Scrooge Strategy

A few interesting links

9 comments — written on February 7th, 2006

Greed and Speed example
In my essay On Greed and Speed, I talked about not trying to make money off everything so quickly. Naval Ravikant (former founder of Epinions.com and now running a stealth startup) writes on the same idea, using Craigslist as an example.

The real story is that Craig is well on his way to building an EBay / Yahoo! sized business with no venture capital, no big-shot management, no marketing, no patents, no real technology, etc. He’s taken all the value from newspapers with none of the cost. And everyone loves him for it (probably because he’s leaving the money on the table).

Read the whole thing: Craigslist is Worth More Than Ebay

Sexy or rich?
In an interview with FMF of Free Money Finance, he asked me my best advice for investors was. Here’s what I said:

“When you invest, there’s a difference between being sexy and being rich. When I hear people talking about the stocks they bought/sold/shorted last week, I realize that my investment style sounds pretty boring: ‘Well, I bought a few good stocks 5 years ago and I haven’t done anything. All I did was buy more when the price went down.’ But investment isn’t about being sexy–it’s about making money, and when you look at the investment literature, buy-and-hold investing wins over the long term, every time. Forget what CNBC or the magazines say about the stock-of-the-month. Do a rigorous analysis, make the right decisions up front, and then re-evaluate your investment every 6 months or so. It’s not as cool as those guys in red coats shouting and waving their hands on CNBC, but as an individual investor, you’ll get far greater returns.”

An example:
hershey.png

Hershey–”quiet, low-tech, unsexy”–beats the market. By a lot. From Newmark’s Door.

Duh
I love this quote:

“We have a ‘strategic’ plan. It’s called doing things.”

Herb Kelleher
CEO, Southwest Airlines

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9 comments

Leave your own

  1. 1
    February 7, 2006

    Jared Iverson

    I agree that holding good stocks over time brings the best results, but when do you feel like a “good stock” isn’t worth holding anymore? I bought Google stock in 2004 and more during its big decline last week with the intention of holding it long term. Given your buy and hold strategy, are you worried at all about Google’s further decline this week? Or is this, in your opinion, an expected short term dip in its upward climb?

  2. 2
    February 7, 2006

    Ramit Sethi

    I’ve written a little about this (because the problem usually isn’t selling, it’s getting people to buy in the first place). Check out When do you sell a stock?

    Btw, with a long-term outlook (5+ years; better: 10+), in general I don’t care what happens from one week to the next.

  3. 3
    February 7, 2006

    Andrew

    I know im off topic..but how do you create subaccounts in ING?

  4. 4
    February 7, 2006

    Gualberto Daiz

    That’s a great quote you got in there. And I have thought the same thing myself with the “sexiness” of a stock. If you think about it, all Wall Street is a bunch of hustlers.

    Back in the 70’s everything was about being the conglomerate that buys everything to increase earnings and shareholder value. Nowadays it’s all about breaking up the company to increase shareholder value.

    Sounds to me like the only people who get value out of this are the brokers and bankers arranging the deal.

  5. 5
    February 7, 2006

    Johnny Debacle

    I love that Craig Newmark too, but there is a huge mistake in gleaning too much other than a nice piece of trivia from a chart like that. If you made similar investments in other large “non-sexy” companies like Kodak or GM, 26 years later (or whatever period you want to pick) you’d have severely underperformed the market. You can pick a large amoung of quiet unsexy investments that you can fit to whatever trend you’d like to sell to someone. And there is a survivorship bias already cooked in from that sample, since any company you choose from the end of a long term sample of stocks is one that hasn’t gone to zero and is still existant.

    I think that “buy and hold” and not looking at your portfolio too much is great advice for the most part, but you sell it in such a way that is misleading.

    Even assuming that equity markets will go up long term is a bit misleading, but I won’t get into any probabilistic debates here, mainly because my profession is somewhat dependent on that historically guided assumption.

  6. 6
    February 7, 2006

    Ramit Sethi

    Johnny: Agreed. The chart is just an example that demonstrates my point–I’m not saying “go invest in something unsexy today!!!” (nor would I ever).

  7. 7
    February 8, 2006

    Ted

    I’d like to hear your opinion on infinite future growth Ramit. Do you think growth will slow as the world gets fuller and more natural capital is depleted?

  8. 8
    February 9, 2006

    Ramit Sethi

    I have no idea!

  9. 9
    February 10, 2006

    Ted

    :) In that case, do you think it’s ok to use past index fund results to predict the future? I.e., 11% historical growth and beats 75% mutual funds?

How much have you saved
using Ramit's advice?





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