Portfolio Investors Quotes

When money is pooled together, it has a greater impact. A million dollars has more impact than one hundred thousand dollars. One hundred ETH has more impact than ten ETH. The more money, the greater the impact.

It’s not possible for investors to consistently outperform the market. Therefore you’re best served investing in a diversified portfolio of low-cost index funds [or exchange-traded funds].

Ultimately, incentive structures and systems drive ESG investing, which can be disingenuous. Structurally, public market investors continue to focus on the incentives which maximize their financial returns, even while taking certain ESG inputs into account in their portfolio allocations. Only by regulating and incentivizing the actual outcomes might investors alter their investment strategies towards new rewards based on ESG outputs.

As we said, even the best venture investors have a portfolio, but investors who understand the power law make as few investments as possible.

Many investors have a homogeneous view of portfolio diversification. They’re thinking about large cap vs small cap vs equity vs bonds. And that’s important, but nature views diversification much more holistically. And at Mayflower-Plymouth, so do we.

Wide diversification is only required when investors do not understand what they are doing.

Capital must be consistently accumulated and compounded - that's the expectation.

All stakeholders should benefit from the capital we allocate in our portfolio.

Being net value adders puts us better positioned for long-term growth and longevity – because in the long term, capital flows to net value adders.

students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards—so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value. Though it’s seldom recognized, this is the exact approach

investors who pay attention to the economy can be more successful because they can take advantage of impending changes. While everyone else is focused on what’s happening right now, economically savvy investors can focus on what’s coming

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. If he wants to be shrewd he can look for the ever-present bargain opportunities in individual securities. Aside from forecasting the movements of the general market, much effort and ability are directed on Wall Street toward selecting stocks or industrial groups that in matter of price will “do better” than the rest over a fairly short period in the future. Logical as this endeavor may seem, we do not believe it is suited to the needs or temperament of the true investor—particularly since he would be competing with a large number of stock-market traders and first-class financial analysts who are trying to do the same thing. As in all other activities that emphasize price movements first and underlying values second, the work of many intelligent minds constantly engaged in this field tends to be self-neutralizing and self-defeating over the years. The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down. He would not be far wrong if this motto read more simply: “Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop.” An

Most people strive to adjust their portfolios based on what they think lies ahead. At the same time, however, most people would admit forward visibility just isn't that great. That's why I make the case for responding to the current realities and their implications, as opposed to expecting the future to be made clear.

Many new investors, eager to see quick profits, need to develop the patience and research skills necessary for successful long-term investing.

The idea that a few things account for most results is not just true for companies in your investment portfolio. It’s also an important part of your own behavior as an investor.

Money managers tend to make irrational decisions just to protect their calendar year performances, even if they believe that decision is not in the best interest of investors.

Annual performance means nothing to individual investors.

Investors place bets in a portfolio of companies, but I only have one life

Personal finance, like most important aspects of life, is a never-ending quest. The competent investor never stops learning.

ONE KEY TO BUILDING A SUCCESSFUL INVESTMENT portfolio is to eliminate the risk you can control and reduce the risk you can’t.   One

Supremely rational investors take the further step of acting against consensus, rebalancing to long-term portfolio targets by buying the out-of-favor and selling the in-vogue.

Similarly, the buy-and-hold investor who prudently holds a diversified portfolio of low-cost index funds through thick and thin is the investor most likely to achieve her long-term investment goals.

The index fund is a most unlikely hero for the typical investor. It is no more (nor less) than a broadly diversified portfolio, typically run at rock-bottom costs, without the putative benefit of a brilliant, resourceful, and highly skilled portfolio manager. The index fund simply buys and holds the securities in a particular index, in proportion to their weight in the index. The concept is simplicity writ large.

This tendency of overconfidence and poor outcomes is not confined to only retail investors. Institutional investors suffer from overconfidence equally if not more, and their investment results are not superior either.

Proper diversification means investing in uncorrelated assets, and investing in multiple assets needs multiple sets of knowledge, more hours of research, and more market following. It is definitely more work for an investor.

Investment Owner’s Contract I, _____________ ___________________, hereby state that I am an investor who is seeking to accumulate wealth for many years into the future. I know that there will be many times when I will be tempted to invest in stocks or bonds because they have gone (or “are going”) up in price, and other times when I will be tempted to sell my investments because they have gone (or “are going”) down. I hereby declare my refusal to let a herd of strangers make my financial decisions for me. I further make a solemn commitment never to invest because the stock market has gone up, and never to sell because it has gone down. Instead, I will invest $______.00 per month, every month, through an automatic investment plan or “dollar-cost averaging program,” into the following mutual fund(s) or diversified portfolio(s): _________________________________, _________________________________, _________________________________. I will also invest additional amounts whenever I can afford to spare the cash (and can afford to lose it in the short run). I hereby declare that I will hold each of these investments continually through at least the following date (which must be a minimum of 10 years after the date of this contact): _________________ _____, 20__. The only exceptions allowed under the terms of this contract are a sudden, pressing need for cash, like a health-care emergency or the loss of my job, or a planned expenditure like a housing down payment or a tuition bill. I am, by signing below, stating my intention not only to abide by the terms of this contract, but to re-read this document whenever I am tempted to sell any of my investments. This contract is valid only when signed by at least one witness, and must be kept in a safe place that is easily accessible for future reference.

When Walter and Edwin were asked in 1989 by Outstanding Investors Digest, “How would you summarize your approach?” Edwin replied, “We try to buy stocks cheap.” So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts and complex algorithms.

Market participants willing to accept illiquidity achieve a significant edge in seeking high risk-adjusted returns. Because market players routinely overpay for liquidity, serious investors benefit by avoiding overpriced liquid securities and by embracing less liquid alternatives.

Speaking of leaving well enough alone, I find it interesting that less than 10 percent of the millionaires of this country consider themselves “active” traders, and 42 percent of the millionaires of this country make less than one transaction per year in their investment portfolios.1

little known and not fully understood; fundamentally questionable on the surface; controversial, unseemly or scary; deemed inappropriate for “respectable” portfolios; unappreciated, unpopular and unloved; trailing a record of poor returns; and recently the subject of disinvestment, not accumulation.

Men are hard-wired for risk taking—particularly young men. The number one killer of fifteen- to twenty-four-year-old males is accidents.6 Female investors hold less risky investment portfolios than their male counterparts and generally take fewer chances with their money. Churches need men because men are natural risk takers—and they bring that orientation into the church. Congregations that do not take risks atrophy. Jesus made it clear that risk taking is necessary to please God. In the parable of the talents, the master praises two servants who risked their assets and produced more, but he curses the servant who played it safe. He who avoids all risk is, in the words of Jesus, “wicked and lazy".

Social validation, sometimes referred to as herding, is a powerful, hardwired behavior. It is observed in nearly all species, including geese, deer, fish, and insects. Herding is frequently critical for survival, so to go contrary to it is incredibly difficult. The lesson of our past is that sticking out from the crowd by doing something different is dangerous.

most important distinction in the investment world does not separate individuals and institutions; the most important distinction divides those investors with the ability to make high quality active management decisions from those investors without active management expertise. Few institutions and even fewer individuals exhibit the ability and commit the resources to produce risk-adjusted excess returns.

Ever since the 2008 global financial crisis, central banks had ventured, not by choice but by necessity, ever deeper into the unfamiliar and tricky terrain of “unconventional monetary policies.” They floored interest rates, heavily intervened in the functioning of markets, and pursued large-scale programs that outcompeted one another in purchasing securities in the marketplace; to top it all off, they aggressively sought to manipulate investor expectations and portfolio decisions.

The capitalist-investor class experiences a tremendous loss of “real” wealth during depressions because the value of their investment portfolios collapses (declines in equity prices are typically around 50 percent), their earned incomes fall, and they typically face higher tax rates. As a result, they become extremely defensive. Quite often, they are motivated to move their money out of the country (which contributes to currency weakness), dodge taxes, and seek safety in liquid, noncredit-dependent investments (e.g., low-risk government bonds, gold, or cash).

The real nemesis of the modern economy is ecological collapse. Both scientific progress and economic growth take place within a brittle biosphere, and as they gather steam, so the shock waves destabilise the ecology. In order to provide every person in the world with the same standard of living as affluent Americans, we would need a few more planets – but we only have this one. If progress and growth do end up destroying the ecosystem, the cost will be dear not merely to vampires, foxes and rabbits, but also to Sapiens. An ecological meltdown will cause economic ruin, political turmoil, a fall in human standards of living, and it might threaten the very existence of human civilisation. We could lessen the danger by slowing down the pace of progress and growth. If this year investors expect to get a 6 per cent return on their portfolios, in ten years they will be satisfied with a 3 per cent return, in twenty years only 1 per cent, and in thirty years the economy will stop growing and we’ll be happy with what we’ve already got. Yet the creed of growth firmly objects to such a heretical idea. Instead, it suggests we should run even faster. If our discoveries destabilise the ecosystem and threaten humanity, then we should discover something to protect ourselves. If the ozone layer dwindles and exposes us to skin cancer, we should invent better sunscreen and better cancer treatments, thereby also promoting the growth of new sunscreen factories and cancer centres. If all the new industries pollute the atmosphere and the oceans, causing global warming and mass extinctions, then we should build for ourselves virtual worlds and hi-tech sanctuaries that will provide us with all the good things in life even if the planet is as hot, dreary and polluted as hell.

The strategy we’ve adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as “the possibility of loss or injury.” —Warren Buffett, 19931

To be sure, the cost of managing capital and of “formal” financial intermediation (that is, the investment advice and portfolio management services provided by a bank or official financial institution or real estate agency or managing partner) is obviously taken into account and deducted from the income on capital in calculating the average rate of return (as presented here). But this is not the case with “informal” financial intermediation: every investor spends time—in some cases a lot of time—managing his own portfolio and affairs and determining which investments are likely to be the most profitable. This effort can in certain cases be compared to genuine entrepreneurial labor or to a form of business activity.

The first concerns how an investor should choose among different types of broad-based index funds. The best-known of the broad stock market mutual funds and ETFs in the United States track the S&P 500 index of the largest stocks. We prefer using a broader index that includes more smaller-company stocks, such as the Russell 3000 index or the Dow-Wilshire 5000 index. Funds that track these broader indexes are often referred to as “total stock market” index funds. More than 80 years of stock market history confirm that portfolios of smaller stocks have produced a higher rate of return than the return of the S&P 500 large-company index. While smaller companies are undoubtedly less stable and riskier than large firms, they are likely—on average—to produce somewhat higher future returns. Total stock market index funds are the better way for investors to benefit from the long-run growth of economic activity.

The combination of loss aversion and narrow framing is a costly curse. Individual investors can avoid that curse, achieving the emotional benefits of broad framing while also saving time and agony, by reducing the frequency with which they check how well their investments are doing. Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough, and may be more than enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes. The typical short-term reaction to bad news is increased loss aversion. Investors who get aggregated feedback receive such news much less often and are likely to be less risk averse and to end up richer. You are also less prone to useless churning of your portfolio if you don’t know how every stock in it is doing every day (or every week or even every month). A commitment not to change one’s position for several periods (the equivalent of “locking in” an investment) improves financial performance.

Here are some of the handicaps mutual-fund managers and other professional investors are saddled with: With billions of dollars under management, they must gravitate toward the biggest stocks—the only ones they can buy in the multimillion-dollar quantities they need to fill their portfolios. Thus many funds end up owning the same few overpriced giants. Investors tend to pour more money into funds as the market rises. The managers use that new cash to buy more of the stocks they already own, driving prices to even more dangerous heights. If fund investors ask for their money back when the market drops, the managers may need to sell stocks to cash them out. Just as the funds are forced to buy stocks at inflated prices in a rising market, they become forced sellers as stocks get cheap again. Many portfolio managers get bonuses for beating the market, so they obsessively measure their returns against benchmarks like the S & P 500 index. If a company gets added to an index, hundreds of funds compulsively buy it. (If they don’t, and that stock then does well, the managers look foolish; on the other hand, if they buy it and it does poorly, no one will blame them.) Increasingly, fund managers are expected to specialize. Just as in medicine the general practitioner has given way to the pediatric allergist and the geriatric otolaryngologist, fund managers must buy only “small growth” stocks, or only “mid-sized value” stocks, or nothing but “large blend” stocks.6 If a company gets too big, or too small, or too cheap, or an itty bit too expensive, the fund has to sell it—even if the manager loves the stock. So

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The ideal way to dollar-cost average is into a portfolio of index funds, which own every stock or bond worth having. That way, you renounce not only the guessing game of where the market is going but which sectors of the market—and which particular stocks or bonds within them—will do the best. Let’s say you can spare $500 a month. By owning and dollar-cost averaging into just three index funds—$300 into one that holds the total U.S. stock market, $100 into one that holds foreign stocks, and $100 into one that holds U.S. bonds—you can ensure that you own almost every investment on the planet that’s worth owning.7 Every month, like clockwork, you buy more. If the market has dropped, your preset amount goes further, buying you more shares than the month before. If the market has gone up, then your money buys you fewer shares. By putting your portfolio on permanent autopilot this way, you prevent yourself from either flinging money at the market just when it is seems most alluring (and is actually most dangerous) or refusing to buy more after a market crash has made investments truly cheaper (but seemingly more “risky”).

Thus I dismiss macro prediction as something that will bring investment success for the vast majority of investors, and I certainly include myself in that group. If that’s so, what’s left? While there are lots of details and nuances, I think we can most gainfully spend our time in three general areas: trying to know more than others about what I call “the knowable”: the fundamentals of industries, companies and securities, being disciplined as to the appropriate price to pay for a participation in those fundamentals, and understanding the investment environment we’re in and deciding how to strategically position our portfolios for it.

Unconventional Success: A Fundamental Approach to Personal Investment recommends that investors engage not-for-profit fund management companies to create broadly diversified, passively managed portfolios. Note that most mutual-fund assets rest under the control of for-profit management companies. Not-for-profits represent a contrarian alternative. Note that most individuals’ portfolios contain result-dominating allocations to domestic marketable securities. True diversification represents a contrarian alternative. Note that most mutual funds attempt to beat the market. Market-mimicking strategies represent a contrarian alternative.

Six asset classes provide exposure to well-defined investment attributes. Investors expect equity-like returns from domestic equities, foreign developed market equities, and emerging market equities. Conventional domestic fixed-income and inflation-indexed securities provide diversification, albeit at the cost of expected returns that fall below those anticipated from equity investments. Exposure to real estate contributes diversification to the portfolio with lower opportunity costs than fixed-income investments.

The investor with a long-term horizon begins with a portfolio composed entirely of risky assets. Then, as the investor’s investment horizon contracts, the investor moves assets from high-risk to low-risk positions.

Sensible investors take great care to minimize the tax bill associated with moving assets from the high-risk, long-term portfolio to the low-risk, short-term portfolio. Although the tax code introduces many complexities to investment decision making, as a starting point consider moving taxable long-term assets to the low-risk portfolio, thereby allowing tax-deferred holdings to continue to receive shelter from taxes.

Fortunately for investors, two substantial funds management organizations adhere to high fiduciary standards, adopted in the context of corporate cultures designed to serve investor interests. Vanguard and TIAA-CREF both operate on a not-for-profit basis, allowing the companies to make individual investor interests paramount in the funds management process. By emphasizing high-quality delivery of low-cost investment products, Vanguard and TIAA-CREF provide individual investors with valuable tools for the portfolio construction process. Ultimately, a passive index fund managed by a not-for-profit investment management organization represents the combination most likely to satisfy investor aspirations. Following Mies van der Rohe’s famous dictum—“less is more”—the rigid calculus of index-fund investing dominates the ornate complexity of active fund management. Pursuing investment with a firm devoted solely to satisfying investor interests unifies principal and agent, reducing the investment equation to its most basic form. Out of the enormous breadth and complexity of the mutual-fund world, the preferred solution for investors stands alone in stark simplicity.

Sensible investors avoid corporate debt, because credit risk and callability undermine the ability of fixed-income holdings to provide portfolio protection in times of financial or economic disruption.

The selection of common stocks for the portfolio of the defensive investor should be a relatively simple matter. Here we would suggest four rules to be followed: 1. There should be adequate though not excessive diversification. This might mean a minimum of ten different issues and a maximum of about thirty.† 2. Each company selected should be large, prominent, and conservatively financed. Indefinite as these adjectives must be, their general sense is clear. Observations on this point are added at the end of the chapter. 3. Each company should have a long record of continuous dividend payments. (All the issues in the Dow Jones Industrial Average met this dividend requirement in 1971.) To be specific on this point we would suggest the requirement of continuous dividend payments beginning at least in 1950.* 4. The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say, the past seven years. We suggest that this limit be set at 25 times such average earnings, and not more than 20 times those of the last twelve-month period. But such a restriction would eliminate nearly all the strongest and most popular companies from the portfolio. In particular, it would ban virtually the entire category of “growth stocks,” which have for some years past been the favorites

The ideal way to dollar-cost average is into a portfolio of index funds, which own every stock or bond worth having. That way, you renounce not only the guessing game of where the market is going but which sectors of the market—and which particular stocks or bonds within them—will do the best.

Mutual funds are the ultimate way for a defensive investor to capture the upside of stock ownership without the downside of having to police your own portfolio.

Let’s take one last peek at the Monte Carlo simulation. We won’t penalize the active portfolio for taxes, as we will give it the benefit of the doubt that no one would be silly enough to do active investing in a taxable account. Let’s just say that the active investor acts with human nature and pays the 1.5 percent penalty. So, now the average dollar invested has a 3.5 percent drag comprised of 2.0 percent expenses and 1.5 percent penalty for chasing performance. Running this in the Monte Carlo simulation against Kevin’s 0.23 percent fees, while he watches SpongeBob, creates the odds listed in Exhibit 5.6.

intelligent investor designates a tiny portion of her total portfolio as a “mad money” account. For most of us, 10% of our overall wealth is the maximum permissible amount to put at speculative risk. Never mingle the money in your speculative account with what’s in your investment accounts; never allow your speculative thinking to spill over into your investing activities; and never put more than 10% of your assets into your mad money account, no matter what happens.

The history of stock price movements contains no useful information that will enable an investor consistently to outperform a buy-and-hold strategy in managing a portfolio.

On December 7, 1999, Kevin Landis, portfolio manager of the Firsthand mutual funds, appeared on CNN’s Moneyline telecast. Asked if wireless telecommunication stocks were overvalued—with many trading at infinite multiples of their earnings—Landis had a ready answer. “It’s not a mania,” he shot back. “Look at the outright growth, the absolute value of the growth. It’s big.

All of the above brings us back to our conclusion that the investor has no sound basis for expecting more than an average overall return of, say, 8% on a portfolio of DJIA-type common stocks purchased at the late 1971 price level. But even if these expectations should prove to be understated by a substantial amount, the case would not be made for an all-stock investment program.

Take the five stocks in the Dow Jones Industrial Average with the lowest stock prices and highest dividend yields. Discard the one with the lowest price. Put 40% of your money in the stock with the second-lowest price. Put 20% in each of the three remaining stocks. One year later, sort the Dow the same way and reset the portfolio according to steps 1 through 4. Repeat until wealthy.

The purpose of this chapter is to explain what it means for skillful investors to add value. To accomplish that, I’m going to introduce two terms from investment theory. One is beta, a measure of a portfolio’s relative sensitivity to market movements. The other is alpha, which I define as personal investment skill, or the ability to generate performance that is unrelated to movement of the market. As I mentioned earlier, it’s easy to achieve the market return. A passive index fund will produce just that result by holding every security in a given market index in proportion to its equity capitalization. Thus, it mirrors the characteristics—e.g., upside potential, downside risk, beta or volatility, growth, richness or cheapness, quality or lack of same—of the selected index and delivers its return. It epitomizes investing without value added. Let’s say, then, that all equity investors start not with a blank sheet of paper but rather with the possibility of simply emulating an index. They can go out and passively buy a market-weighted amount of each stock in the index, in which case their performance will be the same as that of the index. Or they can try for outperformance through active rather than passive investing.

Active investors have a number of options available to them. First, they can decide to make their portfolio more aggressive or more defensive than the index, either on a permanent basis or in an attempt at market timing. If investors choose aggressiveness, for example, they can increase their portfolios’ market sensitivity by overweighting those stocks in the index that typically fluctuate more than the rest, or by utilizing leverage. Doing these things will increase the “systematic” riskiness of a portfolio, its beta. (However, theory says that while this may increase a portfolio’s return, the return differential will be fully explained by the increase in systematic risk borne. Thus doing these things won’t improve the portfolio’s risk-adjusted return.)

Active investors have a number of options available to them. First, they can decide to make their portfolio more aggressive or more defensive than the index, either on a permanent basis or in an attempt at market timing. If investors choose aggressiveness, for example, they can increase their portfolios’ market sensitivity by overweighting those stocks in the index that typically fluctuate more than the rest, or by utilizing leverage. Doing these things will increase the “systematic” riskiness of a portfolio, its beta. (However, theory says that while this may increase a portfolio’s return, the return differential will be fully explained by the increase in systematic risk borne. Thus doing these things won’t improve the portfolio’s risk-adjusted return.) Second, investors can decide to deviate from the index in order to exploit their stock-picking ability—buying more of some stocks in the index, underweighting or excluding others, and adding some stocks that aren’t part of the index. In doing so they will alter the exposure of their portfolios to specific events that occur at individual companies, and thus to price movements that affect only certain stocks, not the whole index. As the composition of their portfolios diverges from the index for “nonsystematic” (we might say “idiosyncratic”) reasons, their return will deviate as well. In the long run, however, unless the investors have superior insight, these deviations will cancel out, and their risk-adjusted performance will converge with that of the index.

Active investors who don’t possess the superior insight described in chapter 1 are no better than passive investors, and their portfolios shouldn’t be expected to perform better than a passive portfolio. They can try hard, put their emphasis on offense or defense, or trade up a storm, but their risk-adjusted performance shouldn’t be expected to be better than the passive portfolio. (And it could be worse due to nonsystematic risks borne and transaction costs that are unavailing.) That doesn’t mean that if the market index goes up 15 percent, every non-value-added active investor should be expected to achieve a 15 percent return. They’ll all hold different active portfolios, and some will perform better than others . . . just not consistently or dependably. Collectively they’ll reflect the composition of the market, but each will have its own peculiarities.

Pro-risk, aggressive investors, for example, should be expected to make more than the index in good times and lose more in bad times. This is where beta comes in. By the word beta, theory means relative volatility, or the relative responsiveness of the portfolio return to the market return. A portfolio with a beta above 1 is expected to be more volatile than the reference market, and a beta below 1 means it’ll be less volatile. Multiply the market return by the beta and you’ll get the return that a given portfolio should be expected to achieve, omitting nonsystematic sources of risk. If the market is up 15 percent, a portfolio with a beta of 1.2 should return 18 percent (plus or minus alpha). Theory looks at this information and says the increased return is explained by the increase in beta, or systematic risk. It also says returns don’t increase to compensate for risk other than systematic risk. Why don’t they? According to theory, the risk that markets compensate for is the risk that is intrinsic and inescapable in investing: systematic or “non-diversifiable” risk. The rest of risk comes from decisions to hold individual stocks: non-systematic risk. Since that risk can be eliminated by diversifying, why should investors be compensated with additional return for bearing it? According to theory, then, the formula for explaining portfolio performance (y) is as follows: y = α + βx Here α is the symbol for alpha, β stands for beta, and x is the return of the market. The market-related return of the portfolio is equal to its beta times the market return, and alpha (skill-related return) is added to arrive at the total return (of course, theory says there’s no such thing as alpha). Although I dismiss the identity between risk and volatility, I insist on considering a portfolio’s return in the light of its overall riskiness, as discussed earlier. A manager who earned 18 percent with a risky portfolio isn’t necessarily superior to one who earned 15 percent with a lower-risk portfolio. Risk-adjusted return holds the key, even though—since risk other than volatility can’t be quantified—I feel it is best assessed judgmentally, not calculated scientifically.

Of course, I also dismiss the idea that the alpha term in the equation has to be zero. Investment skill exists, even though not everyone has it. Only through thinking about risk-adjusted return might we determine whether an investor possesses superior insight, investment skill or alpha . . . that is, whether the investor adds value. The alpha/beta model is an excellent way to assess portfolios, portfolio managers, investment strategies and asset allocation schemes. It’s really an organized way to think about how much of the return comes from what the environment provides and how much from the manager’s value added. For example, it’s obvious that this manager doesn’t have any skill: Period Benchmark Return Portfolio Return 1 10 10 2 6 6 3 0 0 4 −10 −10 5 20 20 But neither does this manager (who moves just half as much as the benchmark): Period Benchmark Return Portfolio Return 1 10 5 2 6 3 3 0 0 4 −10 −5 5 20 10 Or this one (who moves twice as much): Period Benchmark Return Portfolio Return 1 10 20 2 6 12 3 0 0 4 −10 −20 5 20 40 This one has a little: Period Benchmark Return Portfolio Return 1 10 11 6 2 8 3 0 −1 4 −10 −9 5 20 21 While this one has a lot: Period Benchmark Return Portfolio Return 1 10 12 2 6 10 3 0 3 4 −10 2 5 20 30 This one has a ton, if you can live with the volatility: Period Benchmark Return Portfolio Return 1 10 25 2 6 20 3 0 −5 4 −10 −20 5 20 25 What’s clear from these tables is that “beating the market” and “superior investing” can be far from synonymous—see years one and two in the third example. It’s not just your return that matters, but also what risk you took to get it.

The key to this matrix is the symmetry or asymmetry of the performance. Investors who lack skill simply earn the return of the market and the dictates of their style. Without skill, aggressive investors move a lot in both directions, and defensive investors move little in either direction. These investors contribute nothing beyond their choice of style. Each does well when his or her style is in favor but poorly when it isn’t. On the other hand, the performance of investors who add value is asymmetrical. The percentage of the market’s gain they capture is higher than the percentage of loss they suffer. Aggressive investors with skill do well in bull markets but don’t give it all back in corresponding bear markets, while defensive investors with skill lose relatively little in bear markets but participate reasonably in bull markets. Everything in investing is a two-edged sword and operates symmetrically, with the exception of superior skill. Only skill can be counted on to add more in propitious environments than it costs in hostile ones. This is the investment asymmetry we seek. Superior skill is the prerequisite for it. Here’s how I describe Oaktree’s performance aspirations: In good years in the market, it’s good enough to be average. Everyone makes money in the good years, and I have yet to hear anyone explain convincingly why it’s important to beat the market when the market does well. No, in the good years average is good enough. There is a time, however, when we consider it essential to beat the market, and that’s in the bad years. Our clients don’t expect to bear the full brunt of market losses when they occur, and neither do we. Thus, it’s our goal to do as well as the market when it does well and better than the market when it does poorly. At first blush that may sound like a modest goal, but it’s really quite ambitious. In order to stay up with the market when it does well, a portfolio has to incorporate good measures of beta and correlation with the market. But if we’re aided by beta and correlation on the way up, shouldn’t they be expected to hurt us on the way down? If we’re consistently able to decline less when the market declines and also participate fully when the market rises, this can be attributable to only one thing: alpha, or skill. That’s an example of value-added investing, and if demonstrated over a period of decades, it has to come from investment skill. Asymmetry—better performance on the upside than on the downside relative to what your style alone would produce—should be every investor’s goal.

The dividend discount model suggests that in an efficient market, the current price of a stock should equal the present value of all expected future dividends, assuming for the sake of simplicity that the investor has no intention of selling the stock. (The present value is sometimes called the discounted value, since the present value of an item is discounted from its value in the future.)

Over the last two decades, unconventional oil and natural gas wells have emerged as the dominant source of energy production in the United States. Despite the complexity of drilling these wells and forecasting production volumes, investors in such assets can take advantage of several mathematical principles to reduce the risk in their portfolios. This article dives into the practical application of the Central Limit Theorem and Law of Large Numbers within the energy sector and explores how the characteristics of unconventional reservoirs and diversified assets can work together to reduce production volatility for investors.

If Benartzi and Thaler are right, the implication is critical: Long-term investors (individuals who evaluate their portfolios infrequently) are willing to pay more for an identical risky asset than short-term investors (frequent evaluation). Valuation depends on your time horizon. This may be why many long-term investors say they don’t care about volatility. Immune to short-term squiggles, these investors hold stocks long enough to get an attractive probability of a return and, hence, a positive utility.

Real estate investment expert, Sief Khafagi is changing the game with short-term rentals. A former techie who worked at Facebook for five years building the second-largest engineering organization across the world, Sief is currently the Co-Founder and CEO of Techvestor. He and his team have helped thousands of investors diversify their portfolios to add real estate and benefit from the success of short-term rental investments. He led the company in building its proprietary sourcing technology.

For the online investor who wants a ‘hands off’ approach to investing, the Wealth Report provides an economic outlook, trading guide and trade advice for Cash Flow strategies and medium-term positioning.Our focus is on the US equity markets, utilizing stock and option strategies such as Covered Calls for an investment portfolio, and Exchange Traded Funds (ETF’s) which provide exposure to global stocks, indices and commodities.To assist in updating you with global market activity, we provide Financial News in terms of the Weekly Economic Outlook written report at the start of each week, outlining our views of market activity, a revision of the previous weeks’ influences, and a discussion of scheduled events for the coming week.

Precious metals are a little better than cash but still a terrible investment from a long-term investor’s perspective.

To be a successful investor, you don't need to take excessive risks and be involved in all sorts of financial instruments. You need to understand your risk appetite and understand a few asset classes well. Stay within your boundaries, and your wealth will grow at a decent pace.

For investors with a mature portfolio, the markets like 1928 to 1945, 1969 to 1977, and 2000 to 2008 can be especially challenging. But for those who have a decade or more until they will need to spend down their portfolio and have future earnings power to save money over time, these terrible market environments are a blessing. In extremely volatile, low-returning markets, savers are consistently being offered stocks at lower prices.

Individual investors have significant advantages over professional money managers. Retail investors, like you and I, have nobody to report. We have no benchmark to beat and have no fear of capital flight. There are no quarter and year ends, and performance is not linked to calendars.

Professional money managers are worried about their annual results and may take irrational decisions to protect their performance record. Individual investors have nobody to report, and yearly performance does not mean anything to them.

It follows from this reasoning that the majority of security owners should elect the defensive classification. They do not have the time, or the determination, or the mental equipment to embark upon investing as a quasi-business. They should therefore be satisfied with the excellent return now obtainable from a defensive portfolio (and with even less), and they should stoutly resist the recurrent temptation to increase this return by deviating into other paths.

Traders, as a group, always fall short of investors.

Thane Stenner is known as a shrewd investor and advisor for high-net-worth wealth portfolios.

The future is so “intrinsically uncertain” that investors should focus heavily on avoiding permanent losses and building “a portfolio that can endure various states of the world.

One is beta, a measure of a portfolio’s relative sensitivity to market movements. The other is alpha, which I define as personal investment skill, or the ability to generate performance that is unrelated to movement of the market.

Buying a mutual fund or ETF does not automatically make you a passive investor. If your mutual fund is actively managed, you are an active investor.

At Silence Hurn, we have an expert team who deliver progressive building consultancy and chartered surveying services for all of our clients. Our skilled team has a wealth of knowledge and expertise in advising developers, landlords, private investors, lenders and homeowners on the entire property life cycle. From acquisition to completion, through design and development, our range of services ensure that you get the best value from your property portfolio.

Portfolio insurance was designed to protect investors from large market declines. Ironically, the cure became the cause.

To conclude this section, let us mention briefly three supplementary concepts or practices for the defensive investor. The first is the purchase of the shares of well-established investment funds as an alternative to creating his own common-stock portfolio. He might also utilize one of the “common trust funds,” or “commingled funds,” operated by trust companies and banks in many states; or, if his funds are substantial, use the services of a recognized investment-counsel firm. This will give him professional administration of his investment program along standard lines. The third is the device of “dollar-cost averaging,” which means simply that the practitioner invests in common stocks the same number of dollars each month or each quarter. In this way he buys more shares when the market is low than when it is high, and he is likely to end up with a satisfactory overall price for all his holdings. Strictly speaking, this method is an application of a broader approach known as “formula investing.” The latter was already alluded to in our suggestion that the investor may vary his holdings of common stocks between the 25% minimum and the 75% maximum, in inverse relationship to the action of the market. These ideas have merit for the defensive investor, and they will be discussed more amply in later chapters.

Just as sensible gamblers take, say, $100 down to the casino floor and leave the rest of their money locked in the safe in their hotel room, the intelligent investor designates a tiny portion of her total portfolio as a “mad money” account. For most of us, 10% of our overall wealth is the maximum permissible amount to put at speculative risk. Never mingle the money in your speculative account with what’s in your investment accounts; never allow your speculative thinking to spill over into your investing activities; and never put more than 10% of your assets into your mad money account, no matter what happens. For better or worse, the gambling instinct is part of human nature—so it’s futile for most people even to try suppressing it. But you must confine and restrain it. That’s the single best way to make sure you will never fool yourself into confusing speculation with investment.

Do not approach the market unless you are willing to think about stocks, first and always, as part-ownership interests in businesses. Be prepared to diligently study the businesses you own, as well as the companies you compete against, with the idea that no one will know more about your business than you do. Do not even start a focus portfolio unless you are willing to invest a minimum of five years (10 years would even be better). Never leverage your focus portfolio. An unleveraged focus portfolio will help you reach your goals fast enough. Remember, an unexpected margin call on our capital will likely wreck a well-tuned portfolio. Accept the need to acquire the right temperament and personality to become a focus investor.

Just as the gambling industry wants people to think they can beat the casino, the investment industry wants investors to think they can beat the market.

U.S. Total Stock Market Index Fund An International Total Stock Market Index Fund A U.S. Total Bond Market Index Fund

In a typical VC portfolio, all the returns are from 20% of the investments. These are the two out of ten investments that are winners. A minimum respectable return for a VC fund is a 20% compound return. For a ten-year VC fund, the fund needs to pay investors 6x their investment to generate a 20% compound return. So those two winners each have to make a 30x return on average to provide investors with the 20% compound return—and that’s just to generate a minimum respectable return.

Two of my favorite portfolio analysis tools are Portfolio Visualizer and DIY.Fund. Portfolio Visualizer is a website which offers several of the best analysis tools for index fund investors, without a fee. On the other hand, DIY.Fund is an analysis tool for individual stock investors.

Readers of this book, however intelligent and knowing, could scarcely expect to do a better job of portfolio selection than the top analysts of the country. But if it is true that a fairly large segment of the stock market is often discriminated against or entirely neglected in the standard analytical selections, then the intelligent investor may be in a position to profit from the resultant undervaluations.

Only three of the groups studied showed up better than the S & P composite (and hence better than the DJIA), viz: (1) Industrials with the highest quality ranking (A+). These advanced 9½% in the period against a decline of 2.4% for the S & P industrials, and 5.6% for the DJIA. (However, the ten public-utility issues rated A+ declined 18% against a decline of 14% for the 55-stock S & P public-utility index.) It is worth remarking that the S & P rankings showed up very well in this single test. In every case a portfolio based on a higher ranking did better than a lower-ranking portfolio. (2) Companies with more than 50 million shares outstanding showed no change on the whole, as against a small decline for the indexes. (3) Strangely enough, stocks selling at a high price per share (over 100) showed a slight (1%) composite advance.

Read the notes.Never buy a stock without reading the footnotes to the financial statements in the annual report. Usually labeled “summary of significant accounting policies,” one key note describes how the company recognizes revenue, records inventories, treats installment or contract sales, expenses its marketing costs, and accounts for the other major aspects of its business.7 In the other footnotes, watch for disclosures about debt, stock options, loans to customers, reserves against losses, and other “risk factors” that can take a big chomp out of earnings. Among the things that should make your antennae twitch are technical terms like “capitalized,” “deferred,” and “restructuring”—and plain-English words signaling that the company has altered its accounting practices, like “began,” “change,” and “however.” None of those words mean you should not buy the stock, but all mean that you need to investigate further. Be sure to compare the footnotes with those in the financial statements of at least one firm that’s a close competitor, to see how aggressive your company’s accountants are. Read more. If you are an enterprising investor willing to put plenty of time and energy into your portfolio, then you owe it to yourself to learn more about financial reporting. That’s the only way to minimize your odds of being misled by a shifty earnings statement. Three solid books full of timely and specific examples are Martin Fridson and Fernando Alvarez’s Financial Statement Analysis, Charles Mulford and Eugene Comiskey’s The Financial Numbers Game, and Howard Schilit’s Financial Shenanigans. 8

Mr. Bogle suggests that owning your age in bonds is a good starting point. So, a 20-year-old would hold 20 percent of his/her portfolio in bonds. By the time this investor reaches 50, the bond portion of the portfolio would have gradually increased, in 1 percent increments, to now represent 50 percent of his portfolio.

While the rich became richer, the taxation policy of the government, instead of correcting this trend, actively strengthened it. One of the first decisions of the first Modi government was to abolish the wealth tax that had been introduced in 1957. While the fiscal resources generated by this tax were never significant, the decision was more than a symbolic one.126 The wealth tax was replaced with an income tax increase of 2 percent for households that earned more than Rs 10 million (133,333 USD) annually.127 Few people pay income tax in India anyway: only 14.6 million people (2 percent of the population) did in 2019. As a result, the income-tax-to-GDP ratio remained below 11 percent. Not only has the Modi government not tried to introduce any reforms to change this, but it has instead increased indirect taxes (such as excise taxes), which are the most unfair as they affect everyone, irrespective of income. Taxes on alcohol and petroleum products are a case in point. As some state governments have also imposed their own taxes, this strategy means that India has one of the highest taxation rates on fuel in the world. The share of indirect taxes in the state’s fiscal resources has increased under the Modi government to reach 50 percent of the total taxes—compared to 39 percent under UPA I and 44 percent under UPA II.128 Modi’s taxation policy, a supply-side economics approach, is in keeping with the managerial rhetoric of promoting the spirit of enterprise that the prime minister, who readily presents himself as an efficiency-conscious “apolitical CEO,” relishes. One of the neoliberal measures the Modi government enacted in the name of economic rationality, right from his very first budget in 2015, was to lower the corporate tax.129 For existing companies it was reduced from 30 to 22 percent, and for manufacturing firms incorporated after October 1, 2019 that started operations before March 31, 2023, it was reduced from 25 to 15 percent—the biggest reduction in twenty-eight years. In addition to these tax reductions, the government withdrew the enhanced surcharge on long- and short-term capital gains for foreign portfolio investors as well as domestic portfolio investors.130

_____________ ___________________, hereby state that I am an investor who is seeking to accumulate wealth for many years into the future. I know that there will be many times when I will be tempted to invest in stocks or bonds because they have gone (or “are going”) up in price, and other times when I will be tempted to sell my investments because they have gone (or “are going”) down. I hereby declare my refusal to let a herd of strangers make my financial decisions for me. I further make a solemn commitment never to invest because the stock market has gone up, and never to sell because it has gone down. Instead, I will invest $______.00 per month, every month, through an automatic investment plan or “dollar-cost averaging program,” into the following mutual fund(s) or diversified portfolio(s): _________________________________, _________________________________, _________________________________. I will also invest additional amounts whenever I can afford to spare the cash (and can afford to lose it in the short run). I hereby declare that I will hold each of these investments continually through at least the following date (which must be a minimum of 10 years after the date of this contact): _________________ _____, 20__. The only exceptions allowed under the terms of this contract are a sudden, pressing need for cash, like a health-care emergency or the loss of my job, or a planned expenditure like a housing down payment or a tuition bill. I am, by signing below, stating my intention not only to abide by the terms of this contract, but to re-read this document whenever I am tempted to sell any of my investments. This contract is valid only when signed by at least one witness, and must be kept in a safe place that is easily accessible for future reference.

Investors tend to pour more money into funds as the market rises. The managers use that new cash to buy more of the stocks they already own, driving prices to even more dangerous heights. If fund investors ask for their money back when the market drops, the managers may need to sell stocks to cash them out. Just as the funds are forced to buy stocks at inflated prices in a rising market, they become forced sellers as stocks get cheap again. Many portfolio managers get bonuses for beating the market, so they obsessively measure their returns against benchmarks like the S & P 500 index. If a company gets added to an index, hundreds of funds compulsively buy it. (If they don’t, and that stock then does well, the managers look foolish; on the other hand, if they buy it and it does poorly, no one will blame them.) Increasingly, fund managers are expected to specialize. Just as in medicine the general practitioner has given way to the pediatric allergist and the geriatric otolaryngologist, fund managers must buy only “small growth” stocks, or only “mid-sized value” stocks, or nothing but “large blend” stocks.6 If a company gets too big, or too small, or too cheap, or an itty bit too expensive, the fund has to sell it—even if the manager loves the stock. So there’s no reason you can’t

Deal-by-deal carry (with loss carry-forward): Also known as an American-style waterfall, this structure entitles a GP to carried interest after each profitable exit from a portfolio investment during the fund’s life, but only after investors have received their invested capital from the deal in question, a preferred return and a “make whole” payment for any losses incurred on prior deals.

Because they so often think they know what’s coming, overconfident investors are forever buying or selling something. And yet they know less than they think they do. The portfolios of those who trade the most underperform the holdings of those who trade the least by an amazing 7.1 percentage points per year.