Thursday, July 19, 2012

East Coast Asset Management's Q2 Letter

Found via Market Folly.

In our Q2 letter you will find an update on our portfolio and general market observations. Each quarter we highlight one component of our investment process - this quarter we discuss the “compounder” category, and specifically how we differentiate a great business from those of lesser quality. Included in this section is a representative example of a compounder business we recently added to our portfolio.


The hierarchy of thinking can be broken down into four levels. The first level is data—simple facts and figures. The second is information. Information is data that has been gathered and organized and can be used as a reference tool. The third level is knowledge. This can be described as information that we have digested and now understand. The mind has collected information and put it into context and has arrived at the know-how.
The fourth and final level is wisdom. Wisdom is often indistinguishable from knowledge. Wisdom is the proper use of knowledge - the know-why. Wisdom is a deep understanding of universal truths – the realization of people, things, events or situations, resulting in the ability to apply perceptions, judgments and actions in keeping with this understanding. Wisdom is the comprehension of what is true, coupled with the optimum judgment as to action. Knowledge can be described as doing things right, where wisdom is doing the right things.
The world is in the early innings of a tectonic paradigm shift toward a knowledge-based economy. Just as the developed world has transitioned in the past from an agricultural economy to an industrial economy to post-industrial/mass production economy, this transition will produce an irreversible shift in the global state of mind. With this change, some businesses will lead, evolve, and prosper and others will cease to exist. “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 quote]