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Investment Wisdom from Others
galumay:
The insanity of bubble-like valuations was well captured by Scott McNealy in a 2002 interview in Business Week when he was still CEO of Sun Microsystems (source: James Montier, Soci�t� G�n�rale, Cross Asset Research Group),
�But two years ago we were selling at ten times revenues when we were at U$64. At ten times revenues, to give you a ten-year payback, I have to pay you 100% of revenues for ten straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes that, with zero R&D for the next ten years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at U$64? Do you realize how ridiculous those basic assumptions are? You don�t need transparency. You don�t need footnotes. What were you thinking?�
galumay:
The Nomad letters to investors,
https://www.igyfoundation.org.uk/wp-content/uploads/2021/03/Full_Collection_Nomad_Letters_.pdf
galumay:
Peter Bernstein
In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.
The riskiest moment is when you�re right. That�s when you�re in the most trouble, because you tend to overstay the good decisions. Once you�ve been right for long enough, you don�t even consider reducing your winning positions. They feel so good, you can�t even face that. As incredible as it sounds, that makes you comfortable with not being diversified. So, in many ways, it�s better not to be so right. That�s what diversification is for. It�s an explicit recognition of ignorance.
And I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place. I want to make sure I�m exposed to it. Somebody once said that if you�re comfortable with everything you own, you�re not diversified.
Pascal�s Wager doesn�t mean that you have to be convinced beyond doubt that you are right. But you have to think about the consequences of what you�re doing and establish that you can survive them if you�re wrong. Consequences are more important than probabilities.
[For the first time in history,] stocks began to yield less than bonds, and it was not something tentative. The lines crossed without any period of hesitation and just kept on going. It was just, zzzoop! All my older associates told me that it was an anomaly and it could not last. To understand why that happened and what that meant � and to recognize that what was accepted wisdom for a couple hundred years could turn out to be wrong � was very important. It really showed me that you don�t know. That anything can happen. There really is such a thing as a �paradigm shift,� when people�s view of the future can change very dramatically and very suddenly. That means that there�s never a time when you can be sure that today�s market is going to be a replay of a familiar past.
Markets are shaped by what I call �memory banks.� Experience shapes memory; memory shapes our view of the future. In 1958, younger people were coming in who had a different memory bank, who did not carry all that extra baggage of depression and world war and tariffs. The bond market went down and the stock market didn�t go down, because people with a different memory bank didn�t know that wasn�t �supposed� to occur. That�s also what happened [in 1999] when tech stocks were enormously exciting; most of the new participants in the market had no memory of what a bear market is like, and so their sense of risk was muted.
A: It�s hard to improve on that. In the 1960s, in �A Modest Proposal,� I suggested that companies should be required to pay out 100% of their net income as cash dividends. If companies needed money to reinvest in their operations, then they would have to get investors to buy new offerings of stock. Investors would do that only if they were happy both with the dividends they�d received and the future prospects of the company. Markets as a whole know more than any individual or group of individuals. So the best way to allocate capital is to let the market do it, rather than the management of each company. The reinvestment of profits has to be submitted to the test of the marketplace if you want it to be done right.
https://jasonzweig.com/a-long-chat-with-peter-l-bernstein/
galumay:
galumay:
https://www.valuewalk.com/2015/07/peter-lynchs-investing-principles-and-25-golden-rules/
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