Investment Principles (adapted from Doug Kass)

I was reading through some of Doug Kass writings, on, when I saw an article where Doug set some of his investment principles. I am always an eager reader of high profile investors’ principles, you can learn a lot with the masters and this case is no exception.

I selected 14 principles from Doug’s list:

  1. If you don’t know yourself, Wall Street is a poor place to find yourself. There is a reason why there was a church on one side of the old New York Stock Exchange building and a cemetery on the other.
  2. Do not get emotional in making investments, and however eloquent the strategy is, it is the results that count. The ecstasy of getting investment performance right is always eclipsed by the agony of getting it wrong. If you are uncertain or temporarily lack confidence, raise your cash positions.
  3. If you are a fundamentalist, write a brief synopsis of each investment analysis/conclusion. It will serve to crystallize your investment analysis, and it is an excellent personal and investment discipline. (It is the principle reason why I write my diary.) Moreover, an ex post facto reflection on why one achieved past success or failures is usually illuminating, instructive and often leads to fewer mistakes. After all, as philosopher Benjamin Disraeli once wrote, “What we have learned from history is that we haven’t learned from history.”
  4. If you are a technician, keep all your charts, just as the fundamentalist should write up a summary of each investment. Reflecting on past mistakes/successes is as important to a technician as it is to a fundamentalist.
  5. A combination of mostly fundamental and a dose of technical input is usually a recipe for investment success.
  6. Regardless of one’s modus operandi (fundamental, technical or a combination of both), logic of argument and power of dissection are the two most important ingredients in delivering superior investment returns. Common sense, which is not so common, runs a close third!
  7. History should be a guide but not a jailer. There is little permanent truth in the financial markets as change is as inevitable as it is constant. Do not extrapolate the trend in fundamentals in your company analysis nor in the trend in stock prices. Be independent of analytical and investment conclusions, greedy when others are fearful and fearful when others are greedy, but always remember that possessing a variant view has outsized risk as well as outsized reward.
  8. If you must meet with management, do so to understand a company’s core business but remember that managements infrequently, if ever, view their secular prospects with suspicion. In the late 1980s Warren Buffett wrote in his letter toBerkshire Hathaway’s shareholders that “corporate managers lie like Ministers of Finance on the eve of devaluation.”
  9. Always be self-critical, and once your view is formulated, be open to criticism from others that you respect. Take their criticism and test your thesis (constantly). Avoid what G.K. Chesterton once mused, “I owe my success to having listened respectfully to the very best advice, and then going away and doing the exact opposite.” Bullheadedness will get you into trouble in the investment world.
  10. Invest/trade/speculate only if you are not dependent upon the investment profits to maintain your standard of living.
  11. A stable personal and financial life, outside of investing, is typically a necessary ingredient to investment success.
  12. Take vacations, and smell the roses. When you return you will be rejuvenated and a better investor/trader.
  13. Keep your investment expectations reasonable, and expect to make mistakes as perfection is not attainable. Nevertheless, by all means, try to chase perfection as the byproduct will be investment excellence.

Finally (only having 13 points would be a bad sign)

  1. Learn from those investors who have excelled by reading and re-reading the classic books on investing.

I do think that this list has some universal principles, that can be useful no matter your investment profile. Personally I do not use some of them, however, I believe that none of them will hurt a savvy  investor.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s