The Yellowstone Syndrome - By Chris Mayer
Most people in finance operate under a giant self-deception: they think future economic trends are much more knowable than they actually are.
The economy is like a complex ecosystem. You cannot alter one piece of it without causing effects elsewhere in the system. Investors who understand this reality can also understand (and avoid) the hazards of over-confident investing.
…..
If an investor hopes to minimize or avoid losses of this magnitude, they must understand that economies are complex adaptive systems – replete with feedback loops and black swans and power laws. Investors must approach the future with humility. And that means fearing risk more than craving reward. A humble investor will also insist on a margin of safety in each investment.
………………..
Books mentioned in article:
Think Twice
More Than You Know
Fooled by Randomness
The (Mis)behavior of Markets
- Links
A Dozen Things Learned about Investing from Jim Chanos (LINK) A New Year Message from Horizon Kinetics (LINK) In 2015, we continued to observe evidence of the impact of indexation as the primary investment modality. At the risk of sounding like a broken...
- Seth Klarman On Business Valuation
From Margin of Safety:Business valuation is a complex process yielding imprecise and uncertain results. Many businesses are so diverse or difficult to understand that they simply cannot be valued. Some investors willingly voyage into the unknown and buy...
- Seth Klarman Quote
From Seth Klarman, via Margin of Safety:Because investing is as much an art as a science, investors need a margin of safety. A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human...
- Seth Klarman Quote And Some Thoughts On Deliberate Practice In Investing
“To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough. Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale...
- The Seven Immutable Laws Of Investing - By James Montier
In my previous missive I concluded that investors should stay true to the principles that have always guided (and should always guide) sensible investment, but I left readers hanging as to what I believe those principles might actually be. So, now, for...