You can google and read the whole set, but I find some of them very useful especially for Indian equity investors – not just at present, but always.
Here is one. Nowhere does it say that investors should strive to make every last dollar of potential profit; One should never go back for a return keeping the risk in mind. The conservative position entering the crisis is critical. This enables one to be long term oriented, clear thinking and focused on new opportunities while others are distracted or forced to sell.
This is why principles like diversification and asset allocation are important in everyone’s investing. Even if you think you want to take some risk and invest aggressively, investors who are solely focused on Investment And continue to do so at all stages of the markets, ultimately rarely performing well. No matter what happens, some investments are safer than others, some will fall short and recover easily. Every investor knows which these are. There must always be some risk to be safe, conservative investments. Most importantly, as Klarman points out, if you wait until you need them, it will be too late.
Here’s another: Risk is not inherent in an investment; It is always relative to the price paid. Uncertainty is not the same as risk. In fact, when great uncertainty — such as in the fall of 2008 — drives the price of securities to particularly low levels, they often become low-risk investments. And one other related point: you should buy on the way down. There’s far more volume on the way down than in the way back up, and there’s little competition among buyers. It’s almost always better to be too early than too late, but be prepared for a price markdown on what you buy.
Klarman is circulating the famous adage that the time to buy is when there is blood on the streets. For a given investment, unless your decision about that investment changes, it is true that the higher the price, the greater the risk. The result is that the lower the price, the lower the risk. The same shows that when the market starts to weaken, the risk is less. So why do headlines always say the opposite? They do this because they are taking the opinion of the punter, not the investor. The idea that uncertainty (and volatility) is not risk is hard to absorb, but it is important to do so, especially because the formal definition of risk has always focused on volatility. And one more, but this is one of the false lessons: Bad things do happen, but really bad things don’t. Buy dips, especially the lowest quality securities, when under pressure as the downside will quickly reverse.
The false text is a cautionary tale against believing too deeply in the previous text. Yes, a lower price means less risk but only in assets that were otherwise worthwhile. Junk that is cheap is still junk. In fact, when the market crashes after a bullish period, there are always stocks that never recover. This was largely proved in that crash for Indian investors with few infra and telecom stocks. People who held onto these or bought them later at crashing prices, thinking they were value investingLost all value.
As the world enters another period of uncertainty, looking at difficult episodes in the past can provide a useful perspective on how to deal with the present.
(The writer is CEO, Value Research)