Value Investing 101: The Way To Wealth (hiding in plain sight)

On one frigid Boston evening in 2009, I chanced upon a book, Benjamin Franklin * Selected Writings, condemned to clearance on a cold bookshelf outside a Barnes and Noble store.

It was marked down 80% but the knowledge in there is priceless. It made me recall Buffett's famous saying: Price is what you pay, value is what you get.

As I made my way in a hurry to the warm checkout counter inside the store, the sad location where I had found the book made me wonder whether in Barnes and Nobles opinion, there were more valuable books inside the store. But Barnes and Nobles' sordid cash-flows confirmed that was not the case.

I remarked to the sales clerk, how could it be that the most valuable writing of Boston's most famous son from Milk Street (my daughter has successfully talked me into visiting Milk Street) was lying out there in the cold?

Tucked away deep inside the book on page 70 is a beautiful essay - 'The Way to Wealth'.

Thankfully, it is also available on the internet at http://itech.fgcu.edu/faculty/wohlpart/alra/franklin.htm

The essay contains the secret of compounding that led Ben Franklin to financial independence:

"
Get what you can, and what you get hold; 'Tis the stone that will turn all your lead into gold, "

The above words are very consistent with Buffett's first rule that I noted in a earlier post: Do NOT lose money! i.e. what you get HOLD !!

 

Buffetting against bubblemania

Hat-tip to Todd Harrison for a great article comparing recent asset bubbles ...

Makes you want to think about the risk of permanently losing your capital if an asset market does not recover.

Warren Buffett has an interesting first rule of defense:

Rule #1: Don't loose money

Rule #2: Don't forget Rule #1

In other news, India's Central Bank raised key rates.

As the Wall Street Journal dryly noted:

None of the 18 economists surveyed in a Dow Jones Newswires poll had called Tuesday's move.

Guess those folks still haven't seen Aamir Khan's new video about the Inflation Witch!

Tread with care and watch for indigestion ahead.

It's your money - BYOCIO - Be Your Own Chief Investment Officer.

The Birth of Interest

"I thought the whole subject of judging what makes a business grow an intriguing one, and here was a game that if I learned to play it properly would by comparison make any other with which I was familiar with drab, meaningless and unexciting." -Phil Fisher

Six Sigma Investing

A great quote from a Six Sigma site Discover6sigma that is also a great first step in investing:

"You can manage, what you can measure;You can measure, what you can define;You can define, what you understand."

The first rule in investing is that every investor should avoid catastrophic loss at all costs. The probability of a high impact event such as a catastrophic financial loss happening with a low probability continues to be low when limited to a small geographical area. These events can well be termed six sigma events - where the investor might experience catastrophic loss with a very low probability of 3.4 events in a million tries. However, with financial markets becoming globally interlinked, investors might experience such events with higher probability. Therefore, it becomes even more important that investments be made based on fundamental valuation and not technical valuation to avoid being caught by high impact/low probability events - whether financial or political.