WM 1 March 2023

Quotes

Lessons & Thoughts

Think, Act, Eat, Sleep

Classic patterns

Diversification

Twitter money

Wilson

Sphere

It's not what you know, but who you know

Science is not a religion

“The science was settled”, and the inventor of lobotomy received the Nobel Prize for medicine in 1949. The science is never settled. Never blindly trust the experts, and never “believe in science”.

Leader vs boss

Charlie Munger

Henry Singleton's Teledyne

"I define my job as having the freedom to do what seems to be in the best interest of the company at the time".

Peter Lynch

Marathon on mean reversion

"Mean reversion is driven by changes on the supply side which value ivnestors who consider only quantitative measures of valuation are inclined to overlook."

Marathon on capital cycles

Pabrai's Dando principle: "head you win, tail you don't lose much"

Optimism wins in the long term, because it gives you a chance of a succeeding. Pessimists quit and have no chance.

Druckenmiller

- It doesn't matter what a company's earning - you have to visualise the situation 18 months from now, and whatever that is, that's where the price will be, not where it is today". - Druckenmiller believes investors too often invest in the present, don't follow the puck.

- 2. "Tell me how people are going to think differently in 18 or 24 months about the situation they're thinking about now." - Doubling down on the last quote, this is a big part of Druck's process and this quote is his "number of advice to young people".

- 3. "If you're early on in your career and they give you a choice between a great mentor or higher pay, take the mentor every time. It's not even close. And don't even think about leaving that mentor until your learning curve peaks."

- 4. "Earnings don’t move the market; it’s the Federal Reserve - focus on the central banks and focus on the movement of liquidity - most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets."

- 5. "I like putting all my eggs in one basket and then watching the basket very carefully." - An advocate of concentration, Druckenmiller believes you have to swing big on your best ideas.

- 6. "I believe that good investors are successful not because of their IQ, but because they have an investing discipline." - Echoes Buffett's claim that temperament > intelligence. Misplaced emotion is the number one enemy of the investor.

- 7. "The key to money management. It's making a lot of money when you're right and minimizing it when you're wrong." - A related note on George Soros, "he's confident enough about his ability to win on other trades that he can easily walk away from the position."

- 8. "I focus my analysis on identifying factors that strongly correlate to a stock’s price movement as opposed to looking at all the fundamentals. Even today, many analysts still don’t know what makes their particular stocks go up and down" - Business Analyst ≠ Security Analyst

- 9. "I particularly remember the time I gave (the research director) my paper on the banking industry. I felt very proud of my work. However, he read through it and said, 'This is useless. What makes the stock go up and down?'" - Focus on signal > fluff.

- 10. "The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered.

- 11. "It's not whether you're right or wrong that’s important, but how much money you make when you're right and how much you lose when you're wrong." - Don't fear losing trades. Focus on the risk/reward and net dollars earned.

- 12. "I've thought a lot of things when I'm managing money with great conviction, and a lot of times I'm wrong. And when you're betting the ranch and the circumstances change, you have to change, and that's how I've always managed money." - Have strong opinions, loosely held.

- 13. "Every great money manager I've ever met, all they want to talk about is their mistakes. There's a great humility there." - It is important to have the intellectual honesty to hold yourself accountable for mistakes. Reflect and improve.

- 15. After Druckenmiller was asked what he learned from suffering a loss of $3 billion during the 2000 bubble, he responded: - "I didn't learn anything. I already knew that I wasn't supposed to do that."

Trading

Accounting for growth

Volume

Extreme market optimism vs pessimism

Macro news

Money & liquidity drive markets

Liquidity cycle is up

Foreign central banks offset Fed tightening

GDP

Soft landing narratives

CPI

Demographics

Competitiveness

Yield Curve

The cost of war

"We are facing the biggest crisis since WWII. What happened before is almost nothing compared with what awaits us. I know that a big escalation awaits us." Serbia's president.

The cost of welfare state