Yes, Buffet doesn't buy small caps - or does he?
Who knows, but that's not the point. The blaringly obvious point being made is that one of the most successful investors ever, owes much that success to famously being greedy when others are fearful. I.e. don't get scared into selling a stock just because everyone else seems to be selling.
That should actually apply more to small caps than to large caps because small caps are driven by sentiment and fear much more so than large caps and that can lead to much bigger corrections as we are seeing across the small cap space. In fact "everyone" is not selling Minbos. Top 20 appear to be regularly accumulating as I posted yesterday at Chuffings request, and selling outside of the Top 20 has been on relatively low volumes.
This all reminds me of the famous Jesse Livermore quote;
“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”
I don't necessarily agree with that but it does give important insight.
Ivanhoff Capital wrote some good thoughts about that quote. Most of it is below. I left a bit out near the end that got less relevant to keep the size down a bit. Link below. My thoughts in brackets.
The most relevant is this;
"A bear market can lead to a 50% or even 90% drawdown in any stock regardless of how great its fundamentals and its growth prospects are."
I.e. Anyone with market experience should know a stock price can be driven down during a bear market, regardless of how good the fundamentals are and therefore drawing conclusions about a company purely based on a sp decline shows a lack of experience and understanding of markets.
"1. You will experience several bear markets in a 40-year investment career and much more >15% declines in the stock market. You need to have a plan how to deal with them. A bear market can lead to a 50% or even 90% drawdown in any stock regardless of how great its fundamentals and its growth prospects are.
(important note for those ridiculous statements here that a lower price necessarily reflects on the company or its fundamentals. Anyone making those claims shows a lack of market experience)
2. Not all stocks will recover after a deep market decline or it might take many years until they do. This is what market history has shown us over and over again. While well-diversified indexes tend to come back, individual stocks have had very different stories.
(pick your stocks carefully, research thoroughly and make sure they have enough cash in the hard times or at least a good enough project to see them get investor support. Good cornerstone might investors help. Minbos had either the luck or experience and forethought to raise enough to get them through this bear matter and no doubt that cash has helped the share price hold onto a 10% gain over the last 12 months while others are down 50-90%.)
3. Very few can stomach a 50% or 80% drawdown in a stock. Most get scared and sell near the bottom.
(Sounds familiar?)
You think you are different and you will act cool, but you never know if you haven’t experienced it. Besides, you also need to consider the emotional toll and the opportunity cost of capital.There is no difference between owning a stock that goes up 1000% in 10 years and owning a different stock every year that goes up 39% that year. In ten years, you will get the same return, assuming a 20% long-term capital gain in the first case and a 39.6% short-term capital gain in the second case. There’s no difference in the end result, but there is a huge difference in the experience. The first requires going through deep drawdowns which few people can stomach. The second comes with a lot smaller drawdowns and it is easier to implement.
(This is true and I've tried this approach over the years. The reality is that it is difficult in practice to make it work as good as the theory but I've had good results with it in most years)
Only 28 stocks went up more than 1000% for the past decade.
(He is clearly excluding small caps)
This number would be a lot larger if the starting point is the bear market bottom in March 2009. This is why market timing matters.
(Except most are very poor at market timing and panic and sell when they should be buying - againgood in theory!). There are more than a thousand stocks that went up more than 39% in the past year.The odds of catching a few stocks that gain more than 39% in a year are a lot better than the odds of capturing a 1000% gainer in a decade.
(This would only be true if you buy the lows, not sell the lows like a few here seem to be encouraging with constant barrage of claims that the lower sp reflects on the company and the sp is going to 5c and a cr is inevitable).
Apparently, you can’t trade frequently if you manage over a billion dollars due to the sheer size of the capital. Trading often is also not an option if you don’t have the required time or the skills to do it. (not just skills but the experience and guts to be able to buy when others are panicking - and sell when others have bought too far up in a bull market)
(There is more that gets a bit less relevant but the author from Ivanhoe sums it up with the following which is ian mportant point for some)
Some people have an unrefutable proof of years of poor returns that they cannot beat a plain vanilla 60/40 portfolio. Not everyone can be good at everything. It is ok to admit it. There is no shame in it. Once you do, you can dedicate your time and efforts to building other businesses and a career.
(some might be better off to do that and stop taking their frustrations out by clogging up threads on HC)
https://ivanhoff.com/2017/04/20/about-that-jesse-livermore-quote/
