- Upon hearing of the riches of billionaires, Catch-22 author Joseph Heller replied: “Yes, but I’ve got something he can never have…enough”.
- We too often obsess over the transitory and meaningless, but fail to cherish the priceless and eternal. “Your diamonds are not in distant mountains or in yonder seas; they are in your own backyard, if you but dig for them.”
- “Success is not the key to happiness; happiness is the key to success.” Research shows happiness is a combination of: 1) autonomy, 2) maintaining connection with people; 3) exercising competence.
- Too much cost, not enough value.
- Financial intermediaries (fund managers, investment bankers, pension and trust managers, brokers, advisors, lawyers, accountants, and even the government) extract too huge a cost from investor returns.
- To consider a career in investment management: 1) don’t let money alter your conscience, 2) minimize investment costs, 3) hold professional values and do good for the client.
- Too much speculation, not enough investment.
- Keynes defines investment as forecasting the prospective yield of an asset over its entire life, while speculation as forecasting the market.
- From 1900 to 2007, the returns on stocks was 9.5%: 4.5% from dividend yield and 5.0% from earnings growth—entirely investment (not speculative or multiples expansion) returns.
- For investors as a group, there is no market-timing. Every seller has a buyer. In aggregate, everyone owns the market portfolio. Therefore, trading incurs unnecessary costs that are extracted by intermediaries.
- Too much complexity, not enough simplicity.
- $60 trillion in credit default swaps against only $2 trillion in credits. $600 trillion in derivative total notional amounts, only $60 trillion of world GDP.
- The past 25 years (ended 2005): S&P index fund: 12.3%, average active equity fund: 10.0%; average investor returns: 7.3%. Cumulative index returns 37% higher than investor returns!
- Warren Buffett: “there are three i’s in every cycle: first the innovator, then the imitator, then the idiot.”
- More than half of mutual funds in existence in 2001 had folded within seven years; more than half of mutual fund managers have zero investment in their own fund.
- Too much counting, not enough trust.
- “Not everything that counts can be counted and not everything that can be counted counts.”
- The government produces inaccurate numbers: GDP (imputed income), unemployment rate (excludes discouraged, part-time, and Social Security disabled workers), CPI (product substitution, hedonic adjustment, owner-equivalent rent).
- Project future returns based on the sources of returns (dividend yield, earnings growth, P/E, inflation) rather than (even long-term) historical returns. Non-intuitively, high historical returns should imply lower expected future returns, and vice versa.
- Too much business conduct, not enough professional conduct.
- Focus on the creation of wealth (and value); not on the redistribution of wealth (the domain of government, law, and finance).
- Too much salesmanship, not enough stewardship.
- 1950’s: 13% of funds failed; average 0.77 expense ratio. 2000’s: 60% of funds failed; average 1.50% expense ratio.
- Too much management, not enough leadership.
- The manager does things right; the leader does the right thing. The manager imitates, the leader originates.
- Treat clients and employees fairly, candidly, empathetically, and with integrity.
- To build an organization: care, treat employees like partners, keep high standards and values, don’t over-manage, recognize individuals, be loyal, take a long-term view, be persistent.
- Too much focus on things, not enough focus on commitment.
- Ecclesiastes: “The race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill, but time and chance happeneth to all of them.”
- Damon Runyon: “The race may not always be to the swift nor the battle to the strong, but that’s the way to bet.”
- Be bold—boldness has genius, power, and magic behind it. Be committed—until one is committed, there is hesitancy, always ineffectiveness. Avoid shortcuts—if a job is to be done, best to do it right.
- Too many 21st century values, not enough 18th century values.
- Facts are everywhere but wisdom is in short supply. “Where is the Life we have lost in living? Where is the wisdom we have lost in knowledge?”
- The joy of creating, of simply exercising one’s energy and ingenuity. The will to conquer, to succeed for the sake, not the fruits, of success, but of success itself.
- Adam Smith’s Impartial Spectator: “it is not the love of mankind, which prompts us to the practice of divine virtues. It is a stronger love, a more powerful affection, the love of what is honorable and noble, the grandeur, and dignity, and superiority of our own character.”
- Too much “success”, not enough character.
- Success not defined by conventional measures (wealth, fame, and power), but by personal character and contribution to society.
Finished: 25-Dec-2008