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Michael Mauboussin-How Much Luck in Investing Success?
15-06-2013, 03:36 PM.
Post: #11
RE: Michael Mauboussin-How Much Luck in Investing Success?
from Ben Graham's postscript to the 1971/1972 edition of his seminal book The Intelligent Investor (he is referring to his GEICO investment)

Quote:We know very well two partners who spent a good part of their lives handling their own and other people’s funds in Wall Street. Some hard experiences taught them it was better to be safe and careful rather than to try to make all the money in the world. They established a rather unique approach to security operations, which combined good profit possibilities with sound values. They avoided anything that appeared overpriced and were rather too quick to dispose of issues that had advanced to levels they deemed no longer attractive. Their portfolio was always well diversified, with more than a hundred different issues represented. In this way they did quite well through many years of ups and downs in the general market; they averaged about 20% per annum on the several millions of capital they had accepted for management, and their clients were well pleased with the results.

In the year in which the first edition of this book appeared an opportunity was offered to the partners’ fund to purchase a half-interest in a growing enterprise. For some reason the industry did not have Wall Street appeal at the time and the deal had been turned down by quite a few important houses. But the pair was impressed by the company’s possibilities; what was decisive for them was that the price was moderate in relation to current earnings and asset value. The partners went ahead with the acquisition, amounting in dollars to about one-fifth of their fund. They became closely identified with the new business interest, which prospered.

In fact it did so well that the price of its shares advanced to two hundred times or more than the price of the half-interest. The advance far outstripped the actual growth in profits, and almost from the start the quotation appeared much too high in terms of the partners’ own investment standards. But since they regarded the company as a sort of “family business,” they continued to maintain a substantial ownership of the shares despite the spectacular price rise. A large number of participants in their funds did the same, and they became millionaires through their holding in this one enterprise, plus later-organized affiliates.

Ironically enough, the aggregate of profits accruing from this single investment-decision far exceeded the sum of all the others realized through 20 years of wide-ranging operations in the partners’ specialized fields, involving much investigation, endless pondering, and countless individual decisions.

Are there morals to this story of value to the intelligent investor? An obvious one is that there are several different ways to make and keep money on Wall Street. Another, not so obvious, is that one lucky break, or one supremely shrewd decision – can we tell them apart? - may count for more than a lifetime of journeyman efforts. * But behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplines capacity. One needs to be sufficiently established and recognized so that these opportunities will knock at his particular door. One must have the means, the judgment, and the courage to take advantage of them.

Of course, we cannot promise a like spectacular experience to all intelligent investors who remain both prudent and alert through the years. We are not going to end with J. J. Raskob’s slogan that we made fun of at the beginning: “Everybody can be rich.” But interesting possibilities abound on the financial scene, and the intelligent and enterprising investor should be able to find both enjoyment and profit in this three-ring circus. Excitement is guaranteed.

Veracity requires the admission that the deal almost fell through because the partners wanted assurance that the purchase would be 100% covered by asset value. A future $300 million or more in market gain turned on, say $50,000 of accounting items. By dumb luck they got what they insisted on.

Read more on this GuruFocus article
GEICO - The “Growth Company” That Made The “Value Investing” Careers Of Both Benjamin Graham And Warren Buffett (Wedgewood VIC Presentation)

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16-06-2013, 03:44 PM.
Post: #12
RE: Michael Mauboussin-How Much Luck in Investing Success?
(15-06-2013, 01:03 PM)rogerwilco Wrote:
(15-06-2013, 11:16 AM)KopiKat Wrote: For the rest of us, unless we are real good at stocks analysis + selection, it'd still be best to be very very watchful investors... ie. to immediately remove the stock from our portfolio the moment we have confirmation that there're serious flaws in our analysis...Tongue

Page 6 of the pdf, 'watchful long term investors' do best Tongue

Yes, I saw that. That's why I used 2 very's for people like me... to justify my frequent switching.. Big Grin

In fact, from the same chart, if you're a skillful enough investor, the diff between a Buy & Hold vs Watchful is not that significant. If I were a skilllful investor, I'd stick to Buy & Hold....

In my case, I'd tried the Buy and Hold approach for many years before I realised I'm actually not that skillful after all... Being very very watchful however, seems to have increased my luck substantially...Cool



Quote:Are there morals to this story of value to the intelligent investor? An obvious one is that there are several different ways to make and keep money on Wall Street. Another, not so obvious, is that one lucky break, or one supremely shrewd decision – can we tell them apart? - may count for more than a lifetime of journeyman efforts. * But behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplines capacity. One needs to be sufficiently established and recognized so that these opportunities will knock at his particular door. One must have the means, the judgment, and the courage to take advantage of them.

Have any of you had a similar 'revelation'?

ie. Year in Year out, we stick to the grind of following the biz and financials of different companies, targeting to make 4% to 6% returns (more, if you are more active aka watchful).... As we get more and more familiar with the stocks we're vested, we start to like a couple of those that give us better comfort with their better consistency in P&L + BS.... We start to buy more and more as we fall more and more in love with it over the years as we get to know it better and better.... Before we know it, we're now holding a rather meaningful amount... The share price continues to creep up over the years... Suddenly, our dream is shattered! Someone else (or the major shareholder) had noticed it and decided to do an offer...

Oh well.... a multi-bagger and we happened to be holding a meaningful amount... enough to make a major diff to our lives... Cool

So far, happened to me only once (with Thomson Medical). Luck or Skill? I guess mostly LUCK as I've yet to be able to repeat it (ie. Multi-Bagger + Meaningful Qty)...Confused
=========== Signature ===========
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------

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16-06-2013, 09:23 PM.
Post: #13
RE: Michael Mauboussin-How Much Luck in Investing Success?
I would say try to be patient and wait for >50% crash.

Maintain > 50% cash portfolio. then when market crash 50% just whack in some higher beta mid-caps or blue chips and wait few more years for market peak....

If you look at STI history mostly have increase 3x or more since the last crash.
=========== Signature ===========
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com

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16-06-2013, 11:10 PM.
Post: #14
RE: Michael Mauboussin-How Much Luck in Investing Success?
(16-06-2013, 09:23 PM)BlueKelah Wrote: I would say try to be patient and wait for >50% crash.

Maintain > 50% cash portfolio. then when market crash 50% just whack in some higher beta mid-caps or blue chips and wait few more years for market peak....

If you look at STI history mostly have increase 3x or more since the last crash.
Ha! Ha!
i always say and i say it again, though we can not time the market exactly, we can "take" the time factor out of our investment. Then time becomes your friend, not enemy. In fact in anything, if you can take out the time factor, then you can choose when. No?
=========== Signature ===========
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.

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