Monday, June 18, 2018


Giving it Away: The Other Buffett Family Business (LINK)

AT&T, Time Warner, and the Need for Neutrality - by Ben Thompson (LINK)

Oaktree Capital CEO Jay Wintrob at the 7th Annual Fink Investing Conference at UCLA Anderson (video) (LINK)

Steven Kotler: "The Science of Maximizing Human Potential" | Talks at Google (LINK)
Related book: Stealing Fire

Inevitables vs. Highly Probables

From Warren Buffett's 1996 Letter to Shareholders:
Companies such as Coca-Cola and Gillette might well be labeled "The Inevitables."  Forecasters may differ a bit in their predictions of  exactly how much soft drink or shaving-equipment business these companies  will be doing in ten or twenty years.  Nor is our talk of inevitability meant to play down the vital work that these companies must continue to carry out, in such areas as manufacturing, distribution, packaging and product innovation.  In the end, however, no sensible observer - not even these companies' most vigorous competitors, assuming they are assessing the matter honestly -questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime. Indeed, their dominance will probably strengthen.  Both companies have significantly expanded their already huge shares of market during the past ten years, and all signs point to their repeating that performance in the next decade. 
Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will The Inevitables.  But I would rather be certain of a good result than hopeful of a great one. 
Of course, Charlie and I can identify only a few Inevitables, even after a lifetime of looking for them.  Leadership alone provides no certainties:  Witness the shocks some years back at General Motors, IBM and Sears, all of which had enjoyed long periods of seeming invincibility.  Though some industries or lines of business exhibit characteristics that endow leaders with virtually insurmountable advantages, and that tend to establish Survival of the Fattest as almost a natural law, most do not.  Thus, for every Inevitable, there are dozens of Impostors, companies now riding high but vulnerable to competitive attacks.  Considering what it takes to be an Inevitable, Charlie and I recognize that we will never be able to come up with a Nifty Fifty or even a Twinkling Twenty.  To the Inevitables in our portfolio, therefore, we add a few "Highly Probables." 
You can, of course, pay too much for even the best of businesses.  The overpayment risk surfaces periodically and, in our opinion, may now be quite high for the purchasers of virtually all stocks, The Inevitables included.  Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid. 
A far more serious problem occurs when the management of a great company gets sidetracked and neglects its wonderful base business while purchasing other businesses that are so-so or worse.  When that happens, the suffering of investors is often prolonged.  Unfortunately, that is precisely what transpired years ago at both Coke and Gillette.  (Would you believe that a few decades back they were growing shrimp at Coke and exploring for oil at Gillette?)  Loss of focus is what most worries Charlie and me when we contemplate investing in businesses that in general look outstanding.  All too often, we've seen value stagnate in the presence of hubris or of boredom that caused the attention of managers to wander.  
Mr. Buffett also added a little more in response to a question at the 1997 annual meeting about whether or not McDonald's fit in the same category as Coca-Cola and Gillette:
In the annual report, we talked about Coca-Cola and Gillette in terms of their base business being what I call “The Inevitables.” But that related, obviously, to the soft drink business in the case of Coca-Cola and the shaving products with Gillette. It doesn’t extend to necessarily everything they do. But fortunately in both those companies those are very important products.  
I would say that in the food business, you would never get the total certainty of dominance that you would get in products like Coca-Cola and Gillette. People move around in the food business, from where they eat, from — they may favor McDonald’s but they will go to different places at different times. And somebody starts shaving with a Gillette Sensor Plus is very unlikely to go elsewhere, in my view.  
So they do not — you just — you never would get in the food business, in my judgment, quite the inevitability that you would get in the soft drink business with a Coca-Cola.  
You’ll never get it again in the soft drink business. I mean, it took a hundred — I guess it’d be 1886, so it’d be about 111 years to get to the point where they are. And the infrastructure’s incredible, and — so I wouldn’t put it quite in the same class, in terms of inevitability. 
And then he added more color in his answer to the next question at that meeting:
But I should — I’m glad you brought up the subject of the annual report. Because what I was doing in the annual report is I had talked about Coke and Gillette as being “The Inevitables,” and what wonderful businesses they were.  
And I thought it appropriate, particularly — the report goes to a lot of people — that they would not take that as an unqualified buy recommendation about the companies, because they’re absolutely wonderful companies run by outstanding managers.  
But you can pay too much, at least in the short run, for businesses like that. So I thought it was only appropriate to point out that no matter how wonderful a business it is, that there always is a risk that you will pay a price where it will take a few years for the business to catch up with the stock. That the stock can get ahead of the business.  
And I don’t know where that point is with those companies or any other companies, but I did say that I thought that the risks were fairly high that that situation existed with most securities in the market, including companies such as “The Inevitables.”  
But it was designed to be sure that people did not take the remarks that I made about those companies, and just take that as an unqualified buy recommendation regardless of price.  
We have no intention of selling those two stocks. We wouldn’t sell them if they were selling at prices considerably higher than they are now.  
But I didn’t want — particularly — relatively unsophisticated people to see those names there and then think, “This guy is touting these as a wonderful buy.” Generally speaking, I think if you’re sure enough about a business being wonderful, it’s more important to be certain about the business being a wonderful business than it is to be certain that the price is not 10 percent too high or 5 percent too high or something of the sort.  
And that’s a philosophy that I came slowly to. I originally was incredibly price conscious. We used to have prayer meetings before we would raise our bid an eighth, you know, around the office. (Laughter)  
But that was a mistake. And in some cases, a huge mistake. I mean, we’ve missed things because of that.  
And so what I said in the report was not a market prediction in any sense. We never try to predict the stock market.  
We do try to price securities. We try to price businesses, is what we try to do. And we find it hard to find wonderful, good, average, substandard businesses that look to us like they’re cheap now. But, you know, you don’t always get a chance to buy things cheap. 

Sunday, June 17, 2018


Afternoon tea with Sir James Dyson (LINK)

Mohnish Pabrai's Talk With Dakshana Scholars (JNV Silvassa), Feb. 25, 2018 (video) (LINK)

The Knock-On Effect Podcast: Demographics And Doorways (LINK)

The Art of Manliness Podcast: Theodore Roosevelt, Writer and Reader (LINK)
Related book: Theodore Roosevelt: A Literary Life
Fear of Humans Is Making Animals Around the World Go Nocturnal [H/T Linc] (LINK)

The Neuroscientific Case for Facing Your Fears - by Ed Yong (LINK)

Asteroids and Adversaries: Challenging What NASA Knows About Space Rocks (LINK)
Two years ago, NASA dismissed and mocked an amateur’s criticisms of its asteroids database. Now Nathan Myhrvold is back, and his papers have passed peer review.

Thursday, June 14, 2018


Why You Will See Bigger, Not Cheaper, Cable Bundles (LINK)

Grantham says capitalism is making climate change worse (LINK)

The World According to Boyar Podcast: Episode 4 with Larry Cunningham (LINK)

a16z Podcast: Tech Under Construction — Info Flows (LINK)

Crazy/Genius Podcast: Who Killed Local News? (LINK)

Revisionist History Podcast: General Chapman’s Last Stand (LINK)

American Innovations Podcast: Nuclear Energy | E = MC Squared | 1 (LINK)

Dan Harris: "Meditation for Fidgety Skeptics" | Talks at Google (LINK)

TED Talk: How to get empowered, not overpowered, by AI | Max Tegmark (LINK)
Related book: Life 3.0: Being Human in the Age of Artificial Intelligence 
The Search for Cancer Treatment That Is Personal and Useful - by Siddhartha Mukherjee (LINK)

When the Next Plague Hits - by Ed Yong (LINK) [This long-form piece is also available via audio format, HERE.]
The epidemics of the early 21st century revealed a world unprepared, even as the risk of pandemics continues to multiply. Much worse is coming. Is Donald Trump ready?

Tuesday, June 12, 2018


"We’re looking at quantitative and quality—we aren’t looking at the aspects of the stock, we’re looking at the aspects of a business. It’s very important to have that mindset, that we are buying businesses, whether we’re buying 100 shares of something or whether we’re buying the entire company. We always think of them as businesses." --Warren Buffett

"There is a substantial distinction between people who are investors and people who are owners of businesses. An owner in a business is far more interested in the survival, the first instance, than its necessary monetary value. No owner of a business wakes up every morning asking himself what he's worth. He doesn't know what he's worth. He's concerned with his products. He's concerned his employees. He's concerned with his suppliers. He's concerned with his customers. To do that, you have to have a time preference that is different from other people." --Tony Deden

CNBC's full interview with Paul Tudor Jones (video) (LINK)

The Quest of Laurene Powell Jobs [H/T Linc] (LINK)

IP Capital Partners' latest investor report, which discusses Anheuser-Busch InBev (LINK)

Invest Like the Best Podcast: Tim Cook’s Dashboard, with Michael Reece (LINK)

The After On Podcast: Stewart Brand | De-Extinction, The Whole Earth, & Way More (LINK)

How to Tame a Zombie Fungus - by Ed Yong (LINK)

Monday, June 11, 2018


"We must take a higher view of all things, and bear with them more easily: it better becomes a man to scoff at life than to lament over it. Add to this that he who laughs at the human race deserves better of it than he who mourns for it, for the former leaves it some good hopes of improvement, while the latter stupidly weeps over what he has given up all hopes of mending.... Yet it is better to accept public morals and human vices calmly without bursting into either laughter or tears; for to be hurt by the sufferings of others is to be forever miserable, while to enjoy the suffering of others is an inhuman pleasure." --Seneca [Source]

Everyone Makes Investing Mistakes — Even Warren Buffett - by Jason Zweig ($) (LINK)
Related book: Big Mistakes: The Best Investors and Their Worst Investments
Deductive vs Inductive Reasoning: Make Smarter Arguments, Better Decisions, and Stronger Conclusions (LINK)

Black-Scholes, Volatility, & Risky Tales - by Frank K. Martin (LINK)

The Scooter Economy - by Ben Thompson (LINK)

Business and Investing Lessons from Rebecca Lynn (Canvas Ventures) - by Tren Griffin (LINK)

The Investors Podcast: Small Cap Investing & Intrinsic Value Calculations w/ Eric Cinnamond (LINK)

Grant’s Podcast: The Tesla episode (LINK)

Donald Trump and Kim Jong Un’s Nuclear Summit and the Bid for History - by Evan Osnos (LINK)

TED Talk: Why the secret to success is setting the right goals | John Doerr (LINK)
Related book: Measure What Matters
Trees That Have Lived for Millennia Are Suddenly Dying - by Ed Yong (LINK)


For Audible members, Audible's latest sale has some good titles [And if you're not a member, and haven't yet done a free trial, you can get a free trial and 2 free audiobook credits by signing up HERE.]. Some of the titles that stood out to me are below:

Friday, June 8, 2018

Tony Deden on independence

From Tony Deden's chat with Grant Williams on Real Vision, which is probably one of the best investing-related interviews I've ever watched, and an example of the value they provide for a $180 yearly subscription:
And the third part was the idea of independence. So it was scarcity, permanence, independence.... And independence is even of significant value as well in the sense that much of what we see today in our world is interdependent.... We depend on so many external factors. We depend on suppliers. We depend on the light coming on when we turn on the switch. We take it for granted that the light will come on. We depend on the water company.  
But more so, in a business sense, we depend on, perhaps, key suppliers, that often, perhaps, their situation is not as strong as we think it is. We have competitive pressures that come as a result of competition that would not have been there had there not been credit. So credit creation—the debasement of money—has created an environment in which there is falsity within the competitive arena in which companies operate. And in order to survive, they have to, more or less, adapt to the conditions. So there's dependence on government for subsidies, or for tax abatements, or other such things. Sometimes there's dependence on one customer. 
So dependence makes a system fragile. So the more independent an organism is from external weaknesses, the more likely it is to add to its endurance, or its strength. So independence is very valuable, and is actually costly. There's an element of freedom. Freedom doesn't come free. You have to work at it. The threats to your freedom and to your liberty and to your independence are many, and they change from time to time and from apple to apple. 
But a successful practice...which seeks to protect, preserve, and enhance the patrimony over many years is one that must be concerned with these three components. 


"The decision on the stock market should be made independent of the current business outlook. When you should buy stocks is when you think you're getting a lot for your money, not necessarily when you think business is going to be good next year." --Warren Buffett [yesterday on CNBC]

The transcript of the 2010 chat between Miguel Barbosa & Alice Schroeder that has been making the rounds (LINK) [Also, if anyone happens to have a transcript of her talk at Microsoft about the book, I'd love to have a copy.]

The Gambler Who Cracked the Horse-Racing Code [H/T Collab team] (LINK)

Exponent Podcast: Legacy Leverage (LINK)

AMA discussing changes to the economics of the diamond industry [H/T @UnionSquareGrp] (LINK) [This also reminds me that I need to finish the 1999 book The Diamond Makers.]

The Tipping Point When Minority Views Take Over - by Ed Yong (LINK)

Released this week: Big Mistakes: The Best Investors and Their Worst Investments - by Michael Batnick

Thursday, June 7, 2018

Paying for Growth, and Public vs. Private Companies

"The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage." --Charlie Munger

There are a couple of mistakes I often see investors (myself included) make when investing in small, public companies: 1) Paying too much for expected growth; and 2) Applying a large-company earnings multiple to a micro-cap company's earnings. Of course, if it's a small company that is growing and that growth is occurring at a durably high return on capital—likely due to some kind of competitive advantage—then paying up can be justified. But all too often the upside story gets more attention than the downside risk, and with small companies, the risk of overpaying for earnings that may not prove sustainable in a changing economic or competitive environment is very real. 

I recently finished the HBR Guide to Buying a Small Business, which I believe I came across in one of Brent Beshore's appearances on Patrick O'Shaughnessy's Invest Like The Best Podcast. I was struck by how similar the process for buying a small business is to doing fundamental, scuttlebutt-type of research. This isn't surprising given Buffett, Munger and Graham's advice to view stocks for what they really are (pieces of real businesses) and their lessons that investing is most intelligent when it is most businesslike. But the book was a great reminder of the work that needs to go into something before one should act, and the prices that are paid for small, private businesses.

Now, there are plenty of advantages to buying and investing in public equities, especially easier access to more and usually better organized information, and the liquidity that allows one to more readily reverse a decision when a mistake has been made. But what are those advantages worth? As I've been thinking about this question, as well as the difference one should pay for a "boring" business compared to a "non-boring" business, I have also been re-reading Security Analysis and, as is often the case with Graham and Dodd, came across this great excerpt on the topics above:
Characteristically, stocks thought to have good prospects sell at relatively high prices. How can the investor tell whether or not the price is too high? We think that there is no good answer to this question—in fact we are inclined to think that even if one knew for a certainty just what a company is fated to earn over a long period of years, it would still be impossible to tell what is a fair price to pay for it today. It follows that once the investor pays a substantial amount for the growth factor, he is inevitably assuming certain kinds of risk; viz., that the growth will be less than he anticipates, that over the long pull he will have paid too much for what he gets, that for a considerable period the market will value the stock less optimistically than he does. 
On the other hand, assume that the investor strives to avoid paying a high premium for future prospects by choosing companies about which he is personally optimistic, although they are not favorites of the stock market. No doubt this is the type of judgment that, if sound, will prove most remunerative. But, by the very nature of the case, it must represent the activity of strong-minded and daring individuals rather than investment in accordance with accepted rules and standards. 
May Such Purchases Be Described as Investment Commitments? This has been a longish discussion because the subject is important and not too well comprehended in Wall Street. Our emphasis has been laid more on the pitfalls of investing for future growth than on its advantages. But we repeat that this method may be followed successfully if it is pursued with skill, intelligence and diligent study. If so, is it appropriate to call such purchases by the name of “investment”? Our answer is “yes,” provided that two factors are present: the first, already mentioned, that the elements affecting the future are examined with real care and a wholesome scepticism, rather than accepted quickly via some easy generalization; the second, that the price paid be not substantially different from what a prudent business man would be willing to pay for a similar opportunity presented to him to invest in a private undertaking over which he could exercise control.  
We believe that the second criterion will supply a useful touchstone to determine whether the buyer is making a well-considered and legitimate commitment in an enterprise with an attractive future, or instead, under the guise of “investment,” he is really taking a flier in a popular stock or else letting his private enthusiasm run away with his judgment. 
It will be argued, perhaps, that common-stock investments such as we have been discussing may properly be made at a considerably higher price than would be justified in the case of a private business, first, because of the great advantage of marketability that attaches to listed stocks and, second, because the large size and financial power of publicly owned companies make them inherently more attractive than any private enterprise could be. As to the second point, the price to be paid should suitably reflect any advantages accruing by reason of size and financial strength, but this criterion does not really depend on whether the company is publicly or privately owned. On the first point, there is room for some difference of opinion whether or not the ability to control a private business affords a full counterweight (in value analysis) to the advantage of marketability enjoyed by a listed stock. To those who believe marketability is more valuable than control, we might suggest that in any event the premium to be paid for this advantage cannot well be placed above, say, 20% of the value otherwise justified without danger of introducing a definitely speculative element into the picture.


Short-Termism Is Harming the Economy - by Warren Buffett and Jamie Dimon (LINK)

Warren Buffett and Jamie Dimon on CNBC (full interview) (LINK)

David Christian on The Jolly Swagmen Podcast (LINK)
Related book: Origin Story: A Big History of Everything 
Revisionist History Podcast: Free Brian Williams (Memory Part 2) (LINK)

American Innovations Podcast: DNA - Interview with Britt Wray (Part 7) (LINK)

Get off the critical path - by Seth Godin (LINK)

Unlearning - by Derek Sivers (LINK) [And an additional quote that goes well with the ones at the end of Sivers' article: “In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.” --Eric Hoffer]

Wednesday, June 6, 2018

Brian Bares: Finding an Edge; creating a moat around an investment process

Link to video

[H/T @iancassel]


"He who fears death will never act as becomes a living man: but he who knows that this fate was laid upon him as soon as he was conceived will live according to it, and by this strength of mind will gain this further advantage, that nothing can befall him unexpectedly: for by looking forward to everything which can happen as though it would happen to him, he takes the sting out of all evils, which can make no difference to those who expect it and are prepared to meet it: evil only comes hard upon those who have lived without giving it a thought and whose attention has been exclusively directed to happiness." --Seneca [Source]

Useful Hacks - by Morgan Housel (LINK)

Life is More than Compounding Money - by Sean Iddings (LINK)

Carson Block at the Bloomberg Invest Summit (video) (LINK)

David Cordani, president and chief executive officer of Cigna, talks about the future of health care at the Bloomberg Invest Summit (video) (LINK)

Edge #516: Bonding with Your Algorithm - A Conversation with Nicolas Berggruen (LINK)

Decrypted Podcast: When Amazon Comes Crashing In (LINK)
Texas food delivery startup Burpy was doing well, expanding from Austin to Houston, San Antonio and Dallas. But then Amazon got in to the same business. This week on Decrypted, Bloomberg Technology’s Olivia Zaleski goes to Austin to chart one startup’s struggle to survive while going up against a tech behemoth.
Moving Animals to Safe Havens Can Unexpectedly Doom Them - by Ed Yong (LINK)

Tuesday, June 5, 2018


"One filter that’s useful in investing is the simple idea of opportunity cost. If you have one opportunity that you already have available in large quantity, and you like it better than 98 percent of the other things you see, well, you can just screen out the other 98 percent because you already know something better. So the people who have a lot of opportunities tend to make better investments than people that don’t have a lot of opportunities. And people who have very good opportunities, and using a concept of opportunity cost, they can make better decisions about what to buy. With this attitude, you get a concentrated portfolio, which we don’t mind." --Charlie Munger

Howard Schultz on CNBC (full interview) (LINK)

Want to Read Michael Lewis's Next Work? You'll Be Able to Listen to It First [H/T Linc] (LINK)

The Cost of Developers - by Ben Thompson (LINK)

Kase Learning Short Selling Conference Presentations 2018 (LINK)

Grant’s Podcast: Read the footnotes (LINK)

Invest Like the Best Podcast: Investing in Artificial Intelligence, with Ash Fontana (LINK)

Niall Ferguson: "The Square and the Tower" | Talks at Google (LINK)

This Fish’s Eyes Turn Black When It Gets Mad - by Ed Yong (LINK)

Bacteria Survive in NASA’s Clean Rooms by Eating Cleaning Products - by Ed Yong (LINK)

Filters, Beliefs, Survival and Crotchets

One of the most interesting things for me in Nassim Taleb's book Skin in the Game was his discussion on the importance of filters and rules that lead to survival. Much of his discussion centered around religion, and how "beliefs" that may seem irrational to many who take them literally are actually rational because they aid in survival, which should be the true test: 
So when we look at religion, and, to some extent, ancestral superstitions, we should consider what purpose they serve, rather than focusing on the notion of “belief,” epistemic belief in its strict scientific definition. In science, belief is literal belief; it is right or wrong, never metaphorical. In real life, belief is an instrument to do things, not the end product. This is similar to vision: the purpose of your eyes is to orient you in the best possible way, and get you out of trouble when needed, or help you find prey at a distance. Your eyes are not sensors designed to capture the electromagnetic spectrum. Their job description is not to produce the most accurate scientific representation of reality; rather the most useful one for survival. 
...Survival comes first, truth, understanding, and science later. 
In other words, you do not need science to survive (we’ve survived for several hundred million years or more, depending on how you define the “we”), but you must survive to do science. As your grandmother would have said, better safe than sorry. Or as per the expression attributed to Hobbes: Primum vivere, deinde philosophari (First, live; then philosophize). This logical precedence is well understood by traders and people in the real world, as per the Warren Buffett truism “to make money you must first survive”— skin in the game again; those of us who take risks have their priorities firmer than vague textbook pseudo-rationalism.
And then Taleb gets back to Buffett a little later in the book:
Let us return to Warren Buffett. He did not make his billions by cost-benefit analysis; rather, he did so simply by establishing a high filter, then picking opportunities that pass such a threshold. “The difference between successful people and really successful people is that really successful people say no to almost everything,” he said. Likewise our wiring might be adapted to “say no” to tail risk. For there are a zillion ways to make money without taking tail risk.
Those excerpts reminded me of the comments Warren Buffett and Charlie Munger have made over the years relating to filters, which I've mentioned several times on this blog. My favorite examples from Buffett are probably a comment he made in 2015
At Berkshire we have certain filters that have been developed. If in the course of a presentation or evaluation part of a proposal an idea hits a filter, then there is no way I will invest. Charlie has similar filters. We don’t worry about a lot of things as we only have to be right about a certain number of things – things that are within our circle of competence.
Typically, and this is not well understood, his way of thinking is that there are disqualifying features to an investment. So he rifles through and as soon as you hit one of those it’s done. Doesn’t like the CEO, forget it. Too much tail risk, forget it. Low-margin business, forget it. Many people would try to see whether a balance of other factors made up for these things. He doesn’t analyze from A to Z; it’s a time-waster.
I'm also grateful to Taleb for his discussion on this topic because it has made me think more clearly about a comment Charlie Munger made at the 2014 Daily Journal Annual Meeting:
There's no rule I can't have crotchets [crotchet: a perverse or unfounded belief or notion]. I don't have to be totally rational.  Don't we all do that?  We probably should, as a matter of fact.  Certainly a crotchet that says this is too hard for me, I'm not going to try to understand it.  That's a very useful crotchet.
And while Munger was using the word 'rational' as might be defined by the economics profession, his crotchets would fit Taleb's definition of rational:
Rationality does not depend on explicit verbalistic explanatory factors; it is only what aids survival, what avoids ruin. 
Why? Clearly as we saw in the Lindy discussion: 
Not everything that happens happens for a reason, but everything that survives survives for a reason. 
Rationality is risk management, period.

Sunday, June 3, 2018


“Adapt what is useful, reject what is useless, and add what is specifically your own.” --Bruce Lee [H/T Latticework]

Jeff Bezos: ‘We will have to leave this planet … and it’s going to make this planet better’ [H/T @MarceloPLima] (LINK)

Atul Gawande's commencement address at U.C.L.A. Medical School: Curiosity and What Equality Really Means (LINK)

Saving As Many Lives As Penicillin - Dr. Atul Gawande & Malcolm Gladwell (video) [From October of last year, but not sure I had previously seen this one.] (LINK)

Mohnish Pabrai's latest appearance on ET Now (video) (LINK)

The Psychology of Money - by Morgan Housel (LINK)

“Proprietary Product Distribution” is Better than Sliced Bread - by Tren Griffin (LINK)

De Beers to Sell Diamonds Made in a Lab (LINK)

Your Next Glass of Wine Might Be a Fake—and You'll Love It (LINK)

Worried About Big Tech? Chinese Giants Make America’s Look Tame (LINK)

In Conversation: Netflix' Ted Sarandos and Marc Andreessen (video) (LINK)

Why Your Brain Hates Other People (And how to make it think differently.) (LINK)

The Myth of 'Learning Styles' [H/T @AdamMGrant, who summarizes in his Tweet: "Your learning style is about how you like to learn, not how you learn best. Although you might enjoy listening, reading, or doing, there's no evidence that you learn better that way. We all learn through a combo of auditory, visual, and kinesthetic modes."] (LINK)

Friday, June 1, 2018


"We tend to go into businesses that inherently are low-risk, and are capitalized in a way that that low risk of the business is transformed into a low risk to the enterprise. The risk beyond that is that even though you...identify such businesses, that you pay too much for them. That risk is usually a risk of time rather than loss of principal, unless you get into a really extravagant situation. But then the risk becomes the risk of you yourself. I mean, whether you can retain your belief in the real fundamentals of the business and not get too concerned about the stock market. The stock market is there to serve you, and not to instruct you. And that’s a key to owning a good business, and getting rid of the risk that would otherwise exist in the market." --Warren Buffett

‘Crush Them’: An Oral History of the Lawsuit That Upended Silicon Valley [H/T @jtepper2] (LINK)
Twenty years ago, Microsoft tried to eliminate its competition in the race for the future of the internet. The government had other ideas.
Tokens (Don’t) Rule Everything Around Me — Thoughts On Security Tokens - by Parker Thompson (LINK)

How To Recover When The World Breaks You - by Ryan Holiday (LINK)

In an Age of Gene Editing and Surrogacy, What Does Heredity Mean? (LINK)
Related book: She Has Her Mother's Laugh: The Powers, Perversions, and Potential of Heredity
Kindle book of the day (on sale this month): Leonardo's Notebooks: Writing and Art of the Great Master

More on the Kelly Formula...

From The Warren Buffett Portfolio:
Because the risk of overbetting far outweighs the penalties of underbetting, investors particularly those who are just beginning to use a focus investment strategy—should use fractional Kelly bets. Unfortunately, minimizing your bets also minimizes your potential gain. However, because the relationship in the Kelly model is parabolic, the penalty for underbetting is not severe. A half-Kelly, which reduces the amount of the bet by 50 percent, reduces the potential growth rate by only 25 percent. 
This seems a good place to summarize: 
1. To receive the benefit of the Kelly model, you must first be willing to think about buying stocks in terms of probabilities. 
2. You must be willing to play the game long enough to achieve its rewards. 
3. You must avoid using leverage, with its unfortunate consequence. 
4. You should demand a margin of safety with each bet you make. 
"The Kelly system is for people who simply want to compound their capital and see it grow to very large numbers over time," says Ed Thorp. "If you have a lot of time and a lot of patience, then it's the right function for you."

Related previous posts:

Generalizing the Kelly Criterion

A quick diversification thought...

A few comments on the Berkshire Hathaway letter to shareholders

Warren Buffett and Charlie Munger on portfolio concentration, and having the right temperament for it

Thursday, May 31, 2018


"I think that people underestimate—until they get older—they underestimate just how important habits are, and how difficult they are to change when you’re 45 or 50, and how important it is that you form the right ones when you’re young." --Warren Buffett

David Einhorn’s Greenlight Re Under Attack [H/T Linc] (LINK)

Factors from Scratch: A look back, and forward, at how, when, and why factors work - By Jesse Livermore, Chris Meredith and Patrick O’Shaughnessy (LINK)

Ben Thompson's talk at the 2018 Code Conference (video) (LINK)

Mary Meeker’s 2018 internet trends report (LINK)

Notes From Sohn Hong Kong Investment Conference 2018 (LINK)

American Innovations Podcast: DNA - Return of the Mammoths (Part 6) (LINK)

Revisionist History Podcast: A Polite Word for Liar (Memory Part 1) (LINK)

A New Genetic Clue to How Humans Got Such Big Brains - by Ed Yong (LINK)

The Increasingly Intricate Story of How the Americas Were Peopled - by Ed Yong (LINK)

Wednesday, May 30, 2018


"Nothing could be more simple than to try and figure out what you find admirable and then decide...that the person you really would like to admire is yourself. And the only way you’re going to do it is take on the qualities of other people you admire." --Warren Buffett

"There is no reason, also, to look only for living models. The eminent dead are...some of the best models around. And, if...a model is all you want, you’re really better off not limiting yourself to the living. Some of the very best models...have been dead for a long time." --Charlie Munger

Thomas Peterffy's Speech on Successful Investing at The Trading Show Chicago 2018 Conference [H/T @HaydenCapital] (LINK)

User and Subscriber Businesses: The Good, the Bad and the Ugly! - by Aswath Damodaran (LINK)

Notes From London Value Investor Conference 2018 (LINK)

Are the U.S. and China Making the World Safe for Fraud? (LINK)

Videos from the ongoing 2018 Code Conference are starting to be put online (LINK)

Mind Control - By Josh Wolfe (LINK)

How to Impregnate a Rhino (Besides the usual way) - by Ed Yong (LINK)

Tuesday, May 29, 2018


"A lot of things end up in the 'too hard' pile, and it doesn’t bother us.... We don’t have to be able to do everything well." --Warren Buffett

Howard Marks warns private equity standards slipping (LINK)
Private equity groups are lowering their standards over investment choices, raising money too easily and paying record prices in a shift that will lead to lower returns than the historical average for investors, according to Howard Marks, founder of Oaktree. 
Mr Marks, a billionaire investor, said private equity groups were being pushed into accepting poor terms on deals. He told the Financial Times that money managers have a “big impetus to get invested” even if it means backing bad ideas.
Why It Is Harder to Diagnose Hospital Stocks (LINK)
New accounting rules make assessing financial health more difficult for hospitals and companies that work with them
The analyst who quit his job to be a teacher and a 'Safal Niveshak' (LINK)

Invest Like the Best Podcast: The Darkest Night: Lessons from Battle and Value Investing, with Mike Zapata (LINK)

Steven Pinker chats with Jordan Peterson about his book Enlightenment Now (podcast) (LINK)

22 Rules for Creating Work That Stands the Test of Time - by Ryan Holiday (LINK)

"There are situations you will see over a long period of time...[where] it would be a mistake—if you’re working with smaller sums—it would be a mistake not to have half your net worth in.... Sometimes in securities, [you] see things that are lead-pipe cinches. And you’re not going to see them often and they’re not going to be talking about them on television or anything of the sort, but there will be some extraordinary things [that] happen in a lifetime where you can put 75 percent of your net worth or something like that in a given situation."  --Warren Buffett (2008)

Sunday, May 27, 2018

Rules vs. Habits

From Dan Ariely and Shane Parrish's chat on The Knowledge Project:
Dan Ariely: Having rules actually protects us. Imagine you invited me to do something and I said, “I’m sorry. I have a rule. I don’t give more than 10 talks a year, or I don’t do X, or Y, or Z.” You would not feel good saying, “Oh, would you please break your rules once for me?” The moment you have a rule, you basically are elevating something for yourself and for other people. You are creating a standard from it and it helps you protect yourself. 
If you think about religions—religions basically create rules and that’s incredibly important for the survival of the decision. So, I think we do need to think about the areas in our life where we don’t behave well and try to create rules for them. 
Shane Parrish: Why rules and not habits? 
Dan Ariely: Actually, you can think about habits, rules, and rituals as a continuum. Habits are those things that we do without thinking. When you think about the standard definition, a habit is something you do without thinking. You bite your nails, or slouch, or whatever it is. You can’t have a habit of running. You don’t go running and then you say, “Oh, where am I? I have no idea. I was running.” 
So, for things that are deliberate and take action, you need something more than a habit, but now you have rules and you have rituals, and there are differences between them. Rituals basically create a higher order meaning. Actually, both rules and rituals have one nice feature, which is that violating them one time, violates the principle. Right? 
So, imagine you have a rule that says, “I always recycle.” If you always recycle, one day not recycling is breaking your rule. Or think about somebody like a vegetarian. If you are vegetarian, you never eat meat. It’s not that you say, “I mostly don’t eat meat.” You create this rule that says, “I never do, I always do.” 
That helps you understand better where you are on this range. It helps you live according to your standards. 
If you said, for example, “I’m going to eat dessert on only one out of every four days,” odds are that you would cheat yourself. You will end up eating more dessert that you wanted. But if you have the rule that says, “I never eat dessert,” or, “I only eat dessert on Saturday,” that would be easier for you to keep. 
Then the most interesting one is rituals. Where rituals are, it’s not that they’re—the behavior itself becomes rewarding. If you think about ritualistic handwashing, for example, or whatever it is. You don’t have to wait for the outcome, but the ritual itself makes the behavior better. 
Shane Parrish: I think I’ve seen that with just anecdotally with friends, the difference between people who say, “Oh, I’m trying to eat healthier,” versus, “I don’t eat dessert.” Then, so if you’re saying, you don’t, you’re trying to eat healthier then every time you have to make this decision to eat healthier. Whereas, if your rule is, “I don’t eat dessert,” it’s almost like the decision is made for you, and then your default path changes and you have to make the exception to it. 
Dan Ariely: Exactly. That’s why it’s so much easier. Right? Whenever you can create the rule for behavior, and even if you give up some flexibility, it’s probably a good idea. 


Saturday, May 26, 2018


What the Hell Happened at GE? - by Geoff Colvin (LINK)

How Elon Musk became an inequality machine - by Roger Lowenstein (LINK)

Banks Won Big in Washington. What It Means for Investors - by Jason Zweig ($) (LINK)

Business Lessons from Oprah Winfrey - by Tren Griffin (LINK)

[I like Bruce Greenwald, but this is your latest reminder that smart people can often be very wrong...] Bruce Greenwald on Amazon in 2012 (video) [H/T @maxolson] (LINK)
Related previous posts: 1) Amazon is going to do to enterprise cloud companies exactly what it did to book stores (April 2013); 2) Bruce Greenwald and Judd Kahn on competitive advantage and Apple (circa 2005)
[I'm late to these, but there were interesting segments on Google and Theranos on "60 Minutes" this past Sunday.]

How To Democratize Healthcare: AI Gives Everyone The Very Best Doctor (LINK)

13D Research: “Liquidity is the new leverage” (LINK)

Dan Ariely talks to Shane Parrish on The Knowledge Project Podcast (LINK)

Exponent Podcast: Black Holes (LINK)
Ben and James continue their discussion on why aggregators and platforms are different and why it matters for big companies, competitors, and regulators.
Marc Cohodes on The Jolly Swagmen Podcast (LINK)

Einstein’s Theory of Relativity Explained in One of the Earliest Science Films Ever Made (1923) (LINK)

Book of the day: Tube: The Invention of Television

Thursday, May 24, 2018


"There’s a huge difference in the business that grows and requires a lot of capital to do so, and the business that grows, and doesn’t require capital. And I would say that, generally, financial analysts do not give adequate weight to the difference in those. In fact, it’s amazing how little attention is paid to that. Believe me, if you’re investing, you should pay a lot of attention to it.... Some of our best businesses that we own outright don’t grow. But they throw off lots of money, which we can use to buy something else. And therefore, our capital is growing, without physical growth being in the business. And we are much better off being in that kind of situation [than] being in some business that, itself, is growing, but that takes up all the money in order to grow, and doesn’t produce at high returns as we go along. A lot of managements don’t understand that very well, actually." --Warren Buffett (1994)

Roger Lowenstein reviews John Carreyrou's book Bad Blood [H/T Phil] (LINK)

Revisionist History Podcast: “Burden of Proof” (LINK)
In 2013, Malcolm gave a talk at the University of Pennsylvania on the subject of proof. How much evidence do we need of the harmfulness of some behavior, before we act? The lecture was about the long-ago fight over miner’s asthma — and about the unexpected death of a Penn student named Owen Thomas. Revisionist History returns to the question at the heart of the the talk, with a visit to Owen Thomas’s family.
American Innovations Podcast: DNA - Testing Times (Part 5) (LINK)

Elizabeth Gilbert talks with Krista Tippett (podcast) (LINK)

Edge #515: Sexual Double Standards - A Conversation With Martie Haselton (LINK)

Vaccines Alone Won’t Beat Ebola - by Ed Yong (LINK)

The Asteroid That Smote the Dinosaurs Burned the Birds Out of Trees - by Ed Yong (LINK)

Wednesday, May 23, 2018


David Tepper's Commencement Speech at Carnegie Mellon University (video) (LINK)

Nassim Nicholas Taleb on Self-Education and Doing the Math (podcast and transcript) (LINK)

James Montier talks to Meb Faber (podcast) (LINK)

The Pygmalion Effect: Proving Them Right (LINK)

The Bill Gates Line - by Ben Thompson (LINK)

Walmart's India (Flipkart) Gambit: Growth Rebirth or Costly Facelift? - by Aswath Damodaran (LINK)

CDS Creativity Is Everywhere (LINK)

How a Pyramid Scheme Doomed the World’s Largest Amphibians - by Ed Yong (LINK)

Tuesday, May 22, 2018


Some great compilations, via @AustinValue, on Charlie Munger, Warren BuffettBerkshire Transcripts (1994-2018), and Ben Graham.

Markel Brunch Notes [H/T Linc] (LINK)

Bill Gates' Summer Books for 2018 (LINK)
The books: 1) Leonardo da Vinci - by Walter Isaacson; 2) Everything Happens for a Reason and Other Lies I’ve Loved - by Kate Bowler; 3) Lincoln in the Bardo - by George Saunders; 4) Origin Story: A Big History of Everything - by David Christian; 5) Factfulness - by Hans Rosling, with Ola Rosling and Anna Rosling Ronnlund
Grant's Podcast: Surf and turf (LINK)
Jonathan Tepper, chief editor of Variant Perception, and John Hempton, chief investment officer of Bronte Capital Management, share their macro and micro expertise on corporate concentration and corporate fraud. 
Invest Like the Best Podcast: Data, Decisions, and Basketball with Sam Hinkie (LINK)

Where Humans Meet Machines: Intuition, Expertise and Learning [H/T @morganhousel] (LINK)
Erik Brynjolfsson, Director, MIT IDE, speaks with Nobel Laureate, Daniel Kahneman about AI decision-making
The Origins of Us (LINK)

Monday, May 21, 2018

Seneca quote

From "On the Happy Life":
I shall make whatever befalls me become a good thing, but I prefer that what befalls me should be comfortable and pleasant and unlikely to cause me annoyance: for you need not suppose that any virtue exists without labour, but some virtues need spurs, while others need the curb. As we have to check our body on a downward path, and to urge it to climb a steep one; so also the path of some virtues leads downhill, that of others uphill. Can we doubt that patience, courage, constancy, and all the other virtues which have to meet strong opposition, and to trample Fortune under their feet, are climbing, struggling, winning their way up a steep ascent? Why! is it not equally evident that generosity, moderation, and gentleness glide easily downhill? With the latter we must hold in our spirit, lest it run away with us: with the former we must urge and spur it on.

Sunday, May 20, 2018


"There is no doubt that in exchanging a self-centered for a selfless life we gain enormously in self-esteem. The vanity of the selfless, even those who practice humility, is boundless." --Eric Hoffer, 

TED Talk -- Yuval Noah Harari: Why fascism is so tempting — and how your data could power it (LINK)

“If I Were Wrong, What Would It Look Like?” - by Morgan Housel (LINK)

Jack Bogle’s Battle (LINK)

Business Lessons about Growth from Andrew Chen (Andreessen Horowitz) - by Tren Griffin (LINK)

Bitcoin’s energy use got studied, and you libertarian nerds look even worse than usual [H/T @AlexRubalcava] (LINK)

Making Sense of Mortgages: The Problem, and the Opportunity (LINK)

John Doerr on Recode Decode (podcast and transcript) (LINK)
Related book: Measure What Matters

"Ideally, we like to invest in growing companies with a sustainable competitive advantage and attractive economics in combination with a management team that will intelligently redeploy or redistribute excess capital. In a world where it is difficult to find good ideas, our style is to diligently and patiently search the world for fat pitches, and then swing on the rare opportunity when we think the odds are in our favor. When times are good, we hope to invest in ideas that can double over three years. Given that we are not favorably disposed to ‘cheating’ on either valuation or quality, when ideas are harder to come by, as they are now, we are more likely to have higher than average cash levels. " --Peter Kinney and Mark Landecker, Acacia Capital (April 2007)

Friday, May 18, 2018


"Charlie and I don’t think about the market. And Ben [Graham] didn’t very much. I think he made a mistake to occasionally try and place a value on it. We look at individual businesses. And we don’t think of stocks as little items that wiggle around on the paper and that have charts attached to them. We think of them as parts of businesses.... I know of no one that has been successful at...[making] a lot of money predicting the actions of the market itself. I know a lot of people who have done well picking businesses and buying them at sensible prices. And that’s what we’re hoping to do." --Warren Buffett (1999)

What Exactly Happened to David Einhorn? (LINK)

The Hidden Risk of Passive and Index Hugging - by Rick Bookstaber (LINK)

Exponent Podcast: Platforms Versus Aggregators (LINK)

Eric Topol reviews Bad Blood, John Carreyrou's book on the Theranos saga (LINK)

Scott Adams talks to Naval Ravikant (video) (LINK)

How the Enlightenment Ends - by Henry A. Kissinger (LINK)

How Tom Wolfe Changed My Life - by Scott Kelly (LINK)
Related book: The Right Stuff
"Why — that’s the most important question of all. And it doesn’t apply just to investment. It applies to the whole human experience. If you want to get smart, the question you’ve got to keep asking is: Why? Why? Why? Why? And you have to relate the answers to a structure of deep theory. And you’ve got to know the main theories. And it’s mildly laborious, but it’s also a lot of fun." --Charlie Munger (1999)

Thursday, May 17, 2018


"Let everyone else call your idea crazy…just keep going.  Whatever comes, just don’t stop...I believe it’s the best advice – maybe the only advice – any of us should ever give." --Phil Knight

Bill Gates reviews "Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World With OKRs" by John Doerr (LINK)

Old Dog, New Tricks? - By Lewis Johnson (LINK)

a16z Podcast: Network Effects, Origin Stories, and the Evolution of Tech (LINK)

Malcolm Gladwell's Revisionist History Podcast: Divide and Conquer (LINK)
The complete, unabridged history of the world’s most controversial semicolon.
American Innovations Podcast: DNA - The Race for the Genome (Part 4) (LINK)

The First Urban Case of Ebola in the Congo Is a ‘Game Changer’ - by Ed Yong (LINK)

These Lizards Are Full of Green Blood That Should Kill Them - by Ed Yong (LINK)

Wednesday, May 16, 2018


"Change for the sake of change, as we see in architecture, food, and lifestyle, is frequently the opposite of progress. As I have explained in Antifragile, too high a rate of mutation prevents locking in the benefits of previous changes: evolution (and progress) requires some, but not too frequent, variation." --Nassim Taleb, Skin in the Game

GMO Quarterly Letter: Is Investing Starting to Get Difficult Again? I Hope So - by Ben Inker (LINK)

96-Year-Old Secretary Quietly Amasses Fortune, Then Donates $8.2 Million [H/T @pcordway] (LINK)

Whole Foods to offer Amazon Prime members 10 percent off on sale items (LINK)

Earth and the moon are shown as tiny specks in the dark expanse of space in a fascinating image taken from 620,000 miles away [H/T Daniel] (LINK)

Hippos Poop So Much That Sometimes All the Fish Die - by Ed Yong (LINK)

A New Theory Linking Sleep and Creativity - by Ed Yong (LINK)

Book of the day [H/T Patrick O’Shaughnessy]: Seeing like a State: How Certain Schemes to Improve the Human Condition Have Failed

"Each of us has what I call an ensemble of stochastic life paths–the choices we make. You make each choice in life based on your understanding of the possibility that it will take you where you want to be. But you don’t determine the outcome, only the probabilities. Each path leads to more choices: a cascade to echo all the other cascades that rule our lives. Choosing the path is the extent of your control–beyond that, it’s out of your hands. You choose, and then life rolls the dice." --Art De Vany, The New Evolution Diet

Tuesday, May 15, 2018


"The speed of information really doesn’t make any difference to us. It’s the processing and finally coming to some judgment that actually has some’s a judgment about the price of a business or a part of a business, a security, versus what it’s essentially worth. And none of that involves anything to do, really, with quick information. It involves getting good information.... We’re not looking for needles in haystacks or anything of the sort...We like haystacks, not needles, basically. And we want it to shout at us." --Warren Buffett (1994)

"I’ve said in investing...that there’s more than one way to get to heaven. And there isn’t a true religion in this, but there’s some very useful religions." --Warren Buffett (1994)

Spies, Crime, and Lightning Strikes: The Value of Probabilistic Thinking (LINK)

Two Berkshire Takeaways and Thoughts on Competitive Markets - by John Huber (LINK)

The Moat Map - by Ben Thompson (LINK)

Stop Reading So Much - by Sean Iddings (LINK)

Invest Like the Best Podcast: Tren Griffin – Pulling the Thread (LINK)

Grant's Podcast: Loan sharks (LINK)
Adam Cohen, founder of Covenant Review, joins Grant’s for an insightful overview of our loosey-goosey credit market.
27 Incredibly Useful Things You Didn’t Know Chrome Could Do (LINK)

Best Evidence Yet For Water Plumes Erupting Off Europa (LINK)

The Hole Where All The Success Leaks Out (LINK)

Book of the day [H/T Jim Chanos]: A World Lit Only by Fire - by William Manchester 

Monday, May 14, 2018


"One of the interesting things about investment is that there’s no degree of difficulty factor. I mean, if you’re going to go diving in the Olympics and try to win a gold medal, you get paid more, in effect, for certain kinds of dives than others because they’re more difficult. And they properly adjust for that factor. But in terms of investing, there is no degree of difficulty. If something is staring you right in the face and the easiest decision in the world, the payoff can be huge. And we get paid, not for jumping over 7-foot bars, but for stepping over 1-foot bars.... Now maybe we cast out too many things as being too hard and thereby narrow our universe. But I’d rather have the universe be...interpreted as being a little smaller than it really is, than being interpreted as larger than it is." --Warren Buffett (2005)

Mohnish Pabrai's Lecture at Columbia Business School (video) (LINK)

Notes From Sohn New York Investment Conference 2018 (LINK)

Business Lessons from Jess Lee (Sequoia Capital) - by Tren Griffin (LINK)

a16z Podcast: The Oral History of TrialPay – Obstacles and Opportunities in Payments (LINK)

Mike Massimino on The James Altucher Show (podcast) (LINK)
Related book: Spaceman: An Astronaut's Unlikely Journey to Unlock the Secrets of the Universe
American Innovations (a new podcast hosted by Steven Johnson): DNA (Part 1, Part 2, Part 3)

Trump vs. the “Deep State” - by Evan Osnos (LINK)

This school proves that universities can be bigger and better - by Bill Gates (LINK)

The New Ebola Outbreak Could Take 'Three, Maybe Four' Months to Control - by Ed Yong (LINK)

Friday, May 11, 2018


"All we want to be in is businesses that we understand, run by people that we like, and priced attractively compared to the future prospects." --Warren Buffett (1994)

The 2018 Berkshire Hathaway Annual Meeting video and transcript (LINK)

How To Acquire Your First Small(er) Company (LINK)

Nikola Tesla Could Have Been The Richest Man Ever (LINK)

The World According to Boyar Podcast: Episode 3 with Steve Einhorn (LINK)

Adventures in Finance Podcast --  Collective Wisdom: The best pieces of advice ever received by Real Vision contributors (LINK)

Why Walmart bought Flipkart — in five charts (LINK)

Crypto’s Big Lie - by Parker Thompson [H/T Collaborative] (LINK)
As I was reflecting on the hype and greed in the crypto market this weekend, I was reminded of an amazing Buffett quote (not about crypto) I think about often during hype cycles, as relayed by Brian Chesky: 
Chesky to Bezos: “Jeff, what’s the best advice Warren Buffett ever gave you?” 
Bezos: “[I asked Warren,] your investment thesis is so simple…you’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?” 
Buffett: “Because nobody wants to get rich slow.”
Exponent Podcast: Episode 151 — Two by Twos (LINK)
The differences between Facebook, Google, Microsoft and Apple specifically, and the differences between aggregators and platforms generally.
The myopia boom (from 2015) [H/T Linc] (LINK)
Short-sightedness is reaching epidemic proportions. Some scientists think they have found a reason why. 
In honor of his centennial, the Top 10 Feynman quotations (LINK)


"The cardinal defect of instability may not be regarded, therefore, as menacing the long-range development of common stocks as a whole. It does indeed exert a powerful temporary effect upon all business through the variations of the economic cycle, and it has permanently adverse effects upon individual enterprises and single industries. But of these two dangers, the latter may be offset in part by careful selection and chiefly by wide diversification; the former may be guarded against by unvarying insistence upon the reasonableness of the price paid for each purchase." --Benjamin Graham & David Dodd, Security Analysis