5 Lessons from Amazon’s stock price chart

Jeff Bezos recently made news (again) when he became ‘the world’s richest man’ with a net worth of over $90 Billion. Over $10B of that was added within a few days in October 2017 after Amazon announced it’s third-quarter earnings and the stock went up 15% since early Sep to Mid-November 2017. Since then, there have been a host of articles with titles like If you had invested right after Amazon’s IPO, you’d be a millionaire. In short, Amazon’s stock price is up approximately 57000% in the 20+ years since it’s IPO. This means, $1,000 invested in Amazon stock in May

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What is rare is not always valuable

Continuing the series on common cognitive biases that impact investors. In case you missed it, read the introduction and first in the series: neglect of probability here What is scarce is valuable – Scarcity Error In a research project in 1975, Prof. Stephen Worchel split participants into two groups. The first group received an entire box of cookies and the second group just two to taste. Both groups were then asked to rate the quality of the cookies. This was repeated several times. The 2nd group rated the quality of the cookies much higher than the other. Gallery owners place

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The difference between Possibility and Probability

Investor Cognitive Biases: Neglect of Probability In a classic experiment in 1972, participants were divided into two groups. Members of group 1 were told they would receive a small electric shock. Members of group 2 were told there was a 50% probability that they would receive a small electric shock. After this information was provided, researchers measured physical anxiety (heart rate, nervousness, sweating) shortly before starting. The result: Absolutely no difference in the anxiety levels of the two groups. Puzzling. Next, researchers announced a series of reduction in the probability of getting shocked to group 2, from 50% down to

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12 Axioms of Risk Reward followed by generations of Swiss Bankers

How is it that Switzerland, a tiny country, poor in natural resources and arable land, has one of the highest per capita incomes and standards of living in the world? This is the enticing premise with which Max Gunther opens his book The Zurich Axioms: The rules of risk and reward used by generations of Swiss bankers “The Swiss did not become the world’s bankers by sitting in dark rooms chewing their fingernails. They did it by facing risk head-on and figuring out how to manage it.” And therefore, the author says, there is a lot to learn about how

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Are you a super investor or even an average one?

What counts as exceptional investment performance? This tweet appeared on my timeline a few days ago. It shows the outperformance of legendary investors versus the S&P 500 and their longevity as investors 2/ Nearly impossible to sustain large excess returns in public markets..at 20% returns you become one of the richest people in the world: — Meb Faber (@MebFaber) July 27, 2017 Assuming the data here is accurate, this chart says, literally, only a handful of professional money managers, have consistently outperformed the broader market. I’m not clear whether the x-axis shows the number of years they beat the S&P

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The power of compounding and how it applies to a better life

“What if you didn’t define wealth by money, success or satisfaction, but simply by the number of great people in your life?” A question put forth by Peter Attia, M.D. in his podcast “How to live a longer, higher quality life” on the excellent investment blog “The Investor’s field guide” by Patrick O’Shaughnessy. The conversation goes on to link the simple yet powerful investing concept of compounding with living a better quality of life. Read on for the highlights of a wide-ranging conversation. So you want to live a long life? “Never try to solve a complicated problem without explicitly stating your objective, your

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10 insights from HBO’s 2017 ‘Becoming Warren Buffett’ we hadn’t heard before

HBO released a documentary ‘Becoming Warren Buffett’, on the legendary investor earlier this year. It’s an almost intimate portrait of the most-quoted investor in the world. Worth the 1h 28mins. And summarized below, some of the more insightful  (and less often heard) nuggets providing insight into the man, and not just the investor. 10. On learning from the past: Decorated his office with framed old newspapers from the local library of days of massive market crashes. He calls it “instructive art” that reminds him and everyone in the building that “in the markets, anything can happen” 9. On the circle of competence: “Investing

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Everybody’s doing it

In one of his memos at Oaktree Capital, Howard Marks refers to the market as a pendulum swinging between greed and fear. That at any given time, the pendulum i.e. the general consensus tends to be either too greedy or too fearful, and it is when the pendulum is at its fearful extreme that the value investor comes into her own to make intelligent buys. This will sound familiar to most investors. “Mimicking the herd invites regression to the mean” – Charlie Munger “Be fearful when others are greedy and greedy when others are fearful” – Warren Buffett The point of this post is

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