Actuary and investor
Above a certain level, not very important. IQ is a hygiene factor, not a discriminating factor: it helps to be reasonably smart, but above a certain threshold, further increments help less than in some other fields. The two PhD’s in the book specifically commented on this… Sushil, Chapter 5: “…for anyone in the top few … Read more
From Vernon, Chapter 7: “He drew a distinction between activities with ‘positive scoring’, where success is defined by gaining wins, and activities with ’negative scoring’, where success is defined by avoiding faults. Positively scored activities include selling, leadership, and most sports. In these activities bravery, ‘having a go’ and risk-taking give a better chance of … Read more
Chapter 5, Sushil, talks about optimal leverage and compound growth. The main takeaway is that investors are better off maximising expected logarithmic return (not expected return), and this often means lower leverage than you think. In my view expected return (the mean) is often a poor objective, because the distribution of terminal wealth from any long period … Read more
This is another angle on the “how many shares” question. Over the years I have observed many successful private and professional investors. There have been a very few – including some, but not all, of the investors in Free Capital – about whom I’ve thought “If I ever get bored of investing, I’d be happy for them to … Read more
My last post discussed how many shares one should hold in a relatively abstract way. Another angle is to ask how many shares it is practical to follow. There is clearly some sort of trade-off between number of shares held and your quality of knowledge. Many experienced private investors are surprised (and often derisory) about the … Read more
Most of the investors in Free Capital hold concentrated portfolios, sometimes of fewer than ten shares (Luke, Owen and Taylor). Others such as Eric, John Lee, Peter Gyllenhammar and Sushil hold up to 60 shares. Who is right? How many is too many? Many experienced investors advocate a small number of holdings. I used to think … Read more
Diamonds These are the shares orthodoxy says you should buy: shares in businesses with exceptional economics and long-term comparative advantage. They are shares you would buy if you followed the Buffett doctrine: choose shares you would be happy to hold if the stock market closed tomorrow for five years. Flower bulbs These are shares which are cheap … Read more
Originally written for Chapter 3 of the book (but removed in editing) Properties of successful bulletin boards Operating his own bulletin board, Nigel has thought about the conceptual ingredients of successful online discussion communities. Most popular boards have most of the following properties. Pseudonymity:Many people do not want their postings, particularly on a sensitive topic … Read more
Any author of investment books is susceptible to a critique along the lines of George Bernard Shaw’s famous aphorism: those who can, do; those who can’t, teach. Or something like: those who can, make millions in the market; those who can’t, make a few pennies writing books about it. My motives for writing Free Capital were confused (that’s … Read more