See what happened when a fund formed in 1935 with 30 stocks of the era and didn't add or sell to this very day. Look up the story of the Voya fund on Morningstar piece "The Strange and Happy Tale of Voya Corporate Leaders Trust". I don't think we take seriously enough Buffett's view, that –in my paraphrase– is basically that investing is primarily a geopolitical bet, whether we realize it or not. https://www.morningstar.com/columns/rekenthaler-report/strange-happy-tale-voya-corporate-leaders-trust
Sure, but in the difference between the casino and "the market" you set up, that market isn't necessarily an index. It has been truly said that "it isn't a stock market, but a market of stocks." When you say "the market" you could mean either one.
The optimal concentration outcome has always been born out when a stock is owned for decades and risk goes down as the company matures. It is optimal of course, and comparatively few will get this outcome. Still, a surprising number do. There have been millions of multimillionaires minted by simply owning IBM, MSFT, or Apple and never selling. IBM IMO has been disfunctional and not a new place for money for decades, but families who inherited it did not lose principle. Contrary to the warnings of the usual suspects, IBM stock didn't go down when it fell off the top 10 market cap chart. That's not the way it works. Many have piled into these companies over the years and reaped the growth and then the stability that followed as they matured. I'm by no means suggesting this as a strategy. But let's not deny the reality that many saw that "silicon is the new oil", bought what they knew and placed their bets, and as it happened attained generational wealth. Chasing profits is one thing, but denying reality is another.
"Diversification is a free lunch." There are none. Declaring it so doesn't make it so. "Risk-adjusted" is the term that makes the "diversification is an almost free lunch" declaration of MPT true *by definition* (according to the formula). When people who see data that doesn't fit the narrative, they cry "lucky bastard!". It's an old game, but so many never catch on.
Right. I mean it's not as if selling winners and too much buying and selling is the primary reason for poor returns. /sarc "Nobody ever lost money taking a profit" or something like that? If only. People make large bets on inflation staying low over their lifetimes and claim we'll all sleep so well at night if we just do the same.
The vast majority of writing on diversification suffers from lack of distinctions. 1) Institutional vs individual investing Markowitz's Modern Portfolio Theory (MPT) applies primarily to institutional investing. It has vastly less application to individual investing. Markowitz himself admitted he doesn't follow it for his personal investments. Why do you think Lynch, Buffett, and many others say that individual investors have advantages over institutions? The answers are obvious, and have been stated over and over. Nonetheless the financial advisory industrial complex fails to observe the basic differences between institutional and individual and we ask the "diversify or not" question over and over mindlessly. 2) Concentration isn't "stock picking" Stock picking is buying and selling individual stocks repeatedly. Individuals or institutions can do it. But individuals who buy a company (stock) and hold it for decades, "like a farm" as Buffett says, aren't stock picking. This used to be called "coffee can investing" where a stock note was stored away for the LT. When you adjust for such critical distinctions in basic concepts and terms so as to match reality, you'll find there is no contradiction in the fact that "some of the world’s greatest investors dismiss [diversification] with disdain". Nor will it be surprising that the diversification –the primary tenet of MPT– isn't in fact "the golden rule of personal finance" without qualification. Lynch and Buffet don't dismiss MPT, they just realize that MPT certainly does not apply to all investing. In fact it is extremely difficult to know under what circumstances MPT actually does apply to reality.
So there is no contradiction or mystery in all this. You're welcome.
Yeah they were vague, and in legal terms that means highly novel and expansive. The idea that is no big deal is ludicrous. As many and the Chamber of Commerce noted in "friend of the court" briefs said on if this novel "vague" basis stood, routine business policies on discarding documents would be seen as criminal. The Washington Legal Foundation called the Supreme Court decision "a stinging rebuke to the DOJ for its abusive prosecutorial conduct." A stinging rebuke to the Enron Task Force. Standard document retention policies as regards shredding were adhered to until Enron was served with subpoena, and then all document destruction stopped. Document destruction is normal policy and is approved by a firms legal team in any business. In fact, the jury was close to a deadlock when a holdout was persuaded that an AA lawyer's memo amounted to obstruction of justice. So yeah, being "vague" with the law is an egregious breach of trust in this case. At issue was the very same thing that the DOJ now engages in, and has been struck down by SCOTUS again. Namely, that "impeding" an official proceeding, even innocently and unknowingly, under this vague guidance, could constitute obstruction of justice. Hit a pole outside a courthouse with your car and kill the power? Yep, you've just obstructed justice. It's absurd. The DOJ is weaponized against whomever it doesn't like for any reason.
--- the jury was told that, “even if [petitioner] honestly and sincerely believed that its conduct was lawful, you may find [petitioner] guilty.” App. JA—213. The instructions also diluted the meaning of “corruptly” so that it covered innocent conduct. Id., at JA—212. ... These changes were significant. No longer was any type of “dishonest[y]” necessary to a finding of guilt, and it was enough for petitioner to have simply “impede[d]” the Government’s factfinding ability. As the Government conceded at oral argument, “ ‘impede’ ” has broader connotations than “ ‘subvert’ ” or even “ ‘undermine,’ ” see Tr. of Oral Arg. 38, and many of these connotations do not incorporate any “corrupt[ness]” at all. The instructions also were infirm for another reason. They led the jury to believe that it did not have to find any nexus between the “persua[sion]” to destroy documents and any particular proceeding.10 In resisting any type of nexus element, the Government relies heavily on §1512(e)(1), which states that an official proceeding “need not be pending or about to be instituted at the time of the offense.” It is, however, one thing to say that a proceeding “need not be pending or about to be instituted at the time of the offense,” and quite another to say a proceeding need not even be foreseen. https://www.law.cornell.edu/supct/html/04-368.ZO.html
Don't buy the naive view on Enron and Arthur Anderson as presented by Grossman. Many diligent people could see that all was not well with Enron as an investment. The non-diligent investing on faith lost their money. Go figure. He's just repeating a conventional wisdom that is deeply flawed. See my earlier comments. Better yet, read a more full account in the book "Three Felonies a Day."
The conventional wisdom about Enron and Arthur Anderson is deeply flawed. In fact, business school students who examined the company well in advance of their implosion concluded it was not a good investment based on the public numbers. In fact people who actually looked at the numbers would know. Famously, Fayez Sarofim wouldn’t buy Enron because he couldn’t make sense of the balance sheet. No one could. People bought it on faith that it would keep going up. Moreover, you cannot trust Investopedia to have good history on such things. It is false that "Arthur Andersen legal counsel tells auditors to destroy all Enron files, except Enron's most basic documents." Completely false. Which is why SCOTUS flatly threw out the AA conviction. But it was too late, and the company was destroyed. Who was behind the prosecution of the case?Robert Mueller - FBI director Andrew Weismann - Enron task force
Michael Chertoff - Enron task force Do you recognize those names? The same idiots who spent millions of public dollars fanning the flames of the Russiagate scandal, which turned up nothing. The modus operandi was the same. Try people in the court of public opinion, bag some heads, and damn the legal issues or consequences. Look, it is sad that so many people lost their savings. But to go from that to the idea that someone must pay for people buying what they didn't understand set a dangerous precedent. Anderson was exonerated by SCOTUS because they did NOT order the destruction of documents. ALL companies –all companies– have document destruction polices, and must and should. You can't keep them forever. These polices can be overridden by court order for the purpose of discovery. If it is the policy to destroy documents at 1 year, and a lawsuit happens a court may say no documents may be destroyed until the case is resolved. But what Mueller and Weisman did was come in and claim the standard document destruction policy was an attempt to fool the court and the FBI loudly told the public that is was illegal and malicious. That was NOT true, and that is why SCOTUS threw the case out. AA did not violate the law on document destruction. Not in any way. But Mueller and Weisman got their narrative met, and it still lives on in the naive to this day. Maybe Humble dollar can do better than to repeat falsehoods, no matter how entrenched they may be in the public mind?
Comments
See what happened when a fund formed in 1935 with 30 stocks of the era and didn't add or sell to this very day. Look up the story of the Voya fund on Morningstar piece "The Strange and Happy Tale of Voya Corporate Leaders Trust". I don't think we take seriously enough Buffett's view, that –in my paraphrase– is basically that investing is primarily a geopolitical bet, whether we realize it or not. https://www.morningstar.com/columns/rekenthaler-report/strange-happy-tale-voya-corporate-leaders-trust
Post: Spreading Your Bets
Link to comment from April 13, 2025
Sure, but in the difference between the casino and "the market" you set up, that market isn't necessarily an index. It has been truly said that "it isn't a stock market, but a market of stocks." When you say "the market" you could mean either one.
Post: Spreading Your Bets
Link to comment from April 13, 2025
The optimal concentration outcome has always been born out when a stock is owned for decades and risk goes down as the company matures. It is optimal of course, and comparatively few will get this outcome. Still, a surprising number do. There have been millions of multimillionaires minted by simply owning IBM, MSFT, or Apple and never selling. IBM IMO has been disfunctional and not a new place for money for decades, but families who inherited it did not lose principle. Contrary to the warnings of the usual suspects, IBM stock didn't go down when it fell off the top 10 market cap chart. That's not the way it works. Many have piled into these companies over the years and reaped the growth and then the stability that followed as they matured. I'm by no means suggesting this as a strategy. But let's not deny the reality that many saw that "silicon is the new oil", bought what they knew and placed their bets, and as it happened attained generational wealth. Chasing profits is one thing, but denying reality is another.
Post: Spreading Your Bets
Link to comment from April 13, 2025
"Diversification is a free lunch." There are none. Declaring it so doesn't make it so. "Risk-adjusted" is the term that makes the "diversification is an almost free lunch" declaration of MPT true *by definition* (according to the formula). When people who see data that doesn't fit the narrative, they cry "lucky bastard!". It's an old game, but so many never catch on.
Post: Spreading Your Bets
Link to comment from April 13, 2025
Right. I mean it's not as if selling winners and too much buying and selling is the primary reason for poor returns. /sarc "Nobody ever lost money taking a profit" or something like that? If only. People make large bets on inflation staying low over their lifetimes and claim we'll all sleep so well at night if we just do the same.
Post: Spreading Your Bets
Link to comment from April 13, 2025
The vast majority of writing on diversification suffers from lack of distinctions. 1) Institutional vs individual investing Markowitz's Modern Portfolio Theory (MPT) applies primarily to institutional investing. It has vastly less application to individual investing. Markowitz himself admitted he doesn't follow it for his personal investments. Why do you think Lynch, Buffett, and many others say that individual investors have advantages over institutions? The answers are obvious, and have been stated over and over. Nonetheless the financial advisory industrial complex fails to observe the basic differences between institutional and individual and we ask the "diversify or not" question over and over mindlessly. 2) Concentration isn't "stock picking" Stock picking is buying and selling individual stocks repeatedly. Individuals or institutions can do it. But individuals who buy a company (stock) and hold it for decades, "like a farm" as Buffett says, aren't stock picking. This used to be called "coffee can investing" where a stock note was stored away for the LT. When you adjust for such critical distinctions in basic concepts and terms so as to match reality, you'll find there is no contradiction in the fact that "some of the world’s greatest investors dismiss [diversification] with disdain". Nor will it be surprising that the diversification –the primary tenet of MPT– isn't in fact "the golden rule of personal finance" without qualification. Lynch and Buffet don't dismiss MPT, they just realize that MPT certainly does not apply to all investing. In fact it is extremely difficult to know under what circumstances MPT actually does apply to reality. So there is no contradiction or mystery in all this. You're welcome.
Post: Spreading Your Bets
Link to comment from April 13, 2025
I'm told if you include dividends paid, the rebound from 29 took 9 years.
Post: Sharing Lessons
Link to comment from December 18, 2024
Yeah they were vague, and in legal terms that means highly novel and expansive. The idea that is no big deal is ludicrous. As many and the Chamber of Commerce noted in "friend of the court" briefs said on if this novel "vague" basis stood, routine business policies on discarding documents would be seen as criminal. The Washington Legal Foundation called the Supreme Court decision "a stinging rebuke to the DOJ for its abusive prosecutorial conduct." A stinging rebuke to the Enron Task Force. Standard document retention policies as regards shredding were adhered to until Enron was served with subpoena, and then all document destruction stopped. Document destruction is normal policy and is approved by a firms legal team in any business. In fact, the jury was close to a deadlock when a holdout was persuaded that an AA lawyer's memo amounted to obstruction of justice. So yeah, being "vague" with the law is an egregious breach of trust in this case. At issue was the very same thing that the DOJ now engages in, and has been struck down by SCOTUS again. Namely, that "impeding" an official proceeding, even innocently and unknowingly, under this vague guidance, could constitute obstruction of justice. Hit a pole outside a courthouse with your car and kill the power? Yep, you've just obstructed justice. It's absurd. The DOJ is weaponized against whomever it doesn't like for any reason. --- the jury was told that, “even if [petitioner] honestly and sincerely believed that its conduct was lawful, you may find [petitioner] guilty.” App. JA—213. The instructions also diluted the meaning of “corruptly” so that it covered innocent conduct. Id., at JA—212. ... These changes were significant. No longer was any type of “dishonest[y]” necessary to a finding of guilt, and it was enough for petitioner to have simply “impede[d]” the Government’s factfinding ability. As the Government conceded at oral argument, “ ‘impede’ ” has broader connotations than “ ‘subvert’ ” or even “ ‘undermine,’ ” see Tr. of Oral Arg. 38, and many of these connotations do not incorporate any “corrupt[ness]” at all. The instructions also were infirm for another reason. They led the jury to believe that it did not have to find any nexus between the “persua[sion]” to destroy documents and any particular proceeding.10 In resisting any type of nexus element, the Government relies heavily on §1512(e)(1), which states that an official proceeding “need not be pending or about to be instituted at the time of the offense.” It is, however, one thing to say that a proceeding “need not be pending or about to be instituted at the time of the offense,” and quite another to say a proceeding need not even be foreseen. https://www.law.cornell.edu/supct/html/04-368.ZO.html
Post: Mob Rule
Link to comment from October 16, 2024
Don't buy the naive view on Enron and Arthur Anderson as presented by Grossman. Many diligent people could see that all was not well with Enron as an investment. The non-diligent investing on faith lost their money. Go figure. He's just repeating a conventional wisdom that is deeply flawed. See my earlier comments. Better yet, read a more full account in the book "Three Felonies a Day."
Post: Mob Rule
Link to comment from October 13, 2024
The conventional wisdom about Enron and Arthur Anderson is deeply flawed. In fact, business school students who examined the company well in advance of their implosion concluded it was not a good investment based on the public numbers. In fact people who actually looked at the numbers would know. Famously, Fayez Sarofim wouldn’t buy Enron because he couldn’t make sense of the balance sheet. No one could. People bought it on faith that it would keep going up. Moreover, you cannot trust Investopedia to have good history on such things. It is false that "Arthur Andersen legal counsel tells auditors to destroy all Enron files, except Enron's most basic documents." Completely false. Which is why SCOTUS flatly threw out the AA conviction. But it was too late, and the company was destroyed. Who was behind the prosecution of the case? Robert Mueller - FBI director Andrew Weismann - Enron task force Michael Chertoff - Enron task force Do you recognize those names? The same idiots who spent millions of public dollars fanning the flames of the Russiagate scandal, which turned up nothing. The modus operandi was the same. Try people in the court of public opinion, bag some heads, and damn the legal issues or consequences. Look, it is sad that so many people lost their savings. But to go from that to the idea that someone must pay for people buying what they didn't understand set a dangerous precedent. Anderson was exonerated by SCOTUS because they did NOT order the destruction of documents. ALL companies –all companies– have document destruction polices, and must and should. You can't keep them forever. These polices can be overridden by court order for the purpose of discovery. If it is the policy to destroy documents at 1 year, and a lawsuit happens a court may say no documents may be destroyed until the case is resolved. But what Mueller and Weisman did was come in and claim the standard document destruction policy was an attempt to fool the court and the FBI loudly told the public that is was illegal and malicious. That was NOT true, and that is why SCOTUS threw the case out. AA did not violate the law on document destruction. Not in any way. But Mueller and Weisman got their narrative met, and it still lives on in the naive to this day. Maybe Humble dollar can do better than to repeat falsehoods, no matter how entrenched they may be in the public mind?
Post: Mob Rule
Link to comment from October 13, 2024