The One Thing All Legendary Investors Have in Common When it Comes to Making Money by Jae jun, Old School Value
How do pros make money?
That’s the title from one of the chapters from What I Learned Losing a Millions Dollars that I want to share.
As I mentioned the other day, it’s full of lessons, advice and stories on how NOT to lose money.
Stone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More
The entire book is dedicated to not losing money.
It’s so different to all the “strategies to make money quickly in the market” type of books.
But back to the first question.
How do the pros make money?
Let me share the lesson via a roundabout fashion. Because that’s where the fun is.
Legendary Investors Do NOT Agree With Each Other
You’d think that all these famous and guru status investors will have some sort unanimous method of making money.
But the truth is, you won’t get much trying to learn how they made money.
You are much likely to get conflicting advice from the pros which can confuse the heck out of anyone.
Buffett is telling you to concentrate, but John Templeton tells you to diversify.
Ultimately, most people decide who to listen to based on who they like or know about better.
#1 on the list is obviously Buffett.
He is quoted like crazy.
But plenty of other gurus say the exact opposite.
Let’s take a look at some.
Conflicting Advice From the Gurus
We believe in constructing the portfolio so that we put our biggest amount of money in our highest-conviction idea, and then we view the other ideas relative to that.
Diversification should be the corner stone of your investment program.
On Averaging Down…
You have to understand the business of a company you have invested in, or you will not know whether to buy more if it goes down.
Averaging down is an amateur strategy that can produce serious losses.
On Buying and Selling…
If a company is doing well and continues to earn an attractive return on capital, I’m in no hurry to sell.
We used to have a fairly rigid rule that as soon as something went above the market multiple we’d sell, but we thought we too often were leaving money on the table so we now use trailing stops.
With all this great, but conflicting advice, what are you supposed to listen to and apply?
The One Thing All Pros Have in Common
When it comes to making money, there are so many ways to do it.
All of the gurus apply their own unique touch to the analysis and investment process.
And unfortunately, it’s not something that you or I can replicate.
Many have tried, but that’s why there is only one Warren Buffett.
But there is one thing that all the famous investors have in common.
Don’t lose money.
No matter how you cut it, every great investor places a big emphasis on not losing money.
What’s rules number 1?
Never lose money.
Rule number 2?
Never forget rule number 1.
The pros could all make money in contradictory ways because they all know how to control their losses.
It’s the small investor who focuses constantly on the upside that loses money uncontrollably in the markets and then tries to brainwash everyone they know that the stock market is a gamble.
And when it comes to protecting the downside and limiting risk, there is no better investor than Seth Klarman.
If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about.
I also highly recommend you read Seth Klarman’s 20 lessons the 2008 crash can teach you about investing.
Lastly, Check Out These Related Posts
- Everyone is Making Money in this Market But You (29.1)
- Making Money with Plastic Pallets (27.8)
- Making Decisions Without All The Facts (16.4)
- 5 Common Investing Mistakes I Made that You Should Avoid (15.4)
Read the original blog post here: The One Thing All Legendary Investors Have in Common When it Comes to Making Money