Reblog: A Real Life Example of the Philip Fisher Scuttlebutt Approach


One of the greatest investors of all time, a man named Philip Fisher, developed a famous approach to investing research known as the “scuttlebutt”. He said that there was a lot of knowledge about a company that could give insight into its investment merits if the investor could merely find it out and synthesize it into a somewhat accurate and cohesive view of an entire corporation. Peter Lynch, arguably the greatest mutual fund manager in history, engaged in this when he was jumping on beds at La Quinta and driving around town checking out a new food chain known as Dunkin’ Donuts.

My husband and I drove quite a distance to check out some companies that had finally hit our “severely undervalued” targets after years and years of watching the stocks. One of the firms happened to be a confectioner. We spent the day speaking with a small business owner who had extensive experience with this particular company and bought more than $500 worth of products to take back to our office, have analyzed, and compare to the other manufacturers in the industry. We learned a great deal about the business that is common knowledge to those who work in the sector but you can’t necessarily glean from the regulatory filings such as the 10-Kand annual report.

For instance, there appears to be a struggle at headquarters between two factions: Those who want to dilute this particular brand and sell it through mass distributions outlets and those who want to keep it a premium product sold through a chain of heavily-controlled storefronts.

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Reblog: The Individual Investor’s Edge


“The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.” — Warren Buffett, 2013 Letter to Berkshire Hathaway shareholders

As Albert Einstein wisely stated, compound interest is the eighth wonder of the world:  He who understands it earns it while he who doesn’t pay it.  The vast majority of individuals who take the initiative to accumulate savings should follow Warren Buffett’s advice on using index funds and dollar cost averaging to achieve satisfactory returns over time.  For those earning at or above the median wage in the United States, it would be very difficult to end up poor if one simply saves ten to fifteen percent of gross income and dollar cost averages into the S&P 500 over several decades.

But what about non-professional individual investors who want to achieve better than average results?  In the short run, the stock market resembles a manic-depressive character who bids up prices one day and sends them down the following day without much of a reason for the change in sentiment.  Benjamin Graham’s “Mr. Market” character perfectly personifies the psychology of financial markets in the short run.

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Repost: How not to fail in stock markets – 11 lessons from Rakesh Jhunjhunwala


Rakesh Jhunjhunwala is widely referred to as the Indian Warren Buffett. The investment maestro is very popular for picking up stocks that could turn into multibaggers, based on his own study of fundamentals and research models. Rakesh Jhunjhunwala is a Chartered Accountant by qualification and a trader by profession.

With the stock markets on fire of late, many investors who could not invest before the bull run began must be wondering if they have missed the rally, for the benchmark indices Sensex and Nifty have already returned about 20% each so far this year. But worry they must not, for, here we take a look at 11 key lessons on the stock market from the big bull investor himself, which may help investors to stop failing in the stock markets, cut losses, and turn profits.

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Reblog – Confirmation Bias: Can trading psychology affect investment?


We’re all susceptible to confirmation bias – paying more attention to our own preferred data and largely ignoring contradictory evidence. For investors, this psychological blind-spot can be very costly.

In every-day life, we like to think that our decisions are logical, rational and objective but often they are anything but.

Balanced analysis frequently goes AWOL as our pre-conceived beliefs take over. Let’s take a General Election as an illustration of this point.

Voters often seek positive news that shows their favoured candidates in a glowing light while paying scant attention to information that casts the opposing candidate in a good light.

Objectivity

If their existing belief is that their party is always strongest on say, maintaining law and order, they may place greater emphasis on campaign speeches reinforcing this claim than independent figures showing cuts in police or army numbers.

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Reblog: 5 Books That Inspired Warren Buffett


An interesting vlog that appears on inc.com. It speaks of the 5 books that inspired Warrent Buffet. The link to the video is here.

The names of the 5 books are here:

The Intelligent Investor – Benjamin Graham

Common Stocks and Uncommon Profits – Philip A. Fisher

Business Adventures 12 Classic Tales from the World of Wall Street – John Brooks

Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger

Outsider – Thorndike


Reblog: The 27 Most Important Finance Books Ever Written


“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none,” Charlie Munger, the vice chairman at Berkshire Hathaway, once said.

With that in mind, we’ve highlighted 27 classic works that every Wall Streeter should read.

Many of these books show up time and again in lists of books recommended by the pros themselves.

Topics covered include everything from the most important principles of investing to inside stories of the worst financial crises in modern history.

1. “The Intelligent Investor” by Benjamin Graham

“The greatest investment advisor of the twentieth century, Benjamin Graham, taught and inspired people worldwide. Graham’s philosophy of “value investing” — which shields investors from substantial error and teaches them to develop long-term strategies — has made The Intelligent Investor the stock market bible ever since its original publication in 1949.”

2. “Common Stocks and Uncommon Profits” by Philip Fisher

“Widely respected and admired, Philip Fisher is among the most influential investors of all time. His investment philosophies, introduced almost forty years ago, are not only studied and applied by today’s financiers and investors, but are also regarded by many as gospel. This book is invaluable reading and has been since it was first published in 1958.”

3. “The Theory of Investment Value” by John Burr Williams

“This book was first printed in 1938, having been written as a Ph.D. thesis at Harvard in 1937. Our good friend, Peter Bernstein mentioned this book several times in his excellent Capital Ideas which was published in 1992. Why the book is interesting today is that it still is important and the most authoritative work on how to value financial assets. As Peter says: ‘Williams combined original theoretical concepts with enlightening and entertaining commentary based on his own experiences in the rough-and-tumble world of investment.’

“Williams’ discovery was to project an estimate that offers intrinsic value and it is called the ‘Dividend Discount Model’ which is still used today by professional investors on the institutional side of markets.”

4. “Irrational Exuberance” by Robert Shiller

“As Robert Shiller’s new 2009 preface to his prescient classic on behavioral economics and market volatility asserts, the irrational exuberance of the stock and housing markets “has been ended by an economic crisis of a magnitude not seen since the Great Depression of the 1930s.

“As we all, ordinary Americans and professional investors alike, crawl from the wreckage of our heedless bubble economy, the shrewd insights and sober warnings, and hard facts that Shiller marshals in this book are more invaluable than ever.”

5. “One Up on Wall Street” by Peter Lynch

“America’s most successful money manager tells how average investors can beat the pros by using what they know. According to Lynch, investment opportunities are everywhere. From the supermarket to the workplace, we encounter products and services all day long. By paying attention to the best ones, we can find companies in which to invest before the professional analysts discover them. When investors get in early, they can find the ‘tenbaggers,’ the stocks that appreciate tenfold from the initial investment. A few tenbaggers will turn an average stock portfolio into a star performer.”

6. “Against the Gods” by Peter Bernstein

“In this unique exploration of the role of risk in our society, Peter Bernstein argues that the notion of bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Against the Gods chronicles the remarkable intellectual adventure that liberated humanity from oracles and soothsayers by means of the powerful tools of risk management that are available to us today.”

7. “Reminiscences of a Stock Operator” by Edwin Lefevre

“First published in 1923, Reminiscences of a Stock Operator is the most widely read, highly recommended investment book ever. Generations of readers have found that it has more to teach them about markets and people than years of experience. This is a timeless tale that will enrich your life—and your portfolio.”

8. “The Alchemy of Finance” by George Soros

“George Soros is unquestionably one of the most powerful and profitable investors in the world today. Dubbed by BusinessWeek as “the Man who Moves Markets,” Soros made a fortune competing with the British pound and remains active today in the global financial community.

“Now, in this special edition of the classic investment book, The Alchemy of Finance, Soros presents a theoretical and practical account of current financial trends and a new paradigm by which to understand the financial market today. This edition’s expanded and revised Introduction details Soros’s innovative investment practices along with his views of the world and world order.”

9. “Security Analysis” by Benjamin Graham and David Dodd

“First published in 1934, Security Analysis is one of the most influential financial books ever written. Selling more than one million copies through five editions, it has provided generations of investors with the timeless value investing philosophy and techniques of Benjamin Graham and David L. Dodd.

“As relevant today as when they first appeared nearly 75 years ago, the teachings of Benjamin Graham, “the father of value investing,” have withstood the test of time across a wide diversity of market conditions, countries, and asset classes.”

10. “The Handbook of Fixed Income Securities” by Frank J. Fabozzi

“For decades, The Handbook of Fixed Income Securities has been the most trusted resource in the world for fixed income investing. Since the publication of the last edition, however, the financial markets have experienced major upheavals, introducing dramatic new opportunities and risks.

“This completely revised and expanded eighth edition contains 31 new chapters that bring you up to date on the latest products, analytical tools, methodologies, and strategies for identifying and capitalizing on the potential of the fixed income securities market in order to enhance returns.”

11. “Damodaran on Valuation” by Aswath Damodaran

“In order to be a successful CEO, corporate strategist, or analyst, understanding the valuation process is a necessity. The second edition of Damodaran on Valuation stands out as the most reliable book for answering many of today’s critical valuation questions. Completely revised and updated, this edition is the ideal book on valuation for CEOs and corporate strategists. You’ll gain an understanding of the vitality of today’s valuation models and develop the acumen needed for the most complex and subtle valuation scenarios you will face.”

12. “Common Sense on Mutual Funds” by John Bogle

“Since the first edition of Common Sense on Mutual Funds was published in 1999, much has changed, and no one is more aware of this than mutual fund pioneer John Bogle. Now, in this completely updated Second Edition, Bogle returns to take another critical look at the mutual fund industry and help investors navigate their way through the staggering array of investment alternatives that are available to them.

“Written in a straightforward and accessible style, this reliable resource examines the fundamentals of mutual fund investing in today’s turbulent market environment and offers timeless advice in building an investment portfolio. Along the way, Bogle shows you how simplicity and common sense invariably trump costly complexity, and how a low cost, broadly diversified portfolio is virtually assured of outperforming the vast majority of Wall Street professionals over the long-term.”

13. “Thinking Fast and Slow” by Daniel Kahneman

“In the international bestseller, Thinking, Fast and Slow, Daniel Kahneman, the renowned psychologist and winner of the Nobel Prize in Economics, takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical.

“The impact of overconfidence on corporate strategies, the difficulties of predicting what will make us happy in the future, the profound effect of cognitive biases on everything from playing the stock market to planning our next vacation―each of these can be understood only by knowing how the two systems shape our judgments and decisions.”

14. “A Random Walk Down Wall Street” by Burton Malkiel

“Especially in the wake of the financial meltdown, readers will hunger for Burton G. Malkiel’s reassuring, authoritative, gimmick-free, and perennially best-selling guide to investing. With 1.5 million copies sold, A Random Walk Down Wall Street has long been established as the first book to purchase when starting a portfolio. In addition to covering the full range of investment opportunities, the book features new material on the Great Recession and the global credit crisis as well as an increased focus on the long-term potential of emerging markets.

“With a new supplement that tackles the increasingly complex world of derivatives, along with the book’s classic life-cycle guide to investing, A Random Walk Down Wall Street remains the best investment guide money can buy.”

15. “The Essays of Warren Buffett” by Warren Buffett

“By arranging Buffett’s lengthy writings thematically, Cunningham’s classic book makes clear and coherent the principles and logic of Buffett’s philosophy of business, investing and life. When first published in 1997, many knew Buffett’s writings were gems, but this book’s novelty was to lay out exact principles and their relationship to each other.

“The central discovery is that the philosophy pivots around one core concept: the vast difference between price and value. From that core radiate the other themes that the book’s arrangement clarifies. The Essays of Warren Buffett is a unique book that takes the raw material of Buffett’s 700+ pages of letters and renders them into a finely-woven 270-page narrative, fulfilling Buffett’s hope that Cunningham would “popularize” his writings.”

16. “Extraordinary Popular Delusions and the Madness of Crowds” by Charles Mackay

“This classic survey of crowd psychology takes an illuminating, entertaining look at three historic swindles: “The Mississippi Scheme,” “The South-Sea Bubble,” and “Tulipomania.” Fired by greed and fed by naïveté, these stratagems gone awry offer essential reading for investors as well as students of history, psychology, and human nature.”

17. “Manias, Panics, And Crashes” by Charles P. Kindleberger

“This highly anticipated sixth edition has been revised to include an in-depth analysis of the first global crisis of the twenty-first century. Providing a scholarly and entertaining account of such topics as the history of crises, speculative manias and Lehman Brothers, this book has been hailed as ‘a true classic…both timely and timeless.'”

18. “Barbarians at the Gate” by Bryan Burrough and John Helyar

“A #1 New York Times bestseller and arguably the best business narrative ever written, Barbarians at the Gate is the classic account of the fall of RJR Nabisco. An enduring masterpiece of investigative journalism by Bryan Burrough and John Helyar, it includes a new afterword by the authors that brings this remarkable story of greed and double-dealings up to date twenty years after the famed deal.

“The Los Angeles Times calls Barbarians at the Gate, “Superlative.” The Chicago Tribune raves, “It’s hard to imagine a better story…and it’s hard to imagine a better account.”And in an era of spectacular business crashes and federal bailouts, it still stands as a valuable cautionary tale that must be heeded.”

19. “The Courage to Act: A Memoir of a Crisis and its Aftermath” by Ben Bernanke

“Working with two US presidents, and under fire from a fractious Congress and a public incensed by behavior on Wall Street, the Fed ― alongside colleagues in the Treasury Department ― successfully stabilized a teetering financial system. With creativity and decisiveness, they prevented an economic collapse of unimaginable scale and went on to craft the unorthodox programs that would help revive the U.S. economy and become the model for other countries.

“Rich with detail of the decision-making process in Washington and indelible portraits of the major players, The Courage to Act recounts and explains the worst financial crisis and economic slump in America since the Great Depression, providing an insider’s account of the policy response.”

20. “The Little Book of Behavioural Investing” by James Montier

“Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns. Behavioral finance, which recognizes that there is a psychological element to all investor decision-making, can help you overcome this obstacle.

“In The Little Book of Behavioral Investing, expert James Montier takes you through some of the most important behavioral challenges faced by investors. Montier reveals the most common psychological barriers, clearly showing how emotion, overconfidence, and a multitude of other behavioral traits, can affect investment decision-making.”

21. “Too Big to Fail” by Andrew Ross Sorkin

“In one of the most gripping financial narratives in decades, Andrew Ross Sorkin — a New York Times columnist and one of the country’s most respected financial reporters — delivers the first definitive blow- by-blow account of the epochal economic crisis that brought the world to the brink.

“Through unprecedented access to the players involved, he re-creates all the drama and turmoil of these turbulent days, revealing never-before-disclosed details and recounting how, motivated as often by ego and greed as by fear and self-preservation, the most powerful men and women in finance and politics decided the fate of the world’s economy.”

22. “When Genius Failed” by Roger Lowenstein

“In this business classic — now with a new Afterword in which the author draws parallels to the recent financial crisis — Roger Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the fund made and lost its money but also how the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the culture of Wall Street itself contributed to both their rise and their fall.”

23. “Liar’s Poker” by Michael Lewis

“The time was the 1980s. The place was Wall Street. The game was called Liar’s Poker. Michael Lewis was fresh out of Princeton and the London School of Economics when he landed a job at Salomon Brothers, one of Wall Street’s premier investment firms. During the next three years, Lewis rose from callow trainee to bond salesman, raking in millions for the firm and cashing in on a modern-day gold rush. Liar’s Poker is the culmination of those heady, frenzied years—a behind-the-scenes look at a unique and turbulent time in American business.

“From the frat-boy camaraderie of the forty-first-floor trading room to the killer instinct that made ambitious young men gamble everything on a high-stakes game of bluffing and deception, here is Michael Lewis’s knowing and hilarious insider’s account of an unprecedented era of greed, gluttony, and outrageous fortune.”

24. “Stocks For The Long Run” by Jeremy Siegel

“Much has changed since the last edition of Stocks for the Long Run. The financial crisis, the deepest bear market since the Great Depression, and the continued growth of the emerging markets are just some of the contingencies directly affecting every portfolio in the world.

“To help you navigate markets and make the best investment decisions, Jeremy Siegel has updated his bestselling guide to stock market investing.

“This new edition of Stocks for the Long Run answers all the important questions of today: How did the crisis alter the fi nancial markets and the future of stock returns? What are the sources of long-term economic growth? How does the Fed really impact investing decisions? Should you hedge against currency instability?”

25. “Black Swan” by Nassim Nicholas Taleb

“A black swan is an event, positive or negative, that is deemed improbable yet causes massive consequences. In this groundbreaking and prophetic book, Taleb shows in a playful way that Black Swan events explain almost everything about our world, and yet we—especially the experts—are blind to them. In this second edition, Taleb has added a new essay, On Robustness and Fragility, which offers tools to navigate and exploit a Black Swan world.”

26. “Den of Thieves” by James B. Stewart

“A #1 bestseller from coast to coast, Den of Thieves tells the full story of the insider-trading scandal that nearly destroyed Wall Street, the men who pulled it off, and the chase that finally brought them to justice.

“Pulitzer Prize–winner James B. Stewart shows for the first time how four of the eighties’ biggest names on Wall Street—Michael Milken, Ivan Boesky, Martin Siegel, and Dennis Levine —created the greatest insider-trading ring in financial history and almost walked away with billions, until a team of downtrodden detectives triumphed over some of America’s most expensive lawyers to bring this powerful quartet to justice.”

27. “The Fix: How Bankers Lied, Cheated and Colluded to Rig the World’s Most Important Number” by Liam Vaughan and Gavin Finch

“In the midst of the financial crisis, Tom Hayes and his network of traders and brokers from Wall Street’s leading firms set to work engineering the biggest financial conspiracy ever seen. As the rest of the world burned, they came together on secret chat rooms and late night phone calls to hatch an audacious plan to rig Libor, the ‘world’s most important number’ and the basis for $350 trillion of securities from mortgages to loans to derivatives. Without the persistence of a rag-tag team of investigators from the U.S., they would have got away with it.”

This story originally appeared on time.com and is available here.


Reblog: 10 Best Investing Books for Beginners


Generally, the most successful people in the world are also voracious readers. This is also true of the most successful value investors.

Both Warren Buffett (who used to read 1,000 pages a day when he was starting out) and Charlie Munger (who often advises young investors to “develop into a lifelong self-learners through voracious reading”) credit their habit of reading as a major contributor to their success. Ben Graham was an even more prolific reader than his successors – he would often quote the Latin and Greek classics and once translated a Spanish novel into English.

I also come across a lot of queries from many of our blog readers about books to read to understand investing better. So, here is an effort to collate a list of 10 such books which I feel is a must read for all investors.

#1 THE INTELLIGENT INVESTOR: THE DEFINITIVE BOOK ON VALUE INVESTING – BY BENJAMIN GRAHAM

The Intelligent Investor by Benjamin Graham

If you only ever read one investment book, then let it be The Intelligent Investor by Benjamin Graham. There’s a reason why Graham is called the “Godfather of Value Investing.” Benjamin Graham was probably the most influential investing figure of the 20th century, and The Intelligent Investor is probably the most influential investment book of all time. The Intelligent Investor is the value investor’s bible… keep this one on you always.

#2 THE ESSAYS OF WARREN BUFFETT: LESSONS FOR CORPORATE AMERICA – BY LAWRENCE CUNNINGHAM (EDITOR), WARREN BUFFETT

If The Intelligent Investor is the value investor’s bible, then The Essays of Warren Buffett are the value investor’s New Testament. Warren Buffett has been writing essays about investing and business for 50 years, and his genius – combined with his down-to-earth charm and clear prose – makes him perhaps one of the greatest educators as well as one of the greatest investors to have ever lived. Many of these essays can be found for free online, but The Essays of Warren Buffett by Lawrence Cunningham brings them all together under one roof.

#3 VALUE INVESTING: FROM GRAHAM TO BUFFETT AND BEYOND – BY BRUCE GREENWALD, JUDE KAHN, PAUL SONKIN, & MICHAEL VAN BIEMA

 Bruce Greenwald is the Robert Heilbrunn Professor of Finance and Asset Management at Columbia University and is one of the leading authorities on value investing. This book gives the most comprehensive overview of value investing of any investment book I’ve read, covering general techniques of value investing as well as profiles of successful value investors such as Warren Buffett and Mario Gabelli.

#4 STOCKS FOR THE LONG RUN: THE DEFINITIVE GUIDE TO FINANCIAL MARKET RETURNS & LONG-TERM INVESTMENT STRATEGIES – BY JEREMY SIEGEL

Jeremy Siegel‘s nickname is the “Wizard of Wharton” (he’s been teaching there for 45 years). His investment book Stocks for the Long Run is sometimes called “the buy and hold Bible.” The book makes the convincing argument that – after you account for inflation – equities are actually the safest investment in the long run, proving the point that most people should be long-term, passive investors in the stock market.

#5 THE LITTLE BOOK OF COMMON SENSE INVESTING: THE ONLY WAY TO GUARANTEE YOUR FAIR SHARE OF STOCK MARKET RETURNS – BY JOHN C. BOGLE

Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game. John C. (“Jack”) Bogle is the founder of the Vanguard Group and creator of the world’s first index fund, and The Little Book of Common Sense Investing is a top recommendation of Warren Buffett’s. There’s actually a funny story that when Jack Bogle first met Warren Buffett, Jack recognized Warren, went up and introduced himself, and he said to Warren, “you know the thing I really like about you is you have rumpled suits just the same as I do” – and Jack and Warren have been good friends ever since.

#6 BUFFETTOLOGY: THE PREVIOUSLY UNEXPLAINED TECHNIQUES THAT HAVE MADE WARREN BUFFETT THE WORLD’S MOST FAMOUS INVESTOR – BY MARY BUFFETT & DAVID CLARK

Mary Buffett is Warren Buffett’s former daughter-in-law and her book Buffettology provides a good introduction to Warren Buffett’s investment approach. The book offers profiles and analysis of 54 “Buffett companies.” Read it for the qualitative discussion of Buffett’s investment style, and skim the mathematical chapters (which I didn’t find to be as useful).

#7 ONE UP ON WALL STREET: HOW TO USE WHAT YOU ALREADY KNOW TO MAKE MONEY IN THE MARKET – BY PETER LYNCH

Peter Lynch is one of the most successful investors ever – from 1997 to 1990, his Magellan Fund averaged a 29.2% compound annual return. In One Up on Wall Street, Peter Lynch explains how average investors can beat the pros by using what they know. According to Lynch, investment opportunities are everywhere: from the supermarket to the workplace, we encounter products and services all day long. By paying attention to the best ones, we can find companies in which to invest before the professional analysts discover them.

#8 COMPETITIVE STRATEGY: TECHNIQUES FOR ANALYZING INDUSTRIES AND COMPETITORS – BY MICHAEL PORTER

Studying Michael Porter is one of the first things you do in business school. Competitive Strategy by Michael Porter has transformed the theory, practice, and teaching of business strategy throughout the world. This book introduces Porter’s 5 Forces to help investors analyse industry attractiveness, as well as the 3 forms of a company’s strategy – low cost, differentiation, and focus.

 

 

#9 – THE ASCENT OF MONEY: A FINANCIAL HISTORY OF THE WORLD – BY NIALL FERGUSON

Niall Ferguson follows the money to tell the human story behind the evolution of our financial system, from its genesis in ancient Mesopotamia to the latest upheavals on what he calls Planet Finance. What’s more, Ferguson reveals financial history as the essential backstory behind all history, arguing that the evolution of credit and debt was as important as any technological innovation in the rise of civilisation. This is a great overview of all things money and a nice introduction to the world of finance.

#10 THINKING, FAST AND SLOW – BY DANIEL KAHNEMAN

Daniel Kahneman is a professor of behavioural & cognitive psychology at Princeton, winner of the 2002 Nobel Prize for economics, and author of the best-selling book on cognitive biases and heuristics: Thinking Fast & Slow. This book explains the natural biases that affect our judgment in everyday life, as well as in investing. If you want to be a great investor, then it’s critical to be aware of the biases and tendencies. This is a fascinating book, and Kahneman himself is actually the subject of Michael Lewis’s next book The Undoing Project.

The original article is written by Mastermind, Megabaggers and appears here.

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Reblog: The Agony of High Returns


Even with a time machine, a lot of people wouldn’t want to own the best-performing stocks.

Monster Beverage (NASDAQ: MNST) was the best-performing stock from 1995 to 2015. It increased 105,000%, turning $10,000 into more than $10 million.

But this isn’t a retrospective about how you should wish you owned Monster stock. It’s almost the opposite.

The truth is that Monster has been a gut-wrenching nightmare to own over the last 20 years. It traded below its previous all-time high on 94% of days during that period. On average, its stock was 26% below its high of the previous two years. It suffered four separate drops of 50% or more. It lost more than two-thirds of its value twice, and more than three-quarters once.

That’s how the stock market works.

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Reblog: Beyond Buffett: How To Build Wealth Copying 9 Other Value Stock Pickers


Santa knocks on all our doors not once, but four times a year. During his off-season, he reliably shows up bearing profitable gifts on February 14th, May 15th, August 14th and November 14th. These are the deadlines for 13-F filings with the SEC.

The “13-F” is a quarterly disclosure required of all individuals and entities who have $100 million or more invested in US equity markets. The 13-F is due within 45 days of quarter-end and lists the updated stock positions of the managers. These filings are publicly available at no charge to anyone. Websites like Dataroma make it a breeze to track the picks of various value investors. There is such a thing as a free lunch.

Non-believers will complain that buying these picks after a multi-month delay simply can’t work because markets are too efficient. Well… not so fast. A 2008 study by Professors Gerald Martin and John Puthenpurackal entitled, Imitation is the Sincerest Form of Flattery, cloned Berkshire Hathaway’s equity portfolio between 1976 and 2006 by investing in the positions with a substantial delay. Their cloned portfolio always bought (or sold) on the last trading day of the month that it was publicly disclosed that Buffett had bought a new stock or lightened up on an existing one.

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Reblog: Diversification Or Concentration? Quotes From Some Of The Best Investors


“There is one other rule you ought to keep in mind and that is to concentrate, and not only in the Zen sense. Sweet are the uses of diversity, but only if you want to end up in the middle of an average”  Adam Smith, the Money Game 1968

“Statistical analysis shows that security-specific risk is adequately diversified after 14 names in different industries, and the incremental benefit of each additional holding is negligible. We own 18-22 companies to allow us to be amply diversified but have the flexibility to overweight a name or own more than one business within an industry.” Mason Hawkins

“Empirical testing has proved beyond a reasonable doubt that the “riskiness” of a portfolio of 12-15 diverse companies is little greater than one loaded with a hundred or more” Frank Martin

“If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into a seventh one instead of putting more money into your first one is gotta be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich with their best idea. So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty, and I probably have half of what I like best. I don‘t diversify personally. ” Warren Buffett

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