Tutorial 66-70 Recap
1) HERDS - CROWDS - CONTRARIANS - the Investment Masters are independent thinkers who don't get carried along with the herd. They are prepared to stand apart from the crowd and buy when the majority are selling and sell when the majority are buying. The Investment Masters tend to be contrarians, but only when they are confident that the facts support such a stance.
2) VAR LECTURE - VALUE AT RISK - the Investment Masters do not rely solely on mathematical formulas to identify risks in their portfolios. They take the time to think about what risks factors could influence the portfolio and use common sense to identify potential pitfalls and to consider how the portfolio may perform in adverse market conditions. Historic risk measures can change and missing such changes can lead to serious capital losses.
3) REARVIEW MIRROR INVESTING - the Investment Masters understand that historic returns don't guarantee future returns. To be a successful investor you must look to the future and not the recent past. The better a stock has performed, all else being equal [ie earnings remaining the same], the more likely future returns will be lower. Don't base your investment decisions on the past performance of a stock.
4) NEW ERA THINKING - When assets trade at very high multiples versus history or companies experience sharp increases in earnings investors often start to set new parameters to justify what ordinarily would look like an over-priced asset. Understand there are very few new eras in investing. More recent examples include the internet stocks at the height of the tech boom in 2000 where new valuation metrics were developed [eg clicks/number of eyeballs] and the more recent commodity boom driven by China's insatiable appetite for hard commodities which was coined the "super-cycle".
5) MACRO MATTERS - while most of the Investment Masters are bottom-up value investors they also recognise the necessity to keep an eye on the macro environment. Missing major macro headwinds such as the credit crisis or commodity collapse can lead to permanent loss of capital.