Zen- Vesting: The Road to Graham-and-Doddsville - The Journey's End

"Two roads diverged in a wood, and I took the one less travelled by. And that has made all the difference." (Robert Frost)

Maybe there has not been anything in the investing world more talked of, and less understood, than outperformance. It is every investor's wish to outperform the peers and the relevant benchmark. And yet, the great majority of investors do not achieve it. However, do those investors live in a blind and eager pursuit of it. And the more haste they make about outperformance, the further they part from their journey's end.

Wall Street: The Beaten Track That Leads To Nowhere

Most investors are obsessed with outperformance. They follow the cry of the masses and dedicate most of the time scrutinizing the outcome of their actions, and compare it to those of their counterparts.

Investors listening to the siren sound of consistent outperformance should expect to end up on Wall Street. A place occupied by few wealthy and many filthy. They must expect to continue their days in wandering and error.

Wall Street is a beaten track that leads to nowhere and thus, is the most dangerous road to follow in investing. And their companions on this road, instead of helping, try to constantly misguide them. Sooner or later one of those investors following the way to Wall Street will stumble and fall. And then another tumbles upon him. And so they follow, one upon the neck of another, until the road is littered with the corpses of those misguided investors.

That is Wall Street. A street that turns out over and over again to be nothing else than a heap of miscarriages.

Off the Beaten Track to Investment Success: The Road to Graham-and-Doddsville

Let us now turn our attention to what it is the way we should be at in order to “outperform” the beaten track of Wall Street.

If we are on the right track, we will wonder why we are alone for such a long time. Furthermore, shall we find every day how much wisdom we have sought and attained concerning our investment process, companies, ourselves and about others, Irrespectively of the daily, monthly or yearly results of our action or inaction.

Hence, investors who have good chance to "outperform" the market on the long- run are highly concerned about their process. And they are concerned about taking along with them a reliable compass about the companies they invested in, themselves and about fellow investors on their journey. Those investors will end up off the beaten track. A track that leads them to a place of repose. To a little village called Graham-and-Doddsville.

The true felicity of life in Graham-and-Doddsville is that it is free from noise. Here the investor can enjoy the present without any anxious dependence upon the future. In this little village he does not have to amuse himself with either excessive hopes or fears. He can just rest satisfied with whatever security he is holding. Because the margin of safety is abundantly sufficient for the investor that is aware of its ignorance and does not expect anything.

Tranquillity is maybe the most important trait of a “Value Investor”. It is a certain equality of mind. And no condition of fortune and misfortune can either exalt or depress it. Nothing can make it less, because it is the state of the “Value Investor's” perfection.

The value investor that thinks independently, judges correctly, is persistent and enjoys a perpetual calm is the one that will be the most successful. Because he takes a true prospect of the companies he invests in, Mr. Market, live and himself. He observes an order and measure in investing and existence, and squares his professional and individual life in accordance with that reasoning.

He does care about his investments, about the market and life, but he does so without any trouble. And he does so with an indifference towards the wheel of fortune and the opinion of others. Most importantly does he not fear, because fear makes a discord. The investor that fears the market will serve the market. But the market will serve those who are tranquil in mind and patient.

The investor who wants to excel in the business of “Value investing” therefore should not follow the crowd, like lemmings. He must leave the crowd, and govern his actions by reason and not by example.

The question of successfully investing is not to be decided by vote. Far from it. The plurality of voices, especially when diversity has broken down, is an argument of the wrong. Common investors find it easier to believe than to judge. They content themselves with what is conventional, and never examine whether it is right or wrong.

 

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Zen- Vesting: The Road to Graham-and-Doddsville (3)

The framework of Graham and Dodd is simple but not easy. More importantly, is the framework, like any other, worthless to those investors who do not know themselves. It is also worthless to those who do not have an independent opinion about a stock in question. Is the stock a cigar- but investment? Is it a compounder? Or is it something in between?

To come up with a satisfactory conclusion the "Value Investor" must scrutinize potential investments one by one. He must examine them not on the ground of what they are called by fellow investors, but what they truly are.

It makes no sense to set a high esteem upon wide moat, great management etc., if the investor does not first know what old-fashioned "Value Investing" really is about. Because this investor will never learn about the nuances of Value Investing". The nuances of a stock fulfilling one or more parameters of value, or a stock having a great many of them. They will never grasp how those stocks differ.

The framework to "Value Investing" outlined by Graham and Dodd is of great importance, even for “scuttlebutt” investors. And a few useful and simple rules at hand do more toward succeeding in "Value Investing" than whole volumes of complex ones.

The salutary precepts of "Value Investing", and getting to know oneself, should be the "Value Investor's" daily meditation. Because they are the foundations by which he ought to square his analysis and actions in stock market investing.

 

 

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Great Stock Market Operators Never Heard Of: Andrè Kostolany

Introduction

This post will introduce a stock market operator I fortunately encountered early on in my investment career, who saved me a lot of money and had a lasting impact on my philosophy to investing. His name was André Kostolany, a legend in Germany, but unbeknownst to the Anglo- Saxon investment community.

“At the stock exchange 2 + 2 are never 4, but 5 minus 1. Better be prepared to stomach the -1.” (André Kostolany)

 

It is the story about a speculator whose fame was not founded on the net worth accumulated during his investment career, which remains a mystery. But rather on the amount of practical experience he gained during his 70-year investment journey and his witty and funny way expounding it to his audience.

Kostolany was known for his pleasure-seeking lifestyle and speculating on the financial markets while extensively travelling. A one-minute Audi commercial from 1999 neatly encapsulates his personality, philosophy, and investment style. It even nails the trough of the long-lasting bear market in the commodity sector in one sentence. 

Kostolany was by no means a value investor in the spirit of Graham and Dodd, but rather a speculator resembling Jesse Livermore. He was a diehard contrarian that did not invest in a scientific manner, like running DCF models. He rather ran his operations on a philosophy of creative imagination. He was convinced that investing was not a science, but rather an art form and to be successful one should rather be a philosopher than a finance guy.

Procrastination: The Hidden Value of Delaying

The reason for me to write this little post, which I intended to do a long time ago and have successfully been avoiding for quite a while, is to make the case for procrastination when it comes to stock market investing.

People following a puritanical ideology would like to see procrastination right at the top of the seven deadly sins. But wrongly so! In some professional activities, like sports, design, stock market investing, to name just a few, it should be wholeheartedly embraced. Consciously procrastinating, and astutely combining the different forms, is an art and should strike you as an intelligent behavior.

In ancient times procrastination was highly esteemed. The wisest Greek and Roman leaders and philosophers were masters in playing pocket billiard. They would basically sit around all day long doing nothing apart from thinking and debating. Only when they truly had to would they move their bloomin’ arse.

Viewing procrastination as a sin is quite a new phenomenon coming up in the 17th century, a time the puritans gained the upper hand in society. One of their main advocates was Jonathan Edwards’s, who declaimed over and scared the hell out of procrastinators:

"Those who delay doing good works flatter themselves that they shall see another day, and then another, and trust to that, until finally most of them are swallowed up in hell, to lament their folly to all eternity, in the lake that burns with fire and brimstone.” 

Value Investing And The Virtue of Not Being That Stupid

Are you suffering the Dunning-Kruger Syndrome? And no dear reader it is not a highly virulent venereal disease. So there is no need to call your doctor. It is rather a highly virulent cognitive bias spreading around the financial centers of this world.

It explains why the majority of investors, may they be institutional or individual, are incapable of beating the market indices. It explains why so many are unable to part from the unknowledgeable crowd. It explains why so few mastering the art of doing nothing and have the virtue of being lazy.

Value Investing And The Art of Being a Contrarian

"Two roads diverged in a wood, and I took the one less traveled by. And that has made all the difference." (Robert Frost)

Behaving like a good Christian is paramount for a deep value investor. Because many Christian values resemble core values and believes in his philosophy to investing.

Behave like a good Christian on the stock market. Take when everyone else is giving. And give when everyone else is taking" (André Kostolany)

The deep value investor knows by instinct that he has to take when everyone else is giving. And he has to give when his fellow investors are taking. It is crucial for a deep value investor to be well aware of the fact that one aspect of successfully implementing the strategy of deep value investing is the art of being a contrarian.

Survivorship Bias: Why The Invisible Matters in Investing

During the second world war an U.S American statistician called Abraham Wald was asked to advise the U.S Air Force on how to reinforce their planes. An ever increasing number of U.S fighter planes were shot down by the Nazis, but the weight of armour plating applicable during that time was extremely limited.

Value Investing And The Irrelevance of Performance Consistency

The fund industry and institutional investors have long marketed the myth of performance consistency to the public. They are obsessed with the idea that great investors can always earn higher returns than the market, best on a daily basis and with low short-term volatility.

The 5 Questions Uncovering The Anosognosia of Everyday Life

 

 

"Knowledge is knowing that tomato is a fruit. But wisdom is knowing not to put it in a fruit salad. " (Brian O' Driscoll)

 

Value Investing And The Art of K- Level Thinking

Recently, I stumbled over a New York Times puzzle that is followed by an article. It asked readers to pick a number between 0 and 100 that is two-thirds of the average guess of the participants of the game (please play before reading further).

Value Investing And The Art of Knowing Nothing

Successfully implementing a value investing strategy requires a lot more than judging the quantitative and qualitative factors of a company and buying when the stock price is below intrinsic value. The Graham and Dodd framework is a simple framework but not easily implemented.

Value Investing And The Virtue of Not Being That Stupid

Are you suffering the Dunning-Kruger Syndrome? And no dear reader it is not a highly virulent venereal disease. So there is no need to call your doctor. It is rather a highly virulent cognitive bias spreading around the financial centers of this world.

Value Investing and the Vice of Being Fearful

When a negative trend has been sufficiently long-lasting the tendency of investors to extrapolate the past into the future becomes extremely pronounced.

Peter Cundill - Value Investing And The Art of Being Flexible

This is a summary and interpretation of a  lecture on value investing and investing in Japan by the great value investor Peter Cundill. The presentation was held in 2005 at the Ben Graham Centre of Value Investing.