I just finished a great new book by Joel Tillinghast, a thirty-six-year veteran of the investments industry and the manager of the Fidelity Low-Priced Stock Fund since 1989.
Joel makes a great distinction between investing, speculating, and gambling that really resonated with me. I feel you can’t really invest in the current market, given elevated valuations due to Central Bank shenanigans.
Joel defines an investment as “the product of thorough research that indicates that capital is broadly secure and an adequate return should be earned”. Does this definition match a market that issues 100-year Austrian Bonds at a 2% yield?
The best you can hope for in this market is to speculate successfully, meaning you must use your thorough research to make reasoned guesses about share prices, commodity prices, and crowd psychology. Since nothing is undervalued, there are no Margins of Safety right now.
If you don’t do any research, and just invest blindly in this market, you are gambling – and I would suggest most passive investors are doing just that right now.
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