Reading the latest stock tips and macro calls is fun and useful for generating new ideas, but educational articles offer real long-term value. As the proverb goes: “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
At Livewire, our contributors publish a lot of valuable, and often very popular, educational wires. So, we’ve scoured the archives of 2017 and picked out five (and a half) of them for you here.
We’ve provided a brief introduction, highlighted a piece of wisdom from the article, and linked out to the full story. These articles are provided in no particular order.
If you’re wondering what the ‘half’ is, the final article is a very short one that I couldn't help myself from tucking in at the end...
10 characteristics of an outstanding company
Romano Sala Tenna, Katana Asset Management
The articles shared in this selection tend to fall into one of two categories. 1) How to make money. 2) How to avoid losing money.
Romano's one falls into the former category. He draws on over 20 years of experience in investing and discusses the most important things that he looks for when assessing a potential investment.
“While widely reported as the holy grail of investing, what’s not reported is that a ‘sustainable moat’ in its true form is: 1) a truly rare commodity, and 2] unlikely to be as ‘sustainable’ over the long term. Capitalism and the entrepreneurial spirit are wonderful at finding ways through, under or around supposed ‘barriers to entry’.”
How to become a 'Superforecaster'
Chad Slater, Morphic Asset Management
Philip Tetlock’s 2015 book, ‘Superforecasters: The art and science of prediction” made quite a splash in the investing world when it first hit the shelves. Though most people like to think they’re good at predicting the future, most people aren’t as skilled as they think. In this article, Chad discusses some of the common traits of a ‘Superforecaster’, and shares a practical tip that anyone can use to start improving their forecasting skills.
“Changing investments at the wrong time, whether it be investments within a managed fund or single stock names, can wipe out a lot of profit, leaving the average investor much worse off.
So how does one improve this behaviour? The short answer: write a diary/journal. I can hear the collective groan - “what - is that it? A diary!” But like a lot of things in life, the simplest things are often the hardest.”
10 common mistakes for investors to avoid
Harley Grosser, Capital H Management
While the first article in this list is about making good investments, this one is more focussed on avoiding mistakes. As Warren Buffett likes to say, ‘Rule #1 is don’t lose money.’ Though Harley’s focus is at the micro-end of the Australian market, the sound advice in this article could apply to any investor.
“You should never buy or sell a stock based solely on the suggestion of someone else, no matter how highly you view their investing ability. If you enter a stock based solely on the views of another investor, how will you know when to sell it? And even if you make a profit, how will you learn and improve your process for future investments? There are some excellent reports and investment theses shared here on Livewire about companies that may well prove to be stellar investments. But they are only the start of your research, not the end.”
The Psychology of Investing
Mike Taylor, Pie Funds
Fear and greed are powerful emotions that have big impacts on financial markets, but they’re not the only factors at play. In this video and edited transcript, Mike Taylor lays out three common behaviours that can hurt investors’ performance. Frustratingly for both investors and managers, these behaviours affect investors in managed funds just as much as they hurt direct share investors – as demonstrated by the quote below!
“When Peter Lynch, one of the greatest investors of all time, was annualising 29%, he conducted a study. He wanted to know what the average investor in his mutual fund, Magellan, had earned. He found that the average investor had made 5% and many had lost money, this despite the fact he was annualising 29%. This happened because his investors were succumbing to their emotions. When Lynch had a big run, those investors gave him money. When his fund pulled back, they withdrew.”
A quick checklist for safer investments
Geoff Wood, Morphic Asset Management
As Head of Macro and Risk at Morphic Asset Management, it should come as no surprise that Geoff Wood’s contribution is squarely focussed on managing risks. One of the key take-aways here was that investors should be thinking about an exit strategy when entering a position, not when things start to go wrong.
“Plan your exit strategy. Ask yourself, what is it that it's going take either in price movement or fundamental news flow for you to admit that you're wrong? It's really good to think these things through in advance. We say, what does wrong look like? That means that when you're in the heat of the moment and your investments moved against you and you're losing money, you're not selling in a rash moment. You've thought about this in advance and you have a plan to stick to.”
Howard Marks on achieving superior returns
Howard Marks, Oaktree Capital via Livewire
And finally, the ‘half’ alluded to in the headline. Marks sat down with Barry Ritholtz for his Masters In Business podcast early last year. The interview was fascinating and wide-ranging; definitely worth listening to in full if you’ve got a spare 75 minutes. For those who are more time-poor, I shared some of the best quotes in the brief article below.
“What everybody believes – common sense – is factored into the price of the stock. If you’re gonna find a bargain, you have to find the times when consensus is wrong. You have to diverge from consensus, which can only be uncomfortable.”