Jim Grant is a well-respected veteran of the finance industry and he recently listed the most important lessons learned from 35 years in the financial markets.
Here’s our punting perspective on those top tips:
1. The key to successful investing is having everyone agree with you — LATER. The most popular investment of the day is rarely the best investment.
Popular teams and hype horses are often under the odds just through weight of money. Have the courage to be a contrarian and remember that since a very high percentage of punters lose, ‘fading the public’ is a great way to get started. Don’t love a horse, love a price.
2. You aren’t good with money. Because humans aren’t good with money. We buy high and sell low because it’s what comes naturally. It’s difficult to control emotions. It’s more difficult when money is involved.
3. Everything about investing is cyclical… prices, valuations, enthusiasms. And this will never end.
4. You can’t predict the future. Nor can the guy who claims he can. You can, however, see how the crowd is handicapping the future. And by observing the odds, you can try and find the best value.
Successful punting is about assigning probabilities to the likelihood of any event happening (eg a horse winning a race or a team winning a game) and then backing the overlays. We don’t know whether the coin will land on Heads or Tails, but what is certain is that if we keep taking $2.20 we will win long-term.
5. Every good idea gets driven into the ground like a tomato stake.
Video replays. Weight ratings. Speed maps. Sectionals….all of these can provide an edge for early adopters, but over time they are gradually priced into the market so that value becomes much harder to find.
6. Markets are not perfectly efficient. Because the people who operate them aren’t perfectly reasonable. The debate over efficient markets has raged since the birth of public markets. Grant’s comes down on the side of inefficiencies—of lucrative inefficiencies.
7. Patience is the highest yielding asset. Charlie Munger, Warren Buffett’s longtime partner in Berkshire Hathaway, explained the importance of patience this way:
How did Berkshire’s track record happen? If you were an observer, you’d see that Warren [Buffett] did most of it sitting on his ass and reading. If you want to be an outlier in achievement, just sit on your ass and read most of your life.
Every successful person (and punter) I know is a lifelong learner. Nobody claims to have created a golden goose. Instead they’re always looking to refine their approach and that inspiration can come from many different sources inside and outside of the betting industry.
8. Leverage is like chocolate cake. Just a little bit, please. Markets will always correct.
9. “Don’t overestimate the courage you will have if things go against you. Consider all the facts – meditate on them. Don’t let what you want to happen influence your judgement. Do your own thinking. Don’t let your emotions enter into it. Keep out of any environment that may affect your acting on your own reason.”
Jim Grant is the founder of Grant’s Interest Rate Observer and author of a number of books on the financial markets.