Interview with the Giants of Investing
Isaac Newton once said
“If I have seen a little further it is by standing on the shoulders of Giants.”
We know from hindsight that Newton was brilliant, if not genius, in the field of science, physics and mathematics. But as he says, he did not get there by himself. He took the wisdom and knowledge of Giants who paved the way before him and made it into his own.
Today, it is my pleasure to bring a roundtable of investing Giants to share their knowledge and wisdom.
We will cover topics of why you should invest, market timing, speculation, patience and being right.
Let’s get the discussion started.
Why Should You Invest?
Jae Jun: I will throw this question out there and anyone can jump in to start the conversation. So why should someone invest in the market?
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
– Robert G. Allen
Jae Jun: (laughs) great point Robert. Especially true during low interest periods like we are having now. It seems like the general public is willing to accept less than 1% in returns, just to avoid volatility when it can be overcome by simply not monitoring your portfolio every day.
Tis goeth down to a fundamental aspect that “An investment in knowledge pays the best interest”
– Benjamin Franklin
Jae Jun: Thank you Mr Franklin. I too can relate to that. Investing certainly has been the best investment to my knowledge and it has paid off so far. By the way, you are still looking as sharp as always on that $100 bill.
Valuation
A topic that frequently comes up in investing is valuation. I have written about the valuation methods that I use which includes Benjamin Graham’s valuation, DCF, EPV and asset valuation. All of which are available in the stock value calculator.
What is your opinion on valuation?
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
– Philip Fisher
Jae Jun: Ah ha. There certainly has to be a clear distinction between the two. Your mentee in Warren Buffett must have gotten this idea from you when he said…
” Price is what you pay, value is what you get”
– Warren Buffett
Jae Jun: You read my mind Warren. I know Bill Gates is waiting for you to finish off your bridge game, but what about you? What are your thoughts on valuation?
“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”
-Warren Buffett
“I have nothing to add.”
– Charlie Munger
Jae Jun: Great Mungerism and truly Buffettesque.
Market Volatility
Jae Jun: Let’s face it. Everyone has made a mistake here and there by acting irrationally because of market volatility. So what can we do to improve our behavior and way of thinking about this?
“Bottoms in the investment world don’t end with four-year lows; they end with 10 or 15-year lows.”
– Jim Rogers
I will also add that “In investing, what is comfortable is rarely profitable.”
– Robert Arnott
Jae Jun: But how can you tell when being uncomfortable is the right thing?
In other words, when is the best time to buy?
“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell” and do not forget that “The four most expensive words in the English language are, ‘This time it’s different.”
– Sir John Templeton
As Sir John Templeton has pointed out, “You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
– Peter Lynch
“BOOYAH” Lynchy, “Every once in a while, the market does something so stupid it takes your breath away.” That’s when you should “BUY, BUY, BUY!”.
– Jim Cramer
Jae Jun: Mr Livermore, you have been very quiet. What do you tell people about volatility in the markets?
“I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up.”
– Jesse Livermore
Jae Jun: A friend of mine kept asking me what I had in my portfolio and I mentioned the reasons why I like GRVY. He then told his friend who took it as a buy recommendation and bought it at the peak. He sold out with a big loss. I understand where you are coming from.
This leads us to the topic of…
Speculation
“The individual investor should act consistently as an investor and not as a speculator.”
– Ben Graham
Jae Jun: but what is the difference between the two?
“As a speculator you must embrace disorder and chaos.”
– Louis Bacon
Jae Jun: Nice way of putting it. By speculating that a price will go up or down, you are really leaving it up to the hands of the market without any control or understanding.
“Know what you own, and know why you own it.”
– Peter Lynch
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Jae Jun: I admire you for being consistent with your words and actions Peter. Your portfolio was always filled with companies that were easy to understand and something any average person could identify with.
Patience
Jae Jun: On the flip side of speculation, we have patience which is a key aspect of investing.
“Time is your friend; impulse is your enemy.”
– John Bogle
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
– Paul Samuelson
Jae Jun: and you will probably have more fun losing $800 at a casino than losing it in the market.
“If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.”
– Charlie Munger
“This company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.”
– David Tepper
Jae Jun: Reminds me of what Henry Kravis said. “It’s one of the most important things at the end of the day, being able to say no to an investment.”
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.”
– Peter Lynch
Jae Jun: and a company does not go from being small to big over night. Thank you Mr Lynch. You are very talkative today.
Being Right
As we wrap up this roundtable, how successful and correct do you have to be with your investments to be considered good?
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
– George Soros
Jae Jun: That’s similar to what Daniel Sparks wrote in his post this week where he talked about the magnitude of correctness and losses.
“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”
– Peter Lynch
Jae Jun: Great way to end it Peter. Thank you for sharing your wisdom from experience.
(applause)
Disclosure
Anything outside quotation marks are the words of Jae Jun.
