Each of the situations I used as examples yesterday, I have personally run into, and I could write about more of them.? Good investment and risk control shops do their home work in advance.? They ask questions on what could go wrong with a given investment or product; they are willing to negatively but not unreasonably imaginative.? Buffett has said something to the effect of, “We’re paid to think about the things that can’t happen.”

What I said about life & commercial insurers goes double for the banks.? Those insurers have long liabilities, which gives them more time to bounce back from asset disappointments.? The short liability structures of the banks give them less time to deal with asset problems.

All of this implies having disciplines for buying assets, and re-evaluating assets in any portfolio.? My discipline evaluates these at mid-quarter, when few others are doing their evaluations.

The idea is to be ever and always forward-looking.? The past doesn’t matter, except to serve as grist for the mill, showing us what can happen.

Good investing does not care about entry prices.? Good investing is like the great Wayne Gretsky, who did not care about where the puck was, but where it would be.? This is why when I invest I am always comparing the assets in my portfolio versus alternatives.? I look for what will do well in the future.? I do not care about past gains and losses.

Good investing cares about trading what is good for what is better.? This is easy for bond managers.? A bond manager with skill, and freedom to execute can make many wise trades to improve a portfolio.? All he has to do is buy bonds with yields that compensate for the risks, and sell bonds that don’t compensate.

For equity investors the calculus is more vague, but it still exists.? Look to where you can earn returns on average.? Find enough of those areas so that diversification works.

I have never run an index-like portfolio, unless it was an accident.? I will occasionally throw a company in for diversification reasons, but my main goal is owning cheap assets that will earn far more than the index.

Good investing involves business knowledge.? That means you understand how money is made across the set of companies that you invest in.

Whether you are an investor or not, if you want to make greater progress in your career, you should try to learn the financial aspects of your company.? That will stand you in good stead for those that look for managers, because those who understand the profit model are far more valuable than those that don’t.

I stand with Buffett, “I am a better businessman because I am an investor, and I am a better investor because I am a businessman.”? Outside money and inside money can learn from each other, leading to a better investing result.

Summary

I offer to all investors this simple idea, trade what is less good for what is better. It will improve your returns.? Continually improve your portfolio, and do not be married to any ideas.? The idea of relative improvement of the portfolio has aided me greatly in portfolio management.? It is easy to swap bond for bond, and relatively easy to trade stock for stock.? Asset allocation decisions are more difficult.? Figuring when to trade stocks, bonds and cash between one another is far more difficult.