Sunday, July 2, 2017

Quote of the Day: Know the risk before you go chasing the return!

Highly respected money manager Colm O'shea, in his interview for the Market Wizards series, explains why he bought beaten down Berkshire Hathaway amid the late '90s dotcom mania:   (emphasis mine)
Warren Buffett, who is clearly one of the all time legends of investing, is saying, "I don't understand this dotcom stuff, I'm staying away from it", and his stock price gets hammered because he's seen as a dinosaur who isn't part of the new paradigm. I thought that was idiotic. Buffett being penalized for underperforming versus managers riding the long side of the dotcom bubble is a perfect illustration of a common investor mistake; failing to realize that often the managers with the highest returns achieve those results because they're taking the most risk, not because they have the greatest skill.
O'shea, along with Buffett, was simply unwilling to take bad shots (à la my basketball analogy) -- as others were essentially (for a while) draining them from half court -- while taking what was essentially a layup when no one was looking...

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