All I Want To Know Is Where I’m Going To Die So I’ll Never Go There

“I particularly recommend attention to the idea that an ounce of prevention is worth a pound of cure—except it really isn’t often a mere pound. An ounce of prevention is often worth a ton of cure.” 

—Charlie Munger

The Greatest Gift: A Great Book

BevelinCoverThis summer I received a book from someone I do not personally know, have never met in person, or even talked to before for that matter. A familiar name though, and I was very surprised to say the least and also very grateful. Since there’s nothing better than a great book, a gift in the form of a great book must clearly be considered a great gift. Anyway, the book that I’m talking about here is All I Want To Know Is Where I’m Going To Die So I’ll Never Go There: Buffett & Munger – A Study in Simplicity and Uncommon, Common Sense, written by Peter Bevelin. Peter is also the author of a few other well-known books, namely Seeking Wisdom: From Darwin to MungerA Few Lessons for Investors and Managers From Warren Buffett, and A Few Lessons from Sherlock Holmes.

Having disclosed these material circumstances I hope each and everyone reading this piece, by now, should be well aware of any bias on my side due to the fact that I received the book for free. Beyond this, also remember (how could anyone forget…) that I suffer from a serious degree of what is usually called the Buffett/Munger bias. For repeat visitors and readers of this blog this isn’t any surprise. Except for what has already been told, there’s no more significant matters to disclose for today, so let’s have a look at what this book is all about. Enjoy.

Seek and You Shall Find… Wisdom

All I Want To Know is a book about a fictitious character, the Seeker, visiting the Library of Wisdom where he (or she) meets the Librarian, also a fictitious character, together with Warren Buffett and Charlie Munger. The Seeker has had his fair share of trouble and misery so far in his life and visits the Library of Wisdom with the intent to learn some basics about how to make better decisions, or rather, how to avoid making stupid ones.

Bevelin’s most recent book is a bit different compared to most other books, at least the book that I have come across earlier on. This is mostly due to the way it is structured; as an ongoing discussion and dialogue full of quotations from Buffett and Munger, and also from other, both known and unknown, people. In total we’re talking about 1827 quotes throughout the book. An exercise requiring a lot of hours, as well as some patience, to complete. Thus, what we have here is sort of an encyclopedia of quotes, arranged and all put together in different parts as a long talk with the full intent of sharing wisdom. In short, nothing but impressing.

The overall theme of the different conversations is: “All I want to know is where I’m going to die so I’ll never go there,” something Charlie Munger has been quoted as saying. The conversations cover a few different areas, not just business and investing but also decision-making in general. When it comes to business and investing the Seeker gets to listen and learn about what doesn’t and what does work, and also about different filters and rules that could be of benefit to the shrewd business analyst and investor.

If you’re already familiar with a lot of the stuff that’s been written over the years about Buffett and Munger there’s not much news here in the quotes themselves. Although I’m pretty sure that you’ll manage to find some quotes that you haven’t read before. This is, in my opinion not a bad thing, not at all, since all great things are worth rereading. But if you have not dug into the Buffett/Munger treasure throve yet, All I Want To Know offers a great starting point on the journey that lies ahead of you. Either way, together with the way that Bevelin has chosen to structure the book I am most certain that it will make for an interesting read for pretty much everyone. It could be said though, without embarrassment, that the book itself is a bit “heavy,” this due to the ongoing cavalcade of quotations with each page full of great discussions, insight and wisdom. But there’s no need to stress here, just keep calm and keep on reading and you’ll do just fine. As Walter Schloss once said; “Investing should be fun and challenging, not stressful and worrying.” Remember, the same applies to reading as well.

I highly recommend All I Want To Know to everyone with an interest in business analysis and investing. What we have here is nothing but a great book filled with numerous examples one should try to steer away from as well as insights about how to think about things, or how not to think about things. It’s a great book, and deserves to be read first once and then reread once or twice.

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Disclosure: I received the book in this post without having to pay a cent. Regardless, as in any case when I haven’t received something, I only make recommendations I personally believe will be of benefit to my fellow readers. I cannot tell for sure whether the fact that I received the book for free made me write this post, i.e., reciprocation tendency. I sincerely hope that I would have written the same words in a situation where I had bought the book myself. Except for receiving the book for free (and the stamps on the envelope) I have not, and will not, be compensated in any way for any further writings etc. 

Leon Cooperman on the Four Reasons for Selling a Stock

“I don’t ask people to do what I’m not prepared to do myself.”

—Leon Cooperman

MiB Interview: Leon Cooperman, July 4, 2015

On July 4, 2015, Leon Cooperman visited Barry Ritholtz for his Masters in Business podcast to talk some investing. Cooperman was born April 25, 1943, and is the founder and CEO of Omega Advisors, an hedge fund managing $5.2 billion as of July 31, 2016.

LeonForbes

The Art of Selling a Stock

The following is my own transcript of the part of the interview where Cooperman discusses the four reasons for selling a stock, starting at about 59:50 and ending around 1:00:00. Enjoy.

Nr. 1: Price Appreciation

LEON COOPERMAN: If you’re a value investor and if you like something at 10 you should like it more at 9 or 8. But there are those times where something has tangibly changed, and the circumstance have changed and you gotta make a different decision. So the way I’d like to answer the question is we sell. You know, a typical question from a customer coming into our shop is; “What is your sell discipline?” Okay, and I say. We sell a stock for one of four reasons. The first and of the highest quality reason, is that we bought a stock at X ’cause we thought it was worth X plus 30 or 40 percent, and it goes up 30 percent. Nothing has changed. We sell.

BARRY RITHOLTZ: So even, even once it hits your price objective, even if there’s no change in circumstances?

LEON COOPERMAN: No after there’s no change in circumstances. So I’ll give you a perfect example. I bough 25 million shares of Boston Scientific between 5 and 6 dollars a share. We thought it was worth 12 or 13. It got there. We didn’t see circumstances had changed. We sold. Unfortunately it’s a mistake because I think it’s 18 or 19 now. Okay, but so the first reason just generically…

BARRY RITHOLTZ: Is it always a full sale or is it ever; “Well, let’s sell half of it and see what happens?”

LEON COOPERMAN: Well, it varies. Again, depending upon the company, depending upon the characteristics. And look, I’ve got a leeway of looking at charts you know.

BARRY RITHOLTZ: You do?

LEON COOPERMAN: Absolutely. It’s one of the ingredients because I think the stock market is highly quality leading indicator, and you know oftentimes when it’s coming out with bad earnings and the stock has come down before the earnings, and they come away with blow-away earnings the stock is up before that. You know, the market has a way of knowing. There’s some type of secretary typing a press release for some CEO who’s got a cousin, or who’s got a wife, who’s got a relative or whatever. So the market…

BARRY RITHOLTZ: So the discounting mechanism is out?

LEON COOPERMAN: Yeah, yeah. Exactly. So the first…

BARRY RITHOLTZ: But you’re not, we would never consider you a technical analyst, or chartist. You’re not making buy and sell decisions based on… ’cause Dough said. Dough Kass said; “Ask Lee if he believes in voodoo?”

LEON COOPERMAN: No, we are deep dive fundamental investors. We work hard to dig up our information. I look at a chart because of the confirmation of what you think, and raise a question when the charts are going the wrong way. You know, because again the stock market is a leading indicator, and so stocks tend to give you some indication of what’s going on. So, the first reason we sell a stock, which is the highest quality reason. We bought something at X because we thought it was worth more than X, and it appreciates and nothing has changed, we sell.

Nr. 2: Things Not Unfolding As Anticipated

LEON COOPERMAN: Second reason we sell something is I tell my guys and gals to “Stay on top of your companies.” Not everything unfolds the way you anticipated. So talk to suppliers, talk to competitors, talk to companies. You know, follow what’s going on in the economy. If you get the sense things are unfolding differently than you anticipated, let’s sell before we get murdered. ‘Cause it’s hard to make up 20 or 30 percent losses in this kind of environment.

NR. 3: New Idea With Better Risk/Reward Characteristics

LEON COOPERMAN: The third reason we sell is that we’re not the Federal Reserve Board, we cannot print money. So sometimes you come up with a new idea that has a much better ratio of reward to risk than something you currently own. So we’ll rotate out of something that has a modest attraction to something we think has greater attraction.

NR. 4: Change Our View of the Market

And the forth reason we sell is we change our view of the market. Okay, and you know, you can deal with futures or options for a while, but at the end of the day if you’ve gone from bullish to bearish, you want to take your exposure down to 50 or 60 percent, you gotta sell inventory. So you sell a stock ’cause you wanna get at arms way. And we did a poor job in 2008 when we missed the significance of Lehman. But by and low, those are the four reasons we sell. Price appreciation, it hit our target, we get out. Second is things are not unfolding as anticipated, get out before you get murdered. Third reason we sell is we’ve found a new idea better than the one we had. And the forth reason is we’ve changed our view of the market and we want to reduce exposure.

4ReasonSellStock

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Svolder A: The Big Short

A Case Study of Unintelligent Speculation

Svolder’s A-share (ticker: SVOL A) today closed at SEK 243.50, down from an intra-day high of SEK 275.00. During the last twelve months the A-share reached a low of SEK 112.50 and a high of SEK 275 (Source: Avanza).

Svolder

Svolder is a Swedish investment company founded in 1993 and listed on the Nasdaq OMX Nordic exchange. Svolder invests in small and mid cap listed entities. Click image below for a brief history in Swedish of Svolder (Source: Svolder).

Svolder_History

Net Asset Value per Share as of May 31, 2016

The equites portfolio as of May 31, 2016 is shown below. As of this date, the market value of the equities portfolio amounted to SEK 1,644.1 billion. Adjusting for net debt/net receivable results in a total net worth of SEK 1,859.6 billion, equal to a net asset value (NAV) of SEK 144.60 per share (Source: Svolder).

Svolder’s equities portfolio as reported in the most recent quarterly report per May 31, 2016 was made up of the following equities (Source: Svolder).

SvolderNAV

Net Asset Value per Share as of August 12, 2016

Per August 12, 2016, Svolder reported a NAV of SEK 162 per share (Source: Svolder). The current share of SEK 243.50 is about 150.3% of NAV. At SEK 275 it’s 169.8%. A reasonable expectation would be that the share price would stay close to NAV.

One may wonder why on earth someone would be willing to pay a lot more than NAV for the A-share for a collection of marketable common stocks that Svolder currently owns? Sure, you get 10 votes for each A-share compared to 1 vote per B-share. But that looks like a very optimistic view in regards to the value of the votes connected to each A-share.

Svolder_logo

Shares Outstanding

Svolder’s shares outstanding disclosed in the 2015 annual report per December 31, 2015 was 12,800,000, consisting of 622,836 A-shares (10 votes per share) and 12,177,164 B-shares. Below an excerpt from the 2015 annual report (in Swedish).

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Final Words

To wrap this up. Right now the Svolder A-share is trading at a price-level that is not supported by underlying value. I’m on the sidelines here, but when I saw this case earlier today I was just fascinated of what I was just looking at. One last question: How long will it take for the A-share to trade in line with underlying NAV? Guess we’ll have to wait and see.

For some final words, here’s an excerpt from The Intelligent Investor.

Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many common-stock situations there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone. There is intelligent speculation as there is intelligent investing. But there are many ways in which speculation may be unintelligent. Of these the foremost are: (1) speculating when you think you are investing; (2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose.

Disclosure: I have no position in the stock mentioned, and no plans to initiate any position within the next 24 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is informational and is in my own personal opinion, and should not be considered investment advice. Always do your own due diligence and contact a financial professional before executing any trades or investments.

Times Change and Moats Change With Them

Times change, and we change with them.

—Latin Proverb

Times Change and Moats Change With Them

In his 2005 letter to shareholders Warren Buffett discussed the topic of competitive advantage, or moats in his own words (emphasis added).

Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.

When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.” And doing that is essential if we are to have the kind of business we want a decade or two from now. We always, of course, hope to earn more money in the short-term. But when short-term and long-term conflict, widening the moat must take precedence. If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted. Take a look at the dilemmas of managers in the auto and airline industries today as they struggle with the huge problems handed them by their predecessors. Charlie is fond of quoting Ben Franklin’s “An ounce of prevention is worth a pound of cure.” But sometimes no amount of cure will overcome the mistakes of the past.

Our managers focus on moat-widening – and are brilliant at it. Quite simply, they are passionate about their businesses. Usually, they were running those long before we came along; our only function since has been to stay out of the way. If you see these heroes – and our four heroines as well – at the annual meeting, thank them for the job they do for you.

But, as sure as times change, the same goes for moats. So, if you manage to identify a moat that you may even assess as sustainable, remember that nothing lasts forever, not even wide moats (at least I’d say that’s the most probable and likely outcome if you were asked to make a bet on any given business).

As an example, let’s take a look at the newspaper industry and how it has changed during the latest decades.

Newspapers in the ’70s: Moat-Widening

Thanks to a reader of the blog, I was made aware of an article published back in 1977 in the Wall Street Journal and entitled The Collector: Investor Who Piled Up 100 Million in the ’60s Piles Up Firms Today. In this article the author wrote about Warren Buffett’s taste for cash-generating newspapers with moats:

Warren has been largely restricting himself to companies which he feels offer some protection against inflation in that they have a unique product, low capital needs and the ability to generate cash. Warren likes owning a monopoly or market-dominant newspaper to owning an unregulated toll bridge. You have relative freedom to increase rates when and as much as you want.

To read the WSJ article, click here.

Newspapers Today: Moat-Erosion

Going back through the years and the letters to shareholders written by Warren, we find an extensive discussion about the state of the newspaper industry in his 2012 letter (emphasis added).

We Buy Some Newspapers . . . Newspapers?

During the past fifteen months, we acquired 28 daily newspapers at a cost of $344 million. This may puzzle you for two reasons. First, I have long told you in these letters and at our annual meetings that the circulation, advertising and profits of the newspaper industry overall are certain to decline. That prediction still holds. Second, the properties we purchased fell far short of meeting our oft-stated size requirements for acquisitions.

We can address the second point easily. Charlie and I love newspapers and, if their economics make sense, will buy them even when they fall far short of the size threshold we would require for the purchase of, say, a widget company. Addressing the first point requires me to provide a more elaborate explanation, including some history.

News, to put it simply, is what people don’t know that they want to know. And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost. The relative importance of these factors varies with the nature of the news and the person wanting it.

Before television and the Internet, newspapers were the primary source for an incredible variety of news, a fact that made them indispensable to a very high percentage of the population. Whether your interests were international, national, local, sports or financial quotations, your newspaper usually was first to tell you the latest information. Indeed, your paper contained so much you wanted to learn that you received your money’s worth, even if only a small number of its pages spoke to your specific interests. Better yet, advertisers typically paid almost all of the product’s cost, and readers rode their coattails.

Additionally, the ads themselves delivered information of vital interest to hordes of readers, in effect providing even more “news.” Editors would cringe at the thought, but for many readers learning what jobs or apartments were available, what supermarkets were carrying which weekend specials, or what movies were showing where and when was far more important than the views expressed on the editorial page.

In turn, the local paper was indispensable to advertisers. If Sears or Safeway built stores in Omaha, they required a “megaphone” to tell the city’s residents why their stores should be visited today. Indeed, big department stores and grocers vied to outshout their competition with multi-page spreads, knowing that the goods they advertised would fly off the shelves. With no other megaphone remotely comparable to that of the newspaper, ads sold themselves.

As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference. (As one Southern publisher famously confessed, “I owe my exalted position in life to two great American institutions – nepotism and monopoly.”)

Over the years, almost all cities became one-newspaper towns (or harbored two competing papers that joined forces to operate as a single economic unit). This contraction was inevitable because most people wished to read and pay for only one paper. When competition existed, the paper that gained a significant lead in circulation almost automatically received the most ads. That left ads drawing readers and readers drawing ads. This symbiotic process spelled doom for the weaker paper and became known as “survival of the fattest.”

Now the world has changed. Stock market quotes and the details of national sports events are old news long before the presses begin to roll. The Internet offers extensive information about both available jobs and homes. Television bombards viewers with political, national and international news. In one area of interest after another, newspapers have therefore lost their “primacy.” And, as their audiences have fallen, so has advertising. (Revenues from “help wanted” classified ads – long a huge source of income for newspapers – have plunged more than 90% in the past 12 years.)

Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.

Even a valuable product, however, can self-destruct from a faulty business strategy. And that process has been underway during the past decade at almost all papers of size. Publishers – including Berkshire in Buffalo – have offered their paper free on the Internet while charging meaningful sums for the physical specimen. How could this lead to anything other than a sharp and steady drop in sales of the printed product? Falling circulation, moreover, makes a paper less essential to advertisers. Under these conditions, the “virtuous circle” of the past reverses.

The Wall Street Journal went to a pay model early. But the main exemplar for local newspapers is the Arkansas Democrat-Gazette, published by Walter Hussman, Jr. Walter also adopted a pay format early, and over the past decade his paper has retained its circulation far better than any other large paper in the country. Despite Walter’s powerful example, it’s only been in the last year or so that other papers, including Berkshire’s, have explored pay arrangements. Whatever works best – and the answer is not yet clear – will be copied widely.

In a the recent Politico Playbook interview Warren Buffett shared his bearishness on newspapers.

Buffett is bearish on newspapers:
“Newspapers are going to go downhill. Most newspapers, the transition to the internet so far hasn’t worked in digital. The revenues don’t come in. There are a couple of exceptions for national newspapers — The Wall Street Journal and The New York Times are in a different category. That doesn’t mean it necessarily works brilliantly for them, but they are a different business than a local newspaper. But local newspapers continue to decline at a very significant rate. And even with the economy improving, circulation goes down, advertising goes down, and it goes down in prosperous cities, it goes down in areas that are having urban troubles, it goes down in small towns – that’s what amazes me. A town of 10 or 20,000, where there’s no local TV station obviously, and really there’s nothing on the internet that tells you what’s going on in a town like that, but the circulation just goes down every month. And when circulation goes down, advertising is gonna go down, and what used to be a virtuous circle turns into a vicious circle. I still love newspapers! You’re talking to the last guy in the world. Someday you’ll come out and interview me, and you’ll see a guy with a landline phone, reading a print newspaper.”

The table below shows how advertising revenue has declined between 2003 and 2014. A slide that most likely is going to continue.

As summarized by The 13th annual Pew Research State of the News Media Report about the current state-of-play when it comes to newspapers:

It has been evident for several years that the financial realities of the web are not friendly to news entities, whether legacy or digital only. There is money being made on the web, just not by news organizations. Total digital ad spending grew another 20% in 2015 to about $60 billion, a higher growth rate than in 2013 and 2014. But journalism organizations have not been the primary beneficiaries. In fact, compared with a year ago, even more of the digital ad revenue pie — 65% — is swallowed up by just five tech companies. None of these are journalism organizations, though several — including Facebook, Google, Yahoo and Twitter — integrate news into their offerings. And while much of this concentration began when ad spending was mainly occurring on desktops platforms, it quickly took root in the rapidly growing mobile realm as well.

In hindsight, everything looks pretty clear, right?

The trick is being able to continuously evaluate businesses and industries and identify any data that may indicate a coming, or ongoing, moat-erosion. But that’s some topic for another post.

Even though this blog post was about the past, the key take-away from it is that moats change, and we gotta be aware of this and make the best we can out of it we look into the unknown future. At least if we’re hunting for, and investing in, companies supposed to enjoy sustainable competitive advantages.

“Of all the ‘old’ media, newspapers have the most to lose from the internet.”

—The Economist

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The Buffett/Munger Investment Checklist

“When investing, we view ourselves as business analysts—not as market analysts, not as macroeconomic analysts, and not even as security analysts.”

—Warren Buffett, Letter to Shareholders, 1987

The Buffett/Munger Investment Checklist: A Framework for Business Analysis and Valuation

How to go about when performing a business analysis, and what to look for in doing so, is nothing but the holy grail of investing. A business analysis could be carried out in a number of different ways. You just have to make sure that you have a way that works for you, a process for analyzing and evaluating businesses that is continually updated along the way as you learn about new facts and circumstances.

When building your own framework for business analysis, you should always remember to keep things simple, since it most likely will tend to get hard enough anyway in the end. Also, you don’t have to come up with your own stuff, you are perfectly free to use everything there is from great men that’s come before, as Charlie Munger noted when he said: 

I believe in the discipline of mastering the best that other people have figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.

To set the scene to sort of create an investing map to follow it’s worth considering what Warren Buffett once wrote:

In our view, though, investment students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices.

To be able to value a business, you have to understand the business. And to be able to say that you understand a business you would likely want to know about its products/services and revenue sources, operating leverage, financial leverage, competitive position, industry characteristics, etc. These questions all belong to the first section of the Buffett/Munger Investment Checklist, i.e., understanding the business.

When you understand a business and its management, and have evaluated the long-term prospects as favorable, the next step is to value the business, i.e., come up with an estimate of intrinsic business value that is to be compared to the current market price of the business. If you manage to, and have the luck, to check each of the four main parts of the checklist, you most likely have an investment worth making.

In his 1977 letter to shareholders Warren Buffett explained his and Charlie’s process for analyzing and evaluating businesses.

We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price. We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term.  In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.

So, already back in 1977 Warren Buffett laid out the checklist that he and Charlie go through when evaluating a business. This will serve as a good starting foundation for anyone who wants to build their own investment checklist. Each checklist point could then be expanded to included a number of supporting sub-questions needed for coming up with a conclusion about the “main” checklist question being evaluated.

From the above quote and discussion, keep in mind the foundations of our Buffett/Munger Investment Checklist:

  1. Understand the business
  2. Favorable long-term prospects
  3. Operated by honest and competent management
  4. Very attractive price

To make it easier to remember the top four checklist points, memorize the acronym “UFOV.” That’s easy to remember, right? It’s just “UFO” plus a “V.”

As always, when talking about the subject of checklists, make sure to use them in an appropriate wat and also remember Warren Buffett’s words that “A checklist is no substitute for thinking.”

BMBC

“Take a simple idea and take it seriously.”

—Charlie Munger

Peter Thiel’s Stanford Lecture Nr. 5: Competition is for Losers

«Escaping competition will give you a monopoly, but even a monopoly is only a great business if it can endure in the future.»

—Peter Thiel, Zero to One

Let’s Go to Class: Peter Thiel on Competition

Click here for slide deck.

A transcript of class nr. 5 is available here.

Also, Blake Master’s notes from the Thiel classes can be found here.

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«If I do my job right, this is the last class you’ll ever have to take.» 

—Peter Thiel

Additional Reading

New Mauboussin Paper: Thirty Years

“But great investors do two things that most of us do not. They seek information or views that are different than their own and they update their beliefs when the evidence suggests they should. Neither task is easy.”

―Michael J. Mauboussin, Thirty Years

Thirty Years: Reflections on the Ten Attributes of Great Investors

Credit Suisse’s latest report is out: Thirty Years – Reflections on the Ten Attributes of Great Investors

“Perhaps the single greatest error in the investment business is a failure to distinguish between the knowledge of a company’s fundamentals and the expectations implied by the market price.”

  • The world of investing and business has seen a great deal of change in the past 30 years.
  • This report shares thoughts on the ten attributes of great fundamental investors.
  • Accounting is the language of business and you need to understand it to appreciate economic value and to assess competitive positioning.
  • Investors face a slew of psychological challenges. Perhaps the most difficult is updating beliefs when new information arrives.
  • Position sizing and portfolio construction still do not get the attention they warrant.
  • The substantial shift from active to passive management has profound implications for the investment industry.

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Ten Attributes of Great Fundamental Investors

The top ten attributes discussed in the paper are:

  1. Be numerate (and understand accounting)
  2. Understand value (the present value of free cash flow)
  3. Properly assess strategy (or how a business makes money)
  4. Compare effectively (expectations versus fundamentals)
  5. Think probabilistically (there are few sure things)
  6. Update your views effectively (beliefs are hypotheses to be tested, not treasures to be protected)
  7. Beware of behavioral biases (minimizing constraints to good thinking)
  8. Know the difference between information and influence
  9. Position sizing (maximizing the payoff from edge)
  10. Read (and keep an open mind)

See here for a collection of links to other Mauboussin papers.