(no title)
qwrusz | 9 years ago
Also maybe worth mentioning the quote is based on a well known "2 Rules" phrase format. For example:
“There are 2 rules of life. Rule number 1 is ‘Never quit.’ And rule number 2 is ‘Don’t forget rule number 1.’” - Duke Ellington
and
"There are 2 rules for success. Rule 1: Never tell everything you know. Rule 2:.. ;)"
OK with that said, I wouldn't overthink the quote. Obviously you can't really guarantee you will "never lose money" and so it's not really a rule and even Buffett loses money sometimes.
If I had to guess what he means: I would say use the quote as fun/serious reminder to think about risk ahead of reward and remember concepts like margin of safety that help protect you from loses even if a stock doesn't go up like you expect and hope.
nstj|9 years ago
eg: You have $100k in your investment account. You have a bad year and lose 50% of your money, leaving you with $50k. You now need to have a 100% return in the next year to just make your money back, even though you only had a 50% loss. Seth Klarman, another highly successful value investor like Buffett is also a proponent of this way of thinking.
qwrusz|9 years ago
May I ask, did you read my full comment?
And do you know the definition of facetious?
I'm not trying to be rude, I just don't understand why you wrote what you wrote.
For example: when you mention "his mentor Ben Graham" did you think I had not heard of Ben Graham or that I didn't know he was Buffett's mentor so you added that too?
Granted it's possible I hadn't. Or maybe you wrote it as a courtesy in case other readers hadn't heard of him? I ask because you saw in my first comment I am quoting Buffett. Then in my reply to waqf I write about Buffett again, his mannerisms and his track record...So maybe I know at least a little bit about the guy. Maybe?
But then at the end of my comment I not only write the concept of "margin of safety", I put it in italics to emphasize it. How did you see that and still wrote what you wrote?
How can someone know the concept of Margin Of Safety and not know Graham? Margin of Safety comes from Ben Graham. "Margin of Safety" is the Title of Chapter 20 of his book The Intelligent Investor; where Graham explains what it is in detail. Plus he just talked about MoS all the time and called it the "central concept of investment". MoS is Ben Graham.
Also heads up. Margin of Safety is also the title of Seth Klarman's whole book. Have you heard about Seth Klarman or his book Margin of Safety? After reading your comment in full I am guessing you may have. If you haven't, it's worth looking up and has an interesting story attached (at one point the book was being stolen from libraries and going for thousands of dollars on eBay. Madness!). Also if you are into investing of any kind, not just value investing, I recommend reading the book. Very good.
Anyway sorry if this is weird or rude or has gotten too long. I'd really love to understand where I am not writing clear enough. Thanks.
Also as for "facetious". Seriously look up the word. If this is a real rule how do you follow "never lose money"? I'll wait.
In the meantime a rule is a prescribed guide for conduct or action. Someone can lose money from forces out of their control. It's like telling someone "Rule 1 of driving: Never get into a car accident". That's not a rule. You can't follow that rule. Someone could hit you even when you are driving perfectly. Rule broken. A real rule would say something like "always drive the speed limit" or "Never text and drive". Those are rules you can follow or break. I'll let you figure out the real rule here for Buffett (hint look in to Chapter 20 of Graham).
Lastly, your example about how if you lose 50% you now need to earn 100% on that to get back to where you where you started is something I see brought up often. It is sad and it is fucking stupid how it gets talked about. This is not some investment concept from one of the greatest investment thinkers in history nor his mentee. Ha, if only. What you are describing is just a basic math concept. Most people learn this in elementary school I believe. Kinda shocking sometimes how proud and confident people who are new to investing become of themselves when they realize they understand how percentages work and percentages work normal and as expected when talking about the monetary value of something changing too...
Does "X times 0.95 times 1.05" = X"? Of course not.
Replace X with your $100k portfolio, 0.95 is -5%, then 1.05 is +5%, does mathematics still work? Still not equal? Obviously.
I know people are trying to help others when talking about all this stuff. I am trying too. And Caveat emptor and all that. Don't believe everything you read on the internet. But it's a bit frustrating at times to watch and sucks when people lose their hard earned money when they try investing based on bad or misleading information they received; especially when good information that is written well is out there and free to read online or at a library. On the other hand I'm sure there are more than a few folks who are very happy when idiots try investing without doing their research first so they can take the other sides of their trades...Margin of Safety is so important and this is a real investment concept and it actually needs to be learned, but be warned it will take more than a minute to understand it. Passive ETF much less work.
TGIF :)
hermitdev|9 years ago
In regards to this quote, this is why hedge funds are so protective of their "secret sauce". At a fund I worked for, I saw an employee sued in federal court for intellectual property theft 4 hours before he was terminated. Criminal charges followed a few months later. (Don't email source of a quantitative trading system to your personal email, lest you want to be jailed & unemployed and untouchable by the rest of the industry).