Links

Jeff Bezos’ guide to life [H/T @BrentBeshore] (LINK)

A Q&A with renowned investor Lou Simpson [H/T Market Folly] (LINK)

Buffett 1972 Letter to See’s Candies - by John Huber (LINK)

Never Do That Again - by Morgan Housel (LINK)

Steven Eisman presentation: Will Technology Prevent the Next Economic Bubble? (video) [H/T George] (LINK)

Will China Bring an Energy-Debt Crisis? (LINK)

Warren and Pamela Buffett give 'emotional' interview on cancer center for CBS (video plays) [H/T Linc] (LINK)

A Hedge Fund Pioneer Is Making Some of the Best Goat Cheese in America [H/T Jim] (LINK)

The Case of Wilbur Ross' Phantom $2 Billion (LINK)

Why AI Is the 'New Electricity' [H/T Linc] (LINK)

Tim O'Reilly on The Tim Ferriss Show (podcast) (LINK)

Related book: WTF?: What's the Future and Why It's Up to Us

Review of “The Square and The Tower” by Niall Ferguson (LINK)

Kids, Would You Please Start Fighting? - by Adam Grant (LINK)

Santa Fe Institute Community Lecture - Nick Lane - Energy and Matter at the Origin of Life (video) (LINK)

Related book: The Vital Question: Energy, Evolution, and the Origins of Complex Life

Washington, D.C., Is Home to America's Largest Collection of Parasites - by Ed Yong (LINK)

A Dying Boy Gets a New, Gene-Corrected Skin - by Ed Yong (LINK)

Lou Simpson and portfolio construction

From Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors:

Simpson thinks that investment portfolios should be constructed as a collection of pieces of businesses that are reasonably valued, where the investor has confidence that they will be bigger, and more profitable, three to five years from now. 

...Though he doesn’t follow any magic formula for investing, believing that investors should keep an open mind about valuation, his favored metric for valuation is price to free cash flow measured on a per share basis. He seeks out those positions in which he thinks the valuation is reasonable, and there will be continued top and bottom line growth such that there’s a better chance of the valuation moving up rather than down over a period of time. While he favors free cash flow, he doesn’t like to be restricted to any single metric. He holds to some basic principles that he has refined over time, requiring a discount from intrinsic value, a high-quality company, and high-quality management. In assessing management, he examines their capital allocation record, their integrity, and whether the business is run for owners or whether the managers are hired guns looking to make money for themselves. This distinction often manifests in the chief executive’s willingness to undertake buybacks when the stock is undervalued. 

Simpson believes that companies should buy back stock where it’s appropriate to do so—when the stock is undervalued. He hopes that his positions enjoy a double hit—partially from fundamental growth and partially from buying back stock—leading to an increased valuation on a per share basis.

Some insight on Lou Simpson and how he works

From Concentrated Investing: Strategies of the World's Greatest Concentrated Value Investors:

Buffett has described Simpson as having “the rare combination of temperamental and intellectual characteristics that produce outstanding long-term investment performance.” In particular, Buffett admired Simpson’s ability to invest in stocks with below-average risk, and yet generate returns that were the best in the insurance industry, a hallmark of Buffett’s. Simpson’s investing for GEICO often paralleled Buffett’s efforts at Berkshire. And students of Buffett’s style will recognize his influence in Simpson’s process: seek undervalued businesses with proven track records, strong management, a high likelihood of continued steady growth, pricing power, financial strength, and a history of rewarding shareholders. “He has this great ability to understand what’s going to be a good business,” said Glenn Greenberg, a longtime friend who is now managing partner at Brave Warrior Capital Management. (Simpson considers Glenn an excellent investor and they have ended up owning the same stocks numerous times over the past 30 years.) “And it’s concentrated because there aren’t that many really good businesses.” 

Simpson has an unassuming manner and puts people at ease. He has a wide circle of acquaintances, which assists in gaining insights into companies and industries he is researching. He is also a master of understatement, so much so that in conversation the import of his observations aren’t understood until long after the discussion is over. Like the man, Simpson’s office is unassuming. It is situated in a low-key, nondescript office building in Naples, Florida, an 8- to 10-minute drive from his home. A passerby would have no clue about the business being transacted in it. It is also unusually quiet. He says that he has always tried to block out as much noise as possible. There are no interruptions; no ringing phones, no Bloomberg in the office—Simpson keeps it in the entranceway, separate from the office, so that he has to stand up from his desk to look something up if he needs it. “If I have the Bloomberg on, I find I am looking at what the market is doing,” he said. “I really like to be the one who is parsing the information, rather than having a lot of irrelevant information thrown at me.” His desk, like the rest of his office, kitchen, and meeting rooms, is clutter free. 

His work life is similarly low key. He is disciplined about exercising before work, and arrives at his office long before market hours. Simpson reads everything he can find about companies that have caught his eye. He doesn’t search for investments in analyst reports, or by speaking to sell-side researchers.