Mean Reversion, Importance of Cash Flow, Charlie Munger's Investment Checklist and Free Bonus
Free Issue No. #028
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Today at a Glance:
Lesson From the Book: Mean Reversion
Tweet: Charlie Munger’s Investing Checklist
Quote from Guy Spier
Snippets: 4 Snippets from different books
Mean Reversion (Book)
it suggests that very high or very low performance is not likely to continue and will probably reverse in a later period. (That’s why it is sometimes called reversion to the mean.)
J. P. Morgan was once asked what the stock market would do next. His response: “It will fluctuate.” No one at the time thought this was a backhanded way of describing regression to the mean. But this now-famous reply has become the credo for contrarian investors. They would tell you greed forces stock prices to move higher and higher from intrinsic value, just as fear forces prices lower and lower from intrinsic value, until regression to the mean takes over. Eventually, a variance will be corrected in the system.
The frustration comes from three sources. First, reversion to the mean is not always instantaneous. Overvaluation and undervaluation can persist for a period longer— much longer— than patient rationality might dictate.
Yesterday’s normal is not tomorrow’s. The mean may have shifted to a new location.
Up until the 1950s, the dividend yield on common stocks was always higher than the yield on government bonds. That’s because the generation that lived through the 1929 stock market crash and Great Depression demanded safety in the form of higher dividends if they were to purchase stocks over bonds.
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One Tweet
One Quote
The entire pursuit of value investing requires you to see where the crowd is wrong so that you can profit from their misperceptions. Value investors have to be able to go their own way.
- Guy Spier
Here is the Special Curated Mini Book (Click on the title to Download)
Learn How to read Cash flow Statements, P&L, and Balance sheet
Interesting Books Snippets/tweets shared during the Week
1. can't be involved in 50 or 75 things. That's a Noah's Ark way of investing you end up with a zoo that way. I like to put meaningful amounts of money in a few things. - Warren Buffett (Book)
2. Amazon kept showing losses for a long time. But this company never raised any fresh equity capital. How can you lose money and still not need money to stay alive? Answer: CASHFLOW (Book)
3. These attributes are very important for an investor! (Learning from Vijay Kedia) (Book)
4. "Earnings don't repay loans, Cash flow does" (Book)
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See you again next week.
Dhaval (Investment Books)
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