Don’t go after large areas. Don’t try to figure out if Merck‘s pipeline is better than Pfizer’s. It’s too hard. Go to where there are market inefficiencies. You need an edge. To succeed, you need to go where the competition is low.

More here.

London real estate has actually bounced off the bottom in the last nine months. Prices are now down a mere 9% or so from their 2007 peaks, according to data tracked by mortgage giant Nationwide Building Society. The average home in London, including all those dreary outskirts that go on and on and on, is $436,000. That’s even higher than it was as recently as 2006, when the bubble was in its late stages.

As a homeowner in those ‘dreary outskirts’ I like the phenomenon if not the description.

(Incidentally, if a UK paper was reporting the US market, it would give the foreign-denominated price first, then the local equivalent in brackets. Is it standard US practise to show only dollar amounts? If so, that annoys me more than it should.)

1. Never invest what you can’t afford to lose. From Caleb Loom, my grandfather. You need an income, and you need shelter. Don’t do anything that jeopardises this. Your investment baseline should not be zero, nor should you consider all your assets as part of your portfolio.
2. Invest on the basis of fundamental value. From Benjamin Graham. Every system is phoney, every day-trader a gambler. Patience is not only a virtue, but a competitive advantage.
3. Diversification reduces your potential for large losses, but also your potential for large gains. From Warren Buffett (who put it more succinctly, “When your advisor tells you to diversify, he’s telling you he doesn’t know what he’s talking about”). Note that (as John Kay would argue) diversification is the best way to ensure modest growth – but by prioritising the need for diversifying your portfolio, you are adding another reason to buy a stock: for the sake of diversity. This is one reason too many. The only reason you should have is because it’s a good stock.
4. Hammer down your investment costs. From John Kay. Fees and charges eat your return. Buy and sell smartly – take advantage of deals, buy in bulk. Try for a maximum 1% annual overhead.

I hope to learn much, much more, but this isn’t a bad start.

1. Pay less [primarily commissions, fees, etc.]
2. Diversify more [between asset classes and within them, remembering that indexes are not diverse]
3. Be contrarian

These may be my financial New Year’s resolutions.