Links

"Security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish either that the value is adequate—e.g., to protect a bond or to justify a stock purchase—or else that the value is considerably higher or considerably lower than the market price. For such purposes an indefinite and approximate measure of the intrinsic value may be sufficient. To use a homely simile, it is quite possible to decide by inspection that a woman is old enough to vote without knowing her age or that a man is heavier than he should be without knowing his exact weight." --Benjamin Graham and David Dodd (Security Analysis)

The Tim Ferriss Show (podcast): #431: Howard Marks on the US Dollar, Three Ways to Add Defense, and Good Questions (LINK)

Amazon, Berkshire, JPMorgan Health-Care Venture Looking for New CEO [H/T Linc] ($) (LINK)

Atul Gawande is in advanced discussions to step down as chief executive and take on a less operational role as chairman of Haven, the health-care venture backed by Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co., according to people with knowledge of the matter. 

Dr. Gawande, a prominent surgeon and professor at Harvard University, wants to move away from day-to-day management of Haven and focus more on policy and advocacy work, particularly related to the current coronavirus pandemic, the people said.

Oil Crash Busted Broker’s Computers and Inflicted Big Losses (LINK)

Value Hive Podcast: 24: More Than Shipping Stocks w/ Harris Kupperman, Praetorian Capital (LINK)

What's Next for Oil? MacroVoices #218 Postgame (video/podcast) (LINK)

Peter Zeihan Explains The Geopolitical Landscape (video/podcast) (LINK)

Odd Lots Podcast: Richard Koo Explains Why The Recovery Will Be So Difficult (LINK)

We know everything – and nothing – about Covid - by Matt Ridley (LINK)

Links

"Unfortunately in this kind of work, where you are trying to determine relationships based upon past behavior, the almost invariable experience is that by the time you have had a long enough period to give you sufficient confidence in your form of measurement, just then new conditions supersede and the measurement is no longer dependable for the future." --Benjamin Graham ("Securities In An Insecure World")

Bill Gates on coronavirus: ‘It’s going to be a while before things go back to normal’ (video) (LINK)

Related article: The first modern pandemic - by Bill Gates

Horizon Kinetics Q1 Letter (LINK) [Audio review available HERE.]

Thoughts on Berkshire’s Deployable Cash (LINK)

A Historic Opportunity in Small Cap Stocks (LINK)

‘The American Tailwind’ - by Frank K. Martin (LINK)

Paul Singer's April letter to Elliott investors (LINK)

Raoul Pal's April Global Macro Investor newsletter is now available for all to read (LINK)

Understanding Money, Credit, and Debt - by Ray Dalio (LINK)

BIS paper: Insurance regulatory measures in response to Covid-19 (LINK)

My Restaurant Was My Life for 20 Years. Does the World Need It Anymore? (LINK)

With 100,000 stores set to close by 2025, mall owners face this legal hurdle next (co-tenancy clauses) (LINK)

A Shift in Investment Strategies Post-Coronavirus — COVID-19 Virtual Roundtable (video) (LINK)

Recode Media Podcast: Matthew Ball on how the pandemic will remake TV, movies and video games (LINK)

MacroVoices Podcast: #216 David Rosenberg: Stagflation is coming but not yet (LINK)

How I Built This with Guy Raz (podcast): How I Built Resilience: Live With Guy and Simon Sinek (LINK)

Conversations with Tyler (podcast): Philip E. Tetlock on Forecasting and Foraging as a Fox (LINK)

Infinite Loops Podcast: Morgan Housel – The Psychology of Money (LINK)

Related book: The Psychology of Money: Timeless lessons on wealth, greed, and happiness

Links

What Benjamin Graham Would Tell You to Do Now: Look in the Mirror - Jason Zweig ($) (LINK)

The great investors and extreme volatility (LINK)

Different Kinds of Decline - by Morgan Housel (LINK)

Why Democracy Is on the Decline in the United States - by Evan Osnos (LINK)

Invest Like the Best Podcast: Peter Zeihan - Dis-United Nations (LINK)

Related book: Disunited Nations

Coronavirus: The Real Risks and Human Biases behind the Panic - by Mark Manson (LINK)

Coronavirus is the wolf on the loose - by Matt Ridley (LINK)

Rory gets a good read (LINK)

Books helped fuel last year’s PLAYERS win and now Rory McIlroy has moved on to other titles in preparation for his title defense

Links

It's that time of year when Boyar Research is getting ready to publish The Forgotten Forty, which features one-page reports on the forty companies that they believe have the greatest potential to outperform the leading indices in the year ahead due to a catalyst that they see on the horizon. The report has a successful track record and, once again, they're providing a link to receive a complimentary sample from last year’s publication with free registration to their email list.... Link to: Sign-up for complimentary sample report of The Forgotten Forty. The companies included in the sample report are Acushnet Holdings, Discovery, Bank of America, Dollar Tree, Western Union, Starbucks, and Legg Mason.

***

From the archives [H/T Linc].... Benjamin Graham: The Father of Financial Analysis (PDF, Free Kindle Version)

5 books to enjoy this winter - by Bill Gates (LINK)

The books: 1) Growth by Vaclav Smil; 2) Why We Sleep by Matthew Walker; 3) These Truths by Jill Lepore; 4) An American Marriage by Tayari Jones; 5) Prepared by Diane Tavenner

Energy (r)evolutions take time - by Vaclav Smil (LINK)

The Sage of Baltimore (LINK)

Related book: T. Rowe Price: The Man, The Company, and The Investment Philosophy

Invest Like the Best Podcast: Jeff Ma – Making Decisions with Data (LINK)

Short Wave Podcast: Aluminum’s Journey From Precious Metal To Beer Can (LINK)

A galaxy with three supermassive black hole hearts - by Phil Plait (LINK)

"Considering the downside is the single most important thing an investor must do. This task must be dealt with before any consideration can be made for gains. The problem is that people nowadays think they’re pretty smart because they can do something quite rapidly. You can make the horse gallop. But are you on the right path? Can you see where you’re going?" --Irving Kahn

Links

How a stealthy insurance tech startup bootstrapped its way to a $2.35B acquisition in less than 4 years [H/T @BrentBeshore] (LINK)

FRMO Corp. - 2019 Shareholder Letter [H/T @colemanrhawkins] (LINK)

How to Factor Fickle Markets Into Your Portfolio - by Jason Zweig ($) (LINK)

Immutable Truths and Arguing Fools - by Morgan Housel (LINK)

Mohnish Pabrai on The Dhandho Investor: The Low-Risk Value Method to High Returns (video) (LINK)

Of Ben Graham, Investing, and Eternity (LINK)

Only the Shadow Knows - by Frank K. Martin (LINK)

Joe Nocera's 2002 story on T. Boone Pickens (LINK)

International conflict isn't declining, new analysis finds (LINK)

Grant’s Current Yield Podcast: A conversation with the Dean of High Yield (LINK)

The Tim Ferriss Show (podcast): #386: Ken Burns (LINK)

The Game That Made Rats Jump for Joy - by Ed Yong (LINK)

Scientists taught rats to play hide-and-seek in order to study natural animal behavior—but it was also fun, for both the researchers and the animals.

David Abrams on the “Great Illusion of the Stock Market"

From his introduction to Part VII of Security Analysis: Sixth Edition (published in 2008):

I am optimistic about the future of value investing. To be sure, there are many bright and savvy people in the financial markets employing Graham and Dodd’s techniques, but the markets themselves have grown exponentially. The chunk of capital being invested by the value-investing crowd is a small percentage of the overall capitalization of global financial markets. Having observed the markets for more than two decades, my sense is that, rather than a glut of Graham and Dodd acolytes picking through scarce opportunities to find a place for their cash, money is ever more prone to sloshing around in giant waves, flowing from one fad to the next. If anything, it seems that the people controlling these megasums have become less intelligent and less sophisticated over time. The last decade alone has brought incredible extremes in valuation, starting in 1999 and 2000 with the high-altitude Internet bubble that was followed in short order by the utter collapse of the tech market. In the summer of 2002, we witnessed a tremendous corporate debt meltdown. But soon, these excessively low valuations were pushed off the front pages by the most generous and lax lending standards of all time. Now, as I write this introduction, the mortgage market is imploding, creating perhaps yet another new set of opportunities. That we’ve seen the last of these extreme swings seems doubtful. 

What is driving this manic phenomenon? The explanation is something I call the “Great Illusion of the Stock Market.” Investing looks easy, particularly in a world of inexpensive software and online trading. Buying a stock is no more difficult than buying a book on Amazon.com. And because a great many people have gotten wealthy in the stock market, lots of others have come to believe that anyone can get rich with very little effort. They are wrong. All the people I know who’ve built wealth in the stock market have worked very hard at it. Graham and Dodd understood the effort it took to be successful in the market. They wrote: 

Since we have emphasized that analysis will lead to a positive conclusion only in the exceptional case, it follows that many securities must be examined before one is found that has real possibilities for the analyst. By what practical means does he proceed to make his discoveries? Mainly by hard and systematic work. (p. 669) 

So, yes, you can get rich buying and selling stocks, but, as the authors well knew, it takes hard work and patience. Nevertheless, the Great Illusion persists, maybe because, like Woody Allen’s film character Zelig, the market is a chameleon that changes its appearance to suit the times. Sometimes, it shows up as a tech stock bubble. Other times, it manifests itself as a ludicrously overvalued stock market as seen in the late 1980s in Japan. In a current incarnation, a raft of financial institutions across America are trying to emulate the success of David Swensen and his colleagues who manage Yale University’s endowment by allocating large percentages of the capital to “alternative investment managers.” 

But the Great Illusion is just that—an illusion. If you want to get wealthy in the financial markets, you’ll need to engage in “hard and systematic work.” 

Graham and Dodd quote

From Security Analysis:

Exact Appraisal Impossible. Security analysis cannot presume to lay down general rules as to the “proper value” of any given common stock. Practically speaking, there is no such thing. The bases of value are too shifting to admit of any formulation that could claim to be even reasonably accurate. The whole idea of basing the value upon current earnings seems inherently absurd, since we know that the current earnings are constantly changing. And whether the multiplier should be ten or fifteen or thirty would seem at bottom a matter of purely arbitrary choice.  

But the stock market itself has no time for such scientific scruples. It must make its values first and find its reasons afterwards. Its position is much like that of a jury in a breach-of-promise suit; there is no sound way of measuring the values involved, and yet they must be measured somehow and a verdict rendered. Hence the prices of common stocks are not carefully thought out computations but the resultants of a welter of human reactions. The stock market is a voting machine rather than a weighing machine. It responds to factual data not directly but only as they affect the decisions of buyers and sellers.

..........

Interestingly, I can't seem to find a direct source for the more popular version of Graham's weighing machine quote. Warren Buffett has quoted it a couple of times, including in his 1987 letter: 

As Ben said: "In the short run, the market is a voting machine but in the long run it is a weighing machine."

And in his 1993 letter: 

As Ben Graham said:  "In the short-run, the market is a voting machine - reflecting a voter-registration test that requires only money, not intelligence or emotional stability - but in the long-run, the market is a weighing machine."

And in the revised edition of The Intelligent Investor, Jason Zweig writes: 

As Graham liked to say, in the short run the market is a voting machine, but in the long run it is a weighing machine.

So I'd be curious if anyone knows where Graham used the weighing machine reference in regards to the long run. I don't see a direct source, but given the personal relationship Warren Buffett and others had with him—and considering that Buffett and Zweig used the words "said" and "say" in their references—it may have just been something he communicated verbally instead of in his written works. 

And on a related note, this Seth Klarman quote from the Preface to the Sixth Edition of Security Analysis is one that I also think is worth re-reading, and including with the others in this post:

As Graham has instructed, those who view the market as a weighing machine—a precise and efficient assessor of value—are part of the emotionally driven herd. Those who regard the market as a voting machine—a sentiment-driven popularity contest—will be well positioned to take proper advantage of the extremes of market sentiment.

Links

"In 1928 and 1929 there occurred a wholesale and disastrous relaxation of the standards of safety previously observed by the reputable houses of issue. This was shown in the sale of many new offerings of inferior grade, aided in part by questionable methods of presenting the facts to the public. The general collapse in values affected these unsound and unseasoned issues with particular severity, so that the losses suffered by investors in many of these flotations have been little short of appalling." --Benjamin Graham and David Dodd (1934 edition of Security Analysis)

Bill Gates: Grilling and chilling with Warren Buffett (video) (LINK)

Five Lessons from History - by Morgan Housel (LINK)

Buy And Verify - by Ian Cassel (LINK)

Why Your Mortgage is So Complicated: The History and Opportunity of the Modern Mortgage (video) (LINK)

Risks and Opportunities in the Battery Supply Chain (LINK)

The end of mobile - by Benedict Evans (LINK)

Investing in the Podcast Ecosystem in 2019 (LINK)

What Amazon Might Want With Boost Mobile (LINK)

Dyson Patent Applications Offer Hints at Its Electric Car (LINK)

Value Investing with Legends: Overcoming Biases for Effective Decision-Making (with Michael Mauboussin) (LINK)

a16z Podcast: The Economics of Expensive Medicines (LINK)

AI: Hype vs. Reality Podcast: AI That Drives (LINK)

Self-driving cars: the greatest automotive industry disruption since Henry Ford’s Model-T assembly line… just around the corner. Right? That’s the hype—but is it reality? Are we mere blocks away from our neighborhood streets and freeways being filled with autonomous cars? Find out in the premiere episode of AI: Hype vs. Reality, a new podcast and video series in which Jessica Chobot, veteran host of Nerdist News and Bizarre States, puts present-day artificial intelligence technology to the test in real-world situations. And separates the hype from reality.

Masters in Business Podcast: Scott Galloway Discusses the Algebra of Happiness (LINK)

Related book: The Algebra of Happiness

Freakonomics Radio: 379. How to Change Your Mind (LINK)

Why Hundreds of Puffins Washed Up Dead on an Alaskan Beach - by Ed Yong (LINK)

Outspoken Oncology Podcast: Physician, Scientist, and Author Siddhartha Mukherjee (LINK)

Related books: 1) The Emperor of All Maladies: A Biography of Cancer; 2) The Gene: An Intimate History 

Related documentary: Cancer: The Emperor of All Maladies (3-part Ken Burns documentary, and free for Amazon Prime members)

Science Friday Podcast: SciFri Extra: A Relatively Important Eclipse (LINK)

This week marks the 100th anniversary of an eclipse that forever changed physics and our understanding of the universe. 

In May 1919, scientists set out for Sobral, Brazil, and Príncipe, an island off the west coast of Africa, to photograph the momentarily starry sky during a total eclipse. Their scientific aim was to test whether the sun’s gravity would indeed bend light rays from faraway stars, as predicted by Einstein’s theory of general relativity. After analyzing the data from the brief minutes of darkness, they declared Einstein correct. 

Carlo Rovelli, physicist and author, tells Ira the story.

Links

"It’s better to pay attention to something that is being scorned than something that’s being championed." --Warren Buffett (2005) 

What Warren Buffett's Teacher Would Make of Today's Market - by Jason Zweig ($) (LINK)

A Thread on Diversification - by Sanjay Bakshi (LINK)

Amazon's Size Is Becoming a Problem---for Amazon ($) (LINK)

Degrees of Confidence - by Morgan Housel (LINK)

Think Again – a Big Think Podcast: Jared Diamond (LINK)

Related book: Upheaval: Turning Points for Nations in Crisis

Capital Allocators Podcast: Michael Mauboussin – Who’s on the Other Side (LINK)

Related paper: Who Is On the Other Side?

Exponent Podcast: A Perfect Meal (LINK)

Aswath Damodaran chats with Meb Faber (podcast) (LINK)

Acquired Podcast: The Uber IPO (LINK)

Mark Zuckerberg & Yuval Noah Harari in Conversation (video) (LINK)

When the first stars in the Universe exploded, they really exploded - by Phil Plait (LINK)

TED Talk: Sleep is your superpower | Matt Walker (LINK)

[I'm a bit late to these, but...] The Bruce Lee Library episodes of the Bruce Lee Podcast look especially worth checking out.... Such as the episode on the Tao Te Ching and the episode on Krishnamurti's Commentaries on Living.

"Absorb what is useful, reject what is useless, add what is essentially your own." --Bruce Lee

Links

"Security analysis is a severely practical activity, and it must not linger over matters that are not likely to affect the ultimate judgment." --Benjamin Graham and David Dodd (Security Analysis: Sixth Edition)

Dr James Simons, S Donald Sussman Fellowship Award Fireside Chat (Chat 2 - March 6, 2019) (video) [H/T @collabfund] (LINK)

Can goats empower women? - by Bill Gates (LINK)

Calpers Wants to Double Down on Private Equity ($) (LINK)

Can a Facebook Post Make Your Insurance Cost More? ($) (LINK)

A detailed short thesis on Tesla (LINK)

In the wake of one university’s headline-making failure, a look at business models (LINK)

The Disruptive Voice Podcast: Revisiting Resource Allocation in the Firm (with Clayton Christensen) (LINK)

Invest Like the Best Podcast: Annie Duke – Wanna Bet? (LINK)

The Knowledge Project Podcast: Doing the Enough Thing (LINK)

WorkLife with Adam Grant Podcast: Networking For People Who Hate Networking (LINK)

A Doctor’s Prescription for More AI in Medicine (LINK)

Eric Topol makes the case for how artificial intelligence can improve health care, despite privacy concerns

The Rock Health Podcast: How AI Can Get Medicine Back On Track: Dr. Eric Topol (LINK)

Related book: Deep Medicine: How Artificial Intelligence Can Make Healthcare Human Again

The After On Podcast: 44: Naval Ravikant (part 1) | End Games (LINK)

The Fertility Doctor’s Secret (LINK)

Links

"Intrinsic value is terribly important and very fuzzy, and we do our best to work...in the kind of businesses where we think that...our predictions are of a fairly highly probable nature. And that leaves out all kinds of companies." --Warren Buffett (2003)

"We have this simple, old-fashioned discipline, which Warren likens to Ted Williams waiting for a fat pitch. I don’t know about Warren, but if you said to me, 'Charlie, you can go into the business of managing money the way other people do, where you’re measured against indexes and you got consultants choosing consultants that are reviewing you to committees,' I would just hate it. I would regard it as being put into shackles. And shackles where the very system was preventing me from delivering value.... The general system for money management requires people to pretend that they can do something that they can’t do, and to pretend to like it when they really don’t." --Charlie Munger (2003)

Tributes to Jack Bogle (1929-2019) [H/T @jasonzweigwsj] (LINK)

We’ve collected the following tributes to Jack Bogle from among the authors who contribute to Advisor Perspectives and other prominent individuals in the investment industry.

Ben Graham: Just Plain Lucky? - by Vishal Khandelwal (LINK)

Why stock-plunges happen so often in Hong Kong (LINK) [Related video: High Table Talk with Mr David Webb]

The Vergecast (podcast): Fixing America’s internet, with Susan Crawford (LINK)

Related book: Fiber: The Coming Tech Revolution―and Why America Might Miss It

A Starfish-Killing Disease Is Remaking the Oceans - by Ed Yong (LINK)

Links

"For what the investor chiefly wants to learn from an annual report is the indicated earning power under the given set of conditions, i.e., what the company might be expected to earn year after year if the business conditions prevailing during the period were to continue unchanged." --Benjamin Graham and David Dodd (Security Analysis: Sixth Edition)

5 books I loved in 2018 - by Bill Gates (LINK)

The books: 1) Educated: A Memoir - by Tara Westover; 2) Army of None - by Paul Scharre; 3) Bad Blood - by John Carreyrou; 4) 21 Lessons for the 21st Century - by Yuval Noah Harari; 5) The Headspace Guide to Meditation and Mindfulness - by Andy Puddicombe

Managing Risk and Uncertainty: The Future of Insurance (video) (LINK)

Investors Rev Up the Risk in Subprime Auto Deals (LINK)

What’s Really Happening to Retail? - by Derek Thompson (LINK)

Investing Whiplash: Looking for Closure with Apple and Amazon! - by Aswath Damodaran (LINK)

Jonathan Tepper discusses his book, The Myth of Capitalism, on The Jolly Swagmen Podcast (LINK)

Planet Money Podcast: The Secret Target (LINK)

Their plan was dangerous, risky, and extremely unpopular. But America copied them anyway. Today on the show: how a tiny country on the other side of the world changed how America runs its economy.

Exponent Podcast: Rent-Seeking (LINK)

Ben and James talk about Apple’s case in front of the Supreme Court, and debate whether the company is acting anti-competitively with its App Store policies.

Pivot Podcast: Microsoft is more valuable than Apple again. Why? (LINK)

George H.W. Bush and the Price of Politics - by Jon Meacham (LINK)

Links

"It is necessary to caution the analyst against overconfidence in the practical utility of his findings. It is always good to know the truth, but it may not always be wise to act upon it, particularly in Wall Street. And it must always be remembered that the truth that the analyst uncovers is first of all not the whole truth and, secondly, not the immutable truth. The result of his study is only a more nearly correct version of the past. His information may have lost its relevance by the time he acquires it, or in any event by the time the market place is finally ready to respond to it." --Benjamin Graham and David Dodd (Security Analysis: Sixth Edition)

Marks Investor Series featuring Howard Marks, W’67, Co-Chairman, Oaktree Capital (video) (LINK)

Oaktree’s Howard Marks says Brexit makes UK too risky to invest in (LINK)

Fool Me Three Times And I Give Up - by Morgan Housel (LINK)

Knowledge vs. Skill - by Ben Carlson (LINK)

The Holy Active Empire - by Jamie Catherwood (LINK)

Apple and Amazon at a Trillion $: Looking Back and Looking Forward! - by Aswath Damodaran (LINK)

How to Make a Killing in Gene Therapy [H/T Ian] (LINK)

Creative Prompts - by Fred Wilson (LINK)

Habits vs. Workflows - by Cal Newport (LINK)

a16z Podcast: Tesla and the Nature of Disruption (LINK)

Crazy/Genius Podcast (from last week): Can Science Cure Aging? (LINK)

Crazy/Genius Podcast: Will We Ever Stop Eating Animal Meat? (LINK)

Long Now Seminars (podcast version) -- Julia Galef: Soldiers and Scouts: Why our minds weren’t built for truth, and how we can change that (LINK)

Sam Harris speaks with Yuval Noah Harari about his new book 21 Lessons for the 21st Century (podcast) (LINK)

What Ecstasy Does to Octopuses - by Ed Yong (LINK)

Despite their wacky brains, these intelligent animals seem to respond to the drug in a very similar way to humans.

A 558-Million-Year-Old Mystery Has Been Solved - by Ed Yong (LINK)

Scientists have finally confirmed that a weird ribbed oval called Dickinsonia is an animal.

Links

"We generally believe you can just see anything in markets. I mean, it's just extraordinary what happens in markets over time. It gets sorted out eventually, but we have seen companies sell for tens of billion dollars that are worthless. And at times, we have seen things sell for...literally 20 percent or 25 percent of what they were worth. So we have seen and will continue to see everything. It’s just the nature of markets. They produce wild, wild things over time. And the trick is, occasionally, to take advantage of one of those wild things and not to get carried away when other wild things happen because the wild things create their own truth for a while." --Warren Buffett (2000)

Links to some old Ben Graham articles (via Twitter) [H/T @jasonzweigwsj] (LINK)

Mohnish Pabrai interview in The Economic Times (LINK)

The checklist that I created came out of looking at mistakes made by great investors. The single biggest reason why investments don’t work out for investors is leverage. The second biggest reason has to do with a misunderstanding of the comparative advantage of the moat. Then you get to management and ownership and other issues. You might get to environmental or unions and labour and that sort of things. The three really big things are — leverage, moats and management, probably in that order. 

More than money, Berkshire’s Todd Combs coming on Paytm board is the best outcome (LINK)

The Race of Our Lives Revisited (in a nutshell) - Jeremy Grantham (LINK)

In this abridged version of “The Race of Our Lives Revisited” Jeremy Grantham provides a detailed discussion of the long-term, slow-burning problems that threaten us today: climate change, population growth, increasing environmental toxicity.

Citron Research's short thesis on Wayfair (LINK)

Akimbo Podcast: Ignore sunk costs (LINK)

Radiolab Podcast: Baby Blue Blood Drive (LINK)

Does Our Cultural Obsession With Safety Spell the Downfall of Democracy? (LINK)

Fred Rogers: a quiet psychological revolution in children’s television (LINK)

Related book: The Good Neighbor: The Life and Work of Fred Rogers  

Related documentary: Won't You Be My Neighbor?

Links

"Study the past record of the stock market, study your own capabilities, and find out whether you can identify an approach to investment you feel would be satisfactory in your own case. And if you have done that, pursue that without any reference to what other people do or think or say." --Benjamin Graham [Source]

Ben Graham's 1955 Senate Testimony (LINK)

I was reminded of the above after reading this comment from Warren Buffett at the 1997 Berkshire Hathaway Annual Meeting:

What two years in this century has the Dow had the greatest overall gain? The two years in the 1900s are 1933, which most of you don’t think of as a banner year, and 1954. And in both of those years, the Dow was up over 50 percent, counting dividends. 

In March of 1955, because of that, the fact that the Dow had gone up — bear in the mind that the high on the Dow was 381 in 1929 and it took 25 years before that was surpassed. And in 1954, the Dow went from, say, 280 up to 404, or something like that, just a little over 50 percent.  

So what did they decide to do? They decided to have congressional hearings about it. And they did.  

In March of 1955, they had hearings in the Senate Banking and Currency Committee, Chairman Fulbright. And my boss, Ben Graham, was called down to testify. And it’s fascinating reading. Bernard Baruch was there, all kinds of people. 

Where’s the value in value investing? [H/T @williamgreen72] (LINK)

Worthless Just Two Years Ago, West Texas Sand Now Brings in Billions (LINK)

Required reading for marketplace startups: The 20 best essays (LINK)

TED Talk: How to build synthetic DNA and send it across the internet | Dan Gibson (LINK)

How Rats Remake Coral Reefs - by Ed Yong (LINK)

The New Story of Humanity's Origins in Africa - by Ed Yong (LINK)

Several new discoveries suggest that our species didn’t arise from a single point in space. Instead, the entire continent was our cradle.

The Long Now Foundation event -- Chris D. Thomas: Are We Initiating The Great Anthropocene Speciation Event? (video) (LINK) [also available as a podcast]

Related book: Inheritors of the Earth: How Nature Is Thriving in an Age of Extinction [This book earned quite the praise from Stewart Brand: "...the best book on evolution since Darwin."]

Links

 "I don’t look at the primary message...of [Ben] Graham, really, as being...anything to do with formulas. In other words, there’s three important aspects to it.... One is your attitude toward the stock market. That’s covered in chapter eight of The Intelligent Investor. If you’ve got that attitude toward the market, you start ahead of 99 percent of all people who are operating in the market. So, you have an enormous advantage. Second principle is the margin of safety, which again, gives you an enormous edge, and actually has applicability far beyond just the investment world. And then the third is just looking at stocks as businesses, which gives you an entirely different view than most people that are in the market. And with those three sort of philosophical benchmarks, the exact — the evaluation technique you use is not really that important. Because you’re not going to go way off the track, whether you use Walter’s approach — Walter Schloss’s — or mine, or whatever." --Warren Buffett

1991 Barron's interview with Seth Klarman [H/T @NeckarValue] (LINK)

If You Say Something Is “Likely,” How Likely Do People Think It Is? - by Andrew Mauboussin and Michael J. Mauboussin (LINK)

Investing and the Art of Catching Falling Knives - by Vishal Khandelwal (LINK)

The Absolute Return Letter, July 2018: The Italian Job (LINK)

29 Life-Changing Lessons That Will Make You Successful And More Strategic - by Ryan Holiday (LINK)

Your company’s culture is not unique, psychologist Adam Grant says (LINK)

Invest Like the Best Podcast: The Future of Media, with Niel Roberson (LINK)

Grant's Podcast: Nobody knows notin' (LINK)

American Innovations Podcast: Nuclear Energy | Meltdown | 4 (LINK)

Revisionist History Podcast: The Imaginary Crimes of Margit Hamosh (LINK)

TED Talk: How we're saving one of Earth's last wild places | Steve Boyes (LINK)

A Game-Changing AI Tool for Tracking Animal Movements - by Ed Yong (LINK)

How to Grow Old: Bertrand Russell on What Makes a Fulfilling Life (LINK)

"The best Armour of Old Age is a well spent life preceding it; a Life employed in the Pursuit of useful Knowledge, in honourable Actions and the Practice of Virtue; in which he who labours to improve himself from his Youth, will in Age reap the happiest Fruits of them; not only because these never leave a Man, not even in the extremest Old Age; but because a Conscience bearing Witness that our Life was well-spent, together with the Remembrance of past good Actions, yields an unspeakable Comfort to the Soul." --Cicero (via "Praising Old Age" in Poor Charlie's Almanack)

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.

Links

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

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

Bill Gates' Summer Books for 2018 (LINK)

The books: 1) Leonardo da Vinci - by Walter Isaacson; 2) Everything Happens for a Reason and Other Lies I’ve Loved - by Kate Bowler; 3) Lincoln in the Bardo - by George Saunders; 4) Origin Story: A Big History of Everything - by David Christian; 5) Factfulness - by Hans Rosling, with Ola Rosling and Anna Rosling Ronnlund

Grant's Podcast: Surf and turf (LINK)

Jonathan Tepper, chief editor of Variant Perception, and John Hempton, chief investment officer of Bronte Capital Management, share their macro and micro expertise on corporate concentration and corporate fraud. 

Invest Like the Best Podcast: Data, Decisions, and Basketball with Sam Hinkie (LINK)

Where Humans Meet Machines: Intuition, Expertise and Learning [H/T @morganhousel] (LINK)

Erik Brynjolfsson, Director, MIT IDE, speaks with Nobel Laureate, Daniel Kahneman about AI decision-making

The Origins of Us (LINK)

Links

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

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

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

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

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

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

Why Walmart bought Flipkart — in five charts (LINK)

Crypto’s Big Lie - by Parker Thompson [H/T Collaborative] (LINK)

As I was reflecting on the hype and greed in the crypto market this weekend, I was reminded of an amazing Buffett quote (not about crypto) I think about often during hype cycles, as relayed by Brian Chesky: 

Chesky to Bezos: “Jeff, what’s the best advice Warren Buffett ever gave you?” 

Bezos: “[I asked Warren,] your investment thesis is so simple…you’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?” 

Buffett: “Because nobody wants to get rich slow.”

Exponent Podcast: Episode 151 — Two by Twos (LINK)

The differences between Facebook, Google, Microsoft and Apple specifically, and the differences between aggregators and platforms generally.

The myopia boom (from 2015) [H/T Linc] (LINK)

Short-sightedness is reaching epidemic proportions. Some scientists think they have found a reason why. 

In honor of his centennial, the Top 10 Feynman quotations (LINK)

***

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

Links

Casualties of Your Own Success - by Morgan Housel (LINK)

Kicked in the Ass with a Golden Horseshoe - by Ian Cassel (LINK)

Home Depot was co-founded by Bernie Marcus (visionary), Arthur Blank (operations/finance), and Pat Farrah (energy), and financed by Ken Langone. Home Depot is yet another example of how great ideas are born out of frustration not greed.

Horizon Kinetics Q1 2018 Portfolio Update slides [H/T @chriswmayer] (LINK)

Alphabet Soup: Google is Alpha, but where are the Bets? - by Aswath Damodaran (LINK)

Silicon Valley has oversold the near-term potential of the technologies of the future (LINK)

"Adam Smith's View of Man" - by Ronald Coase (1976) (LINK)

In a Few Centuries, Cows Could Be the Largest Land Animals Left - by Ed Yong (LINK)

How Asia's Super Divers Evolved for a Life At Sea - by Ed Yong (LINK)

Freeman Dyson reviews Geoffrey West's book Scale (LINK)

***

"The notion that the desirability of a common stock was entirely independent of its price seems incredibly absurd. Yet the new-era theory [of 1927-1929] led directly to this thesis. If a public-utility stock was selling at 35 times its maximum recorded earnings, instead of 10 times its average earnings, which was the preboom standard, the conclusion to be drawn was not that the stock was now too high but merely that the standard of value had been raised. Instead of judging the market price by established standards of value, the new era based its standards of value upon the market price. Hence all upper limits disappeared, not only upon the price at which a stock could sell but even upon the price at which it would deserve to sell. This fantastic reasoning actually led to the purchase at $100 per share of common stocks earning $2.50 per share. The identical reasoning would support the purchase of these same shares at $200, at $1,000, or at any conceivable price.

An alluring corollary of this principle was that making money in the stock market was now the easiest thing in the world. It was only necessary to buy “good” stocks, regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic."

--Benjamin Graham & David Dodd, Security Analysis