Tuesday, October 21, 2014

Howard Marks on the balance between offense and defense

From The Most Important Thing:
A conscious balance must be struck between striving for return and limiting risk— between offense and defense. In fixed income, where I got my start as a portfolio manager, returns are limited and the manager’s greatest contribution comes through the avoidance of loss. Because the upside is truly “fixed,” the only variability is on the downside, and avoiding it holds the key. Thus, distinguishing yourself as a bond investor isn't a matter of which paying bonds you hold, but largely of whether you’re able to exclude bonds that don’t pay. According to Graham and Dodd, this emphasis on exclusion makes fixed income investing a negative art.
On the other hand, in equities and other more upside-oriented areas, avoiding losses isn't enough; potential for return must be present as well. While the fixed income investor can pretty much practice defense exclusively, the investor who moves beyond fixed income—typically in search of higher return—has to balance offense and defense. 
The key is that word balance. The fact that investors need offense in addition to defense doesn't mean they should be indifferent to the mix between the two. If investors want to strive for more return, they generally have to take on more uncertainty—more risk. If investors aspire to higher returns than can be achieved in bonds, they can’t expect to get there through loss avoidance alone. Some offense is needed, and with offense comes increased uncertainty. A decision to go that way should be made consciously and intelligently.

Shareholder value...

From Capital Account:
Fluctuations in shareholder value are caused primarily by changes in competition (the capital cycle) and by the actions of management.

Monday, October 20, 2014

Reinvesting at Berkshire...

From Larry Cunningham's latest book, Berkshire Beyond Buffett, which is released tomorrow. The book has a bunch of great info on Berkshire subsidiaries and the people involved in them.
Reinvest profits in promising businesses; this is the central bastion of Berkshire culture driving its acquisitions. Do this to stimulate a complacent workface as James Hambrick did at Lubrizol; to build a company through steady bolting-on and tucking-in the way MiTek does; or to become an industry force like Berkshire Hathaway Energy. But avoid adding capital to businesses that do not generate high returns...

Peter Thiel on network effects

From Zero to One:
Network effects can be powerful, but you'll never reap them unless your product is valuable to its very first users when the network is necessarily small....Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students--Mark Zuckerberg's first product was designed to get all his classmates signed up, not to attract all people of Earth. This is why successful network businesses rarely get started by MBA-types: the initial markets are so small that they often don't even appear to be business opportunities at all. 

Marcus Aurelius quote

From Meditations:
Treat what you don’t have as nonexistent. Look at what you have, the things you value most, and think of how much you’d crave them if you didn't have them. But be careful. Don’t feel such satisfaction that you start to overvalue them—that it would upset you to lose them.

Sunday, October 19, 2014

Henry Ford quote

“None of our men are ‘experts.’ We have most unfortunately found it necessary to get rid of a man as soon as he thinks himself an expert because no one ever considers himself expert if he really knows his job . . . Thinking always ahead, thinking always of trying to do more, brings a state of mind in which nothing is impossible.” -Henry Ford (source)

Saturday, October 18, 2014

David Attenborough BBC Madagascar - Lost Worlds

If you are ever in the mood for a nature documentary, all you need to do is go to YouTube and search for David Attenborough, and you can find great videos like the one below. I'm without internet for the next week, so next week will be a week of quotes and short book excerpts I've had saved up.

Link to video

Friday, October 17, 2014


Horizon Kinetics: 3rd Quarter 2014 Commentary (LINK)

Broyhill Q3 Letter (LINK)

Google Thinks Amazon Is Its Biggest Competitor. Here’s why. [H/T The Big Picture] (LINK)
Related books:  How Google Works; The Everything Store (which was also a good audiobook)
The Empire Reboots: Bethany McLean's profile of Microsoft and its leadership [H/T Phil] (LINK)


Ed Catmull of Walt Disney and Pixar Animation Studio (LINK) [I've linked to this interview before, which is Catmull discussing his excellent book Creativity, Inc., but I wanted to highlight a particular segment from 37:52-42:38. In it, Catmull discusses Disney Animation, which he and John Lasseter were asked to run after the Disney acquisition of Pixar. Disney Animation had produced some huge hits in the '90s, and then went on a long run of failures. But they were able to change some of the principles and philosophy to completely turn things around, and the most interesting part to me is that it was all done with essentially the same people that were there when they were failing.]

Marcus Aurelius quote

From Meditations:
The first step: Don’t be anxious. Nature controls it all. And before long you’ll be no one, nowhere—like Hadrian, like Augustus.  
The second step: Concentrate on what you have to do. Fix your eyes on it. Remind yourself that your task is to be a good human being; remind yourself what nature demands of people. Then do it, without hesitation, and speak the truth as you see it. But with kindness. With humility. Without hypocrisy.

Thursday, October 16, 2014


Farnam Street with a great excerpt from Atul Gawande's latest book (LINK)

Aswath Damodaran values GoPro (LINK)

Buffett Cuts Tesco Stake (LINK)

Rick Bookstaber: My Recent Work on Agent-based Modeling (LINK)
Related book, essentially warning about the risk of a crisis before the 2008 crisis began: A Demon of Our Own Design
Bill Gates shares his thoughts on Thomas Piketty’s Capital in the Twenty-First Century (LINK)
Piketty’s favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax “will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.” 
I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today. 
But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.