Sunday, January 22, 2017

Linamar and being entrepreneurial

As Linamar was one of Meryl Witmer's picks for the 2017 Barron's Roundtable, I thought I'd post another of the excerpts I have saved from the excellent book on the company and its founder, Driven to Succeed: How Frank Hasenfratz Grew Linamar from Guelph to Global
If there is one word that captures the corporate culture of Linamar, that word would be “entrepreneurial.” The 1994 annual report featured a short essay on the topic. “An entrepreneur is defined as someone who runs a business at his own financial risk.” 
...Frank has his own definition. “To be an entrepreneur, you’ve got to believe, follow through, and never give up. A lot of entrepreneurs fail because they don’t recognize when it’s time to change,” he said. “You can teach someone to be an entrepreneur by teaching them to truly believe in themselves. But the problem is when you believe in yourself so much you come across as being cocky. If you ask me what did I do wrong in my life, I’d have to think about it. I can find it in the archives somewhere, but I don’t harp on it, it happened, it’s done, let’s move on. I don’t get headaches, I give headaches.”
And here was Witmer's thoughts on the company and its valuation: 
Witmer: My next pick is Linamar [LNR.Canada]. It is a global auto-parts supplier, based about an hour from Toronto. The stock price is 60 Canadian dollars [$45]. There are 66 million shares outstanding, and the market cap is C$3.9 billion. Linamar has two segments: powertrain/driveline and industrial. The former generates about 80% of operating income. The company utilizes precision machining, casting, and forging technology to make powertrain and driveline components for automotive OEMs [original equipment manufacturers]. Linamar focuses on sophisticated components that are lightweight and fuel-efficient. 
What does the industrial division do? 
Witmer: It makes aerial work platforms, such as scissor lifts, under the Skyjack brand. There are two major competitors: Terex [TEX] and OshKosh [OSK]. Linamar purchased Skyjack in 2001-’02 for $32 million. Skyjack is on track to earn $140 million, pre-tax, in 2016, so it was a good buy. Linamar was founded by Frank Hasenfratz, a remarkable man. An ethnic German, he was born in Hungary and fled to Canada in the 1950s after the Hungarian uprising against the Soviets failed. The Canadian government gave him $5 and sent him on his way. Frank had an advanced skill set as a machinist from an apprenticeship in Hungary, and started a predecessor to Linamar in 1964 in his basement. 
In 2002, his capable daughter Linda took over as CEO. She has a chemistry degree and an M.B.A., and started on the shop floor. Together, they own about a third of the stock. They think long-term about growing the business and achieving 20% pre-tax returns on capital. The company is relentless about keeping costs low through process efficiency and product innovation. Every plant manager at its more than 50 plants worldwide is responsible for his or her own P&L [profit and loss]. Despite its growth, Linamar has retained an entrepreneurial culture. 
Linamar is benefiting from the trend toward outsourcing powertrain and driveline manufacturing, the last major area of automotive production that is still done partly in-house. OEMs realize they can achieve better and more cost-effective results by outsourcing. Linamar is well-positioned to garner new business as a trusted supplier. It often has sole-source status as a supplier on these critical elements. It can grow through a downturn. If North American vehicle sales fell by one million units, Linamar would lose only about $150 million of revenue. While it is valued like a run-of-the-mill auto supplier, it deserves a higher valuation. 
What would you give it? 
Witmer: The company projects that with flat automotive production, revenue will grow by about 30%, from C$6 billion to more than C$7.8 billion over the next four years, based solely on new business wins it has already signed. Past projections have been conservative by about C$500 million. We estimate that Linamar will earn more than C$7 a share in 2016, growing to more than C$9 a share by 2020. The stock could trade north of C$90 a share in a few years, based on a pricing/earnings multiple of 10. We’d argue a multiple of 12 is more appropriate, producing a target price of C$110 a share.

Friday, January 20, 2017


“Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” -Warren Buffett, 1992 Letter to Shareholders

Warren Buffett says the US will do fine under Trump because we've got the 'secret sauce' (short video and article) (LINK)

AIG to Pay Berkshire $9.8 Billion in Insurance Transfer Deal (LINK)

Student Debt Payback Far Worse Than Believed (LINK)

The Most Coveted Ball in Golf Is From Costco (LINK)

The Art of Holding - by Ian Cassel (LINK)

January 2017 Data Update 3: Cracking the Currency Code - by Aswath Damodaran (LINK)

Five Good Questions for Marko Dimitrijevic about his book Frontier Investor (video) (LINK)

Exponent Podcast: Episode 101 — TV is the Oak Tree  (LINK)

The Illusions Driving Up US Asset Prices - by Robert Shiller (LINK)

Some videos from the World Economic Forum in Davos (more HERE):

A Conversation With George Soros at Davos 2017

Ray Dalio: Populism Threatens Multinational Corporations

The Crisis of the Middle Class: Davos Panel (Ray Dalio, et al.)

Davos 2017 - Strategic Update: The Future of Innovation

Davos 2017 - An Insight, An Idea with Sergey Brin

Davos 2017 - An Insight, An Idea with Jack Ma

Davos 2017 - An Insight, An Idea with Ginni Rometty

Davos 2017 - Artificial Intelligence

Davos 2017 - Strategic Update: The Future of Finance

Davos 2017 - The Global Fintech Revolution

Davos 2017 - Strategic Update: The Future of Energy [I don't have any idea if this is true, and it is dangerous to make an investment on any kind of macro forecast, but it was an interesting enough comment that I thought was worth mentioning, though it's also worth remembering that demand is only one side of the supply/demand equation: "Last year...less than one car [sold in a] hundred was an electric car...If we were to assume that, as of tomorrow, every second car sold was an electric car...for twenty-five years, global oil demand will still continue to grow.']

An Evening with Richard Dawkins and Sam Harris (audio) (Part 1, Part 2)

Most Primate Species Threatened With Extinction, Scientists Find (LINK)

Decoding the Origami That Drives All Life - by Ed Yong (LINK)

Books of the day:

The Transformed Cell (1992) [H/T Peter Attia]

Humans Are Underrated: What High Achievers Know That Brilliant Machines Never Will - by Geoff Colvin

I'm not sure I had previously read Martin Luther King Jr.'s entire "Letter from a Birmingham Jail." But given the recent holiday in his honor, I decided to give it a listen on Audible, and I think it'll now be something I listen to every year. Here's one particular quote that I saved: 
"My friends, I must say to you that we have not made a single gain in civil rights without determined legal and nonviolent pressure. Lamentably, it is an historical fact that privileged groups seldom give up their privileges voluntarily. Individuals may see the moral light and voluntarily give up their unjust posture; but, as Reinhold Niebuhr has reminded us, groups tend to be more immoral than individuals."

Thursday, January 19, 2017

Warren Buffett on circle of competence, and the stock market in 1999

We made few portfolio changes in 1999. As I mentioned earlier, several of the companies in which we have large investments had disappointing business results last year. Nevertheless, we believe these companies have important competitive advantages that will endure over time. This attribute, which makes for good long-term investment results, is one Charlie and I occasionally believe we can identify. More often, however, we can't -- not at least with a high degree of conviction. This explains, by the way, why we don't own stocks of tech companies, even though we share the general view that our society will be transformed by their products and services. Our problem -- which we can't solve by studying up -- is that we have no insights into which participants in the tech field possess a truly durable competitive advantage. 
Our lack of tech insights, we should add, does not distress us. After all, there are a great many business areas in which Charlie and I have no special capital-allocation expertise. For instance, we bring nothing to the table when it comes to evaluating patents, manufacturing processes or geological prospects. So we simply don't get into judgments in those fields.  
If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skill in those industries -- and seem to have their claims validated by the behavior of the stock market -- we neither envy nor emulate them. Instead, we just stick with what we understand. If we stray, we will have done so inadvertently, not because we got restless and substituted hope for rationality. Fortunately, it's almost certain there will be opportunities from time to time for Berkshire to do well within the circle we've staked out. 
Right now, the prices of the fine businesses we already own are just not that attractive. In other words, we feel much better about the businesses than their stocks. That's why we haven't added to our present holdings. Nevertheless, we haven't yet scaled back our portfolio in a major way: If the choice is between a questionable business at a comfortable price or a comfortable business at a questionable price, we much prefer the latter. What really gets our attention, however, is a comfortable business at a comfortable price.

Wednesday, January 18, 2017


Tren Griffin on the Inside/Outside Innovation podcast (LINK)
Related book: Charlie Munger: The Complete Investor
The Great Unbundling - by Ben Thompson (LINK)
Related books: 1) Over The Top; 2) Entertainment Industry Economics
Amazon is Eating the Retail World - by Ben Carlson (LINK)

Greenlight Capital's Q4 2016 Letter (LINK)

Some notes and thoughts on a Charley Ellis interview (The Waiter's Pad) (LINK)

Marcus Aurelius on Business, Investing, and Modern Life (LINK)
Related book: Meditations 
Related previous post: Stoicism quotes, thoughts, and readings
2016 Was the Hottest Year on Record (LINK)

Book of the day: Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry

Tuesday, January 17, 2017


Farnam Street: Under One Roof: What Can we Learn from the Mayo Clinic? (LINK)

Lenovo Thought It Knew How to Fix Tarnished Brands—Then It Bought Motorola (LINK)

Invest Like the Best podcast: Machine Intelligence and Risk Management, with Jeremiah Lowin (LINK)

Mark Carney and Amartya Sen at the LSE -- Policy Issues Affecting the Bank of England: inflation control and social choice (audio) (LINK)

Plenty of Room at the Bottom - by Richard P. Feynman [H/T @Sanjay__Bakshi] (LINK)
This is the transcript of a talk presented by Richard P. Feynman to the American Physical Society in Pasadena on December 1959, which explores the immense possibilities afforded by miniaturization.
Book of the day: In Praise of Simple Physics: The Science and Mathematics behind Everyday Questions

Someone transcribed a reply by Debbie Millman in her podcast interview with Tim Ferriss about a 10-year plan for a remarkable life that may be worth thinking about:
“It is Winter 2027. What does your life look like? What are you doing? Where are you living? Who are you living with? Do you have pets? What kind of house are you in? Is it an apartment are you in the city are you in the country? What does your furniture look like? What is your bed like? What are your sheets like? What kind of clothes do you wear? What kind of hair do you have? Tell me about your pets, tell me about your significant other, do you have children? Do you have a car? Do you have a boat? Talk about your career? What do you want? What are you reading? What are you making? What excites you? What is your health like? Write this one day ten years from now. So one day in the winter of 2027, what does your whole day look like? Start from the minute you wake up, brush your teeth, have your coffee or tea, all the way through until minute you tuck yourself in at night. What is that day like for you? Dream big, dream without any fear. Write it all down. You don’t have to share it with anyone other than yourself. Put your whole heart into it. Write like there is no tomorrow; write like your life depends on it because it does. And then read it, once a year, and see what happens.”
That reply also reminded me of something Jeff Bezos once said:
So, it really was a decision that I had to make for myself, and the framework I found which made the decision incredibly easy was what I called -- which only a nerd would call -- a "regret minimization framework." So, I wanted to project myself forward to age 80 and say, "Okay, now I'm looking back on my life. I want to have minimized the number of regrets I have." I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be a really big deal. I knew that if I failed I wouldn't regret that, but I knew the one thing I might regret is not ever having tried. I knew that that would haunt me every day, and so, when I thought about it that way it was an incredibly easy decision. And, I think that's very good. If you can project yourself out to age 80 and sort of think, "What will I think at that time?"

Monday, January 16, 2017


Part 2 of Mohnish Pabrai on The Investors Podcast (LINK)

Why is it so Hard to Forecast the Future? - by Tren Griffin (LINK)

Data Driven Business: Customer centricity in the platform revolution - Sangeet Paul Choudary (video) (LINK)
Related book: Platform Revolution
Last Lifelines Crumble for Many Greek Families as New Conflict With Creditors Looms [H/T @rationalwalk] (LINK)

For Shale Drillers, Rising Oil Prices Also Come With Rising Costs (LINK)

John Hussman's Weekly Market Comment, especially the non-investing section "On Peace", is worth a read this week (LINK)
It’s often imagined that peace is the result of sufficiently crushing one’s opponent; of inflicting so much injury and suffering that they surrender. There’s little doubt that conflicts can be ended in this way, but only at terrific cost, and with deep scars that feed later hatreds and conflicts. Others somehow come to imagine that waging peace requires one to lay down defenseless. It’s just not so. Peace doesn’t mean that one doesn’t defend oneself, or refrain from criticism. Peace doesn’t demand the absence of strength. It asks each side to see and understand the suffering of the other, whether that suffering is rooted in reality or misperception. It asks us to refrain from needlessly provoking the adversary, or to insult them in order to boost our pride. It asks us to look to address their suffering in ways that are consistent with our own security. If peace demands anything from us, it is to refrain from being infected by hatred. Dr. King recognized that: 
"Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that. I have decided to stick with love. Hate is too great a burden to bear." 
Even in the midst of a fight, one can still remember that the goal is reconciliation.
"Why the next generation has trouble running the corporation Daddy founded" [H/T @paulg] (LINK)

Paul Graham on charisma and power (LINK)

Obama’s Secret to Surviving the White House Years: Books [H/T @williamgreen72](LINK)

Friday, January 13, 2017


"The absence of definite information concerning the outcomes of actions one has not taken is probably the single most important factor that keeps regret in life within tolerable bounds....We can never be absolutely sure that we would have been happier had we chosen another profession or another spouse.... Thus, we are often protected from painful knowledge concerning the quality of our decisions." -Danny Kahneman (via The Undoing Project)

A Chat With Daniel Kahneman - by Morgan Housel (LINK)
On persistence: “When I work I have no sunk costs. I like changing my mind. Some people really don’t like it but for me changing my mind is a thrill. It’s an indication that I’m learning something. So I have no sunk costs in the sense that I can walk away from an idea that I’ve worked on for a year if I can see a better idea. It’s a good attitude for a researcher. The main track that young researchers fall into is sunk costs. They get to work on a project that doesn’t work and that is not promising but they keep at it. I think too much persistence can be bad for you in the intellectual world.”
The Sound of Silence - by Jessica Livingston (LINK)

The Risk of Discovery - by Paul Graham (LINK)

How I Got My Attention Back - by Craig Mod [H/T @StevenLevy] (LINK)

Importance of Knowing Your Investment Boundaries (Sears Mini-Case Study) - by John Huber (LINK)

Five Good Questions for Samuel Arbesman about his book Overcomplicated (LINK)

Mike Massimino on the James Altucher podcast (LINK)
Related book: Spaceman: An Astronaut's Unlikely Journey to Unlock the Secrets of the Universe
Exponent podcast: Episode 100 — The Anniversary Episode: iPhone and Exponent (LINK)

a16z Podcast: Real Estate — Asset, Ownership, and the Economy (LINK)

TED Talk - Alejandro Sánchez Alvarado: To solve old problems, study new species (LINK)

A Woman Was Killed By a Superbug Resistant to All 26 American Antibiotics [H/T @edyong209] (LINK)

Why Killer Whales (and Humans) Go Through Menopause - by Ed Yong (LINK)

"Energy Revolution? More like a Crawl" - Dr. Vaclav Smil

Dr. Vaclav Smil was the speaker at a TISED and Fondation 3E event in September 2015 called "Energy Revolution? More like a Crawl". He explored the current state of global and major national energy dependencies and appraised the likely speed of their transformation. In his words, "The desirable development of new renewables should not be guided by wishful preferences and arbitrary targets. Using more energy, albeit more efficiently and with lower specific environmental effects, is unlikely to change our fortunes — yet no serious consideration has been given to how to use less, much less."

Link to video


Related previous post: Vaclav Smil video: Energy Transitions

Related books, HERE.

Thursday, January 12, 2017


Warren Buffett in New HBO Documentary: ‘I’m Getting Down to Salvage Value’ (LINK)

The Benjamin Graham Financial Network - By Jason Zweig (LINK)

Narrative and Numbers: How a number cruncher learned to tell stories! - by Aswath Damodaran (LINK)
Related book (just released): Narrative and Numbers: The Value of Stories in Business
National Western Stock Show Citizen of the West John Malone known for loyalty, can-do Western spirit [H/T @FrancoOlivera] (LINK)
Related book: Cable Cowboy: John Malone and the Rise of the Modern Cable Business
a16z Podcast: Machine Intelligence, from University to Industry (LINK)

Six Questions for Shane Parrish (LINK)

Stephen Hawking’s Productive Laziness (LINK)
In the 1980s, at the height of his intellectual productivity, Stephen Hawking used to head home from his office between five and six. He rarely worked later. 
Here’s how he explained his behavior to his PhD student Bruce Allen (now a professor at the Max Planck Institute for Gravitational Physics): 
“Bruce, here’s some advice: The problem with physics is that most of the days we don’t make any major headway (on our projects). That’s why you should do other stuff: listen to music, meet good friends. There’s one exception to this rule: If you find a solution for a given problem, you work 24 hours a day and forget everything else. Until the problem is solved in its entirety.”
A Break in the Search for the Origin of Complex Life (LINK)

Book of the day: Command and Control: Nuclear Weapons, the Damascus Accident, and the Illusion of Safety (There is also a PBS documentary that originated from this book, which aired a couple of days ago, HERE. And be sure to check out the Freeman Dyson bonus video, HERE.)

Wednesday, January 11, 2017

Howard Marks Memo: Expert Opinion

Link to: Expert Opinion
In August, I mentioned that I had chosen the title “Political Reality” for my memo in part because of my liking for oxymorons.  I classed that title with other internally contradictory statements, such as “jumbo shrimp” and “common sense.”  Now I’m going to discuss one more: “expert opinion.”  
This memo was inspired by a thought that popped into my head when the outcome of the election settled in.  You may point out that at the end of my November 14 memo “Go Figure!,” I said I wouldn’t write any more about politics.  True, but I didn’t say I wouldn’t think about politics.  Anyway, this memo isn’t about politics, it’s about opinions. 
Last spring I attended a dinner where one of Hillary Clinton’s senior advisers was soliciting input, as she and her campaign were struggling to come up with an effective counter to Bernie Sanders’s populist message.  Most of those present expressed frustration on the subject, until an experienced, connected Democrat assured everyone, “Don’t worry.  She’ll win.  The math is irresistible.”  The Hillary supporters were relieved, and he turned out to be right: she won the nomination going away. 
In late October, with the issue of Clinton’s private email server and the FBI’s new investigation further dogging her, that same seasoned Democrat was asked whether the election was in jeopardy.  “Don’t worry,” he said.  “She’ll win.  The math is irresistible.”  We all know the result. 
The opinions of experts concerning the future are accorded great weight . . . but they’re still just opinions.  Experts may be right more often than the rest of us, but they’re unlikely to be right all the time, or anything close to it.  This year’s election season gave us plenty of opportunities to see expert opinion in action.  I’ll start this memo by reflecting on them.