Thursday, October 27, 2016


James Chanos and Kyle Bass speak with Bethany McLean at Vanity Fair's New Establishment Summit on the global economy and stock markets (video from a couple of weeks ago) [H/T @kevin_holloway] (LINK)
Related book (recommended by Chanos in the interview): The Seven Signs of Ethical Collapse
A short Interview with Bruce Greenwald (video) [H/T ValueWalk] (LINK)

Notes From Invest For Kids Chicago 2016 (LINK)

JPMorgan Pressures AmEx With Richer-Reward Business Card [H/T @TheSovaGroup] (LINK)

Surface Studio, Nintendo Switch, and the Potential of Niche - by Ben Thompson (LINK)

How I Built This podcast - Airbnb: Joe Gebbia (audio) (LINK)

Freakonomics Radio (podcast): In Praise of Incrementalism (LINK)
What do Renaissance painting, civil-rights movements, and Olympic cycling have in common? In each case, huge breakthroughs came from taking tiny steps. In a world where everyone is looking for the next moonshot, we shouldn't ignore the power of incrementalism.
What I Saw On My Wild Visit To a Beach Where the World’s Most Valuable Diamonds Wash Ashore [H/T @MerrynSW] (LINK)

The Science of Eggs [H/T The Browser] (LINK)

Books recommended by Marc Andreessen in the interview linked to yesterday: 1) The Maverick and His Machine: Thomas Watson, Sr. and the Making of IBM; 2) Bill & Dave: How Hewlett and Packard Built the World's Greatest Company; 3) The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World; 4) I Invented the Modern Age: The Rise of Henry Ford; 5) Leonardo's Lost Robots; 6) The Lunar Men: Five Friends Whose Curiosity Changed the World

Boyles Asset Management – Q3 2016 Letter Excerpt

Disclosure: I am a portfolio manager at Boyles Asset Management, LLC ("Boyles") and the fund managed by Boyles may in the future buy or sell shares of the stocks mentioned below and we are under no obligation to update our activities. This is for information purposes only and is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.


Resisting Change and Searching for New Ideas

“Out of every hundred new ideas ninety-nine or more will probably be inferior to the traditional responses which they propose to replace.... It is good that new ideas should be heard, for the sake of the few that can be used; but it is also good that new ideas be compelled to go through the mill of objection, opposition, and contumely; this is the trial heat which innovations must survive before being allowed to enter the human race.” - Will and Ariel Durant, The Lessons of History

We are often asked how we find new ideas. While we discussed the specifics in detail in our Q1 2014 letter, the short summary is that we read a lot, run both quantitative and qualitative screens, and continually try to develop a network of philosophically like-minded investors with whom we can discuss ideas and learn. Basically, we turn over a lot of “rocks” in our search for worthy investment ideas. And of those many rocks, we deem only a select few worthy of being attractive enough to dive deeply into, and fewer still worthy of actual investment.

There’s a certain attraction to new things, especially when it comes to investing, where the prospect for profits often comes attached with a management team that can tell a good story. But most of the time, when new potential investments turn up, the right course of action is to do nothing at all, as far as putting capital to work is concerned. Investing is a field in which knowledge is cumulative, so objective work properly done doesn’t get wasted. It builds a base for potential future investment, even if nothing gets done when that knowledge is gained.

Overall, we’ve been managing a fund for just about ten years, mostly focused on finding small companies, so we’ve gotten to know quite a few businesses we’d like to own, should they ever get down to the price at which we’d like to own them. When we do decide to swing the investment bat, it may occur after years of following and getting to know those companies and management teams well, as was the case with two of our larger holdings in BrainJuicer and Cambria Automobiles.

“People say that you should change your mind when the data changes; but I change my mind even when the data doesn’t change, because I reanalyze the situation every day and sometimes I just come to a better analysis. And I think actually what I said yesterday I don’t believe anymore.” - Jeff Bezos, CEO,

We’re fans of reading good business biographies, and one of the books we recently read was the story of a company called Linamar in Canada. One thing that stood out in the story was a mistake the company made when it entered a new line of business that was not as good as the company’s core business. This particular venture took a lot of time and energy of the management team and, ultimately, didn’t work out. When discussing the venture, Frank Hasenfratz (founder of Linamar) said, “How do you measure the aggravation and the time it took me and some of our other people away from doing more productive things?”

Investing is often the same way. It is easy to spend time and attention on ideas that look cheap but that maybe aren’t ideal, and even if something may be undervalued, there is an opportunity cost of spending too much time thinking about an idea and industry that might not be worth the effort required to understand and keep up with. For us, we decided that Richardson Electronics, which we discussed in our Q3 2015 letter, was one of those ideas, and have since sold the shares we held.

Richardson was trading for what appeared to be a deep value price, though the cash balance does deserve a footnote because much of it is overseas and not necessarily quickly available to be put to work in the U.S. But the negative aspects of the company—lack of profitability, high management compensation, a dual class share structure, questionable capital allocation, etc.—made us decide that even though it still looked undervalued, it was no longer worth it to continue holding and spending the time staying up-to-date on the company and industry for an investment to which we’d never allocate a large amount of capital. So we sold, moved on, and wish them luck on accomplishing the things they hope to accomplish as they continue to transition their business to what they hope is a more profitable future.

Our experience with this investment, and the quote from Jeff Bezos above, also remind us of a story told by personal finance author Jason Zweig about Daniel Kahneman. Kahneman, one of the pioneers of behavioral economics, is known by those who have worked with him to be completely willing to change his mind and throw away all of his, and his collaborators’, previous hard work in an instant if he suddenly realizes it is incorrect. This is something that is often hard to do psychologically, as the more one works on something, the more committed one tends to get—wanting that work to mean something and to lead to action. But if one can get over the mental hurdle, developing the skill to remain completely objective at all times is one of the more valuable skills one can have in any field, especially investing, where significant time is spent learning and preparing for a climax that may never come.

Zweig, in his first taste of witnessing this trait in Kahneman, asked him how he had started afresh on the research that he and his colleagues had been working on, as if all the previous work had never happened. Kahneman replied with words that Zweig said he’s never forgotten, and that we as investors should also never forget: “I have no sunk costs.”

Wednesday, October 26, 2016


How To Mentally Overachieve — Charles Darwin’s Reflections On His Own Mind (LINK)
Related recent post: The essence of Charles Darwin's disruptive genius...
Latticework of Mental Models: Denominator Blindness (LINK)

Leithner Letter No. 205-208: 26 November 2016-26 February 2017 (LINK)

Deutsche Bank Said to Review Valuations of Inflation Swaps [H/T Matt] (LINK)

The Weird Economics Of Ikea (LINK)
Related book: Leading By Design: The Ikea Story
Marc Andreessen at Startup School SV 2016 (video) (LINK)

On Machine Learning in Medicine and More (a16z video) (LINK)

There’s magic in mess: Why you should embrace a disorderly desk (LINK)
Related book: Messy: The Power of Disorder to Transform Our Lives
Sample chapter from Tim Ferriss' upcoming book Tools of Titans (LINK)

10 Learnings from 10 Years of Brain Pickings (LINK)

100 Things I Learned in 10 Years and 100 Reads of Marcus Aurelius's Meditations - By Ryan Holiday (LINK)
Related books: 1) Meditations; 2) The Daily Stoic

Monday, October 24, 2016


As I catch up on readings from while I was away, the nicest surprise for me was certainly Peter Bevelin's interview over at Farnam Street. Most of the readers of this blog have probably read it by now, but it was the first interview Peter has done since the interview he did here in 2009 and, as expected, it was full of insight. While the interview is full of wisdom, one answer that especially stood out to me, and that I plan to look at frequently as a reminder from the wise, was the answer on filters, a topic I've mentioned here several times before:
And as the years have passed, I’ve found that filters are a great way to save time and misery. As Buffett says, “I process information very quickly since I have filters in my mind.” And they have to be simple – as the proverb says, “Beware of the door that has too many keys.” The more complicated a process is, the less effective it is.
Related to that topic, and in the same interview answer, Peter mentioned a great quote from Richard Feynman:
“A great deal of formulation work is done in writing the paper, organizational work, organization. I think of a better way, a better way, a better way of getting there, of proving it. I never do much — I mean, it’s just cleaner, cleaner and cleaner. It’s like polishing a rough-cut vase. The shape, you know what you want and you know what it is. It’s just polishing it. Get it shined, get it clean, and everything else.”
That quote about perfectly summarizes the process of refining the file of thoughts and reminders I mentioned at the end of a post on fundamentals, and the process of refining the memory palaces I mentioned in the post on memortation. And in the end, it summarizes the progress one makes in continuing to refine both one's investment and overall life philosophies as well. 


Now onto the rest of the links...

Walter Isaacson sits down with Amazon CEO Jeff Bezos, number one on Vanity Fair's New Establishment List (video) (LINK) ["The thing for companies is you need to be nimble and robust. So you need to be able to take a punch, and you also need to be quick and innovative and doing new things at a high speed. That's the best defense against the future. And you have to always be leaning into the future. If you're leaning away from the future, the future is going to win every time. Never, ever, ever lean away from the future."]

Essay from Michael Mauboussin et al. - Capital Allocation: Evidence, Analytical Methods, and Assessment Guidance (LINK)

The Motley Fool talks with Michael Mauboussin (LINK)

25iq: A Dozen Things I’ve Learned about Multi-sided Markets (Platforms) - by Tren Griffin (LINK)

Bill Gates on Warren, Bridge, Business Analysis and Tennis (LINK)

In Rare Interview, Ted Weschler Says He Likes Apple’s "Subscription Element" (LINK)

The $108 Billion Man Who Has Beaten the Market - by Jason Zweig (LINK)

Buffett’s Three Categories of Returns on Capital (LINK)

How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More [H/T @TheSovaGroup] (LINK)
Related quotes (from several years ago I believe): 
“We pay much better than Wal-Mart. That’s not altruism. It’s good business.” –Jim Sinegal, Costco 
“Our attitude has always been that if you hire good people and provide good wages and good jobs and more than that—if you provide careers—that good things will happen to your company.” –Jim Sinegal, Costco
FT Alphachat podcast: The life of Alan Greenspan (LINK)
Related book: The Man Who Knew: The Life and Times of Alan Greenspan - by Sebastian Mallaby
Horizon Kinetics: 3rd Quarter 2016 Commentary (LINK)

An Insight from Allan Mecham on Understanding Industrial Distribution Companies (LINK)

The Knowledge Project podcast Episode 13: Morgan Housel on Investing and Life (LINK)

Real Vision TV audio replay of a conversation with Kyle Bass, which originally aired on July 1, 2016 (LINK)

The IT Era and the Internet Revolution - by Ben Thompson (LINK)

Exponent podcast Episode 093: The Disruption of Everything (LINK)

Video: Jordan Ellenberg on the power of uncertainty and contradiction (LINK)
Related book: How Not to Be Wrong: The Power of Mathematical Thinking
The World's Happiest Man Wishes You Wouldn't Call Him That [H/T @safalniveshak] (LINK)
Related book: Happiness: A Guide to Developing Life's Most Important Skill
Released last week, one of those books I'm most excited to start reading this week: The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living

Leo Tolstoy quote

From A Calendar of Wisdom:
When you have doubts about what to do, just imagine that you might die at the end of that same day, and then all your doubts will disappear, and you will see clearly what your conscience tells you, and what is your true personal wish.  
A man condemned to immediate execution will not think about the growth of his estate, or about achieving glory, or about the victory of one group over another, or about the discovery of a new planet. But one minute before his death a man may wish to console an abused person, or help an old person to stand up, or to put a bandage on someone's injury, or to repair a toy for a child.

Sunday, October 23, 2016

Friedrich Nietzsche quotes on amor fati ("love of fate")

"My formula for greatness in a human being is amor fati: that one wants nothing to be different, not forward, not backward, not in all eternity. Not merely bear what is necessary, still less conceal it...but love it." - Friedrich Nietzsche (via Ecce Homo)

"I want to learn more and more to see as beautiful what is necessary in things; then I shall be one of those who makes things beautiful. Amor fati: let that be my love henceforth! I do not want to wage war against what is ugly. I do not want to accuse; I do not even want to accuse those who accuse. Looking away shall be my only negation." - Friedrich Nietzsche (via The Gay Science)


Similar quote from Epictetus
"Do not seek for things to happen the way you want them to; rather, wish that what happens happen the way it happens: then you will be happy."
And another similar quote from Nassim Taleb in Fooled by Randomness: 
"Having control over randomness can be expressed in the manner in which one acts in the small and the large. Recall that epic heroes were judged by their actions, not by the results. No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word…..There is nothing wrong and undignified with emotions—we are cut to have them. What is wrong is not following the heroic or, at least, the dignified path. That is what stoicism truly means. It is the attempt by man to get even with probability…..stoicism has rather little to do with the stiff-upper-lip notion that we believe it means…..The stoic is a person who combines the qualities of wisdom, upright dealing, and courage. The stoic will thus be immune from life’s gyrations as he will be superior to the wounds from some of life’s dirty tricks."

Saturday, October 22, 2016

Seneca on gaining wisdom from the distinguished...

From Moral letters to Lucilius - Letter 33 (Kindle):
For this reason, give over hoping that you can skim, by means of epitomes, the wisdom of distinguished men. Look into their wisdom as a whole; study it as a whole. They are working out a plan and weaving together, line upon line, a masterpiece, from which nothing can be taken away without injury to the whole. Examine the separate parts, if you like, provided you examine them as parts of the man himself. She is not a beautiful woman whose ankle or arm is praised, but she whose general appearance makes you forget to admire her single attributes.

Related audiobook: The Moral Epistles: 124 Letters to Lucilius

Friday, October 21, 2016

Malcolm Gladwell on the most important decision he ever made

A response by Gladwell during his chat with Stephen Dubner earlier this year:
I zealously guard my cognitive time. When I was in high school, I was a very, like I said, successful runner. And I stopped. I stopped at the age of 15, not because I was doing poorly, but because I understood at that age that if I was going to continue to be a good runner, it was going to occupy an outsized place in my imagination and not leave room for other things. And I was not prepared to make that sacrifice. I consider that to be the most important decision I ever made.

Related podcast: How to Become Great at Just About Anything

Related books:

Outliers: The Story of Success

Peak: Secrets from the New Science of Expertise

Thursday, October 20, 2016

Seth Klarman and Howard Marks on price and value

From Seth Klarman, via his 2010 conversation with Jason Zweig:
In our view, there is no such thing as a value company. Price is the essential determinant in every investment equation. At some price, every company is a buy; at some price, every company is a hold; and at a still higher price, every company is a sell. We do not really recognize the concept of a value company.
From Howard Marks, via The Most Important Thing:
For a value investor, price has to be the starting point. It has been demonstrated time and time again that no asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough. 
When people say flatly, “we only buy A” or “A is a superior asset class,” that sounds a lot like “we’d buy A at any price . . . and we’d buy it before B, C or D at any price.” That just has to be a mistake. No asset class or investment has the birthright of a high return. It’s only attractive if it’s priced right.

Wednesday, October 19, 2016

Certain types of competitive advantages travel better to new places than others...

From Quality Investing: Owning the best companies for the long term:
Companies that rely on unique business structures for competitive advantage at home will face the greatest difficulty expanding geographically. Advantages that derive from a unique distribution system, localized scale advantages, or favorable regulatory treatment may not be replicable abroad. The inability of grocery retailers, hospital operators, and airlines to globalize their businesses successfully testifies to this effect. 
Conversely, certain types of competitive advantages travel better to new places than others. Thanks to the globalization of travel and media, premium brands transition relatively easily into new markets. Louis Vuitton and Nike are well-known in all corners of the world, even where their merchandise is not yet available. Manufacturers operating their own stores enjoy a particular advantage, as their vertical integration makes them less reliant on a country’s infrastructure. 
The uncertainty of geographic expansion leads us to prefer companies with proven track records of successfully exporting competitive advantages into new geographic areas.