JUST ONE THING Twelve of the World's Best Investors Reveal the One Strategy You Can't ...

273 Pages·2006·9.37 MB·English

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JUST ONE THING
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JUST ONE THING
Twelve of the World’s Best Investors Reveal
the One Strategy You Can’t Overlook
JOHN MAULDIN, Editor
JOHN WILEY & SONS, INC.
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Copyright © 2006 by John Mauldin. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Mauldin, John.
Just one thing : twelve of the world’s best investors reveal the one
strategy you can’t overlook / John Mauldin.
p. cm.
Includes bibliographical references.
ISBN-13: 978-0-471-73873-2 (cloth)
ISBN-10: 0-471-73873-5 (cloth)
1. Investments—Handbooks, manuals, etc. I. Title: Twelve of the world’s
best investors reveal the one strategy you can’t overlook. II. Title.
HG4527.M365 2006
332.67'8—dc22
2005025979
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
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CONTENTS
Introduction vii
1 Signposts in the Fog 1
Andy Kessler
2 The “Not-So-Simple” (But Really Utterly So) Rules of Trading 15
Dennis Gartman
3 The Triumph of Hope over Long-Run Experience:
Using Past Returns to Predict Future Performance
of a Money Manager 27
Mark T. Finn and Jonathan Finn, CFA
4 The Long Bond 45
A. Gary Shilling, Ph.D.
5 Risk Is Not a Knob 77
Ed Easterling
6 Psychology Matters: An Investors’ Guide to Thinking
about Thinking 99
James Montier
7 The Means Are the Ends 145
Bill Bonner
8 The 2 Percent Solution 157
Rob Arnott
9 The OutsiderTrading Scandal 171
George Gilder
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vi CONTENTS
10 The Winner’s Rule 185
Michael Masterson
11 Rich Man, Poor Man 199
Richard Russell
12 The Millennium Wave 213
John Mauldin
Notes 247
Index 253
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INTRODUCTION
“JUST ONE THING,” I TOLD THEM.
“Give me the one best investing concept that you want to pass
on to your kids.”
One of the great things about working in my field is that I get to
run around with some very smart people. I get to pick their brains
and learn from the best. If you could get a chance to sit down with
a Gartman or Kessler or any of the other contributors to this book
you would undoubtedly leap at the chance. What one thing could
each of them tell you that would make a difference in your invest-
ing life? It’s impossible to calculate the value of one idea if it helps
us become better investors, or saves us the pain of losses.
I asked the contributors to share their insights. The authors of
these chapters have all learned a lot along the way. “Why not,” I
thought, “ask them to share the wealth of their wisdom?” And so I
did. There were no rules, so that’s why the chapters vary in length
and topic.
What I wanted to get was material that would be readable and
accessible to the average investor. Nothing is more frustrating to me
than a great idea I can’t understand. I asked them to make it some-
thing that will give readers an “aha” moment. Just share it with us.
Now, I could guess what a few of them would write about be-
fore I asked. Mark Finn was going to write about the problems of
past performance. He is absolutely brilliant on that (and a lot of
other things), which is why he gets big institutions to keep coming
back for his consulting. And you knew that Dennis Gartman would
write on his Rules of Trading. Gartman has forgotten more about
trading than most of us will ever know. Which, he would tell you, is
why he writes his rules down so he can remember them and follow
them! You break these rules, you are gonna lose. If you want to
trade, you need these near your desk.
But I didn’t know how some of the other contributors could
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viii INTRODUCTION
narrow their advice down to Just One Thing. That was hard. But
they have all done a great job.
Okay, Andy Kessler gives us two. But when you turn $100 mil-
lion into a cool $1 billion and get out at the top, two ideas are a
good thing. Kessler shows how investing in what everyone knows
is how to get just average returns (or less!). Better, he says, to invest
like you are walking in a fog.
Gary Shilling shows us the value of one really good idea.
George Gilder tells us that in fact inside information is the best in-
formation. Want to average almost 3 percent a year better on your
funds? Rob Arnott writes compellingly that the way index (and
many mutual) funds are currently constructed is inefficient, and he
offers a new way to invest. This powerful analysis could be worth a
lot to you.
Bill Bonner first tells us that we need to start with a principle if
we want to succeed and then shows us his idea as to what that is.
Mike Masterson looks at the same thought, but comes away with an
entirely different take.
James Montier gives us a very thorough overview of the latest
research on the human foibles in investing. He is an expert on the
psychology of investing, having literally written the book on the
subject. This chapter is one you will want to read and reread and
come back to often.
Richard Russell, who has been writing since 1958 and is the
dean of economics writers, gives us his thoughts on time, hope, and
the power of compounding. Anytime Richard talks, we should lis-
ten. Ed Easterling shows us that “risk is not a knob to be turned for
greater returns.” “The first step toward making money is not losing
it,” he writes, and shows us how to avoid unnecessary risk while
making it our friend when we do encounter it.
And finally, I weigh in with a few thoughts on the power of
change in our future. The pace of change is accelerating, and we
need to know not only what is changing but how to take advantage
of it. The best investments of the next 20 years will be those that are
a part of the process of change.
I am proud of this book and the work my friends have done to
bring you their one best idea. I believe you will find many nuggets
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Introduction ix
you can use in your own life and investing. As to the order of the
chapters, it was just too much to decide who should be first and
then second and so on; each chapter deserves to be a lead chapter.
So I let the way they were organized in my inbox be the prime fac-
tor. You can start at the beginning or in the middle or the end, but
read them all.
And Just One More Thing: There are a lot of great ideas in the
next few hundred pages, but you have to put them into practice. So
as you read, think about how you will put the principles, tips, and
ideas to use in your personal life. And that will make this book be a
very good thing.
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