A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
We break away from our conventional multi-section issue to a linear one this weekend for exploring articles that test many fundamental conventional beliefs in investing.
'Cut the weeds and water the flowers' goes conventional wisdom, suggesting that we should be quick to take our losses and let our profitable positions run. Then there is also wisdom around portfolio rebalancing that suggests that we should take profits to plough back in to underperforming positions. But how true is conventional wisdom? This article tests such conventional wisdom across multiple time frames and thresholds, and presents some interesting findings.
When it comes to factor investing, one factor gets way more mention than any other factor- momentum. While it is generally known that momentum persists in the short term, it is now always true as this article explains. There are times when momentum can backfire and eat away into long term returns. However, as the article explains further, there are some signals that one can pair with this factor to make it more optimum. This signal should be watched by fundamental investors as well, as it suggests a long term change in market regimes.
Benjamin Graham has conventionally been known for advocating two solid investing principles - security analysis and value investing (or net-net investing). However, over time, Graham himself saw less value in one of the these activities and advocated investors to focus less attention on it. This article explains what this activity is and why.
It is conventionally believed that stock prices follow fundamentals (eventually). However, with falling and low interest rates and flush global liquidity, many investors are arguing that fundamentals don't matter any more. This article explores this argument by looking at volatility and the options market.
[This article complements the first article of last week which explained why despite the rise of pod shops and algos, stock prices still follow fundamentals.]
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 112:
If investor letters were an episode, this one would be a couple of seasons. At 129 pages, it is the length of around half a book, and covers a multitude of topics (I am less than halfway through at the time of this writing). The first section of Christopher Bloomstran's (Semper Augustus) 2021 letter to clients talks about intrinsic value, and the link between earnings yields and forward returns. The second section charts the investments of two investors, a lesser known Mr. Smith and a well-known Mr. Buffett. The sections that follow cover thoughts on energy and commodities (oil), student-managed funds, book recommendations, followed by a deep dive into Berkshire. Lot of food for thought in this one.
There is a general belief that as stocks get expensive, a correction is due. Investors often look at valuations to take exposure to, or exit from, stocks completely. However, this is not a good strategy, as this article explains.
How do market cycles occur? What causes the pendulum to swing from euphoria to crisis and back? That is what this article attempts to explains, using Hyman Minsky's ‘financial instability hypothesis’. It then goes on to explain how the venture capital world today may be having its own Minsky moment. A very articulate and interesting read.
A couple of weeks back (#110), I had shared a video: Principles distilled from interviewing world-class performers by Sean DeLaney. I enjoyed the talk so much that I transcribed it for a slower consumption. You can access it here.
Quotable Quotes
"The obvious way to buy back your time is to pay someone to do something for you. Pay the mechanic to change your oil or a dry cleaner to press your suit.
The less obvious way to buy back your time is to say no. Passing on a promotion might "buy" you more time with family. Declining the dinner invite might "pay" for the time you need to exercise. We buy back our time not only with the money we spend, but also with the opportunities we decline.
The more clearly you know how you want to spend your days, the easier it becomes to say no to the requests that steal your hours."
- James Clear
"One of the things Steve [Jobs] would say [to me] because he was worried I wasn’t focused — he would say how many things have you said no to?
I would tell him I said no to this. And I said no to that.
But he knew I wasn’t interested in doing those things.
There was no sacrifice in saying no.
What focus means is saying no to something that with every bone in your body you think is a phenomenal idea, you wake up thinking about it, but you say no to it because you are focusing on something else."
- Jony Ive
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Mar 09, 2024]