Watheeqa Investor Digest – August 2009

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Why Walter J. Schloss is such a great investor

Investing isn’t complicated – at least that is the message we took from this gem of an interview. Barron’s questions to WJS had a lot with how – and what he’s doing with his money. Though the interview is dated 25 February 1985, the investing principles are timeless, in our view.

WJS nonchalantly answers “I’m not very good on timing. In fact, I’ve stayed away from it. I think it makes life much easier – people come to me and say, “Well, what do you think the market’s going to do?” And I always say, “I’ve got no idea; your guess is as good as mine.” I stay away from the game that everybody’s trying to do. If you buy value – and you may buy it too soon, as undoubtedly I do – then if it goes lower; you buy more. You have to have confidence in what you are doing. You have to have patience in this field. But quite often stockbrokers aren’t too interested in a stock you can sit there for five years with” – no wonder Barron’s profiles WSJ as a self-deprecating and charming fellow.

WJS sums up his investment philosophy as “Graham liked the idea of protection on the downside, and basically, that’s what I do. I try not to lose money.”
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Source: Barron’s National Business and Financial Weekly, 25 Feb, 1985 WID

Factors needed to make money in stocks - Walter J. Schloss

Wisdom packed in one page and 16 points. Put this right in front of your table. Read more

Source: The New York Times, April 30, 2009 WID

Valuing equities in an economic crisis

Ben Inker in this thoughtful essay argues that investors waiting for the perfect entry point may miss the best opportunity to buy equities in over 20 years. Ben Inker writes “Having spent the last decade decrying stocks as overvalued despite what has generally been an extremely benign economic backdrop; some of our clients are a bit bemused to find us more bullish than many of their other managers today. After all, isn’t this the worst economic crisis since the Great Depression? If we could hate stocks when times were great, shouldn’t we hate them even more when the world seems to be going down the drain? But given our basic set of beliefs – mean reversion happens, the economy is driven by the skills of the workforce and the physical and intellectual capital of companies, equities are long duration assets – both stances are completely consistent. To us, the true value of the stock market changes very slowly and smoothly. It is the myopia of investors that causes market prices to vary so wildly.”
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Source: Grantham, Mayo, Van Otterloo & Co., (www.gmo.com), 6 Apr,2009 WID

The End

Michael Lewis – author of Liar’s Poker is back with this gripping essay on the end of Wall Street and figure’s out what went wrong. It is a must read for investors who are in awe of the machinations of the Wall Street. Michael Lewis has the knack of transporting you right amidst the scene there. Lewis begins “To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.” Read more (Note: The Essay is nine pages)

Source: www.portfolio.com Dec 2008 WID

What went wrong with economics...

...And how the discipline should change to avoid the mistakes of the past. Read this and the below top-notch essays together. Read more

The other-worldly philosophers

A first class essay from The Economist on the evolution of macroeconomics, how the financial crisis in the last two years has exposed bitter divisions among economists and provoking a crisis of confidence in macroeconomics. Paul Krugman of Princeton and the New York Times fears that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst.” Read more

Efficiency and beyond

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Source: The Economist, 18 Jul 2009 WID