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The Seven Immutable Laws of Investing
Old 03-09-2011, 11:05 AM   #1
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The Seven Immutable Laws of Investing

James Montier at GMO just released this.https://www.gmo.com/America/CMSAttac...XNKDBi1g%3d%3d
A very good read. Registration (free) is required. His summary:

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand

It helps to be reminded of these things every once in a while.
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Old 03-09-2011, 11:44 AM   #2
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Quote:
Originally Posted by MichaelB View Post
James Montier at GMO just released this.https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IICdX%2b V0NVGN36BKEd%2fofEal42xb5FhOuMHIf6QU%2b7vg7UJtIeYO kXue%2bOb%2bUXUhu8ZBMMF1ZmP98sWp3Zh09IBEEyuWGp9d 5w3tXNKDBi1g%3d%3d
A very good read. Registration (free) is required. His summary:

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand

It helps to be reminded of these things every once in a while.
This guy is smart, as is anyone connected with GMO. But I forget myself, smart, stupid, it's all the same in the wonderful world of modern investing.

Let me give Bogleish counterpoints to these 7 points:

1) Sheer arrogance. Who are you to know these things? Time in the market, not (well you know)...
2)Ditto #1
3)Ditto #1
4)Ditto #1
5) Risk is a number, it's called SD as a precise mathematical expression of volatility. Haven't you ever heard of MPT?
6)OK, we agree on this one.
7)Always invest in things you don't understand. How could you possibly understand total bond index, or Russell 3000? I doubt that even Frank Russell could understand this one.

Ha
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Old 03-09-2011, 02:26 PM   #3
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I'll agree on all of haha's disagreements, except maybe this one:

Quote:
Originally Posted by haha View Post
5) Risk is a number, it's called SD as a precise mathematical expression of volatility. Haven't you ever heard of MPT?

Ha
I think we investors confuse volatility with risk. Something can be quite volatile, yet have a fairly low chance of going near zero if there is some foundation of value beneath it.

Another investment may traditionally be very stable, until suddenly the bottom falls out, and it's worthless.

Volatility is a number, I think 'risk' is much more complex, and much of it is in the eye of the beholder.

-ERD50
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Old 03-09-2011, 02:47 PM   #4
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I thought the first rule was "Buy low, sell high"

That's just as easy to follow as some of the others.
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Old 03-09-2011, 03:36 PM   #5
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Quote:
Originally Posted by ERD50 View Post
I'll agree on all of haha's disagreements, except maybe this one:



I think we investors confuse volatility with risk. Something can be quite volatile, yet have a fairly low chance of going near zero if there is some foundation of value beneath it.

Another investment may traditionally be very stable, until suddenly the bottom falls out, and it's worthless.

Volatility is a number, I think 'risk' is much more complex, and much of it is in the eye of the beholder.

-ERD50
We agree on this too- remember I was channeling a Boglehead. I agree with you, and with Montier, Buffett and many others- risk is a chance of permanent loss of capital. My whole post is a satire.

Ha
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Old 03-09-2011, 04:39 PM   #6
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My first rule of investing is "Belt, suspenders, and duct tape." My second is "It's better to be lucky than good." YMMV.
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