[The Weekend Bulletin] #139: Buy and Not Sold, Nomura, Two Types of Simplicity, Great Companies,...
...What The Optimist Can Learn From The Pessimist, Analyst to Portfolio Manager, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Replacing the usual sections this week with a simpler list for a better flow: two successful investors and their philosophy/journey, how great players simplify their game and what we can do about it, how to be a better analyst and transition in to a good portfolio manager, three ways you can enhance your investing skills by learning from fixed income markets, and a framework to identity a great business.
This is a short profile of a lessor known investorwho not only shared his investment philosophy with Warren Buffett, but also a few investments. The article is also a reiteration of the buy and hold philosophy.
Complimenting the above is this profile of the founder of Nomura. If there is one common thread that I observe across a number of investors - it is that of resilience. There are a few investors that were dealt the good hand - skill, capital, timing etc. Most, however, weren't dealt the best hand. However, their focus, perseverance, and differentiated thinking is what made them as great as they became.
This post makes an important distinction between rudimentary and evolved simplicity. It posits that simplicity sits on each side of complexity, with the order being rudimentary simplicity-> complexity -> evolved simplicity. A good example of this is investing, which is a complex occupation. Players like Warren Buffett are evolved, having mastered the game. We all read and listen to Buffett, but most don’t come close to his accomplishments. This is because we sit in the rudimentary camp. This post explains the three stages in more details, and also prescribes how we can traverse from rudimentary to the evolved state.
The following is a fantastic conversation covering the journey of an institutional investor - from being an analyst to becoming a portfolio manager. Lots of wisdom shared around why people fail and what better practices can be adopted to not just avoid failure but to stand out. You'll find a lot worth highlighting in this conversation.
It is said that credit markets usually lead equity markets in signalling major sentiment changes. Despite this, there is very little that equity investors draw from the credit market. The author of this article, a fixed income investor turned equity investor, lists three lessons that equity investors can learn from the fixed income markets.
There is a lot of literature on how to make any company great. However, most of it focus on the 'what to do' rather than 'how to do'. Moreover, there is no way to account for the role of luck in a company's success. In order to overcome these shortcomings, the authors of this article shifted focus from what the companies did to how they thought. The result of this study was a set of three rules that made a company truly great. Next time you see a company thinking on theses lines, you'll know you've found a potential great one.
💥 Blast From The Past
Revisiting articles from a past issue for the benefits of refreshing memory and spaced repetition, as well as for a fresh perspective. Below are articles from #65:
This newsletter does a nifty job of curating the ideation process of some well regarded investors. You'll find that each investor had his own unique ways to ideate; there is no one-size-fits-all answer to this, as we saw earlier.
Sometimes, the shortest of write-ups carry the weight of a book. This little anecdote about Stan Druckenmiller is one such. In about 10 tweets, it tells us that behavioural biases spare no one, not even the best of us. Understanding and being aware of our psychological shortcomings is one thing, but dealing with them real-time is another. Adding a little bit of friction or delaying taking action can save us at times, while at other times, it's best to just know that mistakes are a part of the process and move on.
Consider the following:
Aren't we all like the protagonist here, with too much to do and too little time? Don't we all have a volume of ideas but not enough time to work on any of them? Is there a way that we can be more productive with at least some of our ideas? Can we enjoy some of those figs before they go dead? The following framework exhibits one of the ways in which we can do this:
This article explains the above in details.
🔖 Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
“He survived. Survival gave him longevity. “ 👌🏼
Compounding only works if you can give an asset years and years to grow. It’s like planting oak trees: A year of growth will never show much progress, 10 years can make a meaningful difference, and 50 years can create something absolutely extraordinary.
But getting and keeping that extraordinary growth requires surviving all the unpredictable ups and downs that everyone inevitably experiences over time.
We can spend years trying to figure out how Buffett achieved his investment returns: how he found the best companies, the cheapest stocks, the best managers. That’s hard. Less hard but equally important is pointing out what he didn’t do.
He didn’t get carried away with debt.
He didn’t panic and sell during the 14 recessions he’s lived through.
He didn’t sully his business reputation.
He didn’t attach himself to one strategy, one world view, or one passing trend.
He didn’t rely on others’ money (managing investments through a public company meant investors couldn’t withdraw their capital).
He didn’t burn himself out and quit or retire.
He survived. Survival gave him longevity. And longevity—investing consistently from age 10 to at least age 89—is what made compounding work wonders. That single point is what matters most when describing his success.
To show you what I mean, you have to hear the story of Rick Guerin.
You’ve likely heard of the investing duo of Warren Buffett and Charlie Munger. But 40 years ago there was a third member of the group, Rick Guerin.
Warren, Charlie, and Rick made investments together and interviewed business managers together. Then Rick kind of disappeared, at least relative to Buffett and Munger’s success. Investor Mohnish Pabrai once asked Buffett what happened to Rick. Mohnish recalled:
[Warren said] “Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry.”
What happened was that in the 1973–1974 downturn, Rick was levered with margin loans. And the stock market went down almost 70% in those two years, so he got margin calls. He sold his Berkshire stock to Warren—Warren actually said “I bought Rick’s Berkshire stock”—at under $40 a piece. Rick was forced to sell because he was levered.
Charlie, Warren, and Rick were equally skilled at getting wealthy. But Warren and Charlie had the added skill of staying wealthy. Which, over time, is the skill that matters most.
Nassim Taleb put it this way: “Having an ‘edge’ and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.”
- From THE PSYCHOLOGY OF MONEY by Morgan Housel
📣 Quotable Quotes
“A woodpecker can tap twenty times on a thousand trees and get nowhere, but stay busy. Or he can tap twenty-thousand times on one tree and get dinner.”
— Seth Godin
🎁 An extra something:
This brilliant street artist reminds us that we all have cracks, but we are not all broken
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Oct 15, 2022]