Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.
If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?
We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'
It's easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial.
Would you rather be the world's greatest lover, but have everyone think you're the world's worst lover? Or would you rather be the world's worst lover but have everyone think you're the world's greatest lover? Now, that's an interesting question.
Take the probability of loss times the amount of possible loss from the probability of gain times the amount of possible gain. That is what we're trying to do. It's imperfect, but that's what it's all about.
There are three important principles to Graham's approach. [The first is to look at stocks as fractional shares of a business, which] gives you an entirely different view than most people who are in the market. [The second principle is the margin-of-safety concept, which] gives you the competitive advantage. [The third is having a true investor's attitude toward the stock market, which] if you have that attitude, you start out ahead of 99 percent of all the people who are operating in the stock market - it's an enormous advantage.
Most investors, both institutional and individual, will find that the best way to own common stocks (shares') is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) of the great majority of investment professionals.
That goes back to 1932, although it was really implemented in '33 under Jesse Jones, and it invested in mostly banks initially and preferred stock and that sort of thing. So there are two things needed in the system, the one that's needed overwhelmingly is liquidity. I mean, when people are trying to [unintelligible], there has to be somebody there to buy.
Having a large amount of leverage is like driving a car with a dagger on the steering wheel pointed at your heart. If you do that, you will be a better driver. There will be fewer accidents but when they happen, they will be fatal.
Market prices for stocks fluctuate at great amplitudes around intrinsic value but, over the long term, intrinsic value is virtually always reflected at some point in market price.
Risk comes from not knowing what you are doing so wide diversification is only required when investors are ignorant. You only have to do a very few things in your life so long as you don't do too many things wrong.