From Charles Ellis's book "Winning the Loser's Game", this book was actually written for professional money managers :
- In a loser's game, the outcome is determined by the mistakes made by the loser.
- In amateur tennis, the victor gets a higher score because his opponent is losing even more points.
- So staying back, and keeping the ball in -- is good strategy for amateur tennis players.
- Focus on not making mistakes.
- Regression to the mean is too powerful.
- Despite the enticing appeal of reducing market exposure by astute sales when the securities appear to be overpriced and boldly reinvesting when prices have declined to attractive low levels, market timing does not work.
- So much of the "action" occurs in such brief periods and at times when we are captives of conventional consensus.
- Taking out the 10 best days from a 5 year period, reduced the return from 18% to 12%.
- Impossible to know when the "best" days will occur.
- Better to stay invested waiting for the "best" days rather than miss out.
- So, say the "long-termers", stay invested through the rough times, that's the only sane ways to make sure you're there for the good times!
- Unfortunately, security analysis, does not appear to be a useful or profitable activity. Stocks that investment managers sell after doing fundamental research , and the stocks they don't buy, typically do as well as the stocks they do buy.
- Problem is that security analysis is done so very well by so many.
- You can do more for your portfolio by developing and sustaining wise long-range policies than by skillful manipulations of the individual holdings within the portfolio.
- Time is Archimedes' lever in investing
- Give a portfolio time to evolve.
- Sell when you want to, not when you have to.
- If the time period is long, the wise investor can commit without great anxiety to investments that in the short run appear to be very risky.
- Time transforms investments from least attractive to most attractive.
- 3 types of risks : Price risk (price paid), interest rate risk, business risk (business failure).
- The central fact about both stock group risk and individual stock risk is that "they do not need to be accepted" by the investor. They can be eliminated. Risk that comes from investing in particular market segments or specific issues can be diversified away - to oblivion.
- The great secret for success in long-term investing is to avoid serious losses.
- POLICY is the MOST EFFECTIVE ANTIDOTE to PANIC.
- If a major decision is truly fiduciary in nature, it never needs to be done quickly. Time urgent decisions are never fiduciary.
- The long, sad history of market timing is clear: Virtually nobody gets it right even half the time. And cost of getting it wrong wipes out the occasional gain of getting it right.
- If you find yourself caught up in the excitement or a rising market or distressed by a falling market, STOP. Break it off. Go for a walk and cool down.
- When you feel euphoric, you are probably in for a bruising.
- When you feel down, remember its darkest hour before dawn- and take no action.
- The secret to long-term success is benign neglect.
- Leave compounding alone to do its good work for you.
- Most of our blunders are emotional, not computational. How your investments behave is beyond your control. But how you behave in response to fluctuations is within your control.
