“You never know who’s swimming naked until the tide goes out…”
This is one of my favorite Warren Buffett quotes. What on earth does that have to do with investing, you might ask?
Well, you never really know how exposed your investment positions are until they are stressed or suffer adverse conditions. In a booming market or economy we don’t worry as much about our debts or safety nets.
Buffet said this as he was talking about the folly of large financial institutions during the banking crisis of 2008. Everything looks great until something bad happens.
It’s like living in a house that is poorly constructed. You might be fine and everyone happy, but if you have an earthquake, the shortcomings of the builder will come to the forefront. Until that happens, you may not know what the problems are for a while. Most likely the property will erode over time. And dear reader, a stock or bond will do exactly the same thing.
There is wisdom in such sayings. As an avid and voracious reader, I have a lot of favorite quotes and sayings that I’ve collected over the years. I thought it would be fun to share them with you here.
Let’s take a look at some more of my favorites…
“A 60-40 investment allocation to passive long only stocks and bonds has been a great proposition for the last 35 years… we are profoundly worried that this could be a risky allocation over the next 10…” Sanford Bernstein
Sanford Bernstein is a venerable Wall Street investment firm. They made this statement back in 2017 — maybe a bit early, but not wrong, in my opinion.
Here are a few quotes from the investing legend John Templeton. JT seeded his fortune during the Great Depression by recognizing the tremendous values available after the stock market crash of 1929:
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria…”
I wonder what John would think today???
Here are two more…
“Focus on value because most investors focus on outlooks and trends…”
“If you want to have a better result than the crowd, you must do differently than the crowd.”
The religiously devout Templeton practiced what he preached, first buying when everyone hated stocks in 1930 and then moving to the Bahamas where he ran his iconic firm above a drugstore. “Too much chatter in New York. You have to get out and think for yourself.”
Jeremy Grantham‘s career is as lengthy and respected as Templeton’s. Grantham’s firm may be most remembered for predicting, “correctly” I might add, the horrible returns coming down the pike in 1998. Euphoria was rampant and Grantham’s data driven firm told everyone the party was over, stating, “The US stock market is likely to produce zero returns for the next decade.” Here’s some more of Jeremy’s wisdom:
“At least one old man remembers what a real bear market is like, the young haven’t got a clue.”
“You don’t get rewarded for taking risk; you get rewarded for buying cheap assets. And if the assets you buy get pushed up simply because they were risky, then you’re not going to be rewarded for taking risk; you are going to be punished for it.”
Grantham remembers bear markets and has done quite well in them. It’s important to understand his firm’s call in 1998 wasn’t a prediction. It was a data driven probability exercise. Asset prices revert to the mean over time. That means simply what is overvalued reverts back to its normal price range and what is undervalued soon becomes recognized for its attractiveness and goes up. From 1999 to 2009 the S&P 500 basically went nowhere. Grantham’s firm GMO did quite well loading up on value and rewarding their clients when most just treaded water.
And then there’s Howard Marks whose credentials are unparalleled. The founder of Oaktree Capital has steadily beat the markets for nearly 5 decades. His “notes” are so well respected that he published a book of them. Here are a few:
“Returns over short periods of time say very little about the quality of investment decisions.”
“What the wise man does in the beginning the fool does in the end.”
“Investment success doesn’t come from ‘buying good things’ but rather from ‘buying things well.’”
“People should like something less when its price rises, but in investing they often like it more.”
Like so many other famous investors, its clear Marks doesn’t spend time on market analysis but is obsessed with price.
Of course this list wouldn’t be complete without quotes from Warren Buffett.
“Risk comes from not knowing what you are doing.”
“Predicting rain doesn’t count. Building arks does.”
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
Buffett also famously said, “Next time I try to invest in an airline I hope Charlie [Munger] talks me down.” His affection for transportation metaphors aside there is great wisdom here.
First of all, the danger of ignorance or not knowing what you don’t know is no greater or apparent than in investing markets. Being honest with yourself and staying away from investments you don’t understand is prudent. Buffett and Munger often pass on investment ideas that are too hard.
Building arks cuts right to the core of what we are trying to do at CSH Investment Management. In fact, if you diligently build arks, the rain is almost a welcome sight. Because when it comes, you can embrace it, not flail your arms all about.
And last but not least, there’s Charlie Munger.
“The big money is not in the buying and the selling but the waiting…”
“Those who keep learning keep rising.”
“People are always trying to be smart, all I’m trying to do is not be idiotic, but it’s harder than you think…”
“Invert. Always invert.”
Munger had great investment success even before he met Warren Buffet in the 1960’s.
“Failure is instructive. Just look at all the stupid things people do and don’t do that.”
Sometimes that’s harder than it looks, of course.
Invert simply means looking at every situation from the other person’s perspective. If it is a business deal, what does the guy on the other side want? What is his motivation? Incentives?
If it’s an investment, why is the guy on the other side selling? Is there something I don’t know? Does he merely need the money? Is it forced selling? Always understand the other side. It might keep you from making a mistake.
Turn on the TV and everybody’s forecasting something. Here is what a couple of greats said about that:
“There are two classes of forecasters; those who don’t know and those who don’t know they don’t know…” John Kenneth Galbraith
“All these people see the same data, read the same material, and spend their time trying to guess what the other one will say. Their forecasts will be moderately right, and almost never of much use…” Milton Friedman
When asked how he thought he would be remembered, Charlie Munger replied:
“Probably as a wiseass…”
“If you want to have a better result than the crowd, you must do differently than the crowd.” John Templeton
“Returns over short periods of time say very little about the quality of investment decisions.” Howard Marks
“Predicting rain doesn’t count. Building arks does.” Warren Buffet
“Those who keep learning keep rising.” Charlie Munger
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