#WeeklyInvestorReader | wk. 46

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles not included. If any of the articles are behind paywalls it may be possible to read them by searching for the article’s title via Google News.

Why Moats are Essential for Profitability (Restaurant Edition) – Tren Griffin, November 18, 2016 | Investing is about owning a partial stake in a real business. You must understand whether the actual businesses in which you own stock earns a return on capital to be a successful investor. The more different types of businesses you understand in this way, the more skill you will acquire in understanding another new business.

The Big Short: is the next financial crisis on its way? – The Guardian, November 19, 2016 | Steve Eisman saw the last crash coming and was portrayed in an Oscar-winning film. Now he believes Europe’s banks, especially Italy’s, are at risk.

Berkshire Hathaway Buys Airline Stocks – The Conservative Income Investor, November 19, 2016 | But of course the reason why we care whether or not Buffett himself made the decision is because we want to know whether airline investments are so attractive right now that we should appeal to authority and mimic the decision.

Thoughts on Media Companies – Grahamites, November 19, 2016 | A discussion on the big picture challenges faced by media companies and different business models of media companies.

How Two Trailblazing Psychologists Turned the World of Decision Science Upside Down – Vanity Fair, November, 2016 | After his book Moneyball became a best-seller, Michael Lewis learned that many of the ideas it presented to the general public had actually been introduced decades earlier by a pair of Israeli psychologists: Daniel Kahneman and Amos Tversky. In an adaptation from his new book, Lewis investigates their story, and the intense bond between these radically different men.

Trump may be the very best thing that happened to the US and the world: Mohnish Pabrai, Investor & Philanthropist – The Economic Times, November 17, 2016 |  In a chat with Punita Kumar Sinha of ET Now, Mohnish Pabrai, Investor & Philanthropist, says President-Elect Trump understands quite a bit about the way business and the economy works. He is definitely better than presidents who have never run a lemonade stand in their lives. Edited excerpts.

The Money Management Gospel of Yale’s Endowment Guru – The New York Times, November 16, 2016 | Mr. Swensen, 62, runs the school’s $25.4 billion endowment, one of the largest in the country. Usually he is joined by his intellectual sparring partner, Dean Takahashi, his senior director. It amounts to an internship in the world of managing a university’s billions — and the young analysts have a front-row seat.

Why CEO’s are Getting Fired More – The New Yorker, November 7, 2016 | Companies treat—and pay—top executives as if they were all-powerful. So when things go bad the boss is shown the door.

Why the Industrial Revolution didn’t happen in China – Washington Post, October 28, 2016 | To economic historians like Joel Mokyr, there’s nothing inevitable about the incredible wealth and health of the modern world. But for a spark in a little corner of Europe that ignited the Industrial Revolution — which spread incredible advances in technology and living standards first across the north Atlantic coast in the 1700 and 1800s and gradually around the world — we could all be living the nasty, brutish and short lives of our ancestors centuries before.

Car Makers Gear Up for Electric Push – WSJ, November 13, 2016 | Auto makers, rushing to meet tightening emissions standards, are unveiling new battery-powered vehicles at the Los Angeles Auto Show this week, mirroring last month’s flood of such cars by European companies. These curtain-raisers will be followed by first shipments of General Motors Co.’s Chevrolet Bolt, a $35,000 Tesla fighter that goes on sale next month. What’s missing are consumers, however.

Q&A With “Pre-Suasion” Bestselling Business Author Robert Cialdini – Forbes, November 7, 2016 | Berkshire Hathaway’s Charlie Munger turned me on to Robert Cialdini. Cialdini, a psychology professor at Arizona State University, wrote a book back in 1984 called Influence. Munger recognized that this was pure gold in terms of the mental models he used to understand (a) the stock market and (b) life. By raising his consciousness about techniques that were being used to bias his judgment, he could make appropriate mental adjustments.

Bill Ackman Says Valeant Might Change Its Name to Fix Its Reputation – Fortune, November 11, 2016 | Valeant Pharmaceuticals International, the drugmaker that became a poster child for high drug prices during the U.S. election season, may change its name to help boost its reputation, board member and top investor William Ackman told CNBC on Wednesday. A name change would be the latest effort by the company to break from its past, after hiring a new chief executive, overhauling the board and exploring billions of dollars in asset sales to pay down a $30 billion debt load.

CNBC Exclusive: CNBC Excerpts: CNBC’s David Faber Speaks with Liberty Media Chairman John Malone Today – CNBC, November 10, 2016 | Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with Liberty Media Chairman John Malone from Liberty Media Investor Day. The excerpts aired during CNBC’s “Squawk on the Street” (9AM-11AM ET) today, Thursday, November 10.

Is Netflix Disney’s next big buy and is Reed Hastings its next CEO? – Techcrunch, November 13, 2016 | Last month, Netflix crushed Wall Street’s expectations with its Q3 earnings and surprisingly spry international subscriber growth. But, make no mistake, it’s all-out war in our Internet-driven and increasingly mobile-first Media 2.0 world of OTT premium video.  And, Netflix is directly in the line of sight and vulnerable both short and long-term.

Joel Greenblatt’s Investing Secrets Revealed – Barron’s, October 15, 2016 | The Columbia University professor and co-founder of Gotham Asset Management made the case for value investing in his best-selling The Little Book That Beats the Market, buying shares of businesses that were cheap relative to returns on invested capital and earnings yield.

The SEC On Non-GAAP Metrics: A Collection of Writing at MarketWatch – re:The Auditors, July 31, 2016 | I wrote in February at MarketWatch about a real estate REIT called Brixmor used non-GAAP metrics to determine executive compensation, and how a few executives there likely manipulated them to juice their pay.  The were all fired for their efforts. The SEC has yet to weigh in on that case but there’s been no lack of commentary in the last year or so about the use —and abuse—of non-GAAP metrics from the SEC, the lawyers who work with the SEC on their clients’ behalf, and the media.

That Big Berkshire Hathaway Railroad Deal  – Bloomberg Gadfly, November 11, 2016 | It’s been seven years since Buffett’s Berkshire Hathaway Inc. announced its biggest deal to date — the $35 billion-plus purchase of Burlington Northern Santa Fe Corp. The Oracle of Omaha had the foresight to place his “all-in wager on the economic future of the United States” just as the nation emerged from a recession, and has reaped the benefits. After analyzing the transaction, Gadfly gives it a slam dunk.

To Understand Facebook, Study Capgras Syndrome – Nautilus, November 10, 2016 | For 99 percent of hominid history, social communication consisted of face-to-face interactions with someone you’ve hunted and foraged with most of your life. But then the recognition and familiarity components got pried apart by modern technology.

William Ackman’s 2016 Fortune: Down, but Far From Out – The New York Times, November 15, 2016 | There is one mistake Mr. Ackman has admitted to making: Valeant Pharmaceuticals International. The drug company has come under political attack for its pricing policy and has faced regulatory scrutiny over its accounting practices. In April, Mr. Ackman was called to Washington to testify at a Senate hearing, where he was questioned over his aggressive support of the company. A flustered Mr. Ackman was forced to concede, “I regret that we didn’t do more due diligence on pricing.”

SEC Criticizes GE’s ‘Non-GAAP’ Metrics but Hasn’t Taken Further Action – WSJ, November 15, 2016 | The Securities and Exchange Commission has criticized General Electric Co.’s use of tailored, “non-GAAP” financial measures in recent months but has completed a review of the company’s filings without taking any further action, according to newly public documents.

Would Seth Klarman Buy His Own Book? – Chief Investment Officer, September, 2015 | In October 1991, an unknown hedge fund manager published a book. A tight 249 pages, Seth Klarman’s Margin of Safety was by all contemporary standards a commercial flop. His publisher, he said, “didn’t do a very good job. Didn’t advertise it. Editors kept getting fired—I don’t think because of me—and by the third editor we finished the book, and then it sold about 5,000 copies and it died out. It was dead. It died.” Except that it didn’t.

How Your Brain Decides Without – Nautilus, November 10, 2016 | In watching and interpreting the game footage, the students were behaving similarly to children shown the famous duck-rabbit illusion, pictured above. When shown the illusion on Easter Sunday, more children see the rabbit, where on other Sundays they are more likely to see the duck.1 The image itself allows both interpretations, and switching from seeing one to the other takes some effort. When I showed duck-rabbit to my 5-year-old daughter, and asked her what she saw, she replied: “A duck.” When I asked her if she saw “anything else,” she edged closer, forehead wrinkled. “Maybe there’s another animal there?” I proffered, trying not to sound as if magnet school admission was on the line. Suddenly, a shimmer of awareness, and a smile. “A rabbit!”

James Montier says nothing is cheap and his GMO is holding cash – Financial Times, November 15, 2016 | “Part of the problem from our perspective, when you look at the world’s assets, is nothing’s cheap. It’s not a great starting point if you’re an investment manager,” says Mr Montier.

Latticework of Mental Models: Porter’s Five Forces Analysis – Safal Niveshak, November 18, 2016 | Michael Porter, a business strategist and a professor at Harvard Business School, is well known for his five forces framework. His analysis framework remains one of the best ways to assess an industry’s underlying structure. The five force model doesn’t necessarily tell you if an industry is attractive or unattractive but, in Porter’s own words, it’s a tool to understand “the underpinnings of competition and the root causes of profitability.”

Chipotle, Ackman Near Settlement – WSJ, November 18, 2016 | Chipotle Mexican Grill Inc. and William Ackman are nearing a settlement that would give the activist investor a say in the boardroom at the beleaguered burrito chain.

The Apple TV, Apple’s 50% fee cut, and the walled garden – The Loop, November 17, 2016 | The Apple TV is not the walled garden of iOS. While iOS uses services like Apple Music and blue Message bubbles to keep you inside, you can easily switch inputs on your TV to accommodate game consoles and other inputs, including devices from Google and Amazon that feed non-Apple content into the mix. If a video service is more expensive through Apple TV, it’s easy enough to switch inputs to another device if it means saving money each month.

Amazon Prime Video is going global next month to take on Netflix – The Next Web, November 17, 2016 | Until now, Amazon’s streaming video service has mostly been a nice add-on to sweeten the deal on its Prime subscription plan, which grants customers quicker shipping and other benefits for a recurring fee.

The Story of How McDonald’s First Got Its Start – Smithsonian, November 1, 2016 | From the orange orchards of California, two brothers sought a fortune selling burgers.

The Deutsche Bank Downfall: How a Pillar of German Banking Lost Its Way – Spiegel Online, October 28, 2016 | For most of its 146 years, Deutsche Bank was the embodiment of German values: reliable and safe. Now, the once-proud institution is facing the abyss. SPIEGEL tells the story of how Deutsche’s 1990s rush to join the world banking elite paved the way for its own downfall.

How Spoify Can Tear Up the Music Biz – Bloomberg Gadfly, November 1, 2016 | Spotify Ltd today is essentially a massive music collection and radio station mashed into one: users can listen to whatever they want, or let the virtual DJ in their pocket recommend tracks and artists. It’s a seductive combination that’s attracted 100 million listeners, of whom 40 million were paying subscribers as of September. Yet despite nearly doubling sales last year, the high cost of licensing music from record labels and publishers means the Swedish company has yet to turn a profit.

‘Free’ Shipping Crowds Out Small Retailers – WSJ, April 27, 2016 | Ginger Greer, a Medford, Ore., attorney who does nearly all her shopping from work without leaving her desk, has drawn a line in the sand: “I absolutely refuse to pay for shipping,” she says. “You can find anything, anywhere at this point” that ships free, she adds.

Free Shipping Is A Lie – Fast Company, November 1, 2016 | Free shipping is a top priority for online shoppers, but many merchants are struggling to keep up with the costs.

Tesla Investors Still Need to Watch Their Wallets – WSJ, November 18, 2016 | To make CEO Musk’s ambitions a reality, more capital will soon be needed.

“A reader lives a thousand lives before he dies, said Jojen. The man who never reads lives only one.”

―George R.R. Martin, A Dance with Dragons

Disclosure: #WeeklyInvestorReader contains a few of the articles I read this week and enjoyed the most. I am not receiving any compensation for any of the links provided. 


#WeeklyInvestorReader | wk. 44

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles not included. If any of the articles are behind paywalls it may be possible to read them by searching for the article’s title via Google News.

Measuring the Moat (Updated Version) – Credit Suisse, November 1, 2016 | With this updated version Mauboussin & Co. takes a renewed look at topic of moats, i.e., competitive advantages. Sustainable value creation is of prime interest to investors who seek to anticipate expectations revisions, and this report develops a systematic framework to determine the size of a company’s moat. It also covers industry analysis, firm-specific analysis, and firm interaction.

Big Ideas in Social Science: An Interview With Robert J. Shiller on Behavioral Economics – Pacific Standard, October 24, 2016 | The latest in a series of conversations with leading intellectuals in collaboration with the Social Science Bites podcast and the Social Science Space website.

A Great Cost Migration Is Upending the Financial Industry – BloombergView, October 10, 2016 | Like many big asset managers, Janus Capital Group is caught on the wrong side of two powerful trends that are reshaping the financial industry. The first is the wholesale shift by investors from active management of assets to passive investments. The second, related trend is that money is moving from high-cost investments to low-cost investments.

A Mixed Third Quarter for Berkshire – Morningstar, November 4, 2016 | Wide-moat-rated  Berkshire Hathaway (BRK.B) released results for the third-quarter 2016 that were in line with our expectations, with weaker results from Geico and BNSF being largely offset by the rest of its operations, as well as the addition of Precision Castparts to overall results. We are leaving our fair value estimate [$255.000 per A-share, $170 per B-share] in place.

Is Apple’s Stock Cheap? Not to My Eyes – Medium, October 27, 2016 | With Apple having reported earnings, Jesse Felder takes an updated look at how this could impact the views of bulls and bears.

Internal Amazon documents reveal a vision of up to 2,000 grocery stores across the US  – Business Insider, October 26, 2016 | Amazon wants to open 20 brick-and-mortar grocery stores over the next two years, and the online retailer believes the US market has room for up to 2,000 of its Amazon Fresh-branded grocery stores over the next decade, Business Insider has learned.

Some Comment on the Twitter Buyout Rumours  – Bronte Capital, October 11, 2016 | Twitter is wildly addictive. This is well known and there are people who check twitter more obsessively than anyone checked email. Twitter is also a chaotic world full of trolls, useless information, porn-spam and videos of kittens. It is also – as anyone cares to notice – for sale.

Liberty Media: Better Than Berkshire – Barron’s, October 1, 2016 | Led by cable mogul John Malone and CEO Greg Maffei, the nine stocks under the Liberty Media umbrella have delivered, in the aggregate, an annualized 13% over the past decade, compared with 7.5% for Bufftet’s Berkshire Hathaway and 7.7% for the S&P 500.

In-Depth: The Apple Watch Series 2, And What Is And Isn’t A Watch  – Hodinkee, October 14, 2016 | An in-depth review of AppleWatch Series 2, and what’s changed from the first version of it and whether Apple Watch really should be considered a threat to the watch industry.

Venture capitalist Marc Andreessen explains how AI will change the world – Vox, October 5, 2016 | Recent breakthroughs in artificial intelligence and machine learning are enabling computers to understand the world and respond intelligently to it. Google is already embracing these technologies for Android, but they’re poised to have bigger implications, touching everything from drones to medical diagnosis. At least that’s the view of Marc Andreessen, a prominent venture capitalist at the firm Andreessen Horowitz.

How Amazon Can Survive Peak Prime  – BloombergGadfly, October 27, 201 | Amazon CEO Jeff Bezos is so obsessed with Amazon Prime, he once called it “irresponsible” not to belong to the membership program.Indeed, in recent years Amazon.com Inc. has moved away from an initial strategy of undercutting competitors on price to a laser focus on signing more people up for Prime. Now, that business model could be shifting again.

Medium is the Future: It’s the best platform for both writers and readers – October 27, 2016 | A walkthrough of what Medium is, where it’s going, and where it will fit in social media. Is Medium the new place for bloggers not having a blog, or maybe both?

The Security I Like Best  Warren Buffett, December 6, 1951 | An example of Warren Buffett assigning himself the right right story already back in 1951. The article title “The Security I Like Best” refers to GEICO and contains Buffett’s own views and analysis at the time.

[Article in Swedish] Köp bilen i stället för aktien – Dagens Industri, 2 november, 2016 | Sällan har det varit så viktigt att skilja aktien från företaget som när man närmar sig den hajpade elbilstillverkaren Tesla. För lika bra som bilarna är – lika övervärderad är aktien.

“A reader lives a thousand lives before he dies, said Jojen. The man who never reads lives only one.”

― George R.R. Martin, A Dance with Dragons

Disclosure: #WeeklyInvestorReader contains the articles I read this week, and that enjoyed the most. I am not receiving any compensation for any of the links provided. 

How to Read Books in a More Efficient and Effective Way: Get a Kindle

“In the case of good books, the point is not to see how many of them you can get through, but rather how many can get through to you.”

―Mortimer J. Adler

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads–and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” 

—Charlie Munger

The Knowledge Project: Interview With Professor Sanjay Bakshi

In the third episode of the Knowledge, Shane Parrish talks to Professor Sanjay Bakshi on reading, mental models, worldly wisdom, checklists and investing. The interview starts with a conversation about Professor Bakshi’s reading habits, and how the way he reads has changed, from reading physical books to now reading most books on his Kindle device.

To listen to the interview, click here. To read the transcript, click on the image below or here. Transcripts are provided for all podcast interviews, and available via signing up for a membership over at Farnam Street. This particular transcript was made available to Professor Bakhi’s readers for free to download via his blog Fundoo Professor.

Takeaways: Reading on a Kindle

Here are a few takeaways from the discussion (excerpt below from transcript):

  • Start reading books on a Kindle and reduce your physical library and free up space
  • Reduce paper waste
  • New possibilities with the Kindle, for example search for the books you’ve read and the underlinings made in an easy way
  • Underline stuff and write your own notes, and they get synced to the cloud, and once they’re in the cloud you can copy and paste
  • Kindle doesn’t have any eye-strain
  • Some books not available electronically, so will still have to read them physically

A Discussion About Reading Habits

Sanjay_Bakshi_FSI appreciate that. I definitely have— my bookshelves are starting to overflow, so it’s getting to be a bit of a problem.

How can I persuade you to get into Kindle then? [laughs]

Actually let’s talk about the Kindle vs the physical book. What do you prefer and why? And how do you use that?

Well, I used to prefer the original one, of course, because you can underline; you love the smell of the paper; and you have nostalgic associations with the physical book, which looks like you have read it, which you lose when you do it on a Kindle. But over time, I realised that these are prejudices that should be let go of, because there are other things that are possible with the Kindle, which are not possible with the physical book. And for me, as a professor, it really helps me to be able to know that I’ve read this somewhere. The kind of associations that occur in memory as you experience something – you know that you have read about this particular aspect in some book, but you don’t know which one. And if this was all with physical books, you would go crazy looking for that book. But if you just do a search for a term across all your books in your Kindle library, it comes up in a flash.

And the interesting thing is that you sometimes discover things that you didn’t know existed – the serendipitous discovery of wonderful words of wisdom about a certain topic in your Kindle library is amazing, and when that happens, I have my eureka moments. And the other reason I love Kindle is that you can underline stuff and write your own notes, and they get synced to the cloud, and once they’re in the cloud you can copy and paste, and use them for your lectures. It’s very helpful, so I’m very grateful to Amazon. And of course it’s environmentally friendly: you don’t have to waste paper.

Do you read exclusively on the Kindle now?

Yes, I like to but only for books. Of course there are annual reports, and there is a lot of wisdom in annual reports of businesses that I like to study, and those you don’t get on Kindle. I don’t like reading on computer monitors – it’s very strenuous to the eye. Kindle, therefore, is much better because it doesn’t have any eye-strain. Then, of course, there are letters written by investors that are not usually available on Kindle. So I read on Kindle any book that it is available on Kindle. Some books are not – then you have to buy the physical ones.

You’re a prolific reader, so do you—

About 5% of what you are!

[laughs] Do you notice a difference in what you retain when you’re reading on the Kindle, or your takeaways from the book, in terms of how your brain is storing or organising? There have been a lot of studies that say that reading on a screen and reading a physical book impacts your memory in different ways and how you make connections and associations.

Sure, that’s true. But I think there’s a trade off here: you might retain more when you read a physical book, and a bit less on the Kindle, but that’s offset by the fact that you are creating a document in the cloud which contains the best things you have read in a book, the ones which influenced you the most; because you have underlined them, and sometimes the underlined portions of a book span many pages. And all of that gets synced to the cloud, and when you work on that particular passage again in the context of something that you’re trying to evaluate, then all of that comes back. So in a sense I think there is a trade off here: while reading in a physical book you get to underline physically, and you may have a moment of reflection and write things on the side, you can do that on a Kindle as well. So net-net, I don’t feel the loss of memory, compared to using a physical book.

So what’s your process for reading? You purchase a Kindle book, you get it to your Kindle… take me through how you read, in terms of are you reading one book at a time; are you reading multiple; do you put it aside at the end and then go back to it; or do you immediately take your notes out?

Well, I don’t like to read one book— maybe I will read 3 or 4 books at any given point of time, and when I finish them I’ll pick up another 2 or 3 books to read. One reason is you get kind of bored reading the same thing, the same subject. And based on what Charlie [Munger] says, you should have a multidisciplinary mind-set. So it’s good to have different books from different disciplines and read them. And then one of the amazing things that I discovered is that you then associate one thought with another one. And that really is helpful to me. So far as note-taking is concerned: I underline stuff on the fly, as I read it. And once the book is over, I go back on the cloud and take out what I had underlined in that particular book, whatever notes I had, whatever annotations are there. I put them in a different document, and then I let that be.

Because I have already studied the underlined text a second time, in a sense, I have done a second reading of the things that I like the most in that particular book. And then I let that be, to reside in my memory for some time. And then when I experience the world out there and there is a moment when I remember that there is something that relates to something that I read somewhere, then I can always go back to the document and be able to pull out whatever is useful.

So you have a different document for each book?

Not always. But I have a master document because once you have it in the cloud, you can always copy and paste any annotations, any underlined text for that particular book, in a different document. I do that for some books, though not all of them.

That’s a really good way to do it. Do you use Evernote or anything?

I do, I use Evernote; that’s been helpful to me. I use other tools like The Brain, which is a wonderful piece of software available.

What is that?

It kind of replicates what a human brain does. It helps you create thoughts, and it helps you connect different kinds of thoughts. And you can put your emails in it, and you can put your sound files in it, any kind of document in it, and then you can look at any particular topic from the perspective of a thought. So you have all these thoughts which are connected – and this is exactly how the human brain works. New associations are created. So when you’re looking at The Brain screen, and your actual brain is thinking about those associations, new associations get created. So in that sense, it’s an external brain that is working for you, and the size of which keeps on growing – it’s virtually infinite; you can keep on adding stuff to it.

I have been thinking about getting a Kindle for a while now, and also received some great feedback via Twitter on the subject. So, yesterday I ordered my first Kindle, and I hope to get it by next week so I can start trying out whether reading on a Kindle is of any value .

Feel free to share your own experience from reading on a Kindle versus reading physical books, note-taking etc in the comment section below.

Additional Reading

Disclosure: 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 or individual mentioned in this article. I have no positions in any stocks mentioned.