Luck or Skill? Focus on the Process, not Performance.

By John Reese (@guruinvestor) —  Is it better to be lucky or smart? When it comes to investing, I think we can all agree that success arises from a combination of the two, but to what degree has been the subject of much debate. Those who are well-studied in behavioral finance would tell you that investing is rife with the illusion of skill—an investor’s inflated, misplaced confidence in their own abilities to choose winning stocks. In fact, in his book Thinking, Fast and Slow, Nobel Laureate Daniel Kahneman makes the argument that much of the investment industry is built on […]

Focus on Fundamentals Rather than “Expert” Forecasts

By John Reese (@guruinvestor) —  American philosopher and educator Nicholas Murray Butler once said, ” An expert is one who knows more and more about less and less until he knows absolutely everything about nothing.” His words, both wise and timeless, could apply to “expert” market forecasters. Butler (1862-1947) was president of both Columbia University and the Carnegie Endowment for International Peace, as well as a recipient of the Nobel Peace Prize–distinctions which would make his comment a self-deprecating one, to say the least. But if we take a look back at the “expert” market predictions made at the end […]

Systematic Selling Helps Keep Emotions In Check

By John Reese (@guruinvestor) —  Deciding what stocks to buy and when to buy them is a question that can plague investors. But deciding if and when to sell can be equally if not more daunting. After all, you don’t want to leave money on the table by getting out too soon. On the other hand, if you wait in the hopes that there’s more upside, you run the risk of quite literally leaving money on the table if the stock dips. Evaluating the best time to sell can also be a layered process for the individual investor if they […]

The Active Versus Passive Debate is Not Binary

By John Reese (@guruinvestor) —  There is an undercurrent running throughout the investment community suggesting that active stock-picking is the root of many investor ills, and one that has robbed them of returns. I would argue, however, that the debate is more gray than black and white. Passive investing, an approach in which investors buy a broad cross-section of the market and weight holdings based on market capitalization, is a rules-based, disciplined strategy that strives to obtain the same return as the broader market. Active investing, also referred to as “stock-picking” involves the individual selection of securities by an investor […]

Where have all the Star Stock Pickers Gone?

By John Reese (@guruinvestor) —  The days of the star stock picker are largely gone, but aspects of their investment genius live on in other ways. In the mid to late 90s, the Fidelity Magellan fund was the largest mutual fund in existence. Run for years by the legendary Peter Lynch—during which time the fund’s return doubled that of the market– the fund went from $14 million in assets to $40 billion by the time he retired. Magellan consisted of hundreds of hand-picked stocks that met the criteria of Lynch and the managers, including Jeff Vinik, who managed the fund […]