Description

James Corbett is the founder of The Corbett Report, a provider of open-source news and analysis.

Interview Highlights

“I decided to come to Asia … one year turned into two years, turned into three, turned into now ten years”
“It took four years before that [podcasting] became my full-time occupation”
“I’ve built-up [an audience] gradually over a long period”
“I couldn’t have contemplated even imagining that this could become a source of income”

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Advice: There isn’t a lot in my university education that I couldn’t have done own my own time through my own self-interest. I won’t say that it [university] was a complete waste of time … but it certainly wasn’t a pre-requisite for what I’m doing.

Life hack: “[Laughs] I really wish that I had some wonderful tip for you. But I don’t.”

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discussions

  • One Up on Wall Street by Peter Lynch As I continue my financial self-education, I’ve had three consistent book recommendations thrown at me. Peter Lynch’s One Up On Wall Street is one of them. It was written in 1989, and although he rewrote an introduction for the 2000 edition, the book is really designed to impart a mindset to approach investing. That’s probably why I still keep getting recommendations from friends in the field. It has become fairly timeless. I’ve cobbled together some of my notes and summaries of the key insights by chapter. Hopefully this is useful for some, and I dig any feedback from anyone who is interested. I’ll post several chapters at a time as I go through it. Introduction: “People who want to know how stocks fared on any given day ask, Where did the Dow close? I’m more interested in how many stocks went up versus how many went down. These so-called advance/decline numbers paints a more realistic picture.” Dow may be up, while certain stocks are down – it’s all about averages. Introduction 2: Hanes and its L’eggs – use your eyes to look at your immediate surroundings, who appears to be buying what? Is the activity consistent? Often that is enough evidence to justify more research to see if the story behind the activity is potentially profitable. PART 1 – PREPARING TO INVEST   Chapter 2 – Wall Street Oxymorons Portfolio managers for the general public tend to fall prey to a bandwagon effect. Fund managers have an incentive not to buy the lesser known or exciting stocks because then he will be less scrutinized if those stocks fail. At least if others are theoretically “in the same boat” when purchasing popular stock, then his reasons for being wrong can appear “out of his control” to a larger degree, therefore he is individually less at fault. In other words, if you want an edge, it certainly won’t come from fund managers without an incentive to look at the edge. “In our business the indiscriminate selling of current losers is called “burying the evidence.”” The point is that nothing might indicate a problem with the fundamentals of the company, but from a manager’s perspective and incentives he faces, he’ll be compelled to sell anyway. (pg. 62) Some rules and regulations prevent a fund from capitalizing on small fast-growing companies. For instance, say the fund won’t invest in any company with a size below $100 million. They are barred from investing in the company with 20 million shares outstanding that sell for $1.75 a share because the company only has a market cap of $35 million – it has to be avoided per the fund rules. Let’s say the stock triples to $5.25 a share, now the company can be purchased because its market cap is $105 million. But! This has created a “strange phenomenon: large funds are allowed to buy shares in small companies only when the shares are no bargain.” (pg. 64)   Chapter 3 – Is This Gambling or What? “These days, bond funds fluctuate just as wildly as stock funds. The same volatility in interest rates that enables clever investors to make big profits from bonds also makes holding bonds more of a gamble.” The line between “investing” and “speculating” shifts over time – when common stocks reached the status of a “prudent investment,” this marked the point at which the market was paradoxically overvalued and therefore riskier. “Stocks are most likely to be accepted as prudent at the moment they’re not.” (pg. 73) Gambling versus investing is dependent not on the type of activity (buying bonds, stocks, horses, etc.) but by the “skill, dedication, and enterprise of the participant.” The discipline, knowledge, and preparation of the individual determines whether any given activity is investing or gambling. No generalizations possible. Chapter 4 – Passing the Mirror Test Lynch asks 3 questions to gauge my mindset as I enter this strange world: Do I Own a House? (I’m totally baffled by this section because it clearly reflects a pre-2007 perspective. Peter views houses as a form of leverage and as an asset. The housing boom and bust happened and it became clear that this was not a good assumption. I’m still learning so I won’t offer insights as to precisely why he’s wrong beyond this, but I would treat this section cautiously.)   Do I Need the Money? “Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.”   Do I have the Personal Qualities it Takes to Succeed? Ignore “gut feelings.” Investor sentiments – information (in 1989) moves slow, therefore when it is received, the underlying realities may have changed. For instance, “when enough positive general financial news filters down so that the majority of investors feel truly confident in the short-term prospects, the economy is soon to get hammered.” Humans are bad at timing market. 3 Emotional States: concern after market drops or economy falters which keeps him from buying otherwise good companies at bargain prices. Then, he buys at higher prices, then gets complacent because stocks keep going up. Stocks fall to below what he paid, he capitulates and sells quickly. Contrarian investor – not someone who takes the opposite side of a popular issue, but someone that waits for “things to cool down” and buys stock that everyone else ignores or disregards.   Chapter 5 – Is This a Good Market? Please Don’t Ask Lynch’s summary: Don’t overestimate the skill and wisdom of professionals. Take advantage of what you already know. Look for opportunities that haven’t yet been discovered and certified by Wall Street – companies that are “off the radar scope.” Invest in a house before you invest in a stock (!!!!!) Invest in companies, not in the stock market. Ignore short-term fluctuations. Large profits can be made in common stocks. Large losses can be made in common stocks. Predicting the economy is futile. Predicting the short-term direction of the stock market is futile. The long-term returns from stocks are both relatively predictable and also far superior to the long-term returns from bonds. Keeping up with a company in which you own stock is like playing an endless stud-poker hand. Common stocks aren’t for everyone, nor even for all phases of a person’s life. The average person is exposed to interesting local companies and products years before the professionals. Having an edge will help you make money in stocks. In the stock market, one in the hand is worth ten in the bush. (pg. 90)

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