50 years of investing

Over the past 50-odd years of loaning and investing money, and more importantly, learning from a myriad of people who were better at it than I was, I have concluded the following about these several well known maxims:

NO TREE GROWS TO THE SKY:? Clearly true.? There are only so many customers for so many razor blades. Even population growth is uncertain, maybe even more so than clean shaving. Nvidia has great margins and great growth in sales fairly guaranteed for the next few years, but then so did Cisco and Peloton and Polarid and Kodak and MacDonalds

IN THE LONG RUN EVERYBODY MAKES BUGGY WHIPS:? True but in the long run we are all dead too. In the meantime Apple might sell a lot more iphones and earn a zillion more dollars.

COMPETITION DRIVES OUT PROFIT: True, but it also sparks innovation and cost cutting.

DONT FIGHT THE TAPE: Profoundly true: irrational valuations are the result of human irrationality.? Unfortunately the latter is in plentiful supply and markets are subject to the remarkable persistence of the madness of crowds.

CHEAP IS GOOD IN THE SHORT RUN, BUT PAYING MOE FOR QUALITY WINS OUT IN THE LONG RUN (I CALL THIS THE BUFFETT/MUNGER THESIS):? This is especially true of real estate which is probably where Munger realized it, 'location location location'.

I have also observed the following:

1. The prospective value (summation of present values of future earnings) of money is generally the #1 thing that matters.? This is not true only in long periods of low inflation/low rates of current return and compounding where future earnings and growth tend to be underestimated and current return is all there can be any certainty of.? THE INCREDIBLE POWER OF COMPOUND INTEREST IS DIMINISHED IN THESE MARKET CONDITIONS.

2. There is usually an inflationary bias built into the modern economy, probably a simple result of preferring to pay for things later (another way of stating "investing for the future").? The point is that credit formation is what provides the funds for investment and that if these investments are economically productive economic and monetary expansion will both occur. If the investments are not wise monetary expansion without economic growth will occur. Both are inflationary, but the latter is extremely inflationary. The FED assumption of 2% inflation being the right target is probably correct only with wise investment policies.? Since many investments are non-productive, the 2% is probably unrealistically low

3. My biggest investment error has been fearing deflation and protecting against that. In 50 years we have seen little of it.

4. My second biggest error has been underestimating all markets' propensity for overvaluing recent performance (momentum). This is probably a manifestation of the madness of human crowds, the assumption that all these people in a mob can't be wrong. I realized early on that the crowd was in fact almost always wrong about everything, but that as long as they were able to buy and sell their actions would be self-sustaining ---until they could not buy or sell anymore. My error invariably has been that I always assumed that the market had enough information at some point to come to its senses. In fact willful blindness usually asserts itself quite stubbornly.

Nobody wants to accept that every company is at best a GE, most a? Sears or a GM or a Polaroid or a Xerox. (GE surprisingly came back from the dead.) IN THE END THEY ALL MAKE BUGGYWHIPS

Cisco and more recently MacDonalds are two great examples of exceptionally well run companies that continued to have unrealistically high PE ratios long after their earnings ability had stalled. Neither is apt to go out of business very soon. Both are solid franchises with little hope of growth. MacDonalds is still grossly overpriced.? NO TREE GROWS TO THE SKY.

5.? Unless you have the peculiar skill to buy publicly traded equities with good growth prospects at a good entry point, and the ability to get out before the bloom is off the rose, you can make money in the very long term. Buffett without Munger would have still been successful, but no where near as wealthy. Munger wanted GOOD companies at fair prices. Buffett admits that he was in the "cigar butt" business: poor companies at great prices.? Short term Buffett would beat Munger everytime.? In the medium run (there is no long run with any equity) the Munger quality emphasis will win everytime.? THIS IS THE EQUITY EQUIVALENT OF LOCATON LOCATION.? Quality tends to hold its value in the long fun.

6. Real estate is illiquid. s are no exchanges that buy and sell it. Some public companies have niches in it, but for the most part it is a largely non-scalable business: if you know a given local market you can grow only so big before you own all? the good? properties available or that you can manage,? You also have often to wait for long periods of time to make good acquisitions. (If Buffett get up in the morning with an itch to invest or disinvest he can scratch that itch in five minutes. A real estate investor often has to wait five months or more!!!.)

7. Virtually no real estate however is permanently without value, at least with an increasing population.

8. The U.S. is the only country in the world (Canada is the closest rival) with a fair certainty of increasing population. Virtually every other country will probably have a declining population. In the fairly long run U.S. RESIDENTIAL real estate is fairly certain to go up.

9. Some areas are overpriced or have real problems.? Obviously these should be avoided.

10. In my early days I made a ton of money in Brockton: houses were unbelievably cheap. In 20 years or more these properties became at least fully priced by most measures. At the same time Springfield real estate was being given away. I got out of Brockton too early, but the move to Springfield was in the fullness of time solid gold.

11. Managing real estate is burdensome. These burdens can be greatly reduced by sensible deal structure, just as the risk-reward ratios can be tailored much as a casino can vary its odds in its favor. TENANCIES IN COMMON/OPTIONS TO PURCHASE/LEASING WITH OPTION TO BUY ARE USUALLY BETTER STRATEGIES THAN COLLECTING RENT.