I. Caveat Emptor
Caveat emptor means "buyer beware."
If you have ever bought a used car... or bought a house "as is"... then you know the true meaning of this phrase. Many transactions involve hidden risks. It is up to the buyer to suss them out.
The irony is that, as Jesse Livermore pointed out 100 years ago, many investors pay more attention to the risk factors in "the purchase of a medium-sized automobile" than they do in their selection of stocks.
There is something hypnotizing about the stock market -- the bells and whistles, the flashing lights -- that transforms a mentality of "buyer beware" to "buyer doesn't care."
Remember this the next time you hear some mutual fund analyst extolling the virtues of his favorite pick on CNBC (which he may be underwater on).
II. Cui Bono?
Cui bono? means "to whose benefit?" Or more literally: "as a benefit to whom?"
The phrase is attributed to Roman consul Lucius Cassius Longinus Ravilla, who held the habit of asking "To whose benefit?" in his capacity as a judge.
You must always ask cui bono when weighing the judgements and pronouncements of the day.
For example: Given that the Federal Reserve was dreamed up by bankers... and designed to serve the money center banks... and sends its alumni off to lucrative positions with the banks... it is no surprise that the Fed's actions always benefit the banks first and foremost (with the needs of the nation an afterthought).
Through this lens many of the strange, even seemingly bizarre actions of CEOs and politicians start to make sense...
III. Ubi Est Mea?
Chicago's official Latin motto is Urbs in Horto: "City in a Garden."
But given the Windy City's long history of rough and tumble politics, Mike Royko -- a late great Chicago newspaperman -- coined the Windy City's unofficial (and far more accurate) motto: Ubi est mea? This translates as "Where's mine?"
Corporate executives, government officials and the like do not have your interests first, no matter what they say.
Think of the recent Facebook IPO. Many complained that Wall Street badly mishandled this. But in truth they handled it perfectly -- not for the public, but the investment bankers collecting a huge swathe of fees for bringing the shares to market.
IV. Memento Mori
This means "remember your mortality."
As legend has it, the phrase dates back to a conquering Roman general. As the general enjoyed Rome's equivalent of a ticker-tape parade, a slave was tasked with standing behind him, whispering "memento mori" into his ear.
The goal was to keep the general from getting too big a head... and possibly losing it in his next battle (because of lack of humility and lack of respect for risk).
This applies to investing on two counts.
First, investment portfolios -- whether bread-box sized or fortune sized -- are mortal. They can disappear in the blink of an eye, as a result of bad decision making. For this reason, we must always strive to protect and preserve our wealth (just as we do our health).
Second, great investments are also mortal. There is no company, no business model, no common stock that is guaranteed to produce profits forever.
Although the ideal holding time for an investment is years or even decades, we must remember our best ideas are mortal too... and not stay overlong when the parting day comes.
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