Market Wisdom

The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low….Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building.
Rob Arnott and Cliff Asness

The great strategy you can’t stick with is obviously vastly inferior to the very good strategy you can stick with.
— Cliff Asness

In investment, there is an activity bias, which creates opportunities for those who resist it.
— John Authers

The fundamental law of investing is the uncertainty of the future.
— Peter Bernstein

RISK management … should be a process of dealing with the consequences of being wrong. Sometimes, these consequences are minimal — encountering rain after leaving home without an umbrella, for example. But betting the ranch on the assumption that home prices can only go up should tell you the consequences would be much more than minimal if home prices started to fall.
— Peter Bernstein

There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor — the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.
— William Bernstein

The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.
— Warren Buffett

Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the Internet. That’s the kind of business I like.
— Warren Buffett

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
— Warren Buffett

Time is the friend of the wonderful business, the enemy of the mediocre.
— Warren Buffett

If you’re in a lousy business for a long time, you’re going to get a lousy result even if you buy it cheap.
— Warren Buffett

If you’re in a wonderful business for a long time, even if you pay a little too much going in, you’re going to get a wonderful result if you stay in it a long time.
— Warren Buffett

Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.
— Warren Buffett

I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.
— Warren Buffett

Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.
— Warren Buffett

We have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
— Warren Buffett

The stock market is designed to transfer money from the active to the patient.
— Warren Buffett

Periodically, financial markets will become divorced from reality.
— Warren Buffett

Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios. … Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.
— Warren Buffett

Over the very long-term the stock market tracks the fundamentals — company earnings, dividends and the growth in the economy to some extent, but over the short-term it’s really just a huge experiment in human behavior and emotions.
— Ben Carlson

The real ‘perfect’ portfolio is whatever approach allows you to stick with your investment plan without completely abandoning your strategy at the worst possible times.
— Ben Carlson

Fallible, emotional people determine price; cold, hard cash determines value.
— Christopher Davis

Equity is completely different from other classes of investments. It’s the only one that captures human ingenuity, which is the ultimate asset.
— Eddy Elfenbein

The Big New Thing is often a terrible, terrible investment. Even if it pans out, there will be gobs of competitors.
— Eddy Elfenbein

The economy is a complex, nonlinear, adaptive system where short run effects are often opposite of long run effects.
— Eric Falkenstein

Our desire to impress others causes us to take too much risk.
— Eric Falkenstein

When everyone is waiting for a rally to sell into, either you don’t get a rally or, if you do, you shouldn’t sell into it.
— Bob Farrell

You can get in way more trouble with a good idea than a bad idea, because you forget that the good idea has limits.
— Benjamin Graham

Price is what you pay. Value is what you get.
— Benjamin Graham

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble . . . to give way to hope, fear and greed.
— Benjamin Graham

The investor’s chief problem – and even his worst enemy – is likely to be himself.
— Benjamin Graham

Investment is most intelligent when it is most businesslike.
— Benjamin Graham

Real investment risk is measured not by the percent that a stock may decline in price in relation to the general market in a given period, but by the danger of a loss of quality and earnings power through economic changes or deterioration in management.
— Benjamin Graham

The essence of investment management is the management of risks, not the management of returns. Well-managed portfolios start with this precept.
— Benjamin Graham

When we don’t generate cash, the capital markets decide when we have to lay people off. … I don’t know about you, but I do not want to live my life that way. … I want to control my own destiny.
— Ben Horowitz

The gambling nature of Wall Street has little or no interest in the serious, underlying nature of businesses.
— Irving Kahn

You gain much more by slow investing and concentrating on what you know than on fast investing, which is nothing more than gambling.
— Irving Kahn

The best investors do not target return; they focus first on risk, and only then decide whether the projected return justifies taking each particular risk.
— Seth Klarman

Risk is how much can I lose and what is the probability I lose it?
— Seth Klarman

My firm’s approach is to seek situations where there is urgent, panicked or mindless selling. As Warren Buffett has said, ‘If you are at a poker table and can’t figure out who the patsy is, it’s you.’ In investing, we never want to be the patsy. So rather than buy from smart, informed sellers, we want to buy from urgent, distressed or emotional sellers.
— Seth Klarman

As the father of value investing, Benjamin Graham, advised in 1934, smart investors look to the market not as a guide for what to do but as a creator of opportunity. The excessive exuberance and panic of others generates mispricings that can be exploited by those who are able to keep their wits about them.
— Seth Klarman

Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
— Seth Klarman

The key to making money in stocks is not to get scared out of them.
— Peter Lynch

Whatever method you use to pick stocks . . . your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed. It isn’t the head but the stomach that determines the fate of the stockpicker.
— Peter Lynch

An investor should think like a business owner, not a renter. Most businesspeople don’t get up in the morning and ask whether they should sell their business that day. If they own a pizza shop, they don’t think about whether what they really should own is a shoe store instead. They show patience and persistence and try to understand their underlying business better so they can earn the greatest return for the longest period of time.
— Joe Mansueto

So investors are in many ways misled by stock-market volatility. The values of the underlying businesses just don’t change as quickly as stock prices do. You really don’t have to watch those changes hawklike day after day.
— Joe Mansueto

It is in a lot of people’s interests to get you to do something. Advisers and brokers earn commissions, fund companies want you to bring your assets to them. There are a lot of forces at work in the investment industry to get people to move, and there’s not really a countervailing force to encourage you to do nothing. But you should.
— Joe Mansueto

Success in investing is not a function of what you buy. It’s a function of what you pay.
— Howard Marks

Risk control is the best route to loss avoidance. Risk avoidance, on the other hand, is likely to lead to return avoidance as well.
— Howard Marks

It’s not sufficient to survive on average. We have to survive on the bad days.
— Howard Marks

The future should be viewed not as a fixed outcome that’s destined to happen and capable of being predicted, but as a range of possibilities and, hopefully on the basis of insight into their respective likelihoods, as a probability distribution.
— Howard Marks

In order to achieve superior results, an investor must be able — with some regularity — to find asymmetries: instances when the upside potential exceeds the downside risk. That’s what successful investing is all about.
— Howard Marks

Bearing higher risk generally produces higher returns. The market has to set things up to look like that’ll be the case; if it didn’t, people wouldn’t make risky investments. But it can’t always work that way, or else risky investments wouldn’t be risky. And when risk bearing doesn’t work, it really doesn’t work, and people are reminded what risk’s all about.
— Howard Marks

Investments that seem riskier have to appear likely to deliver higher returns, or else people won’t make them.
— Howard Marks

Risk shows up lumpily.
— Howard Marks

Risk exists only in the future.
— Howard Marks

Risk can be nothing more than the subject of estimation . . . and certainly not reliably quantified.
— Howard Marks

Liquidity can be transient and paradoxical. It’s plentiful when you don’t care about it and scarce when you need it most.
— Howard Marks

When you look at the chart for something that’s gone up and to the right for 20 years, think about all the times a holder would have had to convince himself not to sell. An abundance of liquidity can be a handicap in this regard.
— Howard Marks

A third thing that is important is something Warren Buffett calls the circle of competence: Stay within what you know you can do and avoid things that you don’t know much about. I think when we see others succeed wildly with something, we are tempted to wade a bit beyond what we’re comfortable with. And that typically doesn’t work out very well.
— Michael Mauboussin

Before I comment on downside risks, a quick comment on forecasts: I think a reasonably intelligent person can always make a compelling bearish argument for the economy, and yet most of the time the economy grows and employment increases. Just something I like to remember. And although I enjoy being a contrarian at times . . . I try to avoid the mistake of being a contrarian just to be contrary.
— Bill McBride

If it doesn’t generate cash, it’s not really a business.
— Paul Meeks

Those that insist on returns in the short run don’t get them, while those that wait for returns in the long run do.
— David Merkel

Each state nurtures forces that lead to its own destruction.
— Hyman Minsky

In studying the common traits of those most successful at games of skill researchers have found a clear tendency to focus more on process than individual outcomes.
— James Montier

So there are risks. Nothing is automatic and easy. But if you can find some fairly-priced great company and buy it and sit, that tends to work out very, very well indeed especially for an individual.
— Charlie Munger

There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there’s never any cash. It reminds me of the guy who looks at all of his equipment and says, ‘There’s all of my profit.’ We hate that kind of business.
— Charlie Munger

It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.
— Charlie Munger

Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.
— Charlie Munger

It makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times. You’re much more likely to do well if you start out to do something feasible instead of something that isn’t feasible.
— Charlie Munger

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.
— Charlie Munger

Intelligent people make decisions based on opportunity costs. It’s your alternatives that matter.
— Charlie Munger

Never think about something else when you should be thinking about the power of incentives.
— Charlie Munger

Playing poker in the Army and as a young lawyer honed my business skills . . . What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often.
— Charlie Munger

In the real world, risk = probability of failure x consequences.
— Shane Parrish

The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born, not an infant, but a giant.
— A. C. Pigou

Remember, the end of the world bet has been a money loser since the beginning of time.
— Barry Ritholtz

With television, the sentiment virus will infect you. What television does best is pass along the emotions of the market.
— Barry Ritholtz

You can either have good news or cheap stocks, but not both.
— Joe Rosenberg

A bull market tends to bail you out of all your mistakes. Conversely, bear markets make you pay for your mistakes.
— Richard Russell

If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.
— George Soros

When markets are happy, think about what could go wrong. When markets are in despair, think about what could go right.
— Dennis Stattman

Confidence when losing, humility when winning: a formula for long-term success in the markets.
— Dr. Brett Steenbarger

Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.
— Sir John Templeton

The most important lesson in investing is humility.
— Sir John Templeton

Investing Success = Good Company + Right Price + Investment + Patience
— Todd Wenning

Patience is the individual investor’s greatest advantage over the market.
— Todd Wenning

The value of any stock, bond or business is determined by the cash inflows and outflows, discounted at an appropriate interest rate, which can be expected to occur during the remaining life of the asset.
— John Burr Williams

I look to invest in businesses that can provide sustainable long-term dividend growth. If I can invest in a business when its growth potential is not reflected in the valuation of its shares, this not only reduces the risk of losing money, it increases the upside opportunity.
— Neil Woodford

In the short-term, share prices are buffeted by all sorts of influences, but over longer-time periods fundamentals shine through. Dividend growth is the key determinant of long-term share price movements, the rest is sentiment.
— Neil Woodford

The intelligent investor is a realist who sells to optimists and buys from pessimists.
— Jason Zweig

 

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