Links

For those curious to see the legend we named Boyles Asset Management after, see THIS video (it starts at the 6:05 mark).

Latticework of Mental Models: Framing Effect (LINK)

Henry David Thoreau on Success (LINK)

Buffett's Unconventional Investments (LINK)

Beer before Steel: Ranking 30 Industries by Fundamental Equity Performance, 1933 to 2015 (LINK)

The Man Who Built Silicon Valley: A Tribute to Andy Grove (LINK)

Related book: Only the Paranoid Survive

The Investors Podcast discusses a trip to Mohnish Pabrai's annual meeting (at the beginning of the show) (LINK)

John Hempton with some comments on Valeant Pharmaceuticals (LINK)

History’s First Quadruple-Wizard - by Scott Adams (LINK)

George Mumford talks about his book, The Mindful Athlete, at Google (video) (LINK)

Book of the day [H/T David]: Building Art: The Life and Work of Frank Gehry

Links

Catching back up after a few days in Miami...

PBS Program: E.O. Wilson – Of Ants and Men, premieres Wednesday, September 30, 2015 (LINK)

Related book: Journey to the Ants: A Story of Scientific Exploration

A Dozen Things Learned from Charlie Munger About The Berkshire System (LINK)

Related book: Charlie Munger: The Complete Investor

The latest from Michael Mauboussin: Sharpening Your Forecasting Skills (LINK)

Elizabeth Holmes on CNBC (video) (LINK)

Sequoia Fund Managers Suffer $1.2 Billion Loss as Valeant Falls (LINK)

Related link: Ruane, Cunniff & Goldfarb Investor Day Transcript (May 2015)

Carl Icahn's 'Danger Ahead' video (LINK)

With Glencore, Commodity Rout Beginning to Look Like a Crisis (article and video) (LINK)

Aswath Damodaran: No Mas, No Mas! The Vale Chronicles (Continued)! (LINK)

a16z Podcast: Advertising vs. Micropayments in the Age of Ad Blockers (LINK)

The Pulse podcast on disruptive innovation in higher education (LINK)

Related book: Hire Education: Mastery, Modularization, and the Workforce Revolution

Hussman Weekly Market Comment: Valuations Not Only Mean-Revert; They Mean-Invert (LINK)

For decades now, I’ve regularly detailed the historical evidence linking equity valuations to actual subsequent long-term returns in stocks. An important feature of historically reliable measures of valuation is that they mute the impact of cyclical fluctuations in profit margins. Current earnings – or analyst estimates of expected “forward” earnings – should not be taken at face value, because profit margins are not permanent. The most reliable measures of broad market valuation are actually driven by revenues, not earnings. For a review, including the arithmetic linking valuations to actual subsequent market returns, see Ockham’s Razor and the Market Cycle and Margins, Multiples, and The Iron Law of Valuation. 

It’s sometimes argued that the long-term expected return on stocks is simply the expected long-term growth rate of earnings, dividends and the like, plus the prevailing dividend yield. While this would be true if valuations were held constant for all of eternity, the fact is that elevated and depressed valuations tend to normalize over time, which investors know as “mean reversion.” As a result, higher valuations are systematically related to lower subsequent long-term market returns, and lower valuations are systematically related to higher subsequent long-term market returns.

Some advice from Jeff Bezos [H/T @derekhernquist] (LINK)

He said people who were right a lot of the time were people who often changed their minds. He doesn’t think consistency of thought is a particularly positive trait. It’s perfectly healthy — encouraged, even — to have an idea tomorrow that contradicted your idea today. 

... 

What trait signified someone who was wrong a lot of the time? Someone obsessed with details that only support one point of view. If someone can’t climb out of the details, and see the bigger picture from multiple angles, they’re often wrong most of the time.

Notes on the book Diaminds: Decoding the Mental Habits of Successful Thinkers (Part 1, Part 2, Part 3, Part 4, Part 5)

‘Find your passion’ is terrible career advice [H/T @cfchabris] (LINK)

Related book: So Good They Can't Ignore You: Why Skills Trump Passion in the Quest for Work You Love

'Snakeskin' Pluto revealed in planetary close-up (LINK)

Pay attention to mistakes of omission, but don't suffer over them.

From a learning perspective, paying attention to mistakes of omission is useful, but it's also important to keep the right attitude and not let "missing out" affect they way you do things going forward. I've recently re-read some excerpts from both Peter Lynch and Charlie Munger that say it about as well as it can be said... 

From Charlie Munger (via Tren Griffin):

"The most extreme mistakes in Berkshire’s history have been mistakes of omission. We saw it, but didn’t act on it. They’re huge mistakes — we’ve lost billions. And we keep doing it. We’re getting better at it. We never get over it. There are two types of mistakes [of omission]: 1) doing nothing; what Warren calls “sucking my thumb” and 2) buying with an eyedropper things we should be buying a lot of." 

"It’s important to review your past stupidities so you are less likely to repeat them, but I’m not gnashing my teeth over it or suffering or enduring it. I regard it as perfectly normal to fail and make bad decisions."

And one of Peter Lynch's "The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices" in One Up On Wall Street:

LOOK AT ALL THE MONEY I’VE LOST: I DIDN’T BUY IT!  

We’d all be much richer today if we’d put all our money into Crown, Cork, and Seal at 50 cents a share (split-adjusted)! But now that you know this, open your wallet and check your latest bank statement. You’ll notice the money’s still there. In fact, you aren’t a cent poorer than you were a second ago, when you found out about the great fortune you missed in Crown, Cork, and Seal.  

This may sound like a ridiculous thing to mention, but I know that some of my fellow investors torture themselves every day by perusing the “ten biggest winners on the New York Stock Exchange” and imagining how much money they’ve lost by not having owned them. The same thing happens with baseball cards, jewelry, furniture, and houses. 

Regarding somebody else’s gains as your own personal losses is not a productive attitude for investing in the stock market. In fact, it can only lead to total madness. The more stocks you learn about, the more winners you realize that you’ve missed, and soon enough you’re blaming yourself for losses in the billions and trillions. If you get out of stocks entirely and the market goes up 100 points in a day, you’ll be waking up and muttering: “I’ve just suffered a $110 billion setback.” 

The worst part about this kind of thinking is that it leads people to try to play catch up by buying stocks they shouldn’t buy, if only to protect themselves from losing more than they’ve already “lost.” This usually results in real losses.

Seneca quote

From Dialogues and Essays:

Shun luxury, shun good fortune that makes men weak and causes their minds to grow sodden, and, unless something happens to remind them of their human lot, they waste away, lulled to sleep, as it were, in a drunkenness that has no end.... Although all things in excess bring harm, the greatest danger comes from excessive good fortune: it stirs the brain, invites the mind to entertain idle fancies, and shrouds in thick fog the distinction between falsehood and truth.

A fast-growing company doesn’t necessarily have to belong to a fast-growing industry..

From Peter Lynch in One Up On Wall Street:

THE FAST GROWERS 

These are among my favorite investments: small, aggressive new enterprises that grow at 20 to 25 percent a year. If you choose wisely, this is the land of the 10- to 40-baggers, and even the 200-baggers. With a small portfolio, one or two of these can make a career. 

A fast-growing company doesn’t necessarily have to belong to a fast-growing industry. As a matter of fact, I’d rather it didn’t, as you’ll see in Chapter 8. All it needs is the room to expand within a slow-growing industry. Beer is a slow-growing industry, but Anheuser-Busch has been a fast grower by taking over market share, and enticing drinkers of rival brands to switch to theirs. The hotel business grows at only 2 percent a year, but Marriott was able to grow 20 percent by capturing a larger segment of that market over the last decade.  

The same thing happened to Taco Bell in the fast-food business, Walmart in the general store business, and The Gap in the retail clothing business. These upstart enterprises learned to succeed in one place, and then to duplicate the winning formula over and over, mall by mall, city by city. The expansion into new markets results in the phenomenal acceleration in earnings that drives the stock price to giddy heights.

Links

For those who prefer audio, it looks like Charlie Munger: The Complete Investor is now available as an audiobook.

How Playing the Long Game Made Elizabeth Holmes a Billionaire [H/T Will] (LINK)

Seeking Wisdom In India - by Jana Vembunarayanan (LINK)

More notes from the annual meeting of Dhandho Holdings and Pabrai Funds (LINK)

Warren Buffett's short interview (video) with Reuters from a couple of weeks ago (when he was doing the auction lunch interviews) [H/T Will] (LINK)

This Car Dealer Turned Billionaire Got a Little Help From Buffett [H/T Linc] (LINK)

Insurance Deals Gather Momentum Amid Cost Squeeze [H/T Matt] (LINK)

The feverish pace of global deal making is spreading to yet another industry: insurance. Deal makers don’t expect the pace to slacken any time soon. 

A mix of impending new capital requirements, flagging profit growth and low investment returns has led insurance companies to turn to consolidation to try to cut costs and improve profitability. 

Across the globe, $103.2 billion worth of insurance deals have taken place so far this year, more than double the value compared with the same period last year, according to data tracker Dealogic.

David Tepper builds Hamptons mansion on land bought from boss who snubbed him (LINK)

Scientists have had to tap the Svalbard Global Seed Vault in Norway because of the chaos in Syria (LINK)

In search of the moustached kingfisher bird (LINK)

Book of the day [H/T @tferriss]: Anything You Want: 40 Lessons for a New Kind of Entrepreneur

Links

Dhando investor meeting 2015 – A day with Mohnish Pabrai [H/T Corner of Berkshire & Fairfax] (LINK)

James Tisch Investment Philosophy and Some Thoughts on Loews (LINK)

Latticework of Mental Models: Pavlovian Conditioning (LINK)

Significance Appreciation - By Venkatesh Rao (LINK)

There’s a phenomenon I’ve observed where ideas that seem banal when you’re young acquire increasing significance as you age. Until they become so pregnant with significance that you start experiencing a peculiar sort of loneliness because you cannot communicate them any differently than you used to. At best, you slowly acquire an ability to recognize kindred spirits who attach as much incommunicable significance to an idea as you do. If you’re lucky enough to meet any.

Exponential Wisdom podcast: How the Sharing Economy Can Disrupt Your Business (LINK)

A couple of BIS speeches relating to the economies in Canada and Australia.

Yogi Berra, Hall of Fame Catcher for the Yankees, Dies at 90 (LINK)

Book of the day: The Yogi Book

And a few Yogi-isms:

"You got to be very careful if you don’t know where you’re going, because you might not get there." 

"You can observe a lot just by watching." 

"I really didn't say everything I said." 

"It's dèja vu all over again!" 

"The future ain't what it used to be." 

"Always go to other people's funerals, otherwise they won't go to yours."

Links

Solution Aversion: On the Relation Between Ideology and Motivated Disbelief (LINK) [Related article, HERE.]

There is often a curious distinction between what the scientific community and the general population believe to be true of dire scientific issues, and this skepticism tends to vary markedly across groups. For instance, in the case of climate change, Republicans (conservatives) are especially skeptical of the relevant science, particularly when they are compared with Democrats (liberals). What causes such radical group differences? We suggest, as have previous accounts, that this phenomenon is often motivated. However, the source of this motivation is not necessarily an aversion to the problem, per se, but an aversion to the solutions associated with the problem. This difference in underlying process holds important implications for understanding, predicting, and influencing motivated skepticism.

Sam Altman: Unit Economics (LINK)

Edge #449 Edge Master Class 2015: Philip Tetlock: A Short Course in Superforecasting (Class V) (LINK)

Hedge fund leader John Burbank bets on emerging market rout (LINK)

In an interview with the Financial Times, Mr Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realised. 

“The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets,” he said. 

... 

“All of that turmoil around the world will come back and slow down capex and hiring and consumer buying in the US, and that will make the Fed realise they should be easing and not hiking,” he said. 

“I think we are on the precipice of a liquidation in emerging markets, and this feels the way that the fourth quarter of 1997 felt.”

Nassim Taleb's short video at the TOCICO Conference (video) [H/T ValueWalk] (LINK)

In this short video, Nassim Taleb, author of The Black Swan, Fooled by Randomness and Antifragile, introduces the concept of Antifragile to the Theory of Constraints International Conference held in Capetown South Africa from 6-9 Sep 2015. The theme of the conference was how to use Theory of Constraints to transform organizations and people from Fragile (harmed by volatility) to Robust (not harmed by volatility) to Antifragile (benefit from volatility).

Scott Adams on Tim Ferriss’ Podcast (LINK)

Related book: How to Fail at Almost Everything and Still Win Big

A Hubble image from the Large Magellanic Cloud (LINK)

Book of the day: The Rise and Fall of the Conglomerate Kings

Links

Sanjay Bakshi talks to Shane Parrish on The Knowledge Project podcast (LINK)

More Sanjay Bakshi... MEETING WITH TRIUMPH AND DISASTER: SOME LESSONS (LINK)

A Dozen Things Learned from Charlie Munger about Mistakes (LINK)

“PHISHING FOR PHOOLS”: A Q&A WITH GEORGE AKERLOF AND ROBERT SHILLER - By Jason Zweig (LINK)

Related book: Phishing for Phools: The Economics of Manipulation and Deception

Bethany McLean and Bill Ackman on Charlie Rose (video) (LINK)

Related book: Shaky Ground: The Strange Saga of the U.S. Mortgage Giants

A Fireside Chat with Bill Gurley of Benchmark: The Future of Ecommerce (video) (LINK)

Nine of the World’s Biggest Banks Form Blockchain Partnership (LINK)

Related book: The Age of Cryptocurrency

Drug Goes From $13.50 a Tablet to $750, Overnight (LINK)

McRevolt: The Frustrating Life of the McDonald’s Franchisee (LINK)

Chris Pavese with some of his favorite quotes from the book The Great Minds of Investing (LINK) [I love the quote below, which is similar to Warren Buffett's quote "There's no use running if you're on the wrong road."]

Irving Kahn: “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?”

Thoughts on Negative Interest Rates (LINK)

Hussman Weekly Market Comment: When an Easy Fed Doesn't Help Stocks (and When It Does) (LINK)

If you examine the 2000-2002 period, you’ll notice that the market responded to Fed easing by losing value, on average, as it did again during the 2007-2009 collapse. However, in the 2000-2002 collapse, most of the overall market damage was in periods that fell outside the 4-week period after a Fed move. In contrast, some of the most severe market losses during the 2007-2009 global financial crisis occurred immediately on the heels of Federal Reserve easing moves. Indeed, the S&P 500 lost over 40% of its value in a 12-week period between September-November 2008 as the Fed continued to frantically cut rates – an easing cycle that began several weeks before the 2007 market peak. 

Many investors seem to be hoping for QE4. They should be careful what they wish for, because in an environment of investor risk-aversion, the initiation of QE4 would very likely be associated with an outcome much like 2008 – it would likely be a response to unexpected economic deterioration. Unlike most of the period since 2009, investors no longer appear to have the risk-seeking preferences that supported speculation during previous bouts of QE. 

Since the third quarter of 2014, market internals have been decidedly unfavorable on our measures, as has the expected market return/risk profile that we classify on the basis of observable data. These shifts indicate that investors have subtly shifted from risk-seeking preferences to risk-averse preferences.

Returning to Single-Tasking (LINK)

Blue-footed boobies dirty their eggs to hide them from predators (LINK)

Book of the day: The Prize: Who's in Charge of America's Schools?

Phil Fisher on the best way to invest

From Common Stocks and Uncommon Profits:

The purpose of this book is not to point out every way such money can be made. Rather it is to point out the best way. By the best way is meant the greatest total profit for the least risk. The type of accounting-statistical activity which the general public seems to visualize as the heart of successful investing will, if enough effort be given it, turn up some apparent bargains. Some of these may be real bargains. In the case of others there may be such acute business troubles lying ahead, yet not discernible from a purely statistical study, that instead of being bargains they are actually selling at prices which in a few years will have proven to be very high. 

Meanwhile, in the case of even the genuine bargain, the degree by which it is undervalued is usually somewhat limited. The time it takes to get adjusted to its true value is frequently considerable. So far as I have been able to observe, this means that over a time sufficient to give a fair comparison—say five years—the most skilled statistical bargain hunter ends up with a profit which is but a small part of the profit attained by those using reasonable intelligence in appraising the business characteristics of superbly managed growth companies. This, of course, is after charging the growth-stock investor with losses on ventures which did not turn out as expected, and charging the bargain hunter for a proportionate amount of bargains that just didn't turn out. 

The reason why the growth stocks do so much better is that they seem to show gains in value in the hundreds of per cent each decade. In contrast, it is an unusual bargain that is as much as 50 per cent undervalued. The cumulative effect of this simple arithmetic should be obvious.