Money and Finance
- Investing In A High-quality Business...
From Capital Returns: Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often...
- Waiting For The Right Pitch
From Seth Klarman via Margin of Safety:Waiting for the Right PitchWarren Buffett uses a baseball analogy to articulate the discipline of value investors. A long-term-oriented value investor is a batter in a game where no balls or strikes are called, allowing...
- Excerpt From The Most Important Thing Illuminated - By Howard Marks
Combating Negative Influences By Howard Marks, Author of The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor People who might be perfectly happy with their lot in isolation become miserable when they see others do better....
- Eddie Lampert's Letter To Sears Shareholders
If one owns 10% of a company, or 1% of a company or .0000001% of a company, what matters is how that investment fares over time. A company worth $1 billion that doubles in value to $2 billion only doubles an owner’s investment if the number of shares...
- An Easy Mistake Made By Dividend Investors
Dividend investing can seem deceptively easy. If you want to generate, say, a 5% yield from your dividend portfolio, you only need to buy a group of stocks that provide a weighted average yield of 5%. Then just sit back and watch the money roll in. Or...
Money and Finance
Seth Klarman: Adopt an Absolute-Performance Orientation
From Margin of Safety:
Most institutional and many individual investors have adopted a relative-performance orientation...They invest with the goal of outperforming either the market, other investors, or both and are apparently indifferent as to whether the results achieved represent an absolute gain or loss. Good relative performance, especially short-term relative performance, is commonly sought either by imitating what others are doing or by attempting to outguess what others will do. Value investors, by contrast, are absolute-performance oriented; they are interested in returns only insofar as they relate to the achievement of their own investment goals, not how they compare with the way the overall market or other investors are faring. Good absolute performance is obtained by purchasing undervalued securities while selling holdings that become more fully valued. For most investors absolute returns are the only ones that really matter; you cannot, after all, spend relative performance.
Absolute-performance-oriented investors usually take a longer-term perspective than relative-performance-oriented investors. A relative-performance-oriented investor is generally unwilling or unable to tolerate long periods of underperformance and therefore invests in whatever is currently popular. To do otherwise would jeopardize near-term results. Relative-performance-oriented investors may actually shun situations that clearly offer attractive absolute returns over the long run if making them would risk near-term underperformance. By contrast, absolute-performance-oriented investors are likely to prefer out-of-favor holdings that may take longer to come to fruition but also carry less risk of loss.
One significant difference between an absolute- and relative- performance-orientation is evident in the different strategies for investing available cash. Relative-performance-oriented investors will typically choose to be fully invested at all times, since cash balances would likely cause them to lag behind a rising market. Since the goal is at least to match and optimally beat the market, any cash that is not promptly spent on specific investments must nevertheless be invested in a market-related index.
Absolute-performance-oriented investors, by contrast, are willing to hold cash reserves when no bargains are available. Cash is liquid and provides a modest, sometimes attractive nominal return, usually above the rate of inflation. The liquidity of cash affords flexibility, for it can quickly be channeled into other investment outlets with minimal transaction costs. Finally, unlike any other holding, cash does not involve any risk of incurring opportunity cost (losses from the inability to take advantage of future bargains) since it does not drop in value during market declines.
- Investing In A High-quality Business...
From Capital Returns: Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often...
- Waiting For The Right Pitch
From Seth Klarman via Margin of Safety:Waiting for the Right PitchWarren Buffett uses a baseball analogy to articulate the discipline of value investors. A long-term-oriented value investor is a batter in a game where no balls or strikes are called, allowing...
- Excerpt From The Most Important Thing Illuminated - By Howard Marks
Combating Negative Influences By Howard Marks, Author of The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor People who might be perfectly happy with their lot in isolation become miserable when they see others do better....
- Eddie Lampert's Letter To Sears Shareholders
If one owns 10% of a company, or 1% of a company or .0000001% of a company, what matters is how that investment fares over time. A company worth $1 billion that doubles in value to $2 billion only doubles an owner’s investment if the number of shares...
- An Easy Mistake Made By Dividend Investors
Dividend investing can seem deceptively easy. If you want to generate, say, a 5% yield from your dividend portfolio, you only need to buy a group of stocks that provide a weighted average yield of 5%. Then just sit back and watch the money roll in. Or...