Money and Finance
- Beijing Dims The Lights On Data For Investors
Beijing has curtailed access to information often used by investors and short sellers to evaluate Chinese companies, which could further cloud an often murky market for foreign investors. A Chinese government agency that compiles extensive Chinese corporate...
- Howard Marks Quote
From his March 2002 Memo “Learning from Enron”:“Security analysis and knowledgeable investing aren't easy. Investors must be alert for fuzzy or incomplete information, and for companies that don't put their interests first. They must invest...
- David Einhorn Speech - "accounting Ingenuity"
Ira W. Sohn Investment Research Conference David Einhorn, Greenlight Capital, “Accounting Ingenuity” May 21, 2008-I appeared at this conference six years ago and joked that my wife, while trying to help me prepare my presentation of the Allied Capital...
- Probabilistic Thinking And The 80/20 Rule
The human brain is inherently bad at dealing with probabilities. This is largely evident in the field of investing where investors try to handicap companies as potential investments, especially in the face of uncertainty. Investors should strive to improve...
- Are You A Better Investor Than Fund Managers?
Earlier this week, I came across an interesting study by Andriy Bodnaruk of the University of Notre Dame and Andrei Simonov of Michigan State University, entitled "Do Financial Experts Make Better Investment Decisions?" The pair analyzed the personal...
Money and Finance
How Much Research and Analysis Are Sufficient?
From Seth Klarman, via Margin of Safety:
How Much Research and Analysis Are Sufficient?
Some investors insist on trying to obtain perfect knowledge about their impending investments, researching companies until they think they know everything there is to know about them. They study the industry and the competition, contact former employees, industry consultants, and analysts, and become personally acquainted with top management. They analyze financial statements for the past decade and stock price trends for even longer. This diligence is admirable, but it has two shortcomings. First, no matter how much research is performed, some information always remains elusive; investors have to learn to live with less than complete information. Second, even if an investor could know all the facts about an investment, he or she would not necessarily profit. This is not to say that fundamental analysis is not useful. It certainly is. But information generally follows the well-known 80/20 rule: the first 80% of the available information is gathered in the first 20% of the time spent. The value of in-depth fundamental analysis is subject to diminishing marginal returns.
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Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen. Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty. The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information.
- Beijing Dims The Lights On Data For Investors
Beijing has curtailed access to information often used by investors and short sellers to evaluate Chinese companies, which could further cloud an often murky market for foreign investors. A Chinese government agency that compiles extensive Chinese corporate...
- Howard Marks Quote
From his March 2002 Memo “Learning from Enron”:“Security analysis and knowledgeable investing aren't easy. Investors must be alert for fuzzy or incomplete information, and for companies that don't put their interests first. They must invest...
- David Einhorn Speech - "accounting Ingenuity"
Ira W. Sohn Investment Research Conference David Einhorn, Greenlight Capital, “Accounting Ingenuity” May 21, 2008-I appeared at this conference six years ago and joked that my wife, while trying to help me prepare my presentation of the Allied Capital...
- Probabilistic Thinking And The 80/20 Rule
The human brain is inherently bad at dealing with probabilities. This is largely evident in the field of investing where investors try to handicap companies as potential investments, especially in the face of uncertainty. Investors should strive to improve...
- Are You A Better Investor Than Fund Managers?
Earlier this week, I came across an interesting study by Andriy Bodnaruk of the University of Notre Dame and Andrei Simonov of Michigan State University, entitled "Do Financial Experts Make Better Investment Decisions?" The pair analyzed the personal...