Tutorial 26-30 Recap
1) CIRCLE OF COMPETENCE - the Investment Masters stay within their circle of competence. It's important to invest in stocks you can understand and where you can have an edge. Investing in assets you don't understand tends to lead to trouble.
2) PERFORMANCE IN DOWN MARKETS - The Investment Masters focus more on their performance in down markets than outperformance in strong markets. Given the asymmetric nature of losses versus profits, you will compound returns at a much higher return if you protect capital in weak markets. The cost of this protection maybe underperformance in strong markets, a worthwhile price to pay. This is in contrast to most investors who focus as much on beating the markets when they are weak or strong.
3) INDEX HUGGING - The Investment Masters prove that active value managers can outperform over time. Investors often overlook the fact that stock markets can go for decades without positive returns. Index funds have NO mandate to protect capital or compound returns, the two keys to long term successful investment. None of the Investment Masters have joined the Hall of Fame by investing in the index.
4) ABSOLUTE RETURNS - Absolute returns are the only benchmark consistent with the Number 1 rule of investing - don't lose money. Once again it is the asymmetric nature of losses versus profits that means losing less will increase returns over the long run. As stated above, stock markets can go for decades without positive returns. Being in an index fund and selling during these times can lead to a loss of capital.
5) HOME RUNS - The Investment Masters have tended to achieve their returns slowly over time rather than by hitting home runs. Home runs tend to require very concentrated risky bets where mistakes can be very costly. If you can compound capital at 10%+ over the long term you will make a significant amount of money.