The importance of expectations





Other investors







Our own expectations











Talk to Nate


  1. Nate:

    An excellent posting as usual!

    One thing I would like to mention is that a lot of investors complain about liquidity. A lot of stocks are not that liquid, HOWEVER, they are liquid enough for us individuals to build positions in. How many of us individuals are taking $25k or $50k or even larger positions? Not too many that I know...

    So I would suggest that individual investors who complain about liquidity frequently use that as a crutch to not take action....

    I've also shared ideas with people who have unrealistic expectations. A friend who is anxious to get into the market asked me for advice. I suggested that they look at CLWY. At the time it was trading for $.80/share. I figured the real estate was extremely valuable and if things go right, the company might be worth $3/share. I figured that this might take 3-4 years. He scoffed at my "foolishness". If he was going to go into the market, he NEEDED HIGHER RETURNS THAN THAT! ALSO, the time frame was WAY TOO LONG. How are you going to make money on dogs like that?

    Well, maybe that is why he has never invested, and probably never will.

    How many others like that are out there? They have unrealistic expectations about how things work, and returns that can be expected.

    If you can consistently earn 20% or so, and live within your means, you will be a rich man in time...

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  3. WOW. fantastic call on CLWY. I love the "time horizon arbitrage" strategy and have experienced some of my best returns from these investments where you strongly believe the stock is worth a lot more than current price but you just have no idea when. In my experience these things tend to reprice sooner than many would expect.

  4. Well over half of my portfolio is in illiquid securities. I'm not impatient in the sense of being unwilling to wait for the market to come to me. Instead, my problem is that I get very impatient when I have a lot of uninvested cash, which makes me inclined to buy something I can get my hands on right away instead of sitting around hoping to get a fill. There is a real opportunity cost of waiting in cash because there is no guarantee that a seller will ever hit your bid on a security. And since I am trying to get 15+% returns per year, cash today as even more undesirable than usual.

    1. When I have an excess of cash and a lack of compelling ideas, I try to focus my energy on finding and evaluating special situations or work-outs. This is standard piece of Buffett partnership advice.

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  6. Nate,


    Would you care to write another article on this?