Given the significance of the financial crisis that unfolded over the last year, we felt the need to reflect on all that has occurred and to distill our collective experiences into learnings that can be further woven into our institutional DNA. Of course, there was much to process, but when all is said and done, we believe three timeless investing themes-three core values of our firm-were meaningfully reinforced by the meltdown and subsequent rebound.
Lesson #1 - "Invest in what you know." (Peter Lynch)
When the wildly successful and now retired mutual fund manager, Peter Lynch, made the aformentioned statement in the 1980s, an obvious investment strategy was considered novel. Famed investor Warren Buffett has a similar take on this same concept, which he has dubbed the "circle of competence." In Buffett's view, the size of the circle does not matter, only that the lines are well-defined and you know what is in your circle.
Lesson #2 - "The time of maximum pessimism is the best time to buy, and the time of maximum optimisn is the best time to sell." (Sir John Templeton)
Of course, the notion of buying low and selling high is a familiar mantra in the investment world. And yet, behavioral finance shows human nature is clearly at odds with this proven concept. Instead, so many people pile onto stocks when the outlook is rosy, which means the upside is more limited. Conversely, they run for the xits when the news is bad and the upside great. But herein lies the opportunity for the true value investor.
Lesson #3 - "The strongest of all warriors are these two - time and patience." (Leo Tolstoy)
During the lows of the past year, we strongly believed the only way to win the war against the financial crisis was to have the patience to look beyong it. yes, much was unprecedented - like the absence of creidt. But to our view, the basic rules of investing remain unchanged. We assumed credit would one day be available again, the recession would eventually end, consumer confidence would inevitably rebound and the market would rise once more. The fact that we did not know when any of these things would occur was irrelavant because our assumption was that we had the time and the patience to wait.
Read the complete shareholder letter
Lesson #1 - "Invest in what you know." (Peter Lynch)
When the wildly successful and now retired mutual fund manager, Peter Lynch, made the aformentioned statement in the 1980s, an obvious investment strategy was considered novel. Famed investor Warren Buffett has a similar take on this same concept, which he has dubbed the "circle of competence." In Buffett's view, the size of the circle does not matter, only that the lines are well-defined and you know what is in your circle.
Lesson #2 - "The time of maximum pessimism is the best time to buy, and the time of maximum optimisn is the best time to sell." (Sir John Templeton)
Of course, the notion of buying low and selling high is a familiar mantra in the investment world. And yet, behavioral finance shows human nature is clearly at odds with this proven concept. Instead, so many people pile onto stocks when the outlook is rosy, which means the upside is more limited. Conversely, they run for the xits when the news is bad and the upside great. But herein lies the opportunity for the true value investor.
Lesson #3 - "The strongest of all warriors are these two - time and patience." (Leo Tolstoy)
During the lows of the past year, we strongly believed the only way to win the war against the financial crisis was to have the patience to look beyong it. yes, much was unprecedented - like the absence of creidt. But to our view, the basic rules of investing remain unchanged. We assumed credit would one day be available again, the recession would eventually end, consumer confidence would inevitably rebound and the market would rise once more. The fact that we did not know when any of these things would occur was irrelavant because our assumption was that we had the time and the patience to wait.
Read the complete shareholder letter
