Tuesday, January 15, 2019


"Patience is bitter, but its fruit is sweet." --Aristotle

Hedge Fund Baupost Has a Complex $1 Billion Bet on PG&E (LINK)

The 30 Best Pieces of Advice for Entrepreneurs in 2018 [H/T @BrentBeshore] (LINK)

Do Stocks Do the Worst Before or During Recessions? (LINK)

Samuel Andrews: The Man With the Billion Dollar Ego (LINK)

Invest Like the Best Podcast: Michael Duda – Investing In Brands (LINK)

Ben Thompson talks to John Gruber about Apple, and other tech (podcast) (LINK)

The History of Blood [H/T @oraunak] (LINK)

Books of the day (recommended by Khosla Ventures partner Keith Rabois in his chat with Kara Swisher):

Churchill: Walking with Destiny

The Breakthrough: Immunotherapy and the Race to Cure Cancer

The Last Days of Night

Monday, January 14, 2019


Jake Taylor's book, The Rebel Allocator, has just been released, and I'm really looking forward to reading it. Jake is the man behind the Five Good Questions interviews, and Jake's book is his mission to distill some key lessons on capital allocation that he's learned from Warren Buffett, Charlie Munger, and the other greats that many of us follow into a fictional, story format that will be interesting to a wider audience, as well as to those of us in the investing world. As Jake described it in an interview
I was working hard on a non-fiction guide to proper capital allocation. It felt like different books, podcasts, and conversations at that time were telling me I needed to write a fictional story if there was any chance of my book still mattering in ten years. The emotion of a story is all that persists. Around that same time I lost a close friend my age to a tragic hiking accident. It was a wake up call. If I were to disappear tomorrow, what kind of book would I want to leave as a literary legacy for my two young boys? It certainly wasn’t a dry, non-fiction, vanity project that no one would care about in six months. I had to try something radically different and tell a story. This lead to researching hero’s journeys and even screenplay writing to learn about character arcs and dynamic pacing to engage the reader. I hope the book reads a little like watching a movie.


John Hempton reviews the book The Myth of Capitalism (LINK)

What Amazon’s Rise to No. 1 Says About the Stock Market - by Jason Zweig (LINK)

AWS, MongoDB, and the Economic Realities of Open Source - by Ben Thompson (LINK)

How Aging Japan Defied Demographics and Revived Its Economy - by Greg Ip (LINK)

Back to Class: A Teaching Manifesto! - by Aswath Damodaran (LINK)

Dan Carlin's Hardcore History Podcast: 63 - Supernova in the East II (LINK)

Brent Beshore on The Learning Leader Show (podcast) (LINK)
Related book: The Messy Marketplace
60 Minutes video: Facial and emotional recognition; how one man is advancing artificial intelligence (LINK)

a16z Podcast: All About Synthetic Biology (LINK)

a16z Podcast: The Science and Business of Innovative Medicines (LINK)

Cal Newport on The Ezra Klein Show (podcast) (LINK)
Related book: Digital Minimalism
A review of “The Big One,” a new podcast from the Southern California NPR station KPCC about the potential devastation an earthquake could cause in Los Angeles (LINK)

What Happens When the President Doesn’t Have a Science Adviser - by Ed Yong (LINK)

A cool video of New York City in 1911 [H/T @Jesse_Livermore] (LINK)

Friday, January 11, 2019


"It makes more sense...to buy a wonderful business at a fair price, than a fair business at a wonderful price.... I’ve changed my focus...over the years in that direction.... It’s not hard when you watch businesses for 50 years...to learn a few things about them, as to where the big money can be made. Now, you say when did it happen? It’s very interesting on that. Because what happens, even when you’re getting a new, important idea, is that the old ideas are still there. So there’s this flickering in and out of things. I mean, there was not a strong, bright red line of demarcation where we went from cigar butts to wonderful companies.... But we moved in that direction, occasionally moved back, because there is money made in cigar butts. But overall, we’ve kept moving in the direction of better and better companies." --Warren Buffett (2003)

Rob Vinall's 2018 investor letter [registration required] (LINK)

Brent Beshore on the Tropical MBA Podcast (LINK)
Related book: The Messy Marketplace
David Marcus: Great Owner-Operators in Europe (audio) (LINK)

Notes From Sohn London Investment Conference (LINK)

Why Some Platforms Thrive and Others Don’t [H/T @FourFilters] (LINK)

Blockchain Can Wrest the Internet From Corporations' Grasp - by Chris Dixon (LINK)

Misunderstanding Liquidity, Misunderstanding QT [H/T @modestproposal1] (LINK)

You Can’t Debunk MMT - by Cullen Roche (LINK)

Bob Rodriguez: Recent Market Turmoil a 'Preamble' to Bigger Crisis [H/T @jessefelder] (LINK)

RA Conversations: The Flattening Yield Curve (LINK)

Chris Cole on the Macro Voices Podcast (LINK)

Exponent Podcast: Episode 158 — A Significant Shift (LINK)

What’s Next for Education Startups (LINK)

Recode Media with Peter Kafka: Harvard’s Susan Crawford on the importance of fiber internet (podcast) (LINK)
Related book: Fiber: The Coming Tech Revolution―and Why America Might Miss It
High-performance medicine: the convergence of human and artificial intelligence - by Eric J. Topol (LINK)

Edge #525: Judith Rich Harris: 1938 - 2018 (LINK)

Plants Can Hear Animals Using Their Flowers - by Ed Yong (LINK)

Thursday, January 10, 2019

NOVA: Apollo's Daring Mission

Apollo astronauts and engineers tell the inside story of Apollo 8, the first manned mission to the moon. The U.S. space program suffered a bitter setback when Apollo 1 ended in a deadly fire during a pre-launch run-through. In disarray, and threatened by the prospect of a Soviet Union victory in the space race, NASA decided upon a radical and risky change of plan: turn Apollo 8 from an earth-orbit mission into a daring sprint to the moon while relying on untried new technologies. Fifty years after the historic mission, the Apollo 8 astronauts and engineers recount the feats of engineering that paved the way to the moon.

Link to video


Related book: Rocket Men: The Daring Odyssey of Apollo 8 and the Astronauts Who Made Man's First Journey to the Moon

Wednesday, January 9, 2019


"The only way to be loved is to be lovable.... But the nice thing about it, of course, is that...you always get back more than you give. I don’t know whether it was Oscar Hammerstein or who said,... 'A bell’s not a bell till you ring it, a song’s not a song till you sing it. Love in the heart isn’t put there to stay. Love isn’t love till you give it away.' And basically you’ll always get back more than you give away. And if you don’t give any, you don’t get any. It’s very simple." --Warren Buffett (2003)

Things I’m Pretty Sure About - by Morgan Housel (LINK)

Managing reputation in the age of infinity - by Seth Godin (LINK)

Why Regulators Went Soft on Monopolies - by Jonathan Tepper (LINK)

Strong and Weak Technologies - by Chris Dixon (LINK)

a16z Podcast: What’s Next for Marketplace Startups (Hint: Services) (LINK)

Vinod Khosla on How to Build the Future (video) (LINK)

10% Happier Podcast: Oliver Burkeman, The Power of Negative Thinking (LINK)

The French Burglar Who Pulled Off His Generation’s Biggest Art Heist [H/T @oraunak] (LINK)

The World Shifts When a Black Widow Squats - by Ed Yong (LINK)

I finally got around to listening to Joe Rogan's podcast with Matthew Walker discussing his book Why We Sleep, and there is a bunch of interesting information and tips in the episode. It also looks like there are some good notes on the key ideas from the podcast HERE.

"It's not just that you...go to sleep and you replay and you hit the save button on these new memories;  you actually sculpt out those memories and you improve them. And we've done some of these with motor skill learning, critical for athletic performance, and practice does not make perfect—practice with a night of sleep is what makes perfect, because you come back the next day and you're 20 to 30% better in terms of your skilled performance than where you were at the end of your practice session the day before. Sleep is the greatest, legal performance-enhancing drug that most people are probably neglecting in sport.... Skill learning, memory and then also...in the body all over—the recuperative benefits. And you can flip a coin, by the way, if you're getting 6 hours of sleep or less, your time to physical exhaustion drops by up to 30%.... [You should get] somewhere between 7 to 9 hours [of sleep]. Once you get below 7 hours of sleep we can measure objective impairments in your brain and your body " --Matthew Walker

Tuesday, January 8, 2019


"We don’t buy hula-hoop companies or pet rock companies, and we don’t buy companies in industries that we think will have great explosions in demand, but where we don’t know who the winners will be. So we...like to think we’re looking a long way into the future." --Warren Buffett (2003)

Joel Greenblatt – Great Value Investors Need To Be Cold Hearted JellyBean Counters (LINK)

Robert J. Shiller on Bubbles, Reflexivity, and Narrative Economics (LINK)

Robert Shiller: market narratives are 'like diseases' (FT Alphachat Podcast) (LINK)

Abby Johnson – Future of Finance (Invest Like the Best Podcast) (LINK)

David Rubenstein: The Importance of Having a Good 2nd and 3rd Life (The James Altucher Show) (LINK)

Apollo Asia Fund: the manager's report for 4Q18 (LINK)

A couple of good Herb Kelleher interviews from 2003 and from 2004.  [H/T @pcordway]

Bots, britches, and bees - by Bill Gates (LINK)

How Corning Makes Fiber-Optic Cable (LINK)
Related book: Fiber: The Coming Tech Revolution―and Why America Might Miss It
WeWork Gets Less Money, Shorter Name (LINK)

How to Do Great Things (LINK)

Seven Big Ideas from Fooled by Randomness (LINK)

Taleb the Philosopher [H/T @chriswmayer] (LINK)

Animals Keep Creating Mysteries by Sounding Weird - by Ed Yong (LINK)

Stephen Hawking's Favorite Places (Episode 1) (LINK)
By the time we finished filming what would become his final complete series, he felt as if he was one step closer to his goal. To celebrate his birthday and lifetime of achievements, please enjoy the first episode of our Emmy® award-winning series, Stephen Hawking's Favorite Places, at no charge and with no login required.

Monday, January 7, 2019


"This effort to explain life through the recognition of patterns—and thus to come up with winning formulas—is complicated, in large part, because we live in a world that is beset by randomness and in which people don’t behave the same from one instance to the next, even when they intend to. The realization that past events were largely affected by these things—and thus that future events aren’t fully predictable—is unpleasant, as it makes life less subject to anticipation, rule-making and rendering safe. Thus people search for explanations that would make events understandable . . . often to an extent beyond that which is appropriate. This is as true in investing as it is in other aspects of life." --Howard Marks, "Mastering the Market Cycle"

Apple’s Errors -  by Ben Thompson (LINK)

The Quarterly Guidance Trap Bites Apple (LINK)

WSJ Investigation: China Offered to Bail Out Troubled Malaysian Fund in Return for Deals ($) (LINK)

How China Could Challenge the Boeing-Airbus Duopoly (LINK)

Shane Parrish on The Art of Manliness Podcast (LINK)

Is Marijuana as Safe as We Think? - by Malcolm Gladwell (LINK)

Malcolm Gladwell on the Longform podcast (LINK)

The ETF Story (podcasts) [H/T Ritholtz] (LINK)
The creation story of the first exchange-traded fund is actually the best way to understand how they work. And it's not just educational, it's entertaining. Like the PC and the MP3, the story of the creation of SPY -- which turned 30 this year -- is full of characters, twists and turns, and subplots. In the end, the product launched an industry that's reshaping not just investing but the entire financial ecosystem. This six-episode miniseries will weave together interviews with the founding fathers and other key players that help investors better understand the ETF and how we got here.

Sunday, January 6, 2019


"When things go bad, all kinds of things correlate that no one ever dreamed correlated.... And there’s nothing more deadly than unrecognized concentrations of risk, but it happens all the time." --Warren Buffett (2003)

Only two things matter for the stock market. Donald Trump is not one of them. - by Roger Lowenstein (LINK)

Have I Got a Fund For You! Why Brokers Push Some Investments - by Jason Zweig (LINK)

The 20%-a-Year Stock Picker Who Wishes His Edge Would Disappear (LINK)

Jeff Bezos and Jamie Dimon: Best of Frenemies (LINK)

How to Lose Tens of Thousands of Dollars on Amazon (LINK)
A growing number of self-proclaimed experts promise they can teach anyone how to make a passive income selling cheap Chinese goods in the internet's largest store. Not everyone’s getting rich quick.
The $9 Billion Upcharge: How Insurers Kept Extra Cash from Medicare (LINK)

The Race to Diagnose Cancer With a Simple Blood Test (LINK)

The Bond That’s Still Paying Interest, 280 Years Later (LINK)

Looking Back on the Last 40 Years of Reforms in China - by Ray Dalio (LINK)

A Dearth of Physician Innovators Can Derail New Biomedical Startups (LINK)

Naval Ravikant and Kapil Gupta: The truth about hard work (podcast) (LINK)

How Millennials Became The Burnout Generation (LINK)

Three big insights into our African origins - by John Hawks (LINK)

Friday, January 4, 2019


A big thanks to the friend that pointed out that the horse story from yesterday's post was from Howard Marks and not Charlie Munger. I have the Marks story highlighted and starred in my copy of Peter Bevelin's book All I Want To Know Is Where I'm Going To Die So I'll Never Go There (p.62) that I recently reviewed, but somehow had it in my head as a Munger story. At any rate, I added that book excerpt to yesterday's post. That same section in Peter's book also has a great Confucius quote along the same lines:

"The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved." --Confucius


Risk is Where You're Not Looking - by Steven Romick, Abhijeet Patwardhan, Thomas Atteberry (January 2, 2019) [H/T Linc] (LINK)

From the archives.... Why Value Investors Are Different - by Seth Klarman (Feb 1999) [H/T @FocusedCompound] (LINK)

From Ben Thompson in May 2017, and worth a re-read after the Apple news this week.... Apple’s China Problem

Wild Expectations - by Morgan Housel (LINK)

How the Co-op King of New York Earned His Crown (podcast and transcript) [H/T Eli] (LINK)
Related book: Risk Game: Self Portrait of an Entrepreneur
How I Built This podcast: Remembering Herb Kelleher (LINK)
The co-founder and former CEO of Southwest Airlines, Herb Kelleher, has died. He was 87. We are grateful Herb shared his story with us in 2016. We are republishing it as a tribute to his life and career, in which he transformed the US airline industry.
Unborn Baby Shark Filmed Swimming Around Inside Its Mother - by Ed Yong (LINK)

Thursday, January 3, 2019

Final Decision Checklist

I had previously mentioned a checklist that I use as the last thing I look at before making an investment in a stock. As I'm thinking about spelling out my process and philosophy in regards to forming a potential Registered Investment Adviser, I thought I'd clean up the wording a bit, and paste it here if anyone else is interested. One important note though: I've come to believe that developing a full image in one's mind of how a business operates, competes, allocates capital, takes care of customers, etc. is much more important than checking off certain items on a list (i.e. Holograms > Checklists). Combined with developing that image is the necessity of only investing in those things that seem like obvious bargains. But the final checklist serves as a great way to help stay disciplined, and hopefully sidestep some avoidable errors. Everyone's will probably be different and evolve over time, but here is mine in its current state.

Final Decision Checklist (the final checklist to go through before putting any capital to work)

1. Are you tired?
  • "We didn’t know, when we started out, this modern psychological evidence to the effect that you shouldn’t make a lot of important decisions when you’re tired and that making a lot of difficult decisions is tiring.... I cannot remember an important decision that Warren has made when he was tired." –Charlie Munger
2. Did you make this investment decision while the market was closed, so that current price moves aren't impacting your judgment?
  • “Sleep on it” is good advice before buying/selling.
3. Have you done enough work, and are you sure this is within your circle of competence? 
  • "We will never buy anything we don’t think we understand. And our definition of understanding is thinking that we have a reasonable probability of being able to assess where the business will be in 10 years." –Warren Buffett
4. Is the balance sheet conservative to allow the company to endure—and hopefully take advantage of—even the most difficult of economic environments?

5. Is the management team comprised of the kind of people you want to partner with, and are their interests clearly aligned with your interests? It’s not worth being business partners with people you don’t like and admire, and as an owner of the business they are running, you are essentially their partner.

6. Is this a good business? 
  • It doesn't necessarily have to be a long-term "compounder" type of business, but it needs to provide real value for its customers, clients, etc…. i.e. a Win-Win with all six counterparties (customers, suppliers, employees, owners, the regulators, and the community).
    • “Win-win is as much safety as it is compassion. The sustainability of any organization ultimately rests on delivering a win-win partnership with counterparties. Any other relationship will eventually lead to a fatal flaw that will eventually be corrected. Be constant – Be Kind.” –Chris Begg
7. Do you have downside protection? This will largely come from:
  • Paying close to (adjusted) net asset value, encompassed within a business that has solid earning power (even if temporarily obscured) and some advantages protecting that earning power, even if it’s within a cyclical business and the size of the moat may be hard to estimate.
  • And/Or a moat that protects a minimum, and conservatively-estimated, level of earnings—and then paying a fair to good to great price for that level of earnings. The price paid will largely be a judgment call based on the size of the moat and the reinvestment prospects within that moat (i.e. ability to invest capital at high rates for a given duration of time).
  • The direction of the moat (shrinking or expanding) is more important than the size of the moat.
    • “We think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year.” –Warren Buffett
    • “In my view, widening the moat is more important than the width of the moat. Everyone is attacking a company’s moat, so the question is not how wide it is, but whether it is widening at a faster pace than competitors are filling it up. Innovation is central to the idea of widening a moat.” –Rob Vinall
  • And while a judgment call on quality vs. price, remember that it should look obvious if you have a full picture of things: “Part of the reason that we have a decent record is [that] we pick things that are easy. Other people think they're so smart they can take on things that are really difficult. That proves to be more dangerous. You have to be shrewd, and you have to be very patient. You have to wait until something comes along which at the price you're paying is easy.” –Charlie Munger
8. When thinking about price vs. value: 
  • Is there at least three times more upside than downside? (e.g. If downside under a worst-case scenario is 50%, I need at least 150% [2.5x return] upside.) 
  • Do I think this investment is likely to double in 3-5 years? (~15-26% IRR)
  • And if I'm wrong, is there a high probability that my downside is waiting 10 years (because it’s a good business that is growing) for a double as opposed to losing money? (~7% IRR)
  • There may be some situations where your downside is so limited if you can hold longer-term that even if the expected IRR may be 15% over a 2-3 year period instead of longer, it could still be worthwhile (e.g. A bond you know with extremely high confidence will pay off at maturity, and you can hold until maturity; Or at times, buying Berkshire Hathaway at a low multiple of understated book value, and also a decent discount to fair value.).
  • One of the main advantages you can have as an investor is looking out 5-10 years when thinking about value—as opposed to thinking shorter-term—and comparing that value to the price today.
9. Is this business almost certain to be making more money 10 years from now, and can it increase its long-term value in a tough economic environment (e.g. by buying stock, taking business from weaker competitors, treating weaker customers and suppliers well in order to build long-term trust, etc.)? 
  • Downside via a current moat or asset value isn't enough…. The business must also be something that is almost certain to be making more money in 10 years. All six key investment traits should be present—to varying degrees and sometimes temporarily obscured (unless it’s a special situation investment with a given catalyst):
    • Downside 
    • Cash Flow (Sustainable Earning Power) 
    • Growth (Reinvestment Opportunities)
    • Antifragile (ability to take business advantage in tough environments—including high inflation—even though the stock may go down with a declining market)
    • People 
    • Price
10. Am I viewing this as a business and not just a stock? Am I taking the mindset of buying the business outright, and retaining management?  
  • "[Charlie and I] don’t consider ourselves richer or poorer based on what the stock does. We do feel richer or poorer based on what the business does." –Warren Buffett
11. Am I sizing the position appropriately? 
  • While you need to concentrate your portfolio in your best ideas, you also need to remember Howard Marks' story about the race with one horse, where what seemed like a sure thing wasn't, because the horse jumped the fence and didn't finish the race..... Unexpected things happen and you won't see them all coming. 
    • The Marks story, via Peter Bevelin's All I want to know... book: “It can always get worse than you think. I love this story from Howard Marks: ‘I tell my father’s story of the gambler who lost regularly. One day he heard about a race with only one horse in it, so he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away. Invariably things can get worse than people expect. Maybe ‘worst-case’ means ‘the worst we’ve seen in the past.’ But that doesn’t mean things can’t be worse in the future.’”
  • And it may not be a bad idea to only buy 1/3 of a position at first, especially if you've been following the company for less than 6 months. 
12. No FOMO, No Sunk Costs, and No Acting Out of Boredom.
  • You have to be willing to watch plenty of things you thought were good but not good enough go on to perform well and be indifferent about it; that’s part of the game. 
  • You can’t let putting time and effort into something influence your willingness to invest in it—be ready to walk away and move on, with equanimity to the eventual outcome, as soon as you see something that you don’t like. 
  • And always do the work before investing, realizing that you’ll miss plenty of things that go up while you’re finishing the work that needs to be done before investing in anything.
  • So, have you done the work that needs to be done? And are you sure you’re not settling just because you’ve put in the work?
  • And remember, great investors have often made mistakes when they either had little to do (do-something syndrome) or had too much cash on hand. You must stay disciplined, and then remain patient for however long it takes.