KCR believes bear market strategies today suggest a speculative mania similar to the internet bubble.

  • “Rule #1: Never Lose Money, Rule #2: Never Forget Rule #1” ­–Warren Buffett
  • Don’t Pay High Prices for Firms that Lose Money (ignore the herd!)
  • The market cap of firms that lose money had exploded higher to a staggering ~$6.5 trillion[1]

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Total Market Cap of Money Losers

Basic Principles of Investing Are Being Ignored Today as Investors Engage in Stock Speculation

Recent investment returns have been very high and this has led people to forget the most important investing principles. The massive levels of government intervention have made it seem almost impossible to lose money. No matter if you bought bonds, equities, or even many speculative sh!tcoins, it feels like everyone is getting rich.

People with money sitting in checking accounts, online savings accounts, money market accounts, or other FDIC insured products often feel left behind. These are, after all, exciting times to be using money in your investment account to trade stocks with vigor!

Centuries of history teach us that periods like today never end well. It is often at precisely these moments that investors need to remember that the preservation of capital is the key to compounding returns.

And that is the purpose of what follows. KCR feels like a grandmother reminding their grandkids to put a jacket on before setting out to play in the snow. While not particularly gratifying, it is nonetheless advice worth heeding in our view!

Basic Investing Principles: Some KCR Resources

With short-term bonds, government bonds, treasury bills, and even corporate bonds offering little in the way of yield, investors are forgetting the basic principles of investing. Long-term investment strategies that focus on fundamentals, valuation, and discipline have never been this out-of-favor. In our view, financial suppression has driven the surge in those opening a brokerage account to new highs for all the wrong reasons.

We believe that the collapse in safe income from certificates of deposit, money markets, and other traditionally conservative methods of building wealth is creating terrible unintended consequences. We have documented that everything from index funds[2] to basic asset allocation strategies now exposes investors to previously unimaginable levels of risk.

Seth Klarman is one of the most accomplished and greatest investors in history. Post the implosion of the junk-bond mania he wrote a book called A Margin of Safety. That book has been a foundational piece of the KCR research team’s thinking since we started investing many decades ago.

Despite being feted with accolades like legendary financial mind and newsletter publisher Jim Grant[3], the book was quickly taken out of circulation. As the book’s wisdom came to be better understood, the price of an actual copy of the book has risen into thousands of dollars.

Mr. Klarman professed a desire to help just a few investors avoid financial calamity. A view very much shared by KCR and its research team. For those unable to aff