Sunday, January 20, 2019

Survival first...

"Nature and history do not agree with our conceptions of good and bad; they define good as that which survives, and bad as that which goes under." --Will and Ariel Durant (The Lessons of History)

"The only definition of rationality that I’ve found that is practically, empirically, and mathematically rigorous is the following: what is rational is that which allows for survival. Unlike modern theories by psychosophasters, it maps to the classical way of thinking. Anything that hinders one’s survival at an individual, collective, tribal, or general level is, to me, irrational." --Nassim Taleb (Skin in the Game)

"Never forget about the man who was six-foot-tall, who drowned crossing the stream that was five feet deep on average. To be a successful investor, at minimum, you have to survive. Surviving on the good days is not the issue. You have to be able to survive on the bad days. The idea of surviving on average is not sufficient. You have to be able to survive on the worst days." --Howard Marks (interview on The James Altucher Show)

"My belief is: If you have not figured out the risk, then you shouldn't even think about the upside." --Weijian Shan (Real Vision interview)

"The first stop in Warren [Buffett]’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." --Alice Schroeder  [In a talk discussing Warren Buffett's investing process.]

"The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is equally applicable to business and guides our every action at Berkshire." --Warren Buffett (2010 Shareholder Letter)

Saturday, January 19, 2019


"The unthinkable can always happen, and you have to run your affairs accordingly." --Peter Bernstein

On Jack Bogle (1929-2019) - by Jason Zweig (LINK)

A Lifetime of Systems Thinking - by Russell Ackoff (1999) [H/T @pcordway] (LINK)

Clayton Christensen: After 40 years studying innovation, here is what I have learned (LINK)

Exponent Podcast: Inverted Pyramids (LINK)

The Insulin Wars [H/T @Atul_Gawande] (LINK)

GMO White Paper: Is the U.S. Stock Market Bubble Bursting? A New Model Suggests 'Yes' (LINK)
  • A new model suggests that from early 2017 through much of 2018, the U.S. stock market was a bubble.
  • Driven by negative changes in sentiment, the bubble started to deflate in the fourth quarter of 2018, in spite of strong fundamentals.
  • Our advice, consistent with our portfolio positions established in Q1 2018 – as usual, we were early – is to own as little U.S. equity as your career risk allows.
Questions we hear a lot - by John Hussman (LINK) [And if you're not one to read the economic analysis, the talk by Martin Luther King Jr., "Loving Your Enemies," attached to the end is always a worthwhile read.]

Friday, January 18, 2019


"I do think that there’s a lot to be said for developing a temperament that can own securities without fretting. I think that the fretful disposition is an enemy of long-term performance." --Charlie Munger (2003)

"I think it’s almost do well in equities over a period of time if you go to bed every night thinking about the price of them. I mean, Charlie and I, we think about the value of them... Focusing on the price of a stock is dynamite, because it really means that you think that the stock market knows more than you do.... The stock market is there to serve you and not to instruct you." --Warren Buffett (2003)

Bill Gates: The Best Investment I’ve Ever Made (LINK)

In the Company of Greatness - by Frank K. Martin (LINK)

Billionaire Sam Zell Buys Gold for First Time in Bet on Tight Supply (LINK)

‘Bear Market’ Is an Arbitrary Label, but Using It Can Hurt - by Robert Shiller (LINK)

a16z Podcast: Pulse Check on Consumer Tech Trends 2019, CES and Beyond (LINK)

a16z Podcast: The Business of Cybercrime (LINK)

Five Good Questions: S4:E1 James Clear – Atomic Habits (LINK)

American Innovations Podcast: Bill Nye Wants to Save the World (LINK)

The Massive Mystery of Saturn’s Rings (LINK)

The Overlooked Organisms That Keep Challenging Our Assumptions About Life - by Ed Yong (LINK)

Thursday, January 17, 2019

RIP Jack Bogle

"If a statue is ever erected to honor the person who has done the most for American investors, the handsdown choice should be Jack Bogle.... In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me. --Warren Buffett (2016 Annual Letter)

John Bogle, who founded Vanguard and revolutionized retirement savings, dies at 89 (LINK)

Jason Zweig recounts Mr. Bogle's long and influential career (video) (LINK)


Back when I was first reading Jack Bogle's book Enough, I emailed him the following quote from Seneca that I thought was a perfect compliment to the things he had written about in his book: 
"What difference does it make how much there is laid away in a man's safe or in his barns, how many head of stock he grazes or how much capital he puts out at interest, if he is always after what is another's and only counts what he has yet to get, never what he has already. You ask what is the proper limit to a person's wealth? First, having what is essential, and second, having what is enough." 
Mr. Bogle was kind enough to both respond to my email as well as pass along some words of encouragement to a young man still early on in his investment career. A short while later, I came across another quote that reminded me of his book, and again passed it along. Though not quite as fitting as the one above, it was a longer quote from Arthur Schopenhauer:
"It is difficult, if not impossible, to define the limits which reason should impose on the desire for wealth; for there is no absolute or definite amount of wealth which will satisfy a man. The amount is always relative, that is to say, just so much as will maintain the proportion between what he wants and what he gets; for to measure a man's happiness only by what he gets, and not also by what he expects to get, is as futile as to try and express a fraction which shall have a numerator but no denominator. A man never feels the loss of things which it never occurs to him to ask for; he is just as happy without them; whilst another, who may have a hundred times as much, feels miserable because he has not got the one thing he wants. In fact, here too, every man has an horizon of his own, and he will expect as much as he thinks it is possible for him to get. If an object within his horizon looks as though he could confidently reckon on getting it, he is happy; but if difficulties come in the way, he is miserable. What lies beyond his horizon has no effect at all upon him. So it is that the vast possessions of the rich do not agitate the poor, and conversely, that a wealthy man is not consoled by all his wealth for the failure of his hopes. Riches, one may say, are like sea-water; the more you drink the thirstier you become; and the same is true of fame."
He once again replied with kindness and, as he put it, delight that those of us who digested his work made interesting connections to other things. And as I look back at the quotes above, they once again seem fitting ways to describe a great man that gave far more than he took from the world, and was always happy with having enough.


And since it's only fitting to let Mr. Bogle have the last word, let's go back to the inaugural issue of CFA Magazine (Jan/Feb 2003). Charley Ellis moderated a panel of investing greats (Bernstein, Bogle, Brinson, Buffett, LeBaron, Neff, and Templeton), and the final question he asked the panel was: "Given the option to say whatever you would like to say that, 30 years from now, bright, young people would be sitting down and reading, saying 'Gee, I'm glad I was able to read this particular thought,' what would that thought be?" Bogle's reply, which was the last among the panel members: 
"First, put the client’s interest ahead of your own, and, one day at a time, help to make this field of investing more of a profession and less of a business. Second, learn every day, but especially learn from the experiences of others. It’s cheaper! And third, never, never lose your idealism, no matter how rough your career might be, and never lose faith in your nation."

Wednesday, January 16, 2019


Case Studies of Companies That Do Capital Allocation Right - by Phil Ordway (LINK)

Cummins: Diesel Engine Maker with Shareholder-Friendly Management - by Chris Bloomstran (LINK)

What Does An Intelligent Fanatic Look Like? - Ian Cassel (video) (LINK)

Brent Beshore's 2018 Year In Review: Serving the Six-Sided Teeter Totter (LINK)

O’Shaughnessy Quarterly Investor Letter Q4 2018 (LINK)

Lawrence Cunningham NACD 2018 Lifetime Achievement Award (video) (LINK)

WeWork’s CEO Makes Millions as Landlord to WeWork (LINK)

How a Behavioral Scientist Optimizes His Monthly Cashflow (LINK)

a16z Podcast: Dark Data in Healthcare (LINK)

Glossier CEO Emily Weiss on the “art and science” of the beauty business (LINK)

Peter Diamandis: "Exploring Exponential Technologies" | Talks at Google (LINK)

Tidying Up: Marie Kondo on her Netflix show, the KonMari method, and why folding "sparks joy." (video) (LINK)

Charlie Munger on diversification

From the 2008 Berkshire Hathaway Annual Meeting:
Students of America go to these elite business schools and law schools and they learn corporate finance the way it’s now taught and investment management the way it’s now taught.
And some of these people write articles in the newspaper and other places and they say, “Well, the whole secret of investment is diversification.” That’s the mantra. 
They’ve got it exactly back-ass-ward. The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. 
Diversification is for the know-nothing investor; it’s not for the professional. 

Related previous posts:

Warren Buffett on Diversification - 1966

Warren Buffett on Diversification (1998)

Phil Fisher on diversification

More from Phil Fisher on diversification

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

Seth Klarman on position sizing (bottom paragraph)

Mohnish Pabrai on position sizing

Generalizing the Kelly Criterion

A quick diversification thought...

A few comments on the Berkshire Hathaway letter to shareholders

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 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 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 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 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 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.

Wednesday, January 2, 2019


"Inflation is the one thing that, over a long period of time, can turn investors’ results, in aggregate, into a negative figure. And it’s the investors’ enemy." --Warren Buffett  [2003, in response to a question about inflation and his article "How Inflation Swindles the Equity Investor"]

Jimmy Pattison Is Serendated Into Canada’s Walk of Fame (video) [H/T Michael ] (LINK)
Paul Anka surprises inductee Jimmy Pattison with a new rendition of “My Way” with special guest singer, Warren Buffett.
Deal-Master Debbane: Meet The Secretive Lebanese Immigrant Behind Oprah’s Weight Watchers Windfall [H/T @NeckarValue] (LINK)

Dirty dealing in the $175 billion Amazon Marketplace (LINK)

Think Electric Vehicles Are Great Now? Just Wait... [H/T @AlexRubalcava] (LINK)

High Insulin Prices Drive Diabetics to Take Extreme Measures (video) (LINK)

Mutual Fund Observer, January 2019 (LINK)

Steve Romick talks with Meb Faber (podcast) (LINK)

IQ is largely a pseudoscientific swindle - by Nassim Nicholas Taleb (LINK)

How Not To Be Stupid (LINK)

Edge #524: Childhood's End by George Dyson - The 2019 Edge New Year's Essay (LINK)
The digital revolution isn’t over but has turned into something else
This weekend, China embarks on a historic mission to land on the far side of the Moon (LINK)

Scientists Have Been Studying Cancers in a Very Strange Way for Decades - by Ed Yong (LINK)

Books.... There are some great Kindle deals currently available for those interested:

Autonomy: The Quest to Build the Driverless Car—And How It Will Reshape Our World ($2.99)

Barbarians at the Gate: The Fall of RJR Nabisco ($2.99)

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism ($2.99)

A Mind at Play: How Claude Shannon Invented the Information Age ($3.99)

Genius: The Life and Science of Richard Feynman ($1.99)

The Evolution of Everything: How New Ideas Emerge ($2.99)

Distinguished Speaker Series: Joel Greenblatt

The shift to passive management is a powerful trend dominating the investment industry. The liquidity, lack of tracking error, and low costs associated with passive investing are clearly attractive.  However, active management is the only way to truly outperform the market as a whole over time. Gotham Asset Management founder and co-CIO Joel Greenblatt will share his thoughts on the debate and provide insights on ways to navigate the changing landscape.

Link to video

[H/T Linc]