Tutorial 81-85 Recap

1) REARVIEW MIRROR INVESTING - Investors often fall into the trap of relying too much on past performance to shape their future decisions, leading to missed opportunities and subpar outcomes. Successful investing demands the courage to anticipate future developments rather than fixating on historical trends. The Investment Masters recognize that historical returns don't ensure future success and emphasize looking ahead rather than dwelling on recent performance. It's crucial to avoid basing investment decisions solely on a stock's past performance, as it may not accurately predict future returns.

2) EFFICIENT MARKETS - The Investment Masters reject the notion of efficient markets, emphasising the flawed assumption that prices always reflect all available information. They believe that stocks often trade at irrational prices due to human emotions, making market behavior baffling and unpredictable. Despite academic consensus, they argue that financial markets are driven by human greed and fear, making true market efficiency unattainable. They advocate for a pragmatic approach to investing, focusing on understanding underlying value rather than relying on theoretical models.

3) GONNA CHANGE THE WORLD - Investment Masters stress the importance of assessing a company's competitive advantage and the durability of that advantage, rather than focusing solely on industry growth potential. They caution against the assumption that revolutionary technologies or industries will always translate into profitable investments, citing historical examples of industries where investors suffered losses despite significant growth. Their approach prioritises understanding the competitive dynamics within an industry and evaluating the long-term profitability of potential investments, rather than chasing short-term trends or technological innovations. They emphasize the need for prudent evaluation and selective investment in industries with proven profitability and sustainable competitive advantages. Additionally, they warn that an influx of capital into new industries often leads to diminished investor returns, despite their apparent growth prospects.

4) NEW ERA THINKING - Investors often resort to setting new parameters to justify overpriced assets when assets trade at high multiples or experience sharp earnings increases. Examples include the 2000 dot-com boom, which introduced new valuation metrics like clicks/number of eyeballs, and the commodity boom driven by China's demand, termed the ‘super-cycle’. Investment Masters caution against such "new-era" thinking, advocating for critical evaluation based on fundamentals rather than adapting investment theses to fit changing circumstances. They emphasize the importance of admitting mistakes and adjusting course when necessary, highlighting the perennial nature of market cycles and urging investors to learn from history.

5) STOCK MARKET GENIUS - The Investment Masters caution against the assumption that a good outcome necessarily indicates a good decision, highlighting the uncertainty of investing and the role of luck. They stress the importance of maintaining humility and avoiding overconfidence, especially during periods of success. Additionally, they emphasize the need to evaluate investment decisions over the long term, recognizing that short-term performance is often misleading. Finally, they underscore the importance of focusing on process rather than outcome, acknowledging that the stock market's feedback loop can sometimes reward poor decisions and penalize good ones.Keep check of your ego.