What Buffett Would Do

Buffett On Investing:

Don’t be too fixated on daily moves in the stock market (from Berkshire letter published in 2014)
Don’t get excited about your investment gains when the market is climbing (1996)
Don’t be distracted by macroeconomic forecasts (2004)
Don’t limit yourself to just one industry (2008)
Don’t get taken by formulas (2009)
Don’t be short on cash when you need it most (2010)
Don’t wager against the U.S. and its economic potential (2015)

Buffett On Management:

Don’t beat yourself up over wrong decisions; take responsibility for them (2001)
Don’t have mandatory retirement ages (1992)
“Don’t ask the barber whether you need a haircut” because the answer will be what’s best for the man with the scissors (1983)
Don’t dawdle (2006)
Don’t interfere with great managers (1994)
Don’t succumb to the attitudes that undermine businesses (2015)
Don’t be greedy about compensation, if you’re my successor (2015)

Source: Here’s What Buffett Wouldn’t Do, and Maybe You Shouldn’t Either

 

Cliché – Bull Markets vs. Bear Markets

In a bull market you’re not as smart as you think you are and in a bear market you’re not as dumb as you think you are.

Source: Bull Markets vs. Bear Markets

Bonds yielding less than 0% now make up $6 trillion

The market for negative-yielding bonds is now worth around $6 trillion, and has doubled in just over a month, showing just how worried how investors across the globe are about the state of the world’s economy.

Source: Bonds yielding less than 0% now make up $6 trillion of the global debt markets – Business Insider

Even God Would Get Fired as an Active Investor – Alpha Architect

Our bottom line result is that perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active manager who was clairvoyant, and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people’s money.

Question: if God is omnipotent, could he create a hedge fund that was so good that he could never get fired? No. It turns out even God would most likely get fired as an active investor.

Source: Even God Would Get Fired as an Active Investor – Alpha Architect

43 Bear Markets Analyzed

Investors seeking clues as to the future direction of global equities might turn to history as their guide; Morgan Stanley analysts led by Andrew Sheets certainly have. They’ve crunched the numbers on more than 40 bear markets thoughout history, defined as a more than 20 percent peak to trough decline.

Here’s what they found.

Source: Morgan Stanley Analyzed 43 Bear Markets and Here’s What It Found – Bloomberg Business

Swedroe: Investor Lessons From 2015

Every year, the market provides us with important lessons on the prudent investment strategy. Many times, the market will offer investors remedial courses, covering lessons that it has already delivered in previous years.That’s why one of my favorite sayings is that there’s nothing new in investing; there is only investment history you don’t yet know.

Source: Swedroe: Investor Lessons From 2015 | ETF.com

Checking In On the Commodities Cycle

2015 was another dismal year for commodities, the third year in a row of negative returns.  Over supply continues to be the universal theme in the market, however capacity cuts are beginning to be announced.  As the saying goes the cure for low prices are low prices.

The real curse for commodity prices, however, is on the supply side. The last decade’s commodities boom has led to irrational investment in new projects. China’s demand for iron ore and coal declined only this year, but commodity prices have been dropping since 2011. These price declines reflect concerns about a persistent surplus as mining firms continue to expand supply. Global iron ore production is expected to have increased by 100 million tons in 2015 despite the declining demand from China, and further increases are expected over the next two years.

Source: The Commodities Crash: A Supply-Side Perspective

Short Selling as an Investment Strategy

A great post on Jim Chanos of Kynikos Associates and how he views short selling versus being net long.  The quote below from Charlie Munger mentioned in the article sums up the art of short selling and why most investors should steer clear of the investment strategy.

I’ve experienced the irrational exuberance of these type of promoters all too often when being short.  Even being right on your thesis is not enough to be a successful short seller.  Shortly after the 2007 iPhone launch, Palm announced that it would be coming out with a competing smartphone (the Pre) that was going to blow away the competitors.  Backed by Elevation Partners the managing partner would go on TV every chance he could get to promote the coming phone and how great the sales were going to be.  The stock rose until the eventual launch of the phone, once sales were seen as disappointing the stock began to drop, but Elevation engineered a sale to HP and managed to save their investment and make short sellers lives miserable.

“It’s dangerous to short stocks.” “Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.” “It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and at h the crooks happily partying with your money while you’re meeting margin calls. Why would you want to go within hailing distance of that?  We don’t like trading agony for money.”

Source: A Dozen Things I’ve Learned about Investing from Jim Chanos

How the Pundits Damage Your Long-term Plans

Great post by Josh Brown at The Reformed Broker about how listening to the market pundits can lead investors to abandon their investment plans to their detriment.

Let me wrap this up: 401(k) accounts are sacred, but they are not magic. They require a thoughtful person making decisions and behaving logically in order to work. The 401(k) users who have persevered through the large drawdowns of 15 and 7 years ago, while continuing to plug away with fresh contributions, are doing better than ever.

Source: The Farce Awakens