Links

"The cost of every deal we do is measured by the second best deal that’s around at a given time, including doing more of some of the things we’re already in." --Warren Buffett (2001)

"Charlie and I always figure that our cost of capital is what could be produced by our second best idea. And then our best idea has to exceed that." --Warren Buffett (2014)

Twenty Years of Owning Berkshire Hathaway (LINK)

Broyhill 2019 Annual Letter (LINK)

Risk and loss aversion in ergodicity economics (LINK)

The a16z Marketplace 100 (LINK)

The Cutting Room Files, Part 7: Europe - by Peter Zeihan (LINK)

Bob Iger on The Bill Simmons Podcast (LINK)

Ben Thompson on The Bill Simmons Podcast (LINK)

The Acquirers Podcast: Dylan Grice (LINK)

Macro Voices Podcast: #206 Chris Cole: Optimizing portfolio construction for changing times [22:02 mark] (LINK)

Capital Allocators Podcast: Dan Rasmussen (LINK)

Acquired Podcast: Sequoia Capital Part II (with Doug Leone) (LINK)

Sir William Osler’s Advice to Students: Practice Concentrating on Hard Things (LINK)

The Cascading Consequences of the Worst Disease Ever - by Ed Yong (LINK)

Links

"We don’t formally have discount rates. Every time I start talking about all this stuff, Charlie reminds me that I’ve never prepared a spreadsheet. But, in effect, in my mind I do. We are going to want to get a significantly higher return, obviously — in terms of cash produced relative to the amount we’re outlaying now — for a business than we are from a government bond. That has to be the yardstick at a base. And how much more do we want? Well, if government bond rates were 2 percent, we’re not going to buy a business to earn 3 or 3 1/2 percent expectancy over the years. We just don’t want to commit our money that way. We’d rather sit around and wait a little while. If they’re 4 3/4 percent, you know, what do we hope to get over time? Well, we want to get a fair amount more than that. But I can’t tell you that we sit down every morning and I call Charlie in Los Angeles and say, 'What's our hurdle rate today?' I mean, we’ve never used the term. We want enough so that we feel very comfortable if they closed down on the stock market for a couple of years, if interest rates go up another hundred basis points or 200 basis points, we’re still happy with what we’ve bought. I know it sounds kind of fuzzy, but it is fuzzy." --Warren Buffett (2007)

"The concept of a hurdle rate makes nothing but sense, and yet a lot of terrible errors are made by people who are talking about hurdle rates. Just because you can measure something and guess it, doesn’t mean that it’s the controlling variable in what you’re dealing with in a messy world. And I don’t think there’s any substitute for thinking about a whole lot of investment options and thinking about why one is better than another and what the likely returns are from each, et cetera, et cetera. And the trouble with the hurdle rate concept — not that we don’t have one, in a sense — is it doesn’t work as well as a system of comparing things. In other words, if I have something available that I think will give me 8 percent for sure and I can buy all I want of it, and you’ve got a perfectly good investment that I think will earn 7, I don’t have to waste 5 minutes with you. You’re like the mail order service offering the bride through the mail and she’s got AIDS. You know, I can go on to some different subject. The concept of opportunity cost is so little taught in investment. They teach it in the freshman course in economics in all the major universities, but when you get to the corporate finance departments and so forth, it doesn’t lend itself with the kind of mathematics they want to use, so they ignore it. But in the real world, your opportunity costs are what you want to make your decisions based on." --Charlie Munger (2007)

"Yeah. And even if you had something you were really familiar with and were very sure on the 8 percent, 8 1/2 wouldn’t tempt you if somebody came along, as a practical matter." --Warren Buffett (2007)

***

A list of Q2 2019 Investment Letters & Reports (LINK)

A History and Overview of Visa (Part 1, Part 2)

The Fed is Always Looking For Risk, But These Officials Seek The Unimaginable Ones (LINK)

Amazon partners with Realogy, sending the real-estate brokerage giant’s shares soaring (LINK)

Stansberry Investor Hour: 109: How to Be an Above-Average Investor [with Chris Pavese, ~26:09 mark] (LINK)

The School of Greatness Podcast: Mark Sisson: Building a $200 Million Dollar Personal Brand [Starting ~6:32 mark] (LINK)

The Quietly Changing Consensus on Neutering Dogs (LINK)

Book of the day: Novacene: The Coming Age of Hyperintelligence - by James Lovelock [Via Stewart Brand on Twitter: "The most thrilling book I have read in years.... It’s short, easy to read twice. Maybe necessary to read twice."]

Links

"You do not have to have tons of good ideas in this business. You just have a good idea that’s worth a ton, occasionally." --Warren Buffett (2006)

"The concept that you’re likely to find just one thing where it will make 20 percent per annum and you just sit back for the next 40 years, that tends to be dreamland. And in the real world, you have to find something that you can understand that’s the best you have available. And once you’ve found the best thing, then you measure everything against that because it’s your opportunity cost. That’s the way small sums of money should be invested. And the trick, of course, is getting enough expertise that your opportunity cost — meaning your default option, which is still pretty good — is very high... Most people aren’t going to find thousands of things that are equally good; they’re going to find a few things where one or two of them are way better than anything else they know. And the right way to think about investing is to act thinking about your best opportunity cost."  --Charlie Munger (2006)

Why The American Shoe Disappeared And Why It's So Hard To Bring It Back [H/T Linc] (LINK)

Acquired Podcast: The Zoom IPO (LINK)

a16z Podcast: The History and Future of Machine Learning (LINK)

Conversations with Tyler (podcast): Hal Varian on Taking the Academic Approach to Business (LINK)

TED Talk: How synthetic biology could wipe out humanity -- and how we can stop it | Rob Reid (LINK)

Two Earth-sized planets found in a nearby star's habitable zone! - by Phil Plait (LINK)

Links

"I will bet you that a lot of years in the future we, or you, will be able to find equities that you understand, or we understand, and that have the probability of returns at 10 percent or greater. Now, once you find a group of equities in that range, and leaving aside the problem of huge sums of money, which we have, then we just buy the most attractive. That usually means the ones we feel the surest about, I mean, as a practical matter. There’s just some businesses that possess economic characteristics that make their future prospects, far out, far more predictable than others. There’s all kinds of businesses that you just can’t remotely predict what they’ll earn, and you just have to forget about them. So, we have, over time, gotten very partial to the businesses where we think the predictability is high. But we still want a threshold return of 10 percent, which is not that great after-tax, anyway." --Warren Buffett (2003)

"Everything we do comes back to opportunity cost. But it, to some extent — in fact, to some considerable extent — we are guessing at our future opportunity cost. Warren is basically saying that he’s guessing that he’ll have opportunities in due course to put out money at pretty attractive rates of return, and therefore, he’s not going to waste a lot of firepower now at lower returns. But that’s an opportunity cost calculation. And if interest rates were to more or less permanently settle at 1 percent or something like that, and Warren were to reappraise his notions of future opportunity cost, he would change the numbers. It’s like [economist John Maynard] Keynes said, 'What do you do when you change your view of the facts? Well, you change your conduct.' But so far at least, we have hurdles in our mind which...involve, implicitly, future opportunity cost." --Charlie Munger (2003)

Who Is On the Other Side? - by Michael Mauboussin (LINK)

Safal Niveshak's Wall of Ideas (LINK)

Part 2 and Part 3 of the Money Control interview with Sanjay Bakshi [H/T Linc]

Skin in the Game: the Tradition of the Captain and His Ship - by Frank Martin (LINK)

The Cost of Apple News  - by Ben Thompson (LINK)

AR Will Spark the Next Big Tech Platform—Call It Mirrorworld - by Kevin Kelly (LINK)

Susan Crawford on the Community Broadband Bits Podcast (LINK)

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

Scott Adams and Naval Ravikant have another chat (video) (LINK)

Conversations with Tyler (podcast): Jordan Peterson on Mythology, Fame, and Reading People (LINK)

Trailblazers with Walter Isaacson Podcast -- Home Cooking: Technology Worth Savoring (LINK)

A review of A Zen Way of Baseball by Sadaharu Oh and David Falkner (LINK)

Small Teams of Scientists Have Fresher Ideas - by Ed Yong (LINK)

More from Charlie Munger on opportunity cost...

From the 2006 Berkshire Hathaway Annual Meeting: 

In the real world, you have to find something that you can understand that’s the best you have available. And once you’ve found the best thing, then you measure everything against that because it’s your opportunity cost. That’s the way small sums of money should be invested. And the trick, of course, is getting enough expertise that your opportunity cost — meaning your default option, which is still pretty good — is very high.... Most people aren’t going to find thousands of things that are equally good; they’re going to find a few things where one or two of them are way better than anything else they know. And the right way to think about investing is to act thinking about your best opportunity cost. 

Reviewing the comments from Buffett and Munger on opportunity costs over the years has made me make a slight change to my investment process. Now, multiple times a week I go over the key aspects and thesis (about a paragraph or two in length) for each of the things I am actually invested in. This serves two key purposes:

1. Opportunity Cost: Like the quote from Munger above, it allows me to always have my opportunity cost at the top of my mind when looking at new ideas, thus helping to improve the idea-filtering process.
2. Disconfirming Evidence: By constantly reviewing my reasons for owning something, I hope to be able to more quickly identify evidence that may opposed to those reasons, thus increasing my ability to recognize mistakes faster as well as using the practice of searching for disconfirming evidence as a way to train myself to be more objective. 

For those looking to grow a money management business, it can also help in one's marketing efforts. While many people may want to conclude that just finding great ideas will lead to a successful business, or that being able to tell every bit of minutiae about a given holding can display one's skill—the truth is that more often than not, being able to clearly articulate the key points in a thesis is what will get someone's initial attention. From there, the level of detail one goes into will vary by potential investor, but showing some clarity helps the marketing which helps drive one's business. And as Ben Franklin said, "Drive thy business or it will drive thee."

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"Everything we do comes back to opportunity cost. But it, to some extent — in fact, to some considerable extent — we are guessing at our future opportunity cost. Warren is basically saying that he’s guessing that he’ll have opportunities in due course to put out money at pretty attractive rates of return, and therefore, he’s not going to waste a lot of firepower now at lower returns. But that’s an opportunity cost calculation. And if interest rates were to more or less permanently settle at 1 percent or something like that, and Warren were to reappraise his notions of future opportunity cost, he would change the numbers. It’s like Keynes said, 'What do you do when you change your view of the facts? Well, you change your conduct.' But so far at least, we have hurdles in our mind which are basically — well, they involve, implicitly, future opportunity cost." --Charlie Munger [2003]

Tariffs on Auto Parts Would Be Disastrous, Linamar CEO Says (video) (LINK) [Linamar's stock is also trading below where Meryl Witmer recommended it about 18 months ago.]

National Meeting 2018: Clashing over Commerce with Douglas A. Irwin (video) (LINK)

Related book: Clashing over Commerce: A History of US Trade Policy

Liquid water 'lake' revealed on Mars [H/T Linc] (LINK)

After Last Year's Hurricanes, Caribbean Lizards Are Better at Holding on for Dear Life - by Ed Yong (LINK)

Book of the day (also added to the Business Biographies section on the Books page): Treated Like Family: How an Entrepreneur and His "Employee Family" Built Sargento, a Billion-Dollar Cheese Company