When asked to provide noteworthy investing quotes, pithy one or two-liners from the usual suspects like Warren Buffett, Peter Lynch or Benjamin Graham would surface far too often (I’m guilty of that as well!). While the distilled-wisdom from the investing masters can always be counted on to provide great lessons for investors, it’s always refreshing and thought-provoking to come across equally valuable investing quotes from sources that many might not have heard of. Morgan Housel from The Motley Fool USA had recommended a particular 1981 speech from Dean Williams, and wrote that “It may have been the smartest investment…
When asked to provide noteworthy investing quotes, pithy one or two-liners from the usual suspects like Warren Buffett, Peter Lynch or Benjamin Graham would surface far too often (I’m guilty of that as well!).
While the distilled-wisdom from the investing masters can always be counted on to provide great lessons for investors, it’s always refreshing and thought-provoking to come across equally valuable investing quotes from sources that many might not have heard of.
Williams was then working for Batterymarch Financial Management and prepared the speech for the Financial Analyst Federation Seminar. With such high praise coming from a trusted source, I eagerly dug into it and realised that Williams was indeed an original investment thinker.
And more importantly, his speech was also chock-full of refreshing and thought-provoking quotes that came from a source that perhaps only a handful will know of.
I’ve picked out four of my favourites. Here they are.
1) “Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same.”
In the financial media, we’re often besieged by forecasts and predictions. And you can be sure that some people will sound ultra-confident in their predictions. The thing is, confidence and accuracy are separate issues.
In fact, research by Philip Tetlock, a psychologist at Berkeley, brought Williams’ quote one step further by suggesting that confidence and accuracy in a forecast can often be inversely correlated.
That’s not to say I won’t be swayed by a table-pounding forecaster if his data and analysis is sound. But colour me sceptical when I see an overconfident forecaster predicting what the price of gold would be on 21 Dec 2016 or what our inflation-rate will be like on March 2017.
2) “You can be a successful investor without being a perpetual forecaster”
There’s a common misconception that professional investors can only invest well if they’re a savant that can somehow know where interest rates will be, what prices commodities will be selling at in the future, or what price-levels the major indices will breach at any specific time.
But, it need not be so. Investors can do just as well by focusing on the present value of a company, rather than trying to predict the direction of a multitude of financial or economic indicators in order to make an investing decision.
Back in 10 March 2009, at the trough of the Great Financial Crisis, the Straits Times Index (SGX: ^STI) was selling for around six times earnings at its bottom of 1,455 points. Such a low valuation afforded the index plenty of wriggle-room to accommodate for all the things that might continue worsening at that point in time and yet turn out fine.
There wasn’t a need to predict economic growth to see value in the index. Turns out, the STI has gone on to more than double to around 3,300 points today in spite of a global economy that has in certain areas not fully recovered to its pre-crisis condition.
3) “The reason for dwelling on the virtue of simple investment approaches is that complicated ones, which can’t be explained simply, may be disguising a more basic defect. They may not make any sense.”
Based on his speech, Williams valued simple investments and approaches highly, and perhaps we, as individual investors, should do so as well.
Simple businesses with products that remain relatively-unchanged for decades can make for superb investments over the long-term.
Not only that, investment approaches based on simple rules can have great success too. Value investor Joel Greenblatt has shown in his book The Little Book That Beats The Market that buying a basket of stocks that ranked the best in two simple parameters – earnings yield and return on capital – have managed to beat the market over decades.
Greenblatt’s system is based on the premise that buying good companies (ones with high returns on capital) at cheap prices (ones with high earnings yields) simply works.
We don’t need complicated calculus or PhDs in finance to invest well. Simple can work.
4) “Simplicity or singleness of approach is a greatly underestimated factor of market success.”
This was actually a quote from market writer Garfield Drew that Williams included in the speech. Besides expounding on the merits of simplicity (yet again!), Drew also focused on the importance of consistency.
Ben Graham invested his client’s money with great success using a simple approach where he valued companies based on their current assets.
While Graham’s approach itself was very useful, a key component of his results probably resided in his insistence on not deviating from his approach.
Walter Schloss, a great money manager in his own right who was once an employee of Graham, was quoted as such (emphases mine): “One of the experiences I had when I worked for Ben [Graham] was that he had very strict rules. He wasn’t going to deviate.”
What good is the best investment approach or strategy in the world to us if we do not have the discipline to consistently employ it? Garfield Drew’s quote above is a wise one indeed.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.