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The Intelligent Investor
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What Do You Care What Other People Think?
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Good morning.
Have you ever read something in a book that changed the way you think—and even the way you live?
One of the most powerful passages I've ever read was in Richard Feynman's What Do You Care What Other People Think? During World War II, the great physicist was preparing to work on the Manhattan Project, which would develop the atomic bomb. All the while, his wife, Arline, was dying of tuberculosis. From her hospital bed, she sent custom-made pencils to Feynman's office as presents. On the side, she'd had them embossed: RICHARD DARLING, I LOVE YOU, PUTSY. ("Putsy" was his nickname for her.)
Although he adored Arline, Feynman surreptitiously scraped the wording off the pencils. Somehow, she found out. She presumed correctly that Feynman was embarrassed at the thought that his colleagues might see the pencils and make fun of him.
She demanded, "What do you care what other people think?"
From the moment I read that scene, I've never forgotten it. Ever since, I've tried to take my work seriously—but not to take myself seriously. I'm not afraid of other people's ridicule, nor do I live for their approval.
I think Feynman's story helped immunize me against FOMO—the fear of missing out that has been driving so much market speculation recently.
I could have made a lot more money over the past few months if I'd joined the crowd, but I don't care whether other people think I'm out of touch or a loser. I want to walk my path, not theirs.
As Benjamin Graham wrote in his book The Intelligent Investor, after which my column and this newsletter are named:
You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
It's true for investing as it's true for life: Be yourself, because no one else can do that for you.
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Sanford R. Gifford, "A Home in the Wilderness" (1866), Cleveland Museum of Art
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"Small Profits Make Big Losses"
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That could be the motto of a stock-trading teenager bragging on social media about his desire to go big or go broke. Instead, it is the message at the heart of a beautiful print by the great Japanese artist Kuniyoshi.
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Kuniyoshi, "...Small Profits Make Big Losses..." (1843-48), Museum of Fine Arts, Boston
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This image is one of a series of 16 by Kuniyoshi (1798-1861), known as “Sixteen Wonderful Considerations of Profit” or "Sixteen Ways to Calculate Profit, Which are Hereby Wondrously Transmitted."
Other prints in the series focus on greed, debt and overspending.
These images are a satire on books about how to get rich quick, which became popular in Japan from the 1600s on. Like today's TikTok videos on trading stock or digital currencies, they were long on spirit but short on substance.
As Laura Moretti of Cambridge University writes of one such manual in her book Pleasure in Profit: Popular Prose in Seventeenth-Century Japan: ''[The Millionaire's Doctrine] is framed as a how-to book on making money.... And yet there is very little practical guidance on how to achieve this."
Prof. Moretti kindly translated the text of the Kuniyoshi print for me:
There are those who try to win a little but end up losing big. This is known as “penny wise, pound foolish.”
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Fish for a small goby and get dragged off by a water sprite.
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Go foraging for mushrooms and bump into a giant snake.
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Take a public ferryboat [instead of renting your own] and get bothered by drunks.
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Go to steal some peaches and fall in a well.
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Go to pick up a luffah and get a cut on your foot.
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Go searching for bamboo shoots and get chased by a tiger.
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Go to a field of eggplants and fall into a cesspool.
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Eavesdrop and step in dog poop.
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Pay for a [cheap prostitute] and your nose’ll fall off [from syphilis].
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Take a sip of water for free and end up with the trots.
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Pick up a coin thrown as an offering and get kicked in the teeth.
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Buy a cheap bit of cloth and it’s not big enough for a disguise.
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Think someone else will pay but you’re left with the bill from the red-light district.
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Buy a mended umbrella and it leaks.
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Buy a tree cheap and it’s got no roots.
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Buy a cheap bit of bonito and get stomachache.
These are all examples of penny-pinching that cost you in the end. In the bubbles, the Venerable [enlightened figure] shows the extent of ambition: large or small.
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I believe the bubble-blowing figure in the upper right of the Kuniyoshi print may have been inspired by a motif that was often portrayed by 17th-century Dutch artists—and later became a symbol of speculation in tulip bulbs and the stock market.
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This Dutch print, by Jan Harmensz. Muller (1571-1628) is typical of the type. It plays on the ancient Latin proverb "Homo bulla," which was popularized by the humanist scholar Erasmus in his book of proverbs, Adages, published in 1500. Many engravings and etchings from this period were brought to Japan from the Netherlands by Dutch traders and influenced Japanese artists.
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In recent days, a teenager became a Twitter sensation over a TikTok video that claims to explain how to become a millionaire "with very little effort." All you need to do, he says, is snitch the soap and shampoo whenever you stay in a hotel. Then invest the savings, which he estimates at $45 a month, into the stock market. Repeat until wealthy! (He doesn't specify how you would take enough soap and shampoo to exceed the hotel cost, although maybe it goes without saying that Mom and Dad are picking up the room tab.)
If Kuniyoshi were alive today, I'm guessing he would be exploring the potential of video as an artistic medium. What he could do with bubbles would be something to see.
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Be well and invest well,
Jason
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How do you resist FOMO? Do you have any mental tricks that keep you from being swept away by the crowd?
Just hit reply to this email to share your thoughts. Please include your name and city.
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Some Insights You Shouldn't Miss
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Claude Raguet Hirst (1855-1942), "Still Life with Bowl," Museum of Art and Archaeology, University of Missouri
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Here are some of the best things I found over the past week outside The Wall Street Journal:
Here are some of the best things I found recently in The Wall Street Journal:
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Have a question you'd like me to answer? Want to weigh in on what you just read? Got a tip on something that I or my colleagues should investigate? Itching to tell me I'm wrong about something?
Just reply to this email and I'll see your note. Don't forget to include your name and city.
Image credit: Mary Cassatt, "The Letter" (ca. 1890), Art Institute of Chicago
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Q:
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Years ago, when the market was in one of its periodic downward gyrations, [my financial adviser] once again urged me to keep calm, not bail and, if possible, try to buy. I asked her...'If that's the advice you and other advisers are giving people like me, why aren't the high-rolling professional and institutional investors—the ones who are driving the market—following that same advice? Why are they allowed to freak out when people like me are advised to take a deep breath?' Her answer: 'Because they're in it to make a profit, and you're in it to save.'
Why can't [institutional investors] summon the patience that the rest of us are supposed to have?
—Jeff Weintraub, Silver Spring, Md.
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A:
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Patience is a virtue, but it's also a luxury.
Hedge funds and other investment professionals are judged every year, every quarter, often every month and sometimes every day, by whether they are beating the market.
As a client, what you want them to manage is investment risk. As professionals, what they have to manage is business risk: the danger that clients will desert them, drying up their stream of management fees. And what would make clients desert a fund manager?
As I once wrote:
"You might think the fund manager’s job is to beat the market. But, in fact, the fund manager’s job is to keep his job."
And what matters for that isn't just how well the fund is doing, but how well it's doing relative to the market average.
So the biggest risk for most professional investors is simply looking too different from their peers.
Fund managers who stick together with others will roughly match the average in good markets and bad. Those who go it alone, however, had better be right. As John Maynard Keynes put it: "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." Poor results look worse when you didn't go in the same direction as the rest of the herd.
That's what investor Mark Kritzman calls being "wrong and alone." No fund manager wants to bet wrong and be alone, in the lower right quadrant below, where clients ask for their money back:
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Adapted from Mark Kritzman, Windham Capital Management
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So, in a market downturn, investment professionals are all too quick to sell whichever holdings are down the most or stick out like a sore thumb. Fund managers also flee to the safety of cash in case investors do want their money back.
Individual investors don't face these pressures. No one has ever said it better than Ben Graham:
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Benjamin Graham, The Intelligent Investor (2003 edition), p. 203
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The individual investor should be able to watch the sheep without having to join them. The choice is yours.
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Edward M. Bannister, "Woman Walking Down Path" (1882), Smithsonian American Art Museum
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Be well and invest well,
Jason
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I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing lures. I asked him, “My God, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.”
— Charlie Munger
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