A patient investor is in scientist mode. Just like a scientist, his position is a thesis — a set of assumptions — and thus he is actively looking for all data, seeking out the disconfirming kind.

Secular bear markets emerge specifically when above-average valuations combine with long-term economic contraction. In secular bear markets, economic decline prevents earnings growth from offsetting P/E mean reversion; deteriorating earnings compound P/E compression, driving extended stock price declines.

Secular bull markets begin at low, below-average P/E ratios. Combined earnings growth and P/E expansion — essentially mean reversion — produce spectacular returns, creating jubilant investors who drive valuations above average.

One constant remains: human emotions drive overexcitement about stocks, pushing valuations above average, subsequently creating underexcitement and range-bound market periods. Without emotional influence, stocks would consistently reflect their value levels (approximately P/E of 15), eliminating secular cycles.

Human inertia is a powerful force, especially in large companies. AI may end up moving at the speed of humans, as adoption has to overcome the default human behavior of resistance to change, fear for job security, and simply fear of the unknown.

A disciplined sell process injects a healthy dose of Darwinism into the portfolio, weeding out the weakest stocks.

This whole investing thing is a lot more art than science. I am more patient with selling when a lot of things are humming together and impatient when I lose confidence in management. I have zero tolerance when I have an iota of doubt about management’s character.

This is where risk becomes volatility, because in the case of downside volatility there may be a semi-permanent loss of capital — losses or near-zero returns for a decade or two.

Despite Apple’s earnings rising from $37 billion to $57 billion, its book value declined from $123 billion to $78 billion. For every share repurchased at $50 with book value of $1, you automatically create negative $49 in book value ‘destruction.’ So it’s completely meaningless.

A market that goes up and down, with a lot of cyclical volatility, but ends up going nowhere for a long time.

The value investor approaches the stock market like a smart businessman would if he were buying a business or an office building with the intention of owning it for a long time.

This alignment of my and IMA’s why is having soul in the game — when your identity and your work are inseparable, when what you do reflects who you are.

Large portions are being packaged into special purpose vehicles (SPVs) — opaque investments that regulators struggle to value, sold to pension funds, private investors, and insurance companies.

Statistical cheapness is often easy to see: A company that trades at 7 times last year’s earnings is considered cheap, but it may or may not be undervalued.

Stock returns mathematically depend on two factors: earnings growth and changes in valuation (Price/Earnings ratios). Adding dividend returns captures all variables responsible for total stock returns.

We stay grounded in the things we can do — solid research, thoughtful decisions, transparent communication — and accept that we don’t control how the market prices those decisions in the short run. When I say ‘accept,’ I don’t mean ‘ignore’; I mean we don’t get caught up in the daily drama of stock prices.

Brokers and many ‘financial advisors’ only have to answer a much easier question: is this product suitable for you?

A deep moat around its business often created by strong brands, high barriers to entry, patent protection etc — allowing a company to have a leg up against competitive threats.

Most important, there are no switching costs for consumers.