Holiday Edition
250 Nuggets of Investing Wisdom
If you know anything about Canada you know it gets pretty miserable weatherwise in January and February in Toronto. So, we are off to warmer climes for a couple of months. Pic is hiking in tropical cloud forest at an elevation just over 8,000 feet.
In 2024 our family’s retirement savings yielded a total return of 22.28%. This included the return on stocks, bonds and a cash savings account in toto combined. This compares with the total return on the S&P 500 of 25.02% and the total return of 21.65% on the S&P/TSX COMPOSITE INDEX (our main Canadian index) This brings the 52 year (since end 1972) total compounded return on our retirement savings to 13.3%, compared with the total compounded return, with dividends reinvested, over the same period on the S&P 500 of 10.85%. As an aside, I have read that Nvidia contributed 22% of the S&P 500’s 25.02% return in 2024, i.e. without Nvidia the S&P 500 would have returned something like 19.5% for the year. Nvidia is not a stock I have ever thought to invest in.
I won’t be doing much new writing in the next couple of months. Not to worry. There’s lots to read.
The blog now contains 250 posts. It has been read by investors in over 150 countries worldwide. Search on Google for terms like ‘economic goodwill’ or ‘Buffett and Fisher’, and the Nuggets blog comes at the top or near the top of results. The largest group of readers is from the U.S. But, investors all over the world enjoy the blog.
Each of the 250 plus posts covers a different topic. There is timeless wisdom. The insights will be valid as long as there are investors in stock markets. There are unique insights in each post. Together they detail an approach to investing that works. There are no suggestions for specific stock purchases. There are essentially no comments on the economy or market conditions. It’s simply about how to invest in common stocks.
This blog is not about trading or speculating or chasing hot stocks or making a fast buck or making a huge fortune. Done properly it is businesslike. Done properly it provides truly remarkable returns over the long haul through the magic of great companies reinvesting excess capital back in the business and generating compounded returns. But, investing in common stocks done well is not easy.
There are three ways to access this blog and website.
THE FIRST WAY TO GET THE MOST OUT OF THE BLOG:
Check out this curated list of great posts to read. Try picking one or two from the lists below as you have time.
The Age of Intangibles
The single greatest misapprehension I’ve seen by common stock investors in recent years, including many professional money managers, is to misunderstand the impact of company investment in intangibles of lasting value.
The world has changed. The biggest shift in the world of business in the last forty years has been the swing in company capital investment away from tangible assets and towards intangible assets. This has had a major impact on metrics such as earnings, price/earnings, book value of equity, ROC, ROE, CAPE and several others.
In writing this I want to make clear that valuations still matter. In fact, they are critical at a time when old rules of thumb like P/E and ROIC are breaking down. The answer involves discounted cash flow (DCF) and Warren Buffett’s owner earnings.
Here are some posts that address the issue:
Value investing in the age of the Magnificent Seven, networks, intangibles, AI and all that
The emergence of a new model of capitalism
Stock valuation in an age of intangible assets
Financial strength – the debt equity ratio has serious shortcomings
How the stock market works
I differ with Cliff Asness about Risk Adjusted Returns
The investment process
How Warren Buffett was influenced by Philip Fisher
Dynamic asset allocation and the Equity Risk Premium
Common stock investing basics – true investing
So called value stocks typically have low ratios because of limited corporate opportunities
The under-performance of value stocks explained
True investing is neither growth nor value
A common misperception about stocks
The majority of publicly traded U.S. stocks underperform Treasury bills. But that doesn’t mean you have to identify the next Magnificent Seven. The vast majority of wealth creation comes from a reasonably sized cohort of successful companies.
Tapping into the wealth created by stock market investing
Finding the right company to invest in
The tenets of companies Buffett invests in
Banks’ reported returns on tangible common equity are a con game
Making sense of free cash flow numbers
Buffett’s concept of economic goodwill vs accounting goodwill
We want great companies at bargain prices – Valuing the companies
The dangers and benefits of using Discounted Cash Flow analysis reports
The problem with analysts’ target prices
How to deal with uncertainty
Investment decision making in face of uncertainty
The stock market is closer to the Madness of Crowds than the Wisdom of Crowds
Does Wisdom of Crowds apply to earnings estimates, price targets, value estimates and stock prices?
The best performance is produced by a person and not by a committee
Buying and selling common stocks
In some ways the art of buying is easier than the art of selling. But both have to be done right.
Buying tactics for common stocks
19 Cardinal rules on selling stocks
Charts can lie through their teeth.
I would estimate that more than half of all charts we see in news, commentators and analysts’ reports about stocks and finance are fundamentally flawed and potentially seriously misleading.
Chart distortions that drive me crazy
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THE SECOND WAY TO GET THE MOST OUT OF THE BLOG:
Explore for subjects of interest. The links below operate like the table of contents in a book and will take you to posts on that broad subject:
In this Part we look at subjects like whether Stocks Beat Every Other Asset Class, Risk and Uncertainty, the Efficient Market Hypothesis, the Inefficient Market Hypothesis, Volatility and The Economy and the Stock Market – Cycles and Trends. The Field of Play is where the action takes place like on a football field. To invest successfully you need to understand the Field of Play.
Here we review the difficult subject of investment psychology. These posts describe the problems we face from our all too human frailties and suggest simple rules to overcome them. Readers are invited to start with Investment psychology explainer for Mr. Market – introduction This will give you a better understanding of some of the terms and ideas and give you links to other posts in the series.
The topics here are things like the Aptitude investors need to succeed, The Right Stuff, Developing Expertise, Luck and Investing and Decision making under uncertainty.
This part is all about the investment process. We can think of this as the sine qua non of investing. You can be brilliant about everything else, but without a sound investment process you will flounder.
Here you will find posts about how much to allocate to stocks (my default is 100% stocks with the exception of bubbles), the fascinating and critical issue of Bubbles, crises, panics and crashes, and finally Cash Reserves
The subject here is stock picking which includes General Approach to Choosing Common Stocks, Sectors and Company Attributes to Avoid, Bottom Up and Various Qualities and Capital Structure, Strength and Economic Performance.
Here the topics include Diversification, Balance and Strategy, The Problem of Determining Intrinsic Value, Use of Ratios to Value Shares, How to go about Finding and studying companies to invest in, things to be leery of like Pundits, market explanations and forecasts, Buying, Uses and misconceptions about charts, Monitoring your Portfolio, and Selling.
There is also a useful glossary of terms.
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THE THIRD WAY TO GET THE MOST OUT OF THE BLOG:
Look through the tags index on the home pageto find a topic of interest. This will give you access to 250 timeless posts on everything from the subtleties of intangible assets to Warren Buffett’s concept of economic goodwill vs Accounting Goodwill.
As well,
The site is fully searchable. (See Search… Q on right of page.) Want to find out what posts refer to Philip Fisher, just put in the name ‘Fisher’ in the search box. Want to find out if a post refers to gambling, just search ‘gambling’. You will also see what is written about gambling in the Nuggets blog and, if you have subscribed, also in the Motherlode
Posts by date. (See ARCHIVES on right of page)
This allows a search of posts by date
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You can reach me by email at rodney@investingmotherlode.com
I’m also on Twitter @rodneylksmith
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Want to dig deeper into the principles behind successful investing? Click on the ABOUT tab to read an introduction. It will help readers get the most out of the Nuggets of Investing Wisdom blog.
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Check out the Tags Index on the right side of the Home page that goes from ‘accounting goodwill’ to ‘wisdom of crowds’. This will give readers access to a host of useful topics.
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You can also use the word search feature on the right-hand side of this page to find references in both Nuggets blog posts and also in the Motherlode.
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To explore the Motherlode, click on the Motherlode tab
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