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The best investors keep their circle of competence tightly defined and limited in scope. Skills can atrophy or become outdated. New competencies can be developed with time and effort.
What you are doing when you are investing is buying an ownership interest in an actual business. No matter how hard you may work to know everything about that business, the phenomenon effecting that business, and the markets in which it competes, there always be much that you do not know.
Even if you may chose an index-based approach to investing, you are making choices about what types and amounts of assets to buy.
The very best investors have been able to develop systems that deal effectively with the fact that investing is probabilistic process. Systems that do not produce net present value positive results over time after fees and expenses, are speculation and are not investing. One of the many things that investors like Morgan Housel have learned from great investors like Charlie Munger is how much investing performance can be improved by just avoiding some of the boneheaded mistakes made by other investors.
There are plenty of other businesses that are understandable which present investment decisions that are not very difficult. Most of the time what an investor should do is nothing. And there is no better time to do nothing than when something is difficult. I look around for 1-foot bars that I can step over. Time is massively powerful. Each of the points made here by Morgan Housel has a major champion.
A Dozen Things I’ve Learned from Morgan Housel about Investing and Life – 25iq
On the first point, Howard Marks points out: It goes like this: An inventor brought his chess board to the emperor of China, who was so impressed he offered to grant the man one wish. The inventor had a simple wish: He requested one grain of rice for the first square on the board, two grains for the second square, four for the third, eight for the fourth, and so on.
Sounding like a modest proposal, the emperor agreed. Unamused, the emperor had the inventor beheaded. While I doubt the story is true, its message is important to understanding the power of compound interest: When things grow exponentially, gains look tiny at first, modest in the middle, and then — very suddenly — they shoot utterly off the charts.
It is hard for some people to understand the difference between 1 waiting and 2 predicting. Price is not the same thing as value. Price is what you pay for an asset and value is what you get in buying an asset. Only rarely doe price equal value. To work hard to understand the present moment in time is not to think you can predict when something will happen in the future.
- Sold Short In America.
- Buy for others;
You may be working from an assumption that sometime over a ten year period Mr. Market will raise price of as asset so it is equal to or greater than value. But those who can truly train themselves to be skeptical of outperformance and attracted to underperformance will likely do better than most. They have an advantage. Buying stocks when Mr. Market is fearful is easier to say than do. The best way to learn to invest is to invest.
The feelings involved in investing are primal and often hard to control. For example, humans are simply not hard wired to be contrarian when others are full of fear. You can read all the books, articles and speeches about being fearless when others are fearful and yet fail to be calm when the time comes. This presents a fundamental problem in that this is the best time to be buyer of assets.
The best investors are actually nostalgic for times like March of when the market was rife with fear and uncertainty.
Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy
Screaming buys based on valuation like those that existed in March of may appear only two to three times in an investing lifetime. By the time you get good at this key skill you may be too old to take advantage of the opportunity. Anyone who believes in the Mr. Market metaphor understands that volatility is both inevitable and the source of an opportunity for a rational investor. Rich rated it liked it Jul 04, Chetana rated it really liked it Oct 21, Argh rated it really liked it Feb 08, Alexandru Olteanu rated it it was amazing Aug 26, Kevin Martelli rated it it was amazing May 17, Nmanoharan rated it it was amazing Nov 24, Ashok rated it it was amazing Aug 21, VIFL rated it really liked it May 10, Mark Prohaska rated it really liked it May 12, Pierre Taljaard rated it it was amazing Sep 09, Rand rated it it was amazing Oct 17, Anil Kamath rated it really liked it Sep 11, Goh Chong Yong rated it really liked it Jul 09, Roger rated it it was amazing Dec 14, Michael Holland rated it really liked it Jan 15, Yvon Beaulieu rated it it was amazing Jul 30, Sakul Nathwani rated it it was amazing Sep 30, Joe Hurricane rated it it was ok Jan 31, Mayurkumar Gadewar rated it really liked it Feb 07, Rick rated it it was ok May 09, Pinpress rated it really liked it Jan 18, Mark rated it it was amazing Apr 13, There are no discussion topics on this book yet.
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