I love to read, and when I come across words that strike me as particularly wise, I often write them down. It struck me the other day that some of these words can be applied to investing. So here, in chronological order, are some quotations and their implications.
Heraclitus was one of the first philosophers, even before Socrates, and is perhaps my favorite of them all.
The most beautiful order of the world is still a random gathering of things insignificant in themselves.
Next time you see an especially convincing chart touting some technical analysis or market-timing breakthrough, remind yourself of this.
Hidden connections are stronger than obvious ones.
The connection between the price of a stock and its intrinsic value is obvious. Here is the price, here is what it’s worth, and one should correspond to the other. But this is an extremely weak connection, since the price will shoot up or come crashing down on the slightest provocation. The connection between a company’s free cash flow and its ability to generate growth, on the other hand, is hidden by a multitude of other numbers. And it’s pretty strong. The object of the savvy investor is to uncover hidden connections.
Kohelet is the pseudonym of the author of the book of Ecclesiastes (the title of which is a Latin mistransliteration of that name). This is one of my favorite books of the Bible, and some folks claim it was written by King Solomon, one of my ancestors.
In the day of prosperity be joyful, but in the day of adversity consider: God also hath set the one over against the other, to the end that man should find nothing after him.
I like to paraphrase this as follows: The only reason for God’s actions is to prevent us from predicting them. One could say exactly the same thing about Mr. Market. Think of the current euphoria in equities this way: the real reason for it is to confound money managers.
Dante wrote the Inferno, which traces a visit to Hell, a playground just a few feet under Wall Street. One of the people who live there told him,
. . . we can behold
Remote things well, for so much light does He
Who rules supreme still grant us; but we are foiled
When things draw near us, and our intelligence
Is useless when they are present. . . . (translated by Robert Pinsky)
This denizen must have been an investor, since investors have no idea what the price of a stock will be tomorrow but are absolutely certain that it will be higher a year from now.
Søren Kierkegaard is one of my other favorite philosophers. He wrote an entire book about boredom (Either/Or), and it’s not the least bit boring.
Life can only be understood backwards, but it must be lived forwards.
Now that’s what backtesting is all about. And why getting good out-of-sample performance can be so hard.
Rainer Maria Rilke was a poet full of advice, so he inadvertently founded the self-help movement. He would have been horrified by it, though. One thing he said gives the lie to it all:
We must hold to what is difficult.
Apply this with appropriate seriousness to investing. We’re always presented with easy ways to make money, only to find that they don’t actually work. We must embrace difficulty if we’re going to succeed.
Sugar Ray Robinson was not just the greatest boxer in history, but came up with a line that has long struck me as applicable to all sorts of endeavors:
The best is always fragile.
You can apply that to investing in numerous ways. For instance, your most successful investment is the one most likely to collapse. Or the thing that makes you richest is also the riskiest. Or the peak of your wealth will likely be followed by your biggest drawdown.
This brings me to our next poet, James Merrill, a great American writer. One of his most brilliant lines is:
Au fond each summit is a cul-de-sac.
That’s a great thing to keep in mind the next time your portfolio reaches a new high.
Tom Waits is my last poet/philosopher today. His interviews are as entertaining as his music, and in one of them, he said:
There is no such thing as truth. People who really know what happened aren’t talking. And the people who don’t have a clue, you can’t shut them up.
Yes, we can apply the “people who don’t have a clue” bit to President Trump. But we can also apply it to stock market commentators, economic prognosticators, and all those people trying to pitch you some magic formula that will make you rich. And the “people who really know what happened” have all signed non-disclosure agreements.
As for the words of wisdom of actual investors, well, someone else can give that a shot—and websites like ValueWalk.com do so every day. But I’ll leave you with one aperçu, from George Soros, a man well worth listening to:
The prevailing wisdom is that markets are always right. I take the opposite position. I assume that markets are always wrong.
Amen to that.
My top ten holdings right now: CERC, HDNG, FWP, NWY, WSTL, CTG, ZYXI, BBRG, GSL, HURC.
CAGR since 1/1/2015: 57%.
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