“Be greedy when other are fearful”. The adjustment you have to make to make it to the equilibrium. A side-note: fearfulness is determined by being afraid of acting the right way in a risky spot.
“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs”. A self-considered success may lead to blurring mind.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. In high variance and high ROI games, where the value grows exponentially, it is better to value bet the tighter, if any, range.
“The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch”. As mentioned before.
“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway”. If one needs a very expensive car, should be able to justify that with either willingness to experience the greatness of its speed, moves, fragrance, etc. Unless the reasoning is reasonable, we have a leak.
“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”. Applied intelligence is a pragmatic intelligence. You accept not being right to be just one step ahead, and therefore have a chance to profit. Two steps ahead means over-fitting and over-adjustment results in a -EV shuffle.
“After all, you only find out who is swimming naked when the tide goes out”. You should always try to improve, knowing how weak you are. For, given that your goals do not touch the sky all that often, you will therefore bump into spots that you consider “good”, and those will refrain you from improvement.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever”. Selling perfect equity is -EV.
“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the Internet. That’s the kind of business I like”. The needs of people are known. Moreover, no sophisticated SVM nor predictive modelling is required to say that. The need, as is, is stable, and for majority does not touch the sky. This is where the one-step further profits.
“Time is the friend of the wonderful business, the enemy of the mediocre”. Mediocre is long-run going to die. Convergence, change of the business model in the market will kill the “product for now”. Wonderful business is, by def., +EV over time, given its value in defining the product, is suitable with the long-term trend (or builds the trend itself – not likely a business for the one-step ahead).
“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table”. Buying a value in need is buying the value way cheaper than its equity in the normal conditions. Assuming the condition is likely to change, but the company may not take the risk of failing during the downswing, the investor helps and therefore wins.
“I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will”. Very important claim. The company for a long-term investment ought to be stable enough to overcome the part of decision three where the company is badly managed.
“Over the long term, the stock market news will be good”. Playing the +EV spot in high variance condition will result in crises but the direction is clear.
+ some additional
“Quantitatively based solutions and asset allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains a riddle wrapped in an enigma.”, Barton Briggs. Indeed, the
EV of the investment lies in the deep understanding of the subject and,as is, is unlikely revealed by a general formula. The formulas may easily allow direction forecast and the machine learning part may allow further learning based on the
formulas. Still, the basic paradigm beneath the investment quality is that we invest in the implied equity and the level of the implied is hard to define with a tool.
“It is absurd to think that the general public can ever make money out of market forecasts.”, Benjamin Graham. The general public would have to act together, otherwise, as such, remains the observer of the high-inertia moves
of the big players. Unless the trend is known, the general public is to lose. As the local trends are unknown, the game is at least high variance.
“The average long-term experience in investing is never surprising, but the short term experience is always surprising. We now know to focus not on rate of return, but on the informed management of risk”, Charles Ellis. As in every game with
the element of luck (which is just the element of local randomness and not luck, but omitting that here), we need to be able to overcome the variance swing and understand the trend. In practise, understanding the trend is very often tough.
“The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don’t always accurately reflect your weight, the markets don’t always accurately reflect that information. Usually they are too pessimistic when it’s bad, and too optimistic when it’s good.”, Bill Miller. To think
about it – too pessimistic when bad, too optimistic when good. Likely true but worth further consideration.
“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.”, John Neff. As noted by Warren Buffett, we should always
invest in equity, as in every game. The equity that brings money though is the equity that will be recognized within a reasonable time frame and offers a sensible ROI.
“An economy is simply the sum of the transactions that make it up. A transaction is a simple thing. Because there are a lot of them, the economy looks more complex than it really is. If instead of looking at it from the
top down, we look at it from the transaction up, it is much easier to understand.”, Ray Dalio. Yes. Still, the transactions that we observe have different meanings and we need to be able to understand what the true meaning
may be. As, it is difficult, it has been even claimed (before) that the general public will not be able to make money out of forecasts.