Random thoughts about stocks, investing, business and philosophy in everyday life
Stock picking is difficult because only a small minority of the stocks contribute to the majority of the gains. It’s skewed to only a few outliers. It’s as simple as that. Let’s look at some facts: Most stocks don’t beat Treasury Bills: Hendrik Bessembinder became pretty “famous” for his study published in 2017 called Do Stocks Outperform Treasury Bills? The
Continue readingSome weeks ago I published an article looking at the worst month in the stock market: September. Today, 29th of September, as September is coming to an end, and we’re about to enter the best season being invested in stocks: October to the end of April. Let’s look at two portfolios: One invested from the close of September to the
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In Street Name Your capital is at risk when you are investing in equity markets, but I assume very few consider the broker as a potential risk. But the fact is that your capital might be at risk if the broker goes bankrupt. Not only your cash deposit, but also your shareholdings. How is this possible? I believe most investors
Continue readingTerry Smith, the CEO/CIO of Fundsmith, writes an interesting annual report that is well worth reading. He goes one step further than most money managers by delving into a range wide of subjects, usually with the intelligent British humor. The letters are not so long, but for my own personal reference I like to quote what I consider the most
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Introduction and summary: I have invested in Estateguru since 2016 and this article shares my thoughts and experiences as a lender/investor. In a previous post I expressed my concerns over crowdfunding and the inherent risks associated with the platforms. Before you continue reading I would recommend reading the article to get a better understanding of why I believe crowdfunding might
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Yesterday, the 3rd of September 2020, witnessed a pretty big drop in the stock market with Nasdaq leading the decline with a drop of 5.07%. Out of interest I looked at the performance of September going back to 1970, using S&P 500 (not including dividends). The chart below shows the performance from the close of August until close of September
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Introduction and summary: Alcohol has for thousands of years been a vital part of human culture (whether you like it or not). Whisky though, a result of distillation, was discovered by monks as late as 1100-1300. Whisky as an investment has attracted interest over the last decade, presumably because it has proven to be a good investment since the GFC
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Tail risk is a form of portfolio risk that arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. Tail risks include events that have a small probability of occurring, and occur at both ends of a normal distribution curve. –Investopedia Tail-risk, the
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Terry Smith, the CEO/CIO of Fundsmith, writes an interesting annual report that is well worth reading. He goes one step further than most money managers by delving into a range wide of subjects, usually with the intelligent British humor. The letters are not so long, but for my own personal reference I like to quote what I consider the most
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I have written numerous articles about dividends and compounding. To sum up, in order to create the biggest amount of wealth, you would want to invest in a company that has high returns on capital and opportunities to redeploy the earnings into the business at the same returns or close to same returns (I have provided relevant links at the
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This week I came across this blogpost by Nick Maggiulli. The blogpost is based on the “All Weather Portfolio” developed by Ray Dalio and his firm Bridgewater Associates, one of the biggest hedgefunds in the world. Dalio’s firm has spent a considerable time to develop a portfolio that does well both in times of inflation and deflation. Because most current
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2010-2020 produced better returns than the historical averages: From the start of 2010 until today, 27th of July 2020, S&P 500 returned 250% (dividends reinvested), which is a CAGR of 13.3% annually. Pretty impressive! Is it realistic to expect the same or at least close to 13%? Typical after a decade of strong returns, optimists dominate the more prudent and
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I don’t think you should ever invest for income. It is a mistake…….. You shouldn’t just invest for dividends, you should invest in businesses that reinvest their profits to achieve a future growth rate…..However, I realise that for many investors, the idea of realising part of their capital to provide income is anathema. – Terry Smith, CIO of Fundsmith. I’m
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I currently reread Victor Niederhoffer’s The Eduction of A Speculator. I regard this book as one of the best I have ever read. It’s not an easy read, but it completely changed my mindset for the better 20 years ago. What makes this a good book? Because it explains the foundation and principles for successful speculation. Chapter 7 is called
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The last decade has produced fantastic returns in most global asset classes (commodities excluded), helped by enormous interventions by central banks. Can we expect similar high returns in the coming decade? The “new normal” (?): The “new normal” seems to be a low interest policy for the foreseeable future. How do we adapt as investors? Japanese investors have battled with
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Most people invest in real estate, perhaps quite logically since this is a very easy business model to understand. Equity (stocks) is perceived as more risky and thus less desirable as an investment. The aim of this article is to give some pros and cons with both asset classes (I’m considering direct investments – not mutual funds). There is no
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Harry Markowitz won the Nobel Prize in 1990 for his work in showing mathematically how you can both reduce risk and create better returns by diversifying across regions and assets. Risk is of course measured in volatility, ie. how your assets fluctuate in price. Such a theory was new when it was first released in the 1950s, and Markowitz said
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Introduction and summary: In an article a few weeks back I wrote an article about the logic behind buying shares in quality companies, given that they are trading at fair multiples. Warren Buffett and Charlie Munger are, not surprisingly, correct in saying that it’s far better to buy a wonderful company at a fair price than buying a fair company
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No matter how good strategies you have, they are most likely worthless if you can’t execute them properly. What looks like a piece of cake on paper, is completely different in the real world when you are risking your own hard earned money. Will the strategy continue to perform after a drawdown? Is it just a temporary setback? The future
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Summary and introduction: Research shows that the majority of investors underperform the broad market indices. The most likely reason is due to frequent buying/selling and behavioral mistakes. When you are trying to “outsmart” the markets, you most likely end up losing to the market. To successfully invest you actually need to do as little as possible. What is required of
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“Compound interest is the eight wonder of the world. He who understands it, earns it….he who doesn’t, pays it” -Albert Einstein Presumably Albert Einstein said the words above, and likewise Benjamin Franklin said that time is money. Unfortunately, we seem to forget these very simple principles when it comes to most decision making – be it learning, investing or in
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Numerous studies suggest women are better investors than men, which of course might hurt the egos of many men. I find this fascinating, and it most likely confirms why it makes sense to make investing as simple as possible. Charlie Munger once said the best thing to do is to “sit on your ass” and let your capital compound without
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Introduction and summary: Many investors have a strong focus on dividends, so much that I would like to call it an irrational dividend bias. Dividend investors focus only on dividend stocks, and for the most part ignore those stocks which don’t pay a dividend. Thus, they leave out a huge segment of the market that has the potential of compounding
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Summary: S&P has an estimated P/E of 23 for 2020. Rich valuations sometimes make the best companies’ share price languish. Low interest rates justifies high valuations. Indexers might suffer more from high valuations than active investors. How important are growth and valuations? I look at theoretical returns under different valuations and growth. It turns out Warren Buffett is right: It’s
Continue readingThis week I was interviewed about my trading philosophy. In the interview I mentioned how difficult it is to make money daytrading or swingtrading for short-term profits. This is mainly a zero-sum game, I will even say it has negative expectancy due to commissions and slippage. Opposite, long-term investing has a positive expected return, given a diversified portfolio, as long
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