“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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The benchmark indices on Friday extended losses to end lower as global markets dipped after the United States launched cruise missiles against an airbase in Syria, while back home expectations of no further rate cuts this year by Reserve Bank of India (RBI) also impacted the sentiment.
The S&P BSE Sensex ended at 29,706, down 221 points, while the broader Nifty50 settled at 9,198, down 64 points.
In the broader market, the S&P BSE Midcap and the S&P BSE Smallcap indices pared all intraday gains to end 0.3% and 0.5% lower.
The breadth, indicating the overall health of the market, turned negative. On the BSE, 1,620 shares declined and 1,293 shares rose. A total of 129 shares were unchanged.
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In this interview, Kim Shannon, CFA, president of Sionna Investment Managers, talks with legendary investor Charles H. Brandes, CFA, chairman of Brandes Investment Partners, L.P., about his 40 years of unwavering global value investing. In addition to key lessons on implementing a value investing philosophy, Brandes discusses the current market environment and investment opportunities.
Here’s an excerpt from the Brandes interview on the CFA Institute website:
Kim Shannon, CFA: I would like to begin by noting that you did not start your career on the buy side. Is there a story about your career transitions?
Charles H. Brandes, CFA: Well, it was somewhat serendipitous. The overall stock market was down 45% from top to bottom in 1970, which was understandably debilitating to investors, and there was very little activity in our office. An older gentleman walked in to open an account. When he told me his name, I knew who he was—Benjamin Graham, the father of value investing and a teacher of Warren Buffett, who had already done pretty well in investing.
He purchased a thousand shares of National Presto Industries, a company that had been an example in his most recent edition of The Intelligent Investor. The example had been of a net–net current asset value issue, which had been one of Graham’s famous criteria from the 1930s for investing. The goal was to buy companies at a price no higher than two-thirds of their net–net current assets. Thus, the investor gets the whole company at a cost below that of its net liquid assets.
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Lately, I’ve been interested in innocent evil, the evil that results from perfectly innocent choices people make. Moral philosophers generally fall into one of two camps, intentionalist, and consequentialist. Intentionalists argue that you have to judge moral behaviour based on intentions because we can’t predict the consequences of our actions. Consequentialists argue that you have to judge moral behaviour based on consequences because they’re what matters.
Innocent evil is, therefore, moral philosophy’s hardest problem. People with the moral intentions yielding immoral consequences.
A friend asks, isn’t innocent evil just another name for unintended consequences? That got me thinking that the innocent evil that interests me is typically the result of people not paying attention to the potential for unintended consequences, which got me thinking about compiling a list of laws of unintended consequences.
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The benchmark Nifty50 pared all its initial losses to settle the first day of the April F&O series flat as investors booked profits in recent outperformers.
However, the index along with S&P BSE Sensex logged their third straight month of gains fuelled by Bhartiya Janta Party (BJP)’s crucial victory in Uttar Pradesh and big foreign inflows in the markets to the tune of over Rs 30,000 crore so far this month.
The S&P BSE Sensex ended at 29,620, down 27 points, while the broader Nifty50 remained unchanged at 9,173. The last time the 50-share index closed unchanged on October 27, 2016 at 8615.25 level.
The broader market outperformed with the S&P BSE Midcap (up 0.8%) and S&P BSE Smallcap (up 0.7%) hitting their fresh lifetime highs for the second day in a row.
The market breadth, indicating the overall health of the market, was strong. On BSE, 1,620 shares rose and 1,121 shares fell. A total of 232 shares were unchanged.
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In August, I mentioned that I had chosen the title “Political Reality” for my memo in part because of my liking for oxymorons. I classed that title with other internally contradictory statements, such as “jumbo shrimp” and “common sense.” Now I’m going to discuss one more: “expert opinion.”
This memo was inspired by a thought that popped into my head when the outcome of the election settled in. You may point out that at the end of my November 14 memo “Go Figure!,” I said I wouldn’t write any more about politics. True, but I didn’t say I wouldn’t think about politics. Anyway, this memo isn’t about politics, it’s about opinions.
Last spring I attended a dinner where one of Hillary Clinton’s senior advisers was soliciting input, as she and her campaign were struggling to come up with an effective counter to Bernie Sanders’s populist message. Most of those present expressed frustration on the subject, until an experienced, connected Democrat assured everyone, “Don’t worry. She’ll win. The math is irresistible.” The Hillary supporters were relieved, and he turned out to be right: she won the nomination going away.
In late October, with the issue of Clinton’s private email server and the FBI’s new investigation further dogging her, that same seasoned Democrat was asked whether the election was in jeopardy. “Don’t worry,” he said. “She’ll win. The math is irresistible.” We all know the result.
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It’s better to sell when there is a deterioration in business fundamentals. Here are four triggers:
Most investment writing revolves around telling investors what to buy. But selling a stock at the right time is equally important. Many investors base their sell decisions on stock price moves. They book profits if a stock doubles or trebles.
But this can rob your portfolio of potentially big wealth creators in the long run. Instead, it is better to base your sell decision on fundamental changes in the business itself. Here are four sell triggers that work well in India.
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The benchmark indices on Friday settled higher thanks to gains in banking stocks following news reports that the Finance Minister Arun Jaitley has promised to offer a solution to the growing non-performing assets (NPA) crisis in next few days.
The S&P BSE Sensex ended at 29,421, up 89 points, while the broader Nifty50 settled at 9,108, up 22 points. Both the indices logged their first weekly loss in March, retreating from a record high hit last week.
In the broader market, the S&P BSE Midcap ended 0.1% down, while the S&P BSE Smallcap index gained 0.3%.
The market breadth, indicating the overall health of the market, turned negative. On the BSE, 1,471 shares declined and 1,346 shares advanced. A total of 218 shares were unchanged.
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There are literally tens of millions of stock market and private investors today. The personal investing revolution has enabled anyone with a few hundred dollars to trade stocks. But we don’t have millions of great investors. Only a select few will ever be bestowed this title. So, how can you try to be one of them? You can emulate the people who were – or still are – the greatest. Below is our list of 8 of the greatest investors of all time; let us know in the comments below if you think we’ve missed out on any important names.
This list was compiled based on inputs from our members of Value Investing Clubs in UK, France, Belgium and Austria, and from our users at our FinTech company CityFALCON. Our focus at the Value Investing Clubs and CityFALCON remains on long-term fundamental investors who are looking to go through research to buy, hold and sell financial assets to generate strong higher than inflation returns.
Warren Buffett
We will just start off with the obvious case: Warren Buffett. Who doesn’t consider him one of the greatest, if not the greatest investor? Born just in time for the Depression (1930), Warren Buffett was born in Omaha, Nebraska, whence he eventually took his nickname “The Oracle of Omaha”.
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Hmm … When WAS the best time to invest you mean?
Well, the day your dad was born if you had money … this is circa 1959 .. or when your grandfather died …. or … but hey since we did not do any of those things, it has to be today.
It’s not surprising that first-time investors often worry about the timing of their initial share purchases. When you follow stories which keep saying “market is up” or ‘Market is Going down” this has to happen! It looks like you have started at the wrong point in the market’s ups and downs and it can leave you with losses even before you reach the batting crease!
But relax kiddos: Whenever you first invest, time is on your side. So the kid who started at 22 is smarter than the kid who waited till he / she turned 32. In the long run, the compound returns of a smart investment will all add up nicely. How the market was when you began will not matter if you do a sip.
Start Now!
That is what is important! Instead of wondering about when you should make that first share / mutual fund purchase, think instead about how long you will stay invested. If you are 22 years of age, you will stay invested for say 50/60 years! Different investments offer varying degrees of risk and return, and each is best suited for a different investing time perspective. In general, debt instruments like bond funds/ bank fixed deposits, etc. offer lower, more assured returns for investors with shorter time frames (say 24 months). Historically, short-term Treasury bills yielded roughly 5% per year. Savings bank gives you about 3% p.a. taxable. With inflation at 7% these rates may or may not attract you.
Longer-term government bonds like the 10-year gilt can provide higher returns – say 8% p.a. These returns could be stable only in the short run. In the long run even these bonds could be volatile.
Shares have also been very good to sensible and patient investors. Overall, the BSE’s Sensex has returned an average of 19.4% per year from 1979 to 2017 — way ahead of debt instruments. The range of the returns for stocks OBVIOUSLY much larger than the range for debt instruments over the same period. Stocks suffered a decline in 1993 – of 42%, but this was obviously the outcome of an amazing 1992 of about 241% !! It enjoyed several particularly strong years of course, and the period 2002 to 2007 took the cake when the market went up 7x in 4 years!
How long will you stay invested?
The more the time that you have to create wealth, the greater risk you can accept. This comes from having a good income, and ability to save money. And since you’ll have more time to wait out periods of bad returns you SHOULD stay cool.
If you need the money within the next five years, you should put say 70% of your money in bonds and only about 30% in shares. If you need the money within the next three years, you should also avoid long bond mutual funds – you are better off investing in bond funds with duration of 3/4 years. The lesser time you plan to be invested, the less you can afford to lose. On the other hand, shares are an attractive option for long-term goals like children’s education, long term and retirement. The higher returns are simply too good to ignore because you do not understand. Take time to learn it!
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