"Everybody is right sometimes but nobody is right all of the time."
This lesson is most definitely not confined to the investment industry but it clearly portrays itself here. We are bombarded with information every day from newspapers, TV programs, market strategists and analysts. One would think that because this information is provided by people with extensive education and market experience, it would generally illustrate a similar theme or market direction. This is very often not the case and therein lies the beauty of the market. Even if opinions do converge, it does not mean that the masses are right.
For example, a well known "bear' is saying that the last few months of growth is a bull market in a secular downtrend. Investors should take cover because hard time are ahead. Contrary to that opinions is another well known "bull" who urges full investment because the stimulus has worked and we're off to the races. I cannot claim to compete with either of these people on academic achievement, market experience or intellectual capacity, but I do know one thing... One of them is wrong.
Academic theory itself provides guidance and strategy. There is a place for theories such as CAPM and the Efficient Frontier, but in my mind there are too many moving parts in the market to predict results with a degree of certainty. I perceive this information as valuable in the same way that mechanical studies explain why a car behaves the way it does when you drive it. The significant difference is that when you strap yourself into the market, put it in drive and hit the gas, don't always expect it to move forward.
Thus, the outcome is that time is better spent building a shelter than trying to guess which direction the next story is coming from. All of this sounds quite pessimistic. Growth is very important, but capital preservation should be the primary focus. We invest in strong companies capable of enduring harsh economic climates with attractive yields. Capital appreciation of these businesses is expected during better days. Sometimes these stocks fall our of favor with the market, yet nothing is fundamentally wrong with their franchises. We see opportunity here and we "back the truck up". This extensive shift is often an earth-shattering two percent increase in a holding.
It is obviously important to understand the dynamics of an industry, but from an investors point of view, the price you pay for an asset and your ability to protect the downside is paramount. As I've said, nobody is right all of the time, that is why buying companies based on a projection of the future of the economy and industry is fraught with risk. -Courtesy QV's June Comment.
This lesson is most definitely not confined to the investment industry but it clearly portrays itself here. We are bombarded with information every day from newspapers, TV programs, market strategists and analysts. One would think that because this information is provided by people with extensive education and market experience, it would generally illustrate a similar theme or market direction. This is very often not the case and therein lies the beauty of the market. Even if opinions do converge, it does not mean that the masses are right.
For example, a well known "bear' is saying that the last few months of growth is a bull market in a secular downtrend. Investors should take cover because hard time are ahead. Contrary to that opinions is another well known "bull" who urges full investment because the stimulus has worked and we're off to the races. I cannot claim to compete with either of these people on academic achievement, market experience or intellectual capacity, but I do know one thing... One of them is wrong.
Academic theory itself provides guidance and strategy. There is a place for theories such as CAPM and the Efficient Frontier, but in my mind there are too many moving parts in the market to predict results with a degree of certainty. I perceive this information as valuable in the same way that mechanical studies explain why a car behaves the way it does when you drive it. The significant difference is that when you strap yourself into the market, put it in drive and hit the gas, don't always expect it to move forward.
Thus, the outcome is that time is better spent building a shelter than trying to guess which direction the next story is coming from. All of this sounds quite pessimistic. Growth is very important, but capital preservation should be the primary focus. We invest in strong companies capable of enduring harsh economic climates with attractive yields. Capital appreciation of these businesses is expected during better days. Sometimes these stocks fall our of favor with the market, yet nothing is fundamentally wrong with their franchises. We see opportunity here and we "back the truck up". This extensive shift is often an earth-shattering two percent increase in a holding.
It is obviously important to understand the dynamics of an industry, but from an investors point of view, the price you pay for an asset and your ability to protect the downside is paramount. As I've said, nobody is right all of the time, that is why buying companies based on a projection of the future of the economy and industry is fraught with risk. -Courtesy QV's June Comment.
