fredag 12 december 2014

What do they know? Investment advice from 10 legendary investors

"May you live in interesting times"

Less ominous words could shake a man to the core

We do indeed live in interesting times, whether we like it or not: Central banks are doing their best to destroy the fabric of modern society, the war on terror begets more terror, South America is crashing, Russia is scrambling for respect, China is hoarding (oil, gold, dollars), the world economy is stalling, bond yields and oil prices are crashing while stock markets rally. Computers already dominate stock markets, and Elon Musk, Stephen Hawking and others are warning about AIs taking over...

Yet, all you and I care about is what education to get, which industry to work in and how to get the most returns from the financial markets. There is nothing we can do about the state of affairs, we must simply play the ball as it lies. The question is "where does it lie, and how should we play it?". Perhaps the greatest investors of all time (and I) could provide an answer.

Investment lessons for life

I am currently writing a book containing my 25 most important lessons from stock market battles during 15 years at Futuris, The Hedge Fund Of The Decade.

A lot of my investment related advice is general enough to be applied to life in general, e.g.:

  • Sometimes a crazy risk is your best bet
  • Investigate reality, don't lecture it
  • A "streak" is no reason to change style, whether lucky or unlucky
  • Manage risk when you can, not when you have to
  • Dare to go against the grain (but not just for the sake of being contrarian)

I will never make it onto a list of Legendary Investors, nor will my advice be. On the other hand, you can interact directly with me and get more than just the sound bytes. I plan to release the book by the turn of the year or shortly after, free for all e-mail subscribers. Then the floor will be open for discussions about strategies for both investing and life in general. I see the topics as completely intertwined and consider life in general as one big risk/return investment to be optimized.

What do they know?

Back to the topic of investments:

ZeroHedge recently listed advice from 10* of the best investors of all time. The sum of it all is that markets move in cycles, as do investor psychology and valuations. Buy when assets are cheap and when others aren't buying.

CYCLES: 3-year average of annual inflation-adjusted returns of the S&P 500

The chart above demonstrates the market's cyclicality clearly. Beware when the three-year average annual return exceeds 10%, and remember that the 3-yr avg sometimes will hit zero or even -10% or worse.

Cycles, schmycles... Identify where you are in the cycle and invest accordingly

In terms of stocks, everybody is buying and have been buying for some time. The focus is momentum instead of value. That is typically not a good time to buy stocks. It might be but probably isn't in general. Investing in single stocks that are out of favor and exhibit low valuation multiples and high sustainable dividend yields could very well be, but not the market in general.

In terms of life, the focus is to ride the momentum in apps, games, media and entertainment. Everybody seeks instant gratification. Hence you should focus on investing in true skills for the long term. Learn the hard stuff, skate to where the puck will be, not where it is.

Useful skills?

As a quick and dirty guide to where that might be, I re-post a comment I wrote one of my recent articles:

1. focus on the big problems that need solving: energy, water, pollution, food, to longevity/health, (rare metals/asteroid mining)
2. focus on what makes people tick: being social, getting laid, feeling important or successful or at least entertained
3. what might go wrong that will need fixing? debt clean-up, cheap living quarters, refugees
4. what's already working? List the largest, most valuable, most successful, fastest growing companies and figure out how to be valuable for any of them - as an employee or a subcontractor. But be critical - some of the largest ones might be dinosaurs overdue for extinction
5. what skills are hard to acquire? what skills are today's youth lacking and not willing to make the effort to get?
6. remember to scratch anything off the list that is easily digitized. But keep things where the combination of a person and a computer system would have a sustainable edge
7. the Singularity enablers: nanotech, AI, biotech, robotics, additive manufacturing (3D-printing, including living cell-printing)

Specific skills:

Creating a list from the above is material for a long article in itself, but certain skills stand out to me:

  • programming for entertainment, robotics, space exploration, data mining, healthcare applications
  • statistics for intelligent data mining and information organization
  • mathematics (foundation for programming, physics and statistics)
  • healthcare (formal education mandatory)
  • law (formal education mandatory)
  • psychology (for humans lost in the brave new world of technological acceleration, for war veterans and refugees, for programming/evaluating robots and AIs, and not least psychology for marketing [combined with statistics and data mining of course])
  • Design (might need talent, might be a question of formulas, I don't know)
  • Marketing (things always need selling, marketing... - remember to combine marketing skills with psychology and statistics)

Robotics - my preferred choice of skills and industry

If I were to restart a new career it would be in the field of ROBOTICS, which I think have the potential of becoming for this century what the AUTO industry has been for the last century.

At present we have a lot of stupid single-purpose robots everywhere - some are status symbols, some are not anymore. They are called cars, washing machines, dishwashers, vacuum cleaners etc. Soon, more general-purpose robots will take over more and more household chores, caretaking of sick and old, companionship, telepresence/socializing. I also think robots have the potential to become the new status symbol that has been reserved for cars (but probably 10 years out)

Forecasting, futurenews: there already are some attempts at this. I'm not sure how or who should get into this field. Perhaps Kurzweil gets it for himself, but somehow I think strategic predictions of technology, weather, demographics etc will be in demand, if you can make your models or predictions trustworthy.

Mind the gap - rounding off on investing and cycles

  • Identify what cycles there are in your chosen field (education, work, investments, life).
  • Identify what phase the cycle is in and how others are behaving.
  • Mind the gap between your assessment of the cycle phase and other people's behaviour, and take advantage of the difference.

*/10 legends according to ZeroHedge
  1. Jeffrey Gundlach, DoubleLine
  2. Ray Dalio, Bridgewater Associates
  3. Seth Klarman, Baupost
  4. Jeremy Grantham, GMO
  5. Jesse Livermore, Speculator
  6. Howard Marks, Oaktree Capital Management
  7. James Montier, GMO
  8. George Soros, Soros Capital Management
  9. Jason Zweig, Wall Street Journal
  10. Benjamin Graham
Yes, I know a lot of other investors cold have fit the list. Blame ZH and 25iq, not me.

4 kommentarer:

  1. What recommendations do you have in the field of Real Estate Development?

    Just like food and energy, housing will always be necessary for survival. Furthermore, something about building skyscrapers inspires me. Not to sound too unconventional, but I think modern feats of grand architecture and engineering have the potential power to influence public perception and thought patterns.

    On another note, I look at robotics and compare it to programming where both are in their infantile stages. The rate of progress in those fields increase exponentially, so it would be a lifetime full of burden just to maintain one's skill set and understanding. There is one exception though where your influence can shape the end product and functionality: invest into early stage robotics/programming companies. KM have you looked into angel investing?

    1. I'm involved in the early stages of setting up a fund for robotics. I might end up investing in robotic start-ups but I'll start with sitting in committees and boards on robotics companies.

      There will be housing, and there will be skyscrapers, and somebody will manage the construction, but I think robots will do more and more of the building; first of modules, then of the actual fitting modules together.

      As in most industries in the future there will be a few owner/managers and NO workers.

    2. Further, in robotics, you are supposed to be the one driving the exponential change. And it won't be as fast as you think at first. Robots can still hardly walk, hardly see, hardly understand speech or text, hardly grip, hardly jump or negotiate obstacles.

      There is no formal education, no hoards of other people crowding the space, no real competition. It's exactly as the computer industry in 1980. Lumbering giants like IBM making industrial computers and garage tinkerers playing with motherboards.

      Until robots win over humans in soccer I think anybody can just get into the field, learn by observing and trial and error and just start improving a little on some area, then connecting two areas, then improving something else and so on.

  2. "I am currently writing a book containing my 25 most important lessons from stock market battles during 15 years at Futuris, The Hedge Fund Of The Decade."

    --This is awesome. I look forward to reading it!