We have a deliberate process to at least once a year sit down and look at the mistakes we've made. If you do it too often you probably don't achieve much at all because you're constantly looking over things before the mistake is actually clear. We try to focus more on process errors we can [...]
method for searching out ideal short candidates that are potentially manipulating earnings. The variables are a growing difference between net income and cash flow from operations, increasing days sales outstanding, growing days sales inventory, growing other current assets to revenues, declining depreciation relative to gross property, plant and equipment and, finally, total asset growth greater [...]
Gold kind of scares me because very often the people involved with it seem to be slightly insane. My other problem is I don't know how to value it. Unlike an equity that supposedly has cash flow attached to it, or unlike a bond that has a coupon, gold isn't worth anything intrinsically beyond what [...]
What's the definition of a long-term hold? A short-term buy that went down.
It's the bias of the information age that people feel isolated when they're not in touch with what's going on. To me it's a good discipline to often say, “I don't really care what goes on in the market today.” When you do that you can actually get something useful done. Even something simple like [...]
I'm amazed at how common the relative valuation argument is. But you shouldn't forget that all that argument may be telling you is that bonds or another asset class might suck, not that equities are great. It's like going to Cinderella's house and meeting the two ugly stepsisters and being told you should be happy [...]
Sir John Templeton, who always argued for buying during periods of maximum pessimism, had one of the best methods for keeping emotion out of the process. He used to do his calculations of intrinsic value when there wasn't a lot going on in the market. He'd then place a margin of safety on those intrinsic [...]
There are probably five main behavioral impediments that keep our industry from spotting and avoiding bubbles. First is basic overoptimism. Nobody gets married expecting to get divorced, a mindset that bedevils most of what we do. In our industry that translates into this sort of innate bullish bias. Second, people suffer from an illusion of [...]
There’s a great chapter [in Dan Ariely’s Predictably Irrationa/j about the ways in which we tend to misjudge price and use it as an indicator of something or other. That links back to my whole thesis that the most common error we as investors make is overpaying for the hope of growth. Dan did an [...]
One of the unfortunate lessons of speculative bubbles is that they always go on longer than we expect. It’s what has caught me out more than anything over the years I’m always too early. I usually see the bubble and talk about how I wouldn’t touch this or that with a barge pole, but then [...]