How To Not Invest

Draft

Omission is more powerful than commission.

Lose money… negative compounding. What happens when you lose money.

Believe CAPM.

An Essay on what investment is not, and what you should not do.

It’s easier to understand what not to do, rather than what to do. If you avoid ruin, you will win.

Embrace the investment demon: negative compounding. Lose money.

This is harder than it seems because when your idiot-acquintance makes a killing, you get jealous. It’s hard to sit on your hands. It’s hard to do nothing – which, often, is the right thing to do. We have access to lots of information, but what information what actually matters?

“The first rule in investment is don’t lose. And the second rule in investment is don’t forget the first rule and that’s all the rules there are. If you buy things for far below what they’re worth and you buy a group of them, you basically don’t lose money.

[The most important quality for an investment manager is] a temperamental quality, not an intellectual quality. You don’t need tons of IQ in this business. I mean you have to have enough IQ to get from here to downtown Omaha, but you do not have to be able to play three-dimensional chess, or be in the top leagues in terms of bridge playing or something of the sort. You need a stable personality, you need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls, it’s a business where you think. And Ben Graham would say you’re not right – or wrong – because a thousand people agree with you. And you’re not right or wrong because a thousand people disagree with you. You’re right because your facts and your reasoning are right.”

Warren Buffett

I know – I know – a Buffett quote tied to investment is unoriginal. It’s also necessary. If you don’t blow up, you’ll survive. If you can keep your head, odds are you won’t blow up. This is hard to do when your idiot neighbour is making more money than you in the markets. It’s also extremely necessary. You need to survive to win. Avoiding money-losing bets will help you, ultimately, make money.

Pay too much.

Transact in things you don’t understand.

Blow up.

Lose big to gain small.

Focus on upside not downside.