Some words of wisdom

Investment Analysis Clubs Saul’s Investing Discussions
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Here are some words of wisdom from an article by Morgan Housel. (There are no buy or sell stock recommendations in this post).
Saul

My biggest takeaway from economics is that the past wasn’t as good as you remember, the present isn’t as bad as you think, and the future will be better than you anticipate.

The most powerful trick is learning how to change your mind. But it’s so hard. The resistance to admitting past efforts were wrong keeps people making poor decisions for longer than they need to.

Relative values are hard to deal with. We were just as shocked at how expensive $30 oil was in 2004 as we are shocked at how cheap it is today.

There are now almost twice as many hedge funds as there are Taco Bells, which explains why the quality of each product has reached parity.

…The only reason you think the country was better during your childhood is because you were a kid.

And one from justin

I am buying businesses and not stock tickers, and everything I read at this board and elsewhere tells me the businesses are doing just fine.

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I am buying businesses and not stock tickers, and everything I read at this board and elsewhere tells me the businesses are doing just fine.

Have to disagree with this one. It encourages people to ignore the wisdom of crowds. That could be a big mistake. The wisdom of crowds got me out of SWKS at $88. I will buy back in when the tide turns.

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Have to disagree with this one. It encourages people to ignore the wisdom of crowds. That could be a big mistake.

A bit of food for thought: I see “The Wisdom of Crowds” frequently used as justification for decisions. I find this highly ironic as one of the fundamental principles that makes “the wisdom of crowds” work is independent thinking.

It is worth listening to the TED talk by James Surowiecki, author of the book The Wisdom of Crowds which made this concept popular.

https://www.ted.com/talks/james_surowiecki_on_the_turning_po…

In particular, just after time index 12:30:

This is the paradox of the wisdom of crowds, or the paradox of collective intelligence, that what it requires is actually a form of independent thinking. And networks make it harder for people to do that, because they drive attention to the things that the network values.

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“Have to disagree with this one. It encourages people to ignore the wisdom of crowds. That could be a big mistake. The wisdom of crowds got me out of SWKS at $88. I will buy back in when the tide turns”

Today the wisdom of crowds got you out of SWKS. Tomorrow it will stop you from getting in to XYZ until it has already had a meteoric rise or will get you into ABC at the tail end of a run up.

Its interesting as this entire boards is about ignoring the Wisdom of Crowds and coming up with your own original thought with the aid of the Wisdom of a respected group of likeminded people not a Crowd. That Crowd contains many sheep and many people with their own very different agendas.

There are times when following the "Wisdom of crowds would have helped me but in the bigger picture I would be way worse off if I followed every crowd.

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Today the wisdom of crowds got you out of SWKS. Tomorrow it will stop you from getting in to XYZ until it has already had a meteoric rise or will get you into ABC at the tail end of a run up.

That’s the truth. I rode the market all the way to the bottom in 2008 without selling anything - ouch! I tinkered a bit during what seemed at the time to be an interminable bottom, thinking some holdings were ridiculously undervalued (e.g., INFN at $7, UA at $4, IPGP at $8). Two years later my portfolio had grown 150% in value, and 100% higher than were it started before the 2008 meltdown. Timing the market is a fool’s (little F) errand.

  • Khelb
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That’s the truth. I rode the market all the way to the bottom in 2008 without selling anything - ouch! I tinkered a bit during what seemed at the time to be an interminable bottom, thinking some holdings were ridiculously undervalued (e.g., INFN at $7, UA at $4, IPGP at $8). Two years later my portfolio had grown 150% in value, and 100% higher than were it started before the 2008 meltdown. Timing the market is a fool’s (little F) errand.

But wasn’t that his point? If you had gotten out when the “wisdom of the crowds” sent your stocks below their 200dma, you would have had a ton of cash on March 11, 2008 when IBD declared a follow through day, or later when stocks started moving back above their 200dma. I am not saying this is a good strategy or not, but you didn’t exactly counter dovbgood’s point.

As I noted before, the memo by Howard Marks (Oaktree) is well worth the read, and you can jump to page 12 if you have ADHD. This is a nice discussion of how psychology affects the market, because how can it NOT.

So if instead of “The Wisdom of the Crowds”, dovbgood said “I pay attention to the idiocy of the crowds, and when those idiots drive a stock below the 200dma, I know they are too stupid to stop selling and in fact might sell more, so I will get out of their way and wait for them to make it much cheaper or much less risky to buy?” Would that have sounded a little better?

(Diagram that sentence!)

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So if instead of “The Wisdom of the Crowds”, dovbgood said “I pay attention to the idiocy of the crowds, and when those idiots drive a stock below the 200dma, I know they are too stupid to stop selling and in fact might sell more, so I will get out of their way and wait for them to make it much cheaper or much less risky to buy?” Would that have sounded a little better?"

That sounds more compelling but there again it assumes that you know where the bottom is, when to sell, and most importantly when to jump back in.

If you assume a stock destined for a 40% fall that you sell because the masses have told you to do so after it has fallen 20%. It then falls another 20% and you feel great as you were saved that 20% fall. It then recovers but you are not sure it is a true recovery and by the time you are convinced it has recovered almost back to the point where you sold it, if you are lucky, or above the point where you sold it if you are unlucky. Did you really gain anything from that process? In addition you now have as much as a possible 39% tax bill (excluding state taxes) if that maneuver was for a short term sell. You have also reset the clock for a short term vs long term sale.

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“Have to disagree with this one. It encourages people to ignore the wisdom of crowds. That could be a big mistake. The wisdom of crowds got me out of SWKS at $88. I will buy back in when the tide turns.”

[Mentioned it here, that] I sold SWKS in June [at 102 and 105].
http://discussion.fool.com/swks-is-1-31822893.aspx?sort=postdate…

It’s about making money. Period.
For me, it’s about making money now, not waiting 2-5 yrs.
Go ahead, do it your way, stay in and watch your $ value drop [and wait however many months/years to get it back].
My way is to take the profit when the trend changes.
Then get back in the stock w/the trend, when the tide turns.

Be your own judge, of course, but other than a short-term bounce, my bet is that the SWKS tide isn’t turning for awhile.

http://stockcharts.com/h-sc/ui?s=SWKS&p=W&yr=1&m…

“Saul, Your system works, but most people cannot execute it. They are better off using a technical indicator to get them in and out. Back in 2008, several technical indicators would have taken you out in Sep 2008 and got you back in in April 2009.”

Agreed.

“Sometimes markets have a different agenda than you do…”

““Don’t do anything, no matter what” is possibly the worst advice I have seen on these boards, and I see it again and again. If you think the market in general or your investments in particular are overvalued and you see a train approaching, do not be afraid to jump off the tracks and let the train go by. Even if you think your stocks are decently priced, remember that when elephants dance the mice get trampled. (ie, when the entire market is collapsing, your issues will too, even if you think they shouldn’t.)”

I pointed out INFN in Dec…

Who knows, of course, but the stock may continue to fall, down to test resistance around 13.50.

http://discussion.fool.com/that-is-a-serious-commitment-but-also…
http://stockcharts.com/h-sc/ui?s=INFN&p=W&yr=3&m…

Your money ~ Your choice.
[Now, go put me on Ignore.]

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