Wednesday, September 19, 2018


I'm back in Charlotte after a great couple of weeks traveling. As often happens, I brought way more to read with me than I actually had time to read, but I did catch up on some podcasts, started a couple of new things, and was able to get through Bethany McLean's latest book, Saudi America, which I thought was especially good, well-balanced, and timely. It was a decent compliment to read alongside Jeremy Grantham's "The Race of Our Lives Revisited," as well as the shale section in the first part of Peter Zeihan's book The Absent Superpower.

One of the Grant's podcasts also mentioned two books on cycles—one by Jim Grant himself, The Trouble With Prosperity, as well as Economics and the Public Welfare by Benjamin Anderson, which Amazon tells me I bought in 2012 and yet wasn't kind enough to also let me know where I seem to have placed it. And those books both reminded me that we are only a couple of weeks away from the book many of us have been eagerly awaiting: Mastering the Market Cycle by Howard Marks.


"Machines are there to help people, not replace them. Humans should never wait for machines. Machines wait for people. And so in this way, I find myself so far outside of the world of technology. I see so much 'technology over everything' kind of thinking where those people are like, it’s all there....I don’t even think there’s such a thing as, truly, the technology industry, right? It’s a weird construct. It’s like, technology is’s not an industry. It’s not even a strategy. It’s sort of a tactic. It’s like a tool that you use to give people more skills." --Tobi Lütke

Tobi Lütke, founder and CEO of Shopify, talks with Shane Parrish on The Knowledge Project Podcast (LINK) [In addition to the quote above, this conversation also has some great insights on culture and on creating the right environment at a company.]

Predicting the Future with Bayes’s Theorem (LINK)

You Can Time The Market, Just Not All The Time - by Jason Zweig (LINK)
Howard Marks has made a few market calls in his day, but warns that it’s harder than it looks
How Jim Chanos Uses Cynicism, Chutzpah — and a Secret Twitter Account — to Take on Markets (and Elon Musk) (LINK)

Grant’s Interest Rate Observer's piece on municipal bonds, featuring Chris Pavese of Broyhill Asset Management (LINK)

Amazon Data Leaks and Bribes Have Consequences (LINK)

How to keep up progress on global health - by Bill Gates (LINK)

For Real Vision subscribers, Michael Mauboussin had a video released discussing "The Five Behavioral Mistakes Investors Make" (LINK), and the final episode of The Jim Grant Series also aired, which was an interview with Dan Rasmussen (LINK) [If you're not a subscriber and would to join or take a free trial, you can sign up HERE.]

Ben Thompson's article from last week, as well as his latest:

The iPhone Franchise (LINK)

The European Union Versus the Internet (LINK)

And Ed Yong has continued his productive ways, writing about the latest and/or more interesting science stories of the day...

Bacteria in a Dinosaur Bone Reignite a Heated Debate (LINK)

The Genes That Never Go Out of Style (LINK)

The Three Major Cartels Behind the Downfall of Africa’s Elephants (LINK)

Wiping Out the Brain’s Retired Cells Prevents a Hallmark of Alzheimer's (LINK)

Tuesday, September 18, 2018

Seneca quote on endurance

"Fortune lashes and mangles us: well, let us endure it: it is not cruelty, it is a struggle, in which the oftener we engage the braver we shall become. The strongest part of the body is that which is exercised by the most frequent use: we must entrust ourselves to fortune to be hardened by her against herself: by degrees she will make us a match for herself. Familiarity with danger leads us to despise it. Thus the bodies of sailors are hardened by endurance of the sea, and the hands of farmers by work; the arms of soldiers are powerful to hurl darts, the legs of runners are active: that part of each man which he exercises is the strongest: so by endurance the mind becomes able to despise the power of misfortunes." --Seneca ("Of Providence")


Related quotes:

"There were two vices much blacker and more serious than the rest: lack of persistence and lack of self-control....Endure and Renounce." --Epictetus

"By endurance we conquer." --Shackleton Family Motto (“Fortitudine Vincimus”)

Monday, September 17, 2018

More from Charlie Munger on opportunity cost...

In the real world, you have to find something that you can understand that’s the best you have available. And once you’ve found the best thing, then you measure everything against that because it’s your opportunity cost. That’s the way small sums of money should be invested. And the trick, of course, is getting enough expertise that your opportunity cost — meaning your default option, which is still pretty good — is very high.... Most people aren’t going to find thousands of things that are equally good; they’re going to find a few things where one or two of them are way better than anything else they know. And the right way to think about investing is to act thinking about your best opportunity cost. 
Reviewing the comments from Buffett and Munger on opportunity costs over the years has made me make a slight change to my investment process. Now, multiple times a week I go over the key aspects and thesis (about a paragraph or two in length) for each of the things I am actually invested in. This serves two key purposes:
  1. Opportunity Cost: Like the quote from Munger above, it allows me to always have my opportunity cost at the top of my mind when looking at new ideas, thus helping to improve the idea-filtering process.
  2. Disconfirming Evidence: By constantly reviewing my reasons for owning something, I hope to be able to more quickly identify evidence that may opposed to those reasons, thus increasing my ability to recognize mistakes faster as well as using the practice of searching for disconfirming evidence as a way to train myself to be more objective
For those looking to grow a money management business, it can also help in one's marketing efforts. While many people may want to conclude that just finding great ideas will lead to a successful business, or that being able to tell every bit of minutiae about a given holding can display one's skill—the truth is that more often than not, being able to clearly articulate the key points in a thesis is what will get someone's initial attention. From there, the level of detail one goes into will vary by potential investor, but showing some clarity helps the marketing which helps drive one's business. And as Ben Franklin said, "Drive thy business or it will drive thee."

Friday, September 14, 2018

Thinking of what can go wrong

The quote from Warren Buffett below, from the 2000 Berkshire annual meeting, goes well with THIS Seth Klarman quote and, especially, the 'What can go wrong?' section in THIS post.

"When we look at businesses, we try to think of what can go wrong with them. We try to look [for] businesses that are good businesses now, and we think about what can go wrong with them. If we can think of very much that can go wrong with them, we just forget it. We are not in the business of assuming a lot of risk in businesses. That doesn’t mean we don’t do it inadvertently and make mistakes, because we do. But we don’t intentionally, or willingly, voluntarily, go into situations where we perceive really significant risk that the business is going to change in a major way." --Warren Buffett

Thursday, September 13, 2018

Warren Buffett on P/E ratios and the future looking different from the present

One of the best buys we ever made was in 1976 when we bought a significant percentage — what became through repurchases — 50 percent of GEICO at a time when the company was losing a lot of money and was destined to lose a lot of money in the immediate future. 
And, you know, the fact they were losing money was not lost on us, but we thought we saw a future there that was significantly different than the current situation. 
So it would not bother us in the least to buy into a business that currently was losing money for some reason that we understood, and where we thought that the future was going to be significantly different. 
Similarly, if a business is making some money — there’s no P/E ratio that we have in mind as being a cutoff point at all. There are businesses — I mean, you could have some business making a sliver of money on which you would pay a very, very high P/E ratio. 
...There are all kinds of decisions that involve the future looking different, in some important way, than the present. Most of our decisions relate to things where we expect the future not to change much. 
But you get this — well, American Express was a good example. And when we bought it in 1964, a fellow named Tino DeAngelis had caused them incredible trouble. You know, it was one of those decisions that looked, for a time, as if it could break the company. 
So, we knew — if you’d been charging for what Tino had stolen from the company against the income account that year, or the legal costs that were going to be attached to it, you were looking at a significant loss. 
But the question was, what was American Express going to look like 10 or 20 years later? And we felt very good about that. 
So there are no arbitrary cutoff points. But there is that focus on, how much cash will this business deliver, you know, between now and Kingdom Come? Now as a practical matter, if you estimate it for 20 years or so, the terminal values get less important. 
So — but you do want to have, in your mind, a stream of cash that will be thrown off over, say, a 20-year period, that makes sense discounted at a proper interest rate, compared to what you’re paying today. And that’s what investment’s all about. 

Wednesday, September 12, 2018


Thank you to everyone who responded to last week's post. Those responses and kind words were much more than I expected, and I really appreciate it. A stop in London has given me a little internet access, and a little time to catch up on some items of note from the past week. 


Warren Buffett's in depth interview with Andrew Ross Sorkin on the 2008 financial crisis (video) (LINK) ["Confidence comes back one at a time, but fear is instantaneous.... Fear just spreads like nothing you've ever seen.... That's the advantage I've got, frankly. It isn't I.Q. It's [that] I'm not going to get fearful about the United States over time."]

When You Lose 99.9%, You’ve Lost More Than Money - by Jason Zweig ($) (LINK)

Bruce J. Flatt "Durable Principles for Real Asset Investing" | Talks at Google (LINK)

Can Mark Zuckerberg Fix Facebook Before It Breaks Democracy? - by Evan Osnos (LINK)

“Skin in the Game” - Nassim Nicholas Taleb Speech At RPI's Media & War Conference (video) (LINK)

Elon Musk talks with Joe Rogan (Video, Podcast)

Risk, Uncertainty and Ignorance in Investing and Business – Lessons from Richard Zeckhauser - by Tren Griffin (LINK)

The Decision Matrix: How to Prioritize What Matters (LINK)

Ben Thompson chats with Shane Parrish (podcast) (LINK)

Ray Dalio's Template For Understanding BIG DEBT CRISES [H/T Bill] (Sign Up for Free PDF, or Buy the Book)

How Self-Driving Cars Could Ruin the American City (podcast) (LINK)

Trailblazers with Walter Isaacson -- Batteries: The Power of Portable Power (podcast) (LINK)

Trillion Dollar Toppers: Market Triggers, Value Drivers and Pricing Catalysts! - by Aswath Damodaran (LINK)

13D Research: Big box stores were never economic development (LINK)

How 3D printers are preparing students for life after high school - By Bill Gates (LINK)

Steven Johnson on the a16z Podcast discussing his new book Farsighted: How We Make the Decisions That Matter the Most (LINK)

Doris Kearns Goodwin on The Tim Ferriss Show: The Life Lessons and Success Habits of Four Presidents (podcast) (LINK)

Sam Harris speaks with Jonathan Haidt about his new book The Coddling of the American Mind (podcast) (LINK)

Robert Lustig, M.D., M.S.L.: fructose, processed food, NAFLD, and changing the food system (podcast) (LINK)

Kobe Bryant: Mamba Mentality and The Mind of a Champion (podcast) (LINK)

oGoLead Leadership Podcast: Tom Brady, New England Patriots Quarterback (Part 1, Part 2)

Ed Yong has also been busy writing about the latest and/or more interesting science stories of the day...

What Was Lost in Brazil’s Devastating Museum Fire (LINK)

A Once-Captive Dolphin Has Introduced Her Friends to a Silly Trend (LINK)

This Tiny Songbird Rolls Its Head to Break Its Victim’s Neck (LINK)

Humans Are Destroying Animals’ Ancestral Knowledge (LINK)

Wait, So How Much of the Ocean Is Actually Fished? (LINK)

An Ancient Crosshatch May Be the Earliest Drawing Ever Found (LINK)

The mystery of learning...

From The Master Algorithm by Pedro Domingos:
If you’re a parent, the entire mystery of learning unfolds before your eyes in the first three years of your child’s life. A newborn baby can’t talk, walk, recognize objects, or even understand that an object continues to exist when the baby isn’t looking at it. But month after month, in steps large and small, by trial and error, great conceptual leaps, the child figures out how the world works, how people behave, how to communicate. By a child’s third birthday all this learning has coalesced into a stable self, a stream of consciousness that will continue throughout life. Older children and adults can time-travel–aka remember things past, but only so far back. If we could revisit ourselves as infants and toddlers and see the world again through those newborn eyes, much of what puzzles us about learning–even about existence itself–would suddenly seem obvious. But as it is, the greatest mystery in the universe is not how it begins or ends, or what infinitesimal threads it’s woven from. It’s what goes on in the small child’s mind–how a pound of gray jelly can grow into the seat of consciousness.

Tuesday, September 11, 2018

The best businesses during inflation...

WARREN BUFFETT: Well, the best businesses during inflation are usually the best — they’re the businesses that you buy once and then you don’t have to keep making capital investments subsequently. do not face the problem of continuous reinvestment involving greater and greater dollars because of inflation.  
That’s one reason real estate, in general, is good during inflation. If you built your own house 55 years ago like Charlie did, or bought one 55 years ago like I did, it’s a one-time outlay get an inflationary expansion in replacement capital without having to replace [it] yourself.  
And if you’ve got something that’s useful to someone else, it tends to be priced in terms of replacement value over time, and so you really get the inflationary kick.  
Now, if you’re in a business such as the utility business or the railroad business, it just keeps eating up more and more money, and your depreciation charges are inadequate and you’re kidding yourself as to your real economic profits.  
So, any business with heavy capital investment tends to be a poor business to be in in inflation and often it’s a poor business to be in generally.
And the business where you buy something once — a brand is a wonderful thing to own during inflation.
You know, See’s Candy built their brand many years ago. Now, we’ve had to nourish it as we’ve gone along, but the value of that brand increases during inflation, just as the value of, really, any strongly branded goods.
But as Munger points out, extremely high inflation is not something one should hope for:
CHARLIE MUNGER: Well, yeah, but if the inflation ever goes completely out of control, you have no idea how it’s going to end up.  
If it weren’t for the Weimar inflation, we might never have had Adolf Hitler. It was the twosome of the great German inflation followed by the Great Depression that brought us Hitler. And think of the price that the world paid for that one.  
We don’t want inflation because it’s good for See’s Candy. (Laughter) 

Related previous post: Warren Buffett’s Comments on Inflation

Monday, September 10, 2018

Chris Hadfield on getting ready to do his job, and getting better at life

The quote below is from Hadfield's May 2015 appearance on The James Altucher Show. While he was referring to the difficult job of being an astronaut and training for all of the things that can happen in space, this advice is applicable to gaining expertise in many fields:
So how do you get ready for that? What it all boils down to is an insatiable, permanent necessity for personal competence—to always become better. Because even if you completely master some part of it, some subtle thing is going to change.... All you can do is continually try and improve your understanding of how things work. 
...I think if you're not studying something at all times to improve your ability to do things, then I kind of ask: Why not? What's the other thing that you're doing that is more important than getting better at life?

Related book: An Astronaut's Guide to Life on Earth: What Going to Space Taught Me About Ingenuity, Determination, and Being Prepared for Anything

Excerpt from the book:
Over the years, I’ve realized that in any new situation, whether it involves an elevator or a rocket ship, you will almost certainly be viewed in one of three ways. As a minus one: actively harmful, someone who creates problems. Or as a zero: your impact is neutral and doesn’t tip the balance one way or the other. Or you’ll be seen as a plus one: someone who actively adds value. Everyone wants to be a plus one, of course. But proclaiming your plus-oneness at the outset almost guarantees you'll be perceived as a minus one, regardless of the skills you bring to the table or how you actually perform. This might seem self-evident, but it can't be, because so many people do it. 
...When you have some skills but don't fully understand your environment, there is no way you can be a plus one. At best, you can be a zero. But a zero isn't a bad thing to be. You're competent enough not to create problems or make more work for everyone else. And you have to be competent, and prove to others that you are, before you can be extraordinary. There are no shortcuts, unfortunately. 
Even later, when you do understand the environment and can make an outstanding contribution, there's considerable wisdom in practicing humility. If you really are a plus one, people will notice—and they're even more likely to give you credit for it if you're not trying to rub their noses in your greatness.

[H/T Tamas]

Friday, September 7, 2018

Not making a decision while tired

I've been updating a short checklist that I created to use as the last thing I look at before making an investment in something. These kinds of checklists are best kept short, and mine currently consists of 12 items. There is one question I've added that may seem obvious, but that I decided is best to physically make myself confirm before investing:
  • Are you tired?
This was inspired by re-reading a Charlie Munger comment:
"We didn’t know, when we started out, this modern psychological evidence to the effect that you shouldn’t make a lot of important decisions when you’re tired and that making a lot of difficult decisions is tiring....  I cannot remember an important decision that Warren has made when he was tired."
Obvious? Probably. But its simplicity doesn't make it any less important.