Links

A Dozen Things Learned from Charlie Munger about Risk (LINK)

Related book: Charlie Munger: The Complete Investor

James Tisch On Value Investing [H/T ValueWalk] (LINK)

Value investing — you’d be crazy not to (LINK) [Related book: Misbehaving: The Making of Behavioral Economics]

So why, given these numbers, hasn’t every long-term investor in the world been buying value for the last 50 years, and (eventually) eroding the advantage in doing so? The answer is simple: because they are crazy. They stereotype businesses as either good or bad and then extrapolate endless (and unnecessary) pessimism for the latter. It’s an irrational overreaction. 

So there you have it. If you want to be the one to make the money all you have to be is slightly less crazy than most other people. Be sane enough to look for value, to buy value, and then wait for that value to come good and your long-term profits are as good as in the bank. That’s the good news. 

The bad news is that there isn’t much value around at the moment: Société Générale’s Andrew Lapthorne notes that in the US at least “EV/Ebitda ratios have rarely been this high” in the past 20 years. So where do you go?

An Oliver Sacks collection (LINK)

Oliver Sacks, who died from cancer on 30 August, was a neurologist with a difference. He focused on individuals, rather than on populations, and wrote graceful books instead of papers. This collection brings together comment on Sacks’s life and work, and his own writing from the archives of Nature Publishing Group.

Matt Ridley: Demography does not explain the migration crisis (LINK)

Scott Adams: How to Spot a Wizard (LINK)

Hussman Weekly Market Comment: That Was Not a Crash (LINK)

Hand-in-hand with the exaggeration of the recent decline as a “crash” and “panic” is the exaggeration of investor sentiment as being wildly bearish. The actual shift has been from outright bulls to the “correction” camp, but that’s a rather meaningless shift since anyone but the most ardent bull would characterize current conditions as being at least a market correction. Historically, durable intermediate and cyclical lows are characterized by a significant increase in the number of outright bears. That’s not yet apparent here. Indeed, Investors Intelligence still reports the percentage of bearish investment advisors at just 26.8%. 

It’s generally true that one doesn’t want to sell stocks into a crash (as I've often observed, once an extremely overvalued market begins to deteriorate internally, the best time to panic is before everyone else does). Still, the recent decline doesn’t nearly qualify as a crash. For the record, those familiar with market history also know that even “don’t sell stocks into a crash ” isn’t universally true. Recall, as an extreme example, that from September 3 to November 13, 1929, the Dow Industrials plunged by -47.9%. The market briefly recovered about half of that loss by early 1930. Even so, it turned out that investors would ultimately wish they had sold at the low of the 1929 crash. By July 8, 1932, the Dow had dropped an additional -79.3% from the November 1929 trough. In any event, the recent market retreat, at its lowest closing point, took the S&P 500 only -12.2% from its high, and at present, the index is down just -9.7% from its highest closing level in history. To call the recent market retreat a “crash” is an offense to informed discussion of the financial markets.