Saturday, June 14, 2008

Quick review on The prehistoric investor

I have finished reading the book after much procrastination and idle! To be fair, the ideas in the book are not extraordinary. However, it serves as a good reinforcement to my investment guiding principles.

Basically, the recurring theme is to highlight human’s fallacy in the stock markets as we are always too emotional for our own good.

The book explains in great detail how our survival instinct is actually detrimental for us to profit in the stock market and influencing us to make the worst decisions at the worst possible time.

The prehistoric investor is an excellent bedtime read as it is not too heavy going yet informative. However, I do believe that only those who have some experience trading in the stock markets will be able to relate the common mistakes highlighted in the book.

One thing I want to highlight is that the author’s portfolio is mainly small cap companies. Many of these companies mentioned in the book (written in 2004) have actually performed poorly. Example: OSIM and Sunray, which was quoted umpteen times for their great growth potential (then). We know that they are trading at historical lows now.

There are many excellent quotes in the book which I would be posting on my blog randomly for education purposes.

Mr. Market dances before us without a care in the world. And why not? He has no responsibilities at all. As an economic gigolo, he has only one objective: to be "attractive." Meanwhile, Mr. Value, a remarkably stolid and consistent fellow, never shows -- and seldom stimulates -- any emotion. He lives in the cold, real world where there is nary a thought about perceptions or feelings. He works all day and night inventing, making and distributing goods and services. His job is to grind it out on the shop floor, at the warehouse, and in the store, day after day, doing the real work of the economy. His role may not be emotionally exciting, but it is important. Mr. Value always prevails in the long run. Eventually, Mr. Market’s antics -- like sand castles on the beach -- come to naught.

~Charles Ellis

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