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The Superinvestors of Graham-And-Doddsville

Actually, this article might be interesting

On Economists and Psychopaths

Argues that economists missed warning signals of the crisis because they didn’t understand how the finance industry is full of psychopaths. As a result, the industry couldn’t “self regulate” as economists had thought. (It also bashes economists for “needing to get out more.”)

You want a quote?  Haven’t I written enough already???

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if you can’t stand volatility, you don’t have the temperament to be investing….i guess if you want a nice steady portfolio that does average by all means…

i don’t care to even calculate my risk adjusted returns…..anybody that I help I tell them, be prepared to lose 50% in any given year….

my portfolio construction is straight forward after the decision to allocate x amount to safe/risk free assets….don’t put more than 20% in any one stock….i don’t necessarily care for sector diversification either….diversification is not something I like to do but I do realize i’m an idiot so some sort of rule of thumb is used…..

I agree that you allocate between [relatively] risk less and risky assets according to your ability to stay in the game, and then allocate your risky portion as sensibly as possible.

There are plenty of reasons to invest with low volatility. You say you’re a Charterholder, so you should know what they are. It’s pretty silly to say that in order to invest, you have to be a volatility-lover. There are situations where that’s appropriate and situations when it’s not.

As for portfolio construction I start from the opposite point of view, though, which is that your default allocation ought to be as diversified as possible. You become undiversified only once you’ve identified better alternatives to the market as a whole. The market will still deliver positive returns on average, because there is a risk premium for holding risky assets, and because corporate profits will tend to expand over time in response to technological progress and productivity improvements. So until you’ve found a better alternative to the market as a whole, there’s no need to hold just cash. Why not hold something with a positive expected return. (The exception is when I have a short-term bearish macro view, usually based on what I see in the political environment.)

Concentrated portfolios are ok. I’m not dogmatic about that. But they do presuppose extreme confidence in your analysis. You might think that with a 15% discount rate, there’s a large margin of safety in your analysis, but then you have to ask yourself why is something so highly discounted, and what will be the trigger/catalyst for the discount to disappear, and why is it that only you are able to see this.

For me, I know that I’m smart, but I also know that there are a lot of other smart people with more resources and access to people and data and teams playing against me, so I am never so certain of my analysis that I would feel good having just a few stocks concentrated in one sector as my investment portfolio, and so I often have a fair amount of the market index in my portfolio, using something like a core-satellite structure.

You want a quote?  Haven’t I written enough already???

holding cash when you don’t have great ideas is crucial for the following reason, i normally buy when markets are down, so that would sugggest i would need to cash out on losses before I take a position.

i keep transactions down to a minimum to the best of my abilities.

I try and do some homework on my companies, so if its down, i normally know the reasons and I say, “nope, not true”. my margin of safety is provided through 15% discount, but the bulk 80%of it is through understanding the qualitative factors. i don’t subscribe to the conventional view that you knock off x% and you got some safety. safety comes from certainty in my view.

i don’t remember most of the CFA stuff unless it makes intuitive sense to me. i have a background in econ too and trust me, i try and do forget most of that nonsense as well….

Cast away these false idols, “beta” and “diversification” and “volatility” and “portfolio construction”. You will be smote by a vengeful god.

However Value is most forgiving, and if you return, you will be granted many hot classy babes in Paradise.

I completely agree with Frank.

This is turning out to be an odd day…

Palantir, do i have to strap a bomb and blow myself up for this classy babes paradise? if so, i see some solid value there….

Thanks FrankArabia!