Saturday, 4 February 2012

Can You Sum Up Your Investing Philosophy in 10 Words?

Associated Press
Abraham Lincoln in 1858
In a speech to the Wisconsin State Agricultural Society in Milwaukee on Sept. 30, 1859, Abraham Lincoln told this anecdote:
“It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words:And this, too, shall pass away.’ How much it expresses! How chastening in the hour of pride!—how consoling in the depths of affliction! ‘And this, too, shall pass away.’  And yet let us hope it is not quite true.”
I was recently reminded of Lincoln’s wonderful speech when someone asked me if I could summarize my investing beliefs in no more than 10 words. I laughed and said, “Of course not!”
But right afterward, I realized to my surprise that I could. I banged this out almost instantly:
Anything is possible, and the unexpected is inevitable. Proceed accordingly.
I asked some leading investors and financial thinkers for their own contributions.  Here are a few:
Determine value.  Then buy low, sell high.  ;-)
—David Herro, chief investment officer for international equities, Harris Associates, and manager of Oakmark International Fund
If everybody wants it, I don’t. Avoid crowds.
—Gus Sauter, chief investment officer, the Vanguard Group
Other people are smarter than you think they are.  Index.
—Laurence B. Siegel, research director, Research Foundation of the CFA Institute
Risk means more things can happen than will happen.
—Elroy Dimson, expert on long-term stock returns, London Business School, and co-author, “Triumph of the Optimists”
Invest for the long term and ignore interim aggravation.
– Charles D. Ellis, director, Greenwich Associates, and author, “Winning the Loser’s Game”
100% of business value depends on the future.
—Bill Miller, chairman and chief investment officer, Legg Mason Capital Management
Plan for the worst. Hope for the best.
—Robert Rodriguez, managing partner, First Pacific Advisors
Control what you can: your savings rate, costs, and taxes.
– Don Phillips, president, fund research, Morningstar
In the end, you cannot take your investments with you.
– Meir Statman, finance professor, Santa Clara University, and author, “What Investors Really Want”
The less portfolio management costs, the more you earn.
—Burton Malkiel, professor of economics emeritus, Princeton University, and author of “A Random Walk on Wall Street”
Own competently managed, competitively advantaged businesses at discounted prices.
—O. Mason Hawkins, chairman and chief executive officer, Southeastern Asset Management
Do the math. Expect catastrophes. Whatever happens, stay the course.
– William J. Bernstein, Efficient Frontier Advisors, and author, “The Four Pillars of Investing”
Fallible, emotional people determine price; cold, hard cash determines value.
—Christopher C. Davis, chairman, Davis Advisors and co-manager, Davis New York Venture Fund
New submissions are also coming in:
Save. Invest long-term. Compounding returns builds. Compounding costs destroys. Courage!
–John C. Bogle, founder, the Vanguard Group
Are you smarter than the average professional investor? Probably not.
– William F. Sharpe, emeritus professor of finance, Stanford University, and Nobel Laureate in economics
Finally, it’s worth remembering that the great investing analyst Benjamin Graham engaged in a similar exercise (also evoking Lincoln’s tale) but came in seven words under our maximum:
In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, ‘This too will pass.” Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.”
—Benjamin Graham, “The Intelligent Investor,” Chapter 20.
In the spirit of Lincoln’s classic anecdote, can you sum up your investing philosophy in no more than 10 words that you believe will be “true and appropriate in all times and situations”?

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