The Difference Between Trading and Investing

"Trading is focused on short-term price changes that occur for any variety of reasons. Investing is a process focused on future economic cash flows from business activities that ultimately determine the value of an investment"

Gary P. Brinson, CFA FAJ Vol. 61 Number 4

Bull Market Characteristics - Benjamin Graham

The common characteristics of a bull market
1. A historically high price level
2. High price/earnings ratios
3. Low dividend yields as against bond yields
4. Much speculation on margin
5. Many offering of new common-stock issues of poor quality

Benjamin Graham, The Intelligent Investor, Chapter 8

Ben Graham Quote - Investor vs Speculator

"Traditionally the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling."

[Benjamin Graham, Security Analysis - Sixth Edition, p.35]

Why Money Managers Underperform the Indexs

Warren Buffett's Five Reasons why most active Money Managers Underperform the Indexes

1) Group Decision Making
2) Tendency to conform portfolio & policies to what other large, well-regarded institiution are doing
3) (Most Important) Asymmetry of risk & reward - rewards for straying too far from the path are not enough to offset the risks - "long headline risk"
4) Over-diversification
5) Inertia - once these things are in place they are hard to take out

[from OID - May 20,2008]

Wisdom from Seth Klarman

It is vitally important for investors to distinguish stock price
fluctuations from underlying business reality. [Margin of Safety, Seth Klarman, p11]