The Holy Grail of Investing

Oct 17

Many of you unless you are into reading about investment management have likely never heard of Jack Schwager author of the Market Wizards series of books.  Within his books, Schwager interviews some of the most legendary investors of our time.

Within each interview, Schwager tries to get at the heart of what has made that trader successful.  While there is no holy grail to investing, Schwager finds varying insights and strategies that in some cases are completely opposite but have led traders onto individual success.  The point being that there is more than one way to make money investing but that there are some key principles that bind successful investment managers together which include the following;

  1. Persistence
  2. Self-awareness
  3. Methodology
  4. Flexibility

Within my own investment process that I put to work at TAMMA, I have developed my own key investment principles many of which were also critical to the success of individual investors within Schwagers series of books;

  • Discipline
    • Invest without emotion
    • Stick to your own beliefs
    • Know when to do nothing
  • Risk control = Loss control
    • Cut you losers and let you winners ride
    • To be a winner, you have to be willing to take a loss
    • Don’t be afraid of risk
  • Diversification
    • While diversification can help to lower your risk, it cannot help you when market correlations all turn to one and everything moves in the same direction
  • Opportunity Costs
    • It may make sense to liquidate a holding even if it is a sound investment in order to invest in an even better opportunity
    • Even if it bounces back, holding on to a losing position can be a mistake if you could have invested elsewhere at a greater return
  • What is the catalyst, it is more than simply being undervalued
    • A great company can be a horrible investment if its price has already more than discounted the fundamentals
    • Hope is a four-letter word.  Superior performance requires not only selecting the right investment, but also having the conviction to make it a meaningful part of your overall portfolio

And finally, here are some of the lasting quotes from Schwager’s Market Wizard book;

  • Mark Minervini, “Being wrong is acceptable, but staying wrong in totally unacceptable”
  • Peter Lynch, “If you can’t summarize the reasons why you own a stock in four sentence, you probably shouldn’t own it”
  • Warren Buffet, “The widespread adoption of a new technology doesn’t mean that anyone is going to make a profit”
  • Dr. Ari Kiev, “To achieve a goal, you not only have to believe it is possible, but you also have to commit to achieving it.”
  • Steve Cohen, “You can’t control what the market does, but you can control your reaction to the markets.”

What I am Reading

  • The Jeff Bezos Regret Minimization Framework (A Wealth of Common Sense)
  • Twitter’s Identity Crisis Gets in the Way of a Sale (Bloomberg)
  • This is How To Find Happiness: 6 Proven Secrets From Research (Barking Up the Wrong Tree)
  • The Great Productivity Puzzle (The New Yorker)
  • How to Get More Pleasure Out of Retirement Spending (WSJ)
  • 7 Essential Money Questions Sure to Start a Conversation (NYT)