"Experience keeps a dear school, but fools will learn in no other and scarce at that; for it is true, we may give advice, but we cannot give conduct."
- Ben Franklin
“Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw there from. Whenever calculus is brought in, or higher algebra, you could take it as a warning that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.”
- Ben Graham
“As to what the future's uncertain lot has in store, why should I demand of Fortune that she give rather than demand of myself that I should not crave? And why should I crave? Shall I heap up my winnings, and forget that man's lot is unsubstantial? For what end should I toil? Lo, to-day is the last; if not, it is near the last.”
–Seneca, Letters from a Stoic
Graham and Dodd quote
From Security Analysis, 1940 edition:
“Undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by overenthusiasm or artificial stimulants. The particular danger to the analyst is that,
t, because of such delay, new determining factors may supervene before the market price adjusts itself to the value as he found it. In other words, by the time the price finally does reflect the value, this value may have changed considerably and the facts and reasoning on which his decision was based may no longer be applicable.
The analyst must seek to guard himself against this danger as best he can: in part, by dealing with those situations preferably which are not subject to sudden change; in part, by favoring securities in which the popular interest is keen enough to promise a fairly swift response to value elements which he is the first to recognize; in part, by tempering his activities to the general financial situation—laying more emphasis on the discovery of undervalued securities when business and market conditions are on a fairly even keel, and proceeding with greater caution in times of abnormal stress and uncertainty.
The Relationship of Intrinsic Value to Market Price. The general question of the relation of intrinsic value to the market quotation may be made clearer by the following chart, which traces the various steps culminating in the market price. It will be evident from the chart that the influence of what we call analytical factors over the market price is both partial and indirect—partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and indirect, because it acts through the intermediary of people’s sentiments and decisions. In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”
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“If you have a really strong conviction about your edge, then the best thing to do is sit there and take your lumps. If, however, you believe there is a reasonable chance that you might not have an edge, then you better have a safety mechanism that constrains your losses on drawdowns.”
–Ed Thorp, as quoted in Hedge Fund Market Wizards
From the book Hedge Fund Market Wizards:
Jack Schwager: What do you think is the biggest mistake people make in the markets?
Ed Thorp: Looking to outside sources for guidance in their positions. The belief that you can watch CNBC and get useful advice is very misguided. You really have to formulate your own opinion and not rely on so-called experts.
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