In an ending scene of the academy award winning movie - Joker. A scene of anarchy and chaos plagues the city as the world sinks into chaos.
A familiar scene in America appears to be seen today. Where real life replicates reel life or perhaps the movie reel was highlighting a real serious problem of segregation of classes. If you look at history, it has shown that the human society has been separated by many things.
- Religion: Catholic vs Protestant (IRA and the bloody sunday). Closer to home the Maria Hertogh riots
- Race class: The American civil war of the 1960s was a result of the long-standing controversy over the enslavement of black people.
- Ideology: In more recent times, the HK riots fundamentally is a clash of values and ideology of human rights, freedom and boils down to democracy vs autocraccy.
Further down the line, many have begun to highlight the problem of rich-poor division and the separation of social economic statuses (SES) that could potentially rip society's fabric apart.
A very valid problem for the world and more so the developed nations where so much money has been accumulated in so few people.
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Now one must be careful not to villi-anise the rich. For a poor man has never provided us a decent wage or a job. In contrast, a reasonable tax structure as well as management of tax coffers is necessary to ensure everyone is taken care of. But of course, its a competitive world and too high taxes will also drive people away (as the rich practices tax arbitrage).
And perhaps there's no better example than the city of Norway which has thoughtfully balanced all the different aspects. The transparency of the salary, the good stewardship of their wealth fund and investments as well as the pension structure that ensures nobody is left behind.
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In Seth Klarman's Margin of Safety. It must be remembered that the greatest challenge for an investor is maintaining required discipline. Standing apart from the crowd and not chasing stocks in periods of overvaluation.
1. Waiting for the right pitch
- The best analogy would be that of baseball. In figuring out how to bat a 400, Ted Williams necessitates that he doesn't swing till he knows it is in his sweet spot and the more i reflect, the more i seem to understand that this may differ from people to people.
2. Complexity and variability of business valuation
3. Ensuring sufficient margin of safety
- Because of the credit cycle, the inflationary environment and the changing circumstances around a business - what worked out in the past may no longer hold true today. Remember, cars replaced horses and even in technology iPhones replaced the nokia phone, the latter whom used to control 40% of the phone market.
3. Ensuring sufficient margin of safety
- Buying at a significant discount to underlying business value and having a preference of tangible assets over intangible assets.
- Investors should pay attention not only to whether but also why current holdings are undervalued. It is critical to know why you have made an investment and to sell when the reason no longer applies.
- Look for catalysts that may assist directly in the realization of the underlying values.
- Give preference to companies having good managements with a personal financial stake in the business
- Diversify your holdings and hedge when it is financially attractive to do so.
Value investing shines in a declining market. Value investing is simple to understand but difficult to implement. For the hard part is discipline, patient and judgement.
Investors need discipline to avoid the unattractive pitches, patience to wait for the right one and the judgement to know when to swing.
And for where the world appears to be right now....does seem to be Chapter 1 of covid-19, battle for supremacy among superpowers and a fundamental shift in the world challenging the social fabric.
It pays to be patient for now.
