime: cognitive ease.
62. Use spreadsheets and understand them. Using stock valuation spreadsheets, like Jae Jun’s Old School Value spreadsheets, is extremely important, but make sure you understand them very well. They should enable you to accomplish more in less time, not replace your brain.
63. Don’t forget about cigar buts. If a business is trading at 50 cents on the dollar then a durable competitive advantage doesn’t matter as much.
64. Watch out for value traps. They do exist. If you settle for a cigar but, it better be dirt cheap.
65. There are 3, easy to memorize, Warren Buffett quotes every investor should never forget:
66. Never forget Warren Buffett’s two rules:
“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” – Warren Buffett
67. “When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” – Warren Buffett
68. Over and over again I’ve found Buffett’s attitude toward wonderful companies to be true:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett
69. Stay within your circle of competence. If you don’t understand the underlying business model and how a business generates cash, how can you decide if the source of cash is sustainable enough?
70. Don’t set any allocation limits for your portfolio. Allocation limits can seriously hinder long-term performance if it prevents your best bets from contributing greatly to your overall returns.
71. Always estimate demand on the conservative side. Over optimistic demand estimates are far too easy to justify and far too common.
72. The greatest opportunities come when investors start acting like sheep. But this doesn’t happen very often, and when it does happen, it’s hard to not end up a sheep along with the rest–so be ready.
73. Always require a margin of safety, but don’t haggle over price when it comes to wonderful companies.
74. Morningstar has exceptional reasoning behind their wide economic moats. Find out more about their 5 sources of wide economic moats in this video of Paul Larson.
75. Have fun investing! Otherwise, you just might drop out at the very moment you should be all in.
Check back next week for the final 25 . . .