Thoughts from Legendary Investors 11 March 2012 - 12:10 pm On Waiting.. Wait for the fat pitch.

- Warren Buffett: comparing investing to a baseball game where you can wait endlessly for the perfect pitch before you swing. I only go to work on the days that make sense to go to workAnd I really do something on that day. But you go to work and you do something every day and you dont realize when its a special day. - George Soros talking to Byron Wien His first conclusion was that he won when all the factors were in his favor, when he was patient and waited for all the ducks to line up in a row. - from Jesse Livermore, Worlds Greatest Stock Trader Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed. Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival.- Gerald Loeb You make money on wall street by being very selective and being patient, waiting for those opportunities that are irresistible, where the percentages are very heavily in your favor.- Seth Glickenhaus Unless, however, we see a very high probability of at least 10 percent pretax returns (which translate to 6 percent to 7 percent after corporate tax), we will sit on the sidelines. With short-term money returning less than 1 percent aftertax, sitting it out is no fun. But occasionally successful investing requires inactivity.- Warren Buffett Many equity investors feel compelled to remain 100% invested in equities at all times. Bond investors are often similarly constrained. We strongly believe that this mentality leads to pursuit of relative rather than absolute investment returns, a direction we certainly want to avoidA smaller pool of funds seeking to avoid meaningful declines in market value at every point in time and seeking more aggressive return objectives cannot afford to be fully invested in the absence of attractive opportunities. Seth Klarman On Mistakes. if anything, I make as many mistakes as the next guy. But where I do think that I excel is in recognizing my mistakes, you see. And that is the secret to my success. The key insight that I have reached is recognition of the inherent fallibility of human thought. -George Soros

The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes! - Jesse Livermore On Psychology The most important single factor in shaping security markets is public psychology. - Gerald Loeb Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes. - Jesse Livermore There is nothing more important than your emotional balance. - Jesse Livermore There are styles in securities as there are in clothes. A security may be undervalued, but if it is also out of style it is of little interest to the speculator. He is, therefore, compelled to study the psychology of the stock market as well as the elements of real value. -Phil Carret When events have thinking participants, the subject matter is no longer confined to facts but also includes the participants perceptions. The chain of causation does not lead directly from fact to fact but from fact to perception and from perception to fact. - George Soros On the Importance of History/ Reversion to the Mean/ Being Contrarian I got wiped out personally in 1968, which was the last really crazy, silly stock market before the Internet era.After 1968, I became a great reader of history books. I was shocked and horrified to discover that I had just learned a lesson that was freely available all the way back to the South Sea Bubble.- Jeremy Grantham As investors, we are only the limited product of our own experiences and therefore vulnerable unless we read and assimilate the accumulated wisdom of the great ones. And Financial history definitely tends to repeat itself.- Barton Biggs Indeed, the evidence is compelling that when decade-long real stock returns are inordinately high by historical standards, returns in subsequent decades are likely to tumble; when past returns are exceptionally low, future returns are apt to rise. What its all about, it seems, is reversion to the mean. John Bogle The boom and the bust were normaljust two more swings in stock returns over the past century. Reversion to the mean is the iron rule of the financial markets. John Bogle Learn every day, but especially from the experiences of others. Its cheaper! -

John Bogle People tell me this is a golden era low inflation, low interest rates, slow growth-and therefore, we should all own common stocks. I remind those people that the best time Ive ever know to invest in common stocks was, in fact, when we were not in a golden era. When we were in a very depressed periodthe mid seventies.But it was precisely that gloom that created tremendous values in stocks. Joe Rosenberg You make money buying stocks on weakness and stocks in distress. You dont make money buying stocks when they are in high demand. Seth Glickenhaus A period of prosperity contains the seed of its own destruction. Phil Carret On Portfolio Management/ Diversification/ Risk Some investors, and Im one of them, believe that the secret of investing is risk management. That means never taking the BIG HIT, and always knowing what your potential loss is in every move you make. The real disasters in this business come from taking huge risks and losing.- Richard Russell It is not whether you are right or wrong thats important, but how much money you make when youre right and how much you lose when youre wrong.Stanley Druckenmiller Like other legendary investors, he has made much of his fortune on a few big hits. Byron Wien referring to Roy Neuberger It is not how likely an event is to happen that matters, it is how much is made when it happens that should be the consideration. How frequent the profit is irrelevant; it is the magnitude of the outcome that countsvery few people take home a check linked to how often they are right or wrong. What they get is a profit or loss. - Nassim Taleb Some of the greatest tragedies of the panic (1929) were the losses sustained by high corporation officials who were carrying large blocks of their own stocks on borrowed money. In many instances the accumulations of a lifetime were wiped out. - Phil Carret Extreme dislocations in markets inevitably occur - Gary Brinson When allocating capital, portfolio managers need to consider that unexpected events do occur - Michael Mauboussin Investors refuse to believe that shock lies in waitInvestors do better where risk management is a conscious part of the processsurvival is the only road to riches. Let me say that again: survival is the only road to riches. You should try to maximize return only if losses would not threaten your survivalYou

dont want to blow it, because you dont get a second chance. When you invest, its not your wealth today, but its your future that youre really managing. - Peter Bernstein Surprise and shock are endemic to the system, and people should always arrange their affairs so that they will survive such events. They will end up richer that way than focusing all the time on getting rich- Peter Bernstein On Flexibility #1 Rule of Investing: Be Flexible - Roy Nueberger Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded, and skeptical. - John Templeton Pliability: Consider and reconsider the facts, and your opinions. Stubbornness as to opinions-cockiness-must be entirely eliminated. - Bernard Baruch Ignore mechanical formulas - Phil Carret If there is anything I detest, its a mechanistic formula for anything. People should use their heads and go by logic and reason, not by hard and fast rules. Gerald Loeb Empty your mind, be formless, shapelesslike water. Now you put water into a cup, it becomes the cup, You put water into a bottle, it becomes the bottle, You put it in a teapot, it becomes the teapot. Now water can flow or it can crash! Be water my friend. -Bruce Lee. Ok, this quote comes from the world of martial arts, but the lesson transcends mere combat.