Friday, June 29, 2018

Links... and What can go wrong?

"The best way to get what you want is to deserve what you want." --Charlie Munger

Daniel Kahneman on Expertise, Bias, and the Investment Industry [H/T Phil] (video) (LINK)

Ray Dalio at the Aspen Ideas Festival -- Success in Leadership and Life: A Function of Principles (video) (LINK)

Aspen Ideas Festival -- Deep Dive: Leading Transformational Change (video) (LINK)

Little Money Rules - by Morgan Housel (LINK)

Twists and Turns in the Tesla Story: A Boring, Boneheaded Update! - by Aswath Damodaran (LINK)

Rocket Men Precision - by Ben Carlson (LINK)
Related book: Rocket Men: The Daring Odyssey of Apollo 8 and the Astronauts Who Made Man's First Journey to the Moon
The Knock-On Effect Podcast: Rising dollar to unleash unusual ice cream flavors? (LINK) [Interesting topic of vanilla beans, which have risen in price from $20/kilo to about $600/kilo since 2016. It looks like there is also a recent article in the The Globe and Mail (Canada) on the topic.]

How One Number Could Change the Lives of People With a Rare Disorder - by Ed Yong (LINK)

Book of the day: Social Value Investing - by Howard W. Buffett and William B. Eimicke

Also, for Audible members, Pre-Suasion by Robert Cialdini is the Daily Deal today ($3.95).


Posting may be light over the next 7-10 days, so before the weekend, I'll leave you with a little more wisdom from Warren Buffett (via Alice Schroeder) and Tony Deden. I enjoy learning something from one great investor that reminds me of a lesson from another, as it gives one a new perspective on which to build the mental model in one's mind. Deden's discussion in regards to the question "What can go wrong?" reminded me of a story Schroeder told about Buffett's investment in Mid-Continent Tab, when she described Buffett's first filter as being "What can go wrong?" First, the excerpt from Deden, where he made the point using his firm's investment in a salmon business (which I believe is Bakkafrost):
So we have a relatively important stake in the business of salmon farming, for argument's sake. Well, not just myself, perhaps, but we have a team that knows, more or less, everything there is to know about salmon farming literally everywhere in the world. We know what can go wrong. We know where the strengths are. We know where the abilities, where the skill is.    
And not just merely from what will happen in the price of...salmon today or tomorrow, the demand or supply of it, but in terms of those ingredients that contribute to the long-term viability of a business. But we also pay to understand what can go wrong. What can go wrong is really more important than what can go right, because over time, even a marginally good business will profit, will do well.    
So you really need to understand, you don't know what anything is worth until you know what can go wrong. Because we value things differently because we weigh components differently. There's no such thing as valuation metrics based on some standardized formula, unless you see it in connection with other issues.
And then Schroeder's story, from a 2008 talk, about Buffett and Mid-Continent Tab (from a file I have compiled on investing wisdom over the years, but I believe the original source for this excerpt is the CS Investing blog):
So when Wayne Ace and Warren Cleary who were two friends of Warren’s saw that IBM was going to have to divest in this business, and they thought, “We are going to buy a Carroll Press which was a press that makes these cards. And we are going to compete with IBM because we are based in the Mid West, we can ship faster. We can provide better service. And they went to Warren and they said, “Should we invest in this company and would you come in with us? And Warren said, “No.” 
Well, why did he say no? He didn’t say no because it was a technology company. He said no because he went through the first step in his investing process. This is where I think what he does is very automatic but it isn’t well understood. He acted like a horse handicapper. The first stop in Warren’s investing process is always to say, “What are the odds that this business could be subject to any type of catastrophe risk—that could make it (the business) fail? And if there is any chance that any significant part of his capital would be subject to catastrophe risk, he just stops thinking. NO. He just won’t go there. 
It is backwards the way most people think because most people find an interesting idea and figure out the math, they look at the financials, they do a projection and then at the end, they ask, “What could go wrong?” 
 Warren starts with what could go wrong and here he thought that a start-up business competing with IBM can fail. Nope, pass, sorry.  And he didn’t think anymore about it. But Wayne and Cleary went ahead anyway and within a year they were printing 35 million tab cards a month. At that point, they knew they had to buy more Carroll Presses so they came back to Warren and said, we need money—would you like to come in? 
So now, Warren is interested because the catastrophe risk is gone.  They are competing successfully against IBM. So he asks them the numbers, and they explain to him that they are turning their capital over 7 times a year. A Carroll Press costs $78,000 dollars and every time they run a set of cards through and turn their capital over, they are making over $11,000.  So basically their gross profit on a press (7 x $11,000 = $77,000) is enough to buy another printing press. At this point Warren is very interested because their net profit margins are 40%. It is one of the most profitable businesses he has ever had the opportunity to invest in. 
Notably people are now bringing Warren special deals to invest in—it is 1959. He has been in business for 2.5 years running the partnership. Why are they doing that? It is not because he is a great stock picker. They don’t know that. He hasn’t yet made that record.   It is because he knows so much about business, and he started so early he has a lot of money. So this is something interesting about Warren Buffett—people were bringing him special deals like they are today with Goldman Sachs and GE
He decided to come in and invest in the Mid-Continent Tab Company but, interestingly, he did not take Wayne and John’s word for it because the numbers they gave him were very enticing. But, again, he went through, and he acted like a horse handicapper. 
Now here is another point of departure. Everyone that I know or knew as an analyst would have created a model for this company and projected out its earnings or looked at its return on investment in the future. Warren didn’t do that. In going through hundreds of his files, I never saw anything that looked like a model. What he did is he did what you would do with a horse….he figured out the one or two factors that determined the success of the investment. In this case, it was the cost advantage that had to continue for the investment to work. And then he took all the historical data, quarter by quarter for every single plant and he obtained similar information as best he could from every competitor they had, and he filled several pages with little hen scratches with all this information and then he studied that information. 
Then he made a yes/no decision. He looked at—they were getting 36% margins, they were growing over 70% a year on a $1 million of sales—so those were the historical numbers. He looked at them in great detail like a horse handicapper would studying the races and then he said to himself, “I want a 15% return on $2 million of sales and said, Yes, I can get that.” Then he came in as an investor. 
OK, what he did was he incorporated his whole earnings model and compounding (discounted cash flow or DCF) into that one sentence.  He wanted 15% on $2 million of sales (a doubling from $1 million current sales). Why does he choose 15%? Warren is not greedy, he always wants 15% day one return on investment, and then it compounds from there. That is all he has ever wanted and he is happy with that.  …You are not laughing, what’s wrong? (Laughs)  
It is a very simple thing, nothing fancy about it. And that is another important lesson because he is a very simple guy. He doesn’t do any DCF models or anything like that. He has said for decades, “I want a 15% day one return on my capital and I want it to grow from there-ta da! The $2 million of sales was pretty simple too. It had a million in sales already and it was growing at 70% so there was a big margin of safety built into those numbers. 
It had a 36% profit margin—he said I would take half that or 18%. And he ended up putting in $60,000 of his personal, non-partnership money which was 20% of his net worth at that time. He got 16% of the company’s stock plus some subordinated notes.   And the way he thought about it was really simple. It was a one step decision. He looked at historical data and he had this generic return that he wants on everything. It was a very easy decision for him. He relied totally on historical figures with no projections.  
I think that is a really interesting way to look at it because I saw him do it over and over again in different investments.

Thursday, June 28, 2018


Mohnish Pabrai's Advice For Value Investors (LINK)
One of the big issues investors face is preconceived perspectives.  When we look at a stock, what goes on in our brains when we encounter a company for the first time?  For the first 30, 60 seconds, or first couple minutes? That has a huge impact on our financial well being and how our portfolio does.  In the first few minutes, you’re making a decision on whether you’re going to take a pass at a company, or spend another 15 minutes. And at the end of that 15 minutes, you’re going to make another decision as to whether you’re going to take a pass or spend an hour or two, and so on.  No investor has enough time in the day, week or year, to look at anything more than a small handful of businesses in some depth. 
Even if I look at the United States with its 3500 some odd publicly traded businesses, an investment manager can really not drill down on more than a few dozen of them every year.  So they have to make a decision relatively quickly on which ones they are or are not going to focus on.  Commitment bias that comes in once we start spending time on something, our brains play games with us.  One of the games our brain plays is that we feel entitled. “Hey, if I spent some time on it, I ought to make money on it”. 
And that’s really not how investing works. I think it’s very important to be aware of commitment bias, and to be very aware that the first two or three minutes that when you’re looking at a company are when you have to make the call.  It’s okay to let a winner go, but more important not to let a loser stay.
The Nutella Billionaires: Inside The Ferrero Family’s Secret Empire (LINK)

Amazon to acquire online pharmacy PillPack in a deal that could disrupt the US drugstore business (LINK)

Jim Chanos and James Grant talk about fraud (video) [H/T ValueWalk] (LINK)
Sophisticated investors have been the victims of deception throughout our nation's history. Celebrated financial experts Jim Chanos and James Grant explore historical examples of businesses that became notorious after having been accused or convicted of defrauding their shareholders.
Moving the Needle on a Portfolio - by Frank K. Martin (LINK)

Robert Greene on The Knowledge Project Podcast (LINK)

Talks at GS: Malcolm Gladwell on the Art of Storytelling – From Print to Podcasts (video) (LINK)

Revisionist History Podcast: Malcolm Gladwell's 12 Rules for Life (LINK)

Aspen Ideas Festival -- Jordan Peterson: From the Barricades of the Culture Wars (video) (LINK)

Aspen Ideas Festival -- Democracy Dies In Darkness: An Interview with The Washington Post's Martin Baron (video) (LINK)

Aspen Ideas Festival -- On the Road with Rise of the Rest (video) (LINK)
Entrepreneur Steve Case and "Hillbilly Elegy" author-turned-venture-capitalist J. D. Vance have taken their investment mission on a bus tour they’re calling “Rise of the Rest.” They are travelling around Middle America, identifying and rewarding entrepreneurs who exhibit the kinds of talent and ingenuity that many mistakenly believe only happens in Silicon Valley. What are they learning about the US innovation economy? Joining them in discussion is Katie Couric, who herself has been crisscrossing America to find out what makes us tick.
Trailblazers with Walter Isaacson (podcast): Timing the Market (LINK)

American Innovations Podcast: Nuclear Energy | Atoms For Peace | 3 (LINK)

The last couple of Crazy Genius podcasts are complementary... Why Haven’t We Found Aliens? and Should We Go to Mars?

The Smithsonian Had To Dig Up Their Dinosaurs Again - by Ed Yong (LINK)

Book of the day: Mises: The Last Knight of Liberalism – by Jörg Guido Hülsmann

Tuesday, June 26, 2018


"When the rules of the game change, the process with which you make decisions, the process with which you act, the value of information, the value of inputs, must change with it." --Tony Deden

"The first principle I operate from is the idea of exclusion. I exclude whole swaths of things from my universe of things. I think that, in the whole world, there are probably 150, 200 listed companies that I would even consider owning a piece of. It's a completely different way of looking at the world.... I think that when you start examining what it is you own—what happens if you're on a ship and it's going down, and you're in your cabin and you have five minutes to get out, to get up to the deck. You look at your possessions that are sitting in your cabinet and you say, what's worth taking with me? Not very many things, is it? And this is what I did, in essence." --Tony Deden

"Earlier, I talked to you about the idea of like-mindedness, for example. And so I'm serious about this in a sense that I want to own a participation—I don't call it a stock or equity—I want to own a business participation in a business that is run by owners whose motivation is the same as mine, who are responsible to their family and to their community and to the capital that they employ, as much as I would have been if I owned the same enterprise." --Tony Deden

How Atul Gawande landed perhaps the most extraordinary (or impossible) job in health care [H/T Linc] (LINK)

Atul Gawande at the Aspen Ideas Festival: Is Health Care a Human Right? (video -- starts at 2:23) (LINK)

Eric Topol chats with John Ioannidis (video and transcript) (LINK)

Memorizing these three statistics will help you understand the world (LINK)

Wells Fargo Brokers Loved Structured Notes (LINK)

Invest Like the Best Podcast: The Past, Present & Future of ETFs with Eric Balchunas (LINK)

The Male Echo Chamber of Political Twitter - by Ed Yong (LINK)

An asteroid impact triggered an avalanche on Mars! -  by Phil Plait (LINK)

Books of the day:

Frenemies: The Epic Disruption of the Ad Business (and Everything Else)

A Word from Our Sponsor: Admen, Advertising, and the Golden Age of Radio


I'm also pleased to announce that, if you have been planning to sign up for Real Vision and haven't yet done so, you can now support this blog by signing up for Real Vision using THIS LINK. As I mentioned before, I signed up for the free trial when they lowered the price, and ended up keeping my subscription. So I was happy to jump at the chance when they recently started offering a referral program for subscribers. My favorite interview so far is the one with Tony Deden (see quotes above for a sample), which you actually don't need a subscription to view, but there is plenty of other good content on there as well, for investment philosophies of all types. The referral link will also be posted on the right side of the blog's home page, under the Support section.

Monday, June 25, 2018


Amazon, the Brand Buster [H/T Linc] (LINK)

Amazon-Berkshire-JPMorgan Health Venture Takes Aim at Middlemen (LINK)

Intel and the Danger of Integration - by Ben Thompson (LINK)

Inside a Heist of American Chip Designs, as China Bids for Tech Power (LINK)

The Best Defense is a Quality Business - by Ian Cassel (LINK)

High Quality Vs Low Price - by Vishal Khandelwal (LINK)

Is there a next act for one of Silicon Valley’s top investors after Uber? Benchmark and Bill Gurley are about to find out. (LINK)

16+ Terms Entrepreneurs Should Know for Navigating the Healthcare Industry (LINK)

Feeding the gods: Hundreds of skulls reveal massive scale of human sacrifice in Aztec capital [H/T @JonHaidt] (LINK)

Friday, June 22, 2018


Some industry primers, and other things [H/T @NeckarValue] (LINK)

Howard Marks on Bloomberg TV a couple of days ago discussing his latest memo, "Investing Without People" (LINK)

An interview with Kevin Clayton, CEO of Clayton Homes, from several years ago (LINK)

Stewart Brand on the Whole Earth Catalog’s Long Legacy over 50 years (video) (LINK)

Summer Solstice 2018: The Search for Life in the Galaxy (LINK)

Thursday, June 21, 2018


[If anyone happens to have a copy Peter Bernstein's article "Where, Oh Where Are the .400 Hitters of Yesteryear?" I'd love to have a copy, and can't seem to find one in the public domain. Thanks.]

How Amazon Became One of Washington's Most Powerful Players ($) (LINK)

Tails, You Win - by Morgan Housel (LINK)

Jeremy Grantham interview from the Morningstar Investment Conference (video) [H/T ValueWalk] (Video 1, Video 2, Video 3, Video 4)

Paul Tudor Jones: Investing in a More “JUST” World (video) (LINK)

How Netflix changed entertainment -- and where it's headed | Reed Hastings (TED video) (LINK)

Boyar Value Group's Orphaned Equity Strategy Presentation: 5 High Conviction Stock Ideas [free registration required] (LINK)

Pedophrasty, Bigoteering, and Other Modern Scams - by Nassim Nicholas Taleb (LINK)

Annie Duke: "Thinking in Bets" | Talks at Google (LINK)

Revisionist History Podcast: The Hug Heard Round the World (LINK)

American Innovations Podcast: Nuclear Energy | Bombs Come First | 2 (LINK)

An Extraordinarily Expensive Way to Fight ISIS - by William Langewiesche (LINK)

A Landmark Study on the Origins of Alcoholism - by Ed Yong (LINK)

New Gibbon Species Discovered In a 2,200-Year-Old Royal Chinese Tomb - by Ed Yong (LINK)

Koko the Gorilla Dead at 46, Her Legacy Lives On (LINK)

Book of the day: Full House: The Spread of Excellence from Plato to Darwin - by Stephen Jay Gould 

Wednesday, June 20, 2018


"When I was a lawyer, I used to say, 'The best business getter any lawyer has is the work that's already on his desk.''s a very old-fashioned idea. You just do well with what you already have and more of the same comes in." --Charlie Munger (2001)

Buffett, Bezos, Dimon appoint Dr. Atul Gawande as CEO of their newly formed health-care company (LINK)

Tom Peters on the Recode Decode Podcast (LINK)

How To Stop Worrying: 7 Powerful Secrets From Mindfulness (LINK)

Parasites Can Mind-Control Animals Without Infecting Them - by Ed Yong (LINK)

Tuesday, June 19, 2018


"It does not matter what you bear, but how you bear it." --Seneca ("Of Providence")

Warren Buffett and Bill Gates visit a candy store in Omaha (LINK)

The Behavioral Economics Guide 2018 (Introduction by Robert Cialdini) (LINK)

Theranos Lessons - by Morgan Housel (LINK)

The Koch Brothers Say No to Tariffs (podcast) (LINK)

TED Talk: The surprising science of alpha males | Frans de Waal (LINK)


An excerpt from Burton Malkiel that I came across today in The Inflation-beater's Investment Guide: Winning Strategies for the 1980s that seemed to fit well with the latest Howard Marks memo:
I believe that the start of the 1980s is the ideal time to pick individual stocks on the basis of my rules. Unlike the early 1970s, it will not be hard to find an abundant selection of strong companies that fill the bill. 
But remember that a large number of other investors—including the pros—are trying to play the same game. And the efficient-market theory suggests that the odds of anyone's consistently beating the market are pretty slim. Nevertheless, for many of us, trying to outguess the market is a game that is much too fun to give up. Even if you were convinced you would not do any better than average, I'm sure that most of you with speculative temperaments would still want to keep on playing the game of selecting individual stocks. 
Picking the Manager 
There's an easier, more profitable way to gamble in the race for investment performance: instead of pricing the individual horses (stocks), pick the best jockeys (investment managers). 
...While some readers may well be disappointed that I do not "name" stocks in this book, I have absolutely no hesitation about citing mutual fund managers who run their portfolios by following rules similar to the rules I use and who have enjoyed perfectly splendid records. John Marks Templeton is one such person. 
...According to every mutual fund rating service, the fund that bears John Marks Templeton's name has been the outstanding performer over the past two decades. Indeed, Templeton's record of beating the broad stock indexes extends as far back as the 1930s. In a field crowded with mediocrity, Templeton seems to be one of the true investment greats—a living embarrassment to the efficient-market theory.

Monday, June 18, 2018

Howard Marks Memo: Investing Without People

Link to Memo: Investing Without People
Over the last twelve months I’ve devoted three memos to discussing macro developments, market outlook, and recommendations for investor behavior.  These are important topics, but usually not the ones that interest me most; I prefer to discuss things that are likely to affect the functioning of markets for years to come.  Since little in the environment has changed from what I described in those three memos, I feel I now have the liberty to turn to some bigger-picture issues. 
This memo covers three ways in which securities markets seem to be moving toward reducing the role of people: (a) index investing and other forms of passive investing, (b) quantitative and algorithmic investing, and (c) artificial intelligence and machine learning. 


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