T[quote=“diffsoft, post:236, topic:4286”]
Which is to ignore that there may have been many losers who had the same characteristics as the winners, which you could not study because they are not around. So just by having those characteristics, you do not maximise your winning chances. The best explanation, which is not palatable to the deterministic nature of our mind, is that these things are random to an extent. In some cases to a small extent and in some cases to a very large extent. So do not get swayed by terrific returns because there will be randomness embedded in them.
Thanks for the elaboration on randomness. This is where I differ with “purists” like you
I had warned right at the start - this thread is not for the Purists. HM says reduction of Risk and Superior Returns come from Stability and Dependability of Value. Stability of Value comes from stability and dependability of future cash flows - I am a practical guy, so we don’t talk about next 10 or 20 years / but the immediate 2-3-5 year cash flows. And stability of next 2-3-5 years cash flows come from only one thing - there are no 2 debates - it comes from the stability of the Industry and stability/dependability of the competitive position of that business in that industry.
If we work very hard st ground level and do the kind of 36o degree work in industry competition, work with domain insiders, to a large extent we are able to establish the Competitive Strategy/Position of the business - as we get familiar over 2-3 years - we can make a pretty good call on whether that Competitive Position is getting stronger or weaker - there is no randomness in there !!
Reversal to the Mean of a once superior business - is a rule of nature, yes. But to attribute all of that to randomness is neither here nor there. It happens largely due to competitive position weakening/strengthening - as a result of conscious choices made by management, in the light of industry/competitive forces. And still there are businesses that continue to defy this rule. The attempt of this thread is both to acknowledge the role of reversal to the Mean - accordingly adjust the portfolio, as well as to keep looking for those that seem to be able to defy that rule e.g. PI industries, or Bajaj Finance currently (not in '2000)
So any other result happening out of randomness - I am willing to take it on as as an equity investor - because I can’t know or prepare for it. It is best I concentrate on what can be established. Do my hard work, have great patience, and act with great decisiveness - because every year opportunities do present themselves!
Let’s focus back on the topic of this thread - restructuring a current portfolio in the light of our dynamic markets - let randomness take its course - but instead focus hard on the knowable, doable practical acts.