The most important thing in investing is…

The most important thing is….

1. Second level thinking: different than the norm and better than the norm.

2. Understanding market efficiency and its limitations

3. Value investing: current value is high relative to current price; future value is high enough relative to current price to give a decent return

4. Relationship between price and value; buying cheap is clearly the most reliable

5. Understanding risk: higher risk=higher expected returns, possibility of lower returns and possibility of losses. For investors it is the possibility of permanent loss of capital.

6. Recognising risk: depends on the price at which something is bought. Too high-too much risk, too low- no risk sometimes

7. Controlling risk: Think as to how much you can lose and how you can decrease the chance of it.

8. Being attentive to cycles: most things will prove to be cyclical. Some of our greatest opportunities for gain and loss comes when other people forget that.

9. Awareness of the pendulum: Greed versus fear

10. Combating negative influences: combination of greed and optimism with no regard for prices and hoping for a better return always will almost always lead to losses

11. Contrarianism: buy when others are despondently selling and to sell when others are euphorically buying

12. Finding bargains: Investment is the discipline of relative selection. Little known, not fully understood, fundamentally questionable on the surface, controversial, unseemly or scary, deemed inappropriate for respectable portfolios, unappreciated, unpopular and unloved, trailing a record of poor returns, recently the subject of divestment not accumulation are things that might prove as bargains

13. Patient opportunism: wait for your opportunity,

14. Knowing what you don’t know: therefore having a margin of safety

15. Having a sense of where we stand– market assessment- fear or greed or inbetween

16. Investing defensively: margin of safety

17. Avoiding pitfalls

18. Adding value: better than the index, at the very least

19. Putting it all together

notes from the book


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