Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included.
Being Wrong in an Interesting Way – Hussman Funds, May 22, 2017| My friend Mark Hulbert once had a philosophy professor at Oxford, who distinguished two ways of being wrong: “You can be just plain wrong, or you can be wrong in an interesting way.” In the latter case, Mark explained, correcting the wrong reveals a lot about the underlying truth. The willingness to learn from our own errors, and those of others, is how a great deal of learning comes about. That’s certainly true biologically, where most of our skilled movements rely on feedback and progressive error-correction. It’s also true of invention and research. As Thomas Edison said, “I have not failed. I’ve just found ten thousand ways that won’t work. Many of life’s failures are people who did not realize how close they were to success when they gave up.”
Lessons about leases and liquidation value: a bebe stores, inc case study – Cigarrfimpar, May 25, 2017| I got a comment in the BEBE analysis post related to their $186M in operating lease obligation and what my view was as the company announced that they are closing down all their remaining stores. As I started to write an answer in the commentary section I came to realize that this might be a good time to put my view about operating leases into print. Also, as the BEBE situation is currently playing out in real-time it makes it a good live case study for how to view operating leases when it comes to investing in net-nets and companies selling below liquidation value. At least I hope it makes the post about operating leases a bit more interesting.
Value Investing In A Bull Market – Science of Hitting, May 25, 2017| I am currently looking at a company that has a pretty good underlying business. It has grown like a weed over the past decade and has attractive economics. The only problem is the stock trades for roughly 45 times forward earnings (based on management’s guidance).
The Unbundling Of Excel– Tomasz Tunguz, May 24, 2017| Microsoft Office has more than 1 billion users globally. Assuming a 33% penetration of Excel, that’s a user population 300M users. Like Craigslist in the consumer world, Excel became the tool for nearly everyone to get stuff done at work.
The Other Auto Story– Morningstar, May 22, 2017| Everyone talks about Tesla (TSLA), and for good reason: Its stock is up 48% year to date as of this writing, and it sold 25,000 cars in the first quarter, a quarterly record for the company. But while Elon Musk’s car company may seem to be the stock of choice for auto stock-buyers these days, it’s not the only auto story investors should be paying attention to.
Tulips, Myths, and Cryptocurrencies– Stratechery, May 23, 2017| Thanks to Mackay’s vivid account, tulips are a well-known cautionary tale, applied to asset bubbles of all types; here’s the problem, though: there’s a decent chance Mackay’s account is completely wrong.
Waiting for the Market to Crash is a Terrible Strategy – SVRN Asset Management, May 19, 2017| In my experience, investors sitting on a lot of cash are usually worried about equity valuations or the economy, and tell themselves and others that they’re going to buy gobs of stock after a crash. The strategy sounds prudent and has commonsense appeal—everyone knows that one should be fearful when others are greedy, greedy when others are fearful. But historically waiting for the market to fall has been an abysmal strategy, far worse than buying and holding in both absolute and risk-adjusted terms.
Uber has no incentive to keep cars empty – Felix Salmon, May, 2017| I’m perennially fascinated by the way in which different people read the same news story. After reading Eric Newcomer’s Bloomberg piece on Uber pricing, Marshall Steinbaum wrote a short tweetstorm about what it implies for Uber’s incentives, which I suspect is exactly wrong.
iPhone Evolution – Above Avalon, May 23, 2017| The iPhone’s most remarkable quality is the degree to which its role in our lives has changed.
Tweedy Browne’s Letter to AkzoNobel’s Supervisory Board re: PPG’s Buyout Offer – Tweedy, Browne Company LLC, May 4, 2017| Tweedy, Browne has owned shares in Akzo Nobel since 1992, and we think we brought patience and a long-term perspective to our investment. Being shareholders for 25 years has unfortunately not been a fruitful experience and our patience is wearing thin. In our calculations, the growth of the value of each Akzo Nobel share hardly held up with inflation.
Stock Spinoffs and Indiscriminate Selling – Stock Spinoff Investing, May 21, 2017| So the key takeaway from my analysis is its good to wait for at least 6 trading days to buy a spinoff that you suspect will be indiscriminately sold. You should also track how many of the spinoff’s shares outstanding have traded. Avoid establishing a position until at least 30% to 40% of the spinoff’s shares outstanding have traded. There will always be exceptions to the rule, but following this advice will generally serve you well.
Today in Market History: Netflix – The Irrelevant Investor, May 23, 2017| Netflix has done incredible things for its customers and for its shareholders, or share traders, anyway. Over the last fifteen years, Netflix is up 14,500%, the NASDAQ 100 is up 383%, and consumer discretionary stocks are up 268%..
Why I am an Optimist – Pragmatic Capitalism, May 22, 2017| The key lesson here is, when we understand the financial markets inside a capitalist system our natural starting point is one of progress, of optimism. In my opinion, this is the great lesson of the financial crisis.
Barriers to Entry in the Markets – A Wealth of Common Sense, May 23, 2017| Being a pioneer in the business world can give you a huge edge over the competition. Being a pioneer in the investment world can give you an edge but the opportunity set can close very quickly these days. There’s simply more competition than there’s ever been and when you add the growth in computing power into the mix it makes it very difficult to continue earning easy profits.
The Qualities of a Good Analyst; 100-to-1 Master Class – CSInvesting, May 22, 2017| Without fail, the aspiring investment professionals will eventually ask about the characteristics we look for when we hire analysts at Oakmark or, more generally, What do you think makes a good investment analyst? Perhaps the answer might give some insight into how we think at Oakmark.
The Most Contrarian Theme: Long-Term, Fundamental Investing – Bank of America Merrill Lynch, March 16, 2017| Whatever happened to “stocks for the long term”? A seismic shift in assets and resources toward data-driven, fast-money strategies leaves a gaping opportunity for long-term, fundamental investment strategies, in our view. One of today’s greatest market inefficiencies may stem from the scarcity of capital devoted toward long-term, fundamental investing. The risk/reward of holding stocks decreases with time horizons, and our work continues to support the fact that fundamentals grow more, rather than less effective as time horizons increase.
The First 8 Things to Look at When Researching a Stock – Gannon on Investing, May 22, 2017| Basically, I start by finding the longest series of financial data I can (GuruFocus, Morningstar, whatever) and then look at that along with reading the newest 10-K and the oldest 10-K in detail. So, 10-year+ financial data summary, 20 year old 10-K (or whatever), this year’s 10-K, and then the investor presentation if they have one, and the going public/spin-off documents if that’s online. Also, I read the latest proxy statement and the latest 10-Q as needed for info on management, share ownership, the balance sheet etc.
If America Were a Company, Would You Keep Trump as CEO? – The Big Picture, May 19, 2017| So out of all the ways in which Trump might want to be measured, judging him as a chief executive would seem to be the fairest to him. Forget about ideology, his political agenda, or whether you voted for him; just judge him on whether he has been a competent executive. Would you want to leave him in charge? Or would you be calling an emergency board meeting?
Almost all iPhone users will buy another iPhone, says survey – The Loop, May 19, 2017| A recently published survey by Morgan Stanley shows that 92 percent of iPhone users are “somewhat likely” or “extremely likely” to upgrade their phone in the next 12 months plan on getting another iPhone. The research note was distributed on Wednesday and later picked up by CNET. In comparison, the same Morgan Stanley survey found that Samsung had a 77 percent retention rate, while LG had 59 percent and Motorola had 56 percent.