David Dreman
CHARLIE ROSE: What is it you like about what you do, because you didn’t set out to do this?
DAVID EINHORN: “No. What I like is solving the puzzles. I think that what you are dealing with here is incomplete information. You’ve got little bits of things. You have facts. You have analysis. You have numbers. You have people’s motivations. And you try to put this together into a puzzle — or decode the puzzle in a way that allows you to have a way better than average opportunity to do well if you solve on the puzzle correctly, and that’s the best part of the business.”
“[Buffett} said three things:
- A stock is not a piece of paper, it is a piece of ownership in a company.
- You need a margin of safety so if you are wrong you don’t lose much.
- In the market, most people are in it for the short term. It allows you a framework for dealing with the day to day volatility.”
— Li Lu on what he learned from Warren Buffett
“Ultimately, [value investing] needs to fit your character. If you are predisposed to be patient, disciplined and psychologically appreciate the idea of buying bargains, then you’re likely to be good at it. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that’s great, but you’re not a value investor, and you shouldn’t be one.” – Seth Klarman[57]
“The pure administration of Graham-and-Doddery really needs a long-term lock-up like Warren Buffett has, or it will have occasional quite dreadful client problems.” Jeremy Grantham[58]
“Although value is a weak force in any single year, it becomes a monster over several years. Like gravity, it slowly wears down the opposition.” – Jeremy Grantham[59]
“I believe the only things that really matter in investing are the bubbles and the busts” – Jeremy Grantham[60]
“So many people broadcast what they buy or sell and it works against them. I’m in favor of people not knowing what we’re doing until the last possible time.” – Lou Simpson[61]
“Investing is the process of calculating the economic return of an asset over the life of the asset. The process has two parts. The first seeks to determine the fundamental return that the asset will yield, based on its underlying economics; the second adds to or subtracts from this return based on the price paid for the asset.” – Robert Hagstrom
“Buy to the sound of cannons and sell to the sound of trumpets.” – attributed to Nathan Mayer Rothschild
“Buy when there’s blood in the streets, even if the blood is your own.” – attributed to Nathan Mayer Rothschild
“The idea that you try to time purchases based on what you think business is going to do in the next year or two, I think that’s the greatest mistake investors make because it’s always uncertain. People say it’s a time of uncertainty. It was uncertain on September 10th, 2001, people just didn’t know it. It’s uncertain every single day. So take uncertainty as part of being involved in investment at all. But uncertainty can be your friend. I mean, when people are scared they pay less for things. We try to price. We don’t try to time at all.” – Warren Buffett[62]
“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions o people become simultaneously impressed with one delusion, and run after it… Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.” – Charles Mackay[63]
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” – Charles Mackay
“A crowd thinks in images, and the image itself calls up a series of other images, having no logical connection with the first…A crowd scarcely distinguishes between the subjective and the objective. It accepts as real the images invoked in its mind, though they most often have only a very distant relation with the observed facts….Crowds being only capable of thinking in images are only to be impressed by images.” – Gustave Le Bon, The Crowd
“Our ideas and philosophies are simple, yet effective. The reason they are not more broadly adopted is because industry dynamics make it nearly impossible to implement. Non-activity in the face of short-term underperformance is simply not tolerated, even though realistic assumptions (you can’t outsmart other smart people all the time) and basic math (lower frictional costs) confirm its worth. Most fund managers’ capital would not stick around long enough so they simply comply with more standard methods of operation in the spirit of keeping their jobs.” – Allan Mecham
“Q: How do you counteract the natural tendency to become emotional in your decision-making?
“A: Be a contrarian. This is my nature. When someone tells me something, I immediately ask them what makes them think so or I tell them that they are probably wrong. You can call it contempt and arrogance, I suppose, but I like to challenge what people say because they say things for bad reasons. I did not talk today about “inside information” in horse racing. Like “They”, inside information does not really exist. Every once in awhile, people can keep a horse a secret who is making his first start, and there is a tendency towards larceny in the hearts of horseplayers. But this doesn’t happen very often and this is a pretty well-regulated sport. Nevertheless, participants in racing (owners, trainers, etc.) would rather steal a nickel than earn a dime. They all think that they’ve got big secret information. Just for the sport of it, I once kept track of a year’s worth of tips that I received – the ROI was horrendous, less than 50 percent. I worked at the tracks inNew Yorkfor several years. They had betting windows on the back stretch just for the help and the trainers. Out of morbid curiosity, I looked to see how well those windows did – the take was much higher there than anywhere else at the track. I am personally skeptical of pronouncements by people who claim to have specialized knowledge because most of the time, they are saying it for reasons of ego – they want to look important, and I am immediately skeptical. It pays to be skeptical.” – Steven Crist
“The pendulum swings back and forth between economic liberty and constraint.” – Edward Chancellor[64]
“[It is] very important to understand that diversification is only a surrogate, and usually a poor surrogate, for knowledge, control, and price consciousness. As a non-control investor you have to have a moderate amount of diversification, which is not true as much for control investors. It is very hard to make guarantees. A margin
of safety usually comes from buying high quality securities at a discount. Secondarily, if you are a passive investor you need a moderate amount of diversification. This is really a probability business, not a certainty
business. As an outside passive investor, you can be wrong about anything.” – Marty Whitman[65]
“If only one word is to be used to describe what Baupost does, that word should be: ‘Mispricing’. We look for mispricing due to over-reaction.” -Seth Klarman
“The central idea in The Black Swan is that: rare events cannot be estimated from empirical observation since they are rare. We need an a priori model representation for that; the rarer the event, the higher the error in estimation from a standard frequency sampling, hence the higher the dependence on an a priori representation that extrapolates into the tails. Further, we do not care about simple, raw probability (if an event happens or does not happen); we worry about consequences (the size of the event; how much total destruction of lives, wealth or other losses will come from it). Given that the less frequent the vent, the more severe the consequence (just consider that the 100 y ear flood is more severe, and less frequent, than the 10 year flood), our estimation of the
