Short–term underperformance doesn’t trouble us; indeed, because it is the price that must sometimes be paid for longer-term outperformance.
Month: March 2015
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The Price Paid For Long Term Outperformance
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Liquidity Paradox
Liquidity can be transient and paradoxical. It’s plentiful when you don’t care about it and scarce when you need it most. Given the way it waxes and wanes, it’s dangerous to assume the liquidity that’s available in good times will be there when the tide goes out.
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Liquidity To Invest
The way to get rich is to keep $10 million in your checking account in case a good deal comes along.
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Never Fear
This country belongs to all of us. We made this country from nothing, from mud-flats… Over 100 years ago, this was a mud-flat, swamp. Today, this is a modern city. Ten years from now, this will be a metropolis. Never fear!
– Lee Kuan Yew, September 1965
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Ride Every Tide
In 1965, I could not, and nobody could, imagine the developments in the world. So, I would say every chance, every tide, every wind, every surf that came our way, we tried to ride on it. And that’s how we got here.
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Imprudent, Uncomfortable Ideas
Non-consensus ideas have to be lonely. By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron. Thus such ideas are uncomfortable; non-conformists don’t enjoy the warmth that comes with being at the center of the herd. Further, unconventional ideas often appear imprudent. The popular definition of “prudent” – especially in the investment world – is often twisted into “what everyone does”.
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Volatility Is Not Risk
Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.
– Warren Buffett, 2014 Berkshire Hathaway Annual Letter