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A key concept from Margin of Safety: Buffet’s “Don’t loose money”
Let’s assume 2 investors. Investor A is charismatic, edgy, snappy. Investor B is thoughtful, slow, conservative.
Over a 10 year timeframe, investor A has returned 15% on average for the first 9 years, followed by a -20% loss on a market drawdown in the final year.
Investor B has been consistent, generating 12% returns on the first 9 years, followed by a 6% return on the market drawdown final year.
Who ended up making more returns? And who had less risk along the way?
The value of $100 invested in investor A would turn into $281, while, that same dollar in investor B would be $294.
It’s hard to grapple with this, investor A was in magazine covers, raised more money more easily, racked in more fees, and even made his LPs happier for a longer time (the first 9 years). Investor B went against the current.
Extrapolate over longer horizons and find this effect compounds further. 1 reply
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