[The Weekend Bulletin] #195: Pricing vs Valuation, Lessons from Building One of Greatest Compounding Machines, ...
... Antelope Or Field Mice - What Kind Of Work Do You Do, Active Learning, Five Pillars of Happiness, and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Investing Wisdom
Michael Mauboussin makes the distinction between valuing a company and pricing a company in his latest report. He explains that pricing a stock means simply assigning a multiple to the earnings or free cash flow of a company. He then dives in to the two most common multiples used by investors - P/E and EV/EBITDA. He explains how the numerator and denominator in each looks at different time horizons and how the same EV/EBITDA multiple could imply vastly different P/Es for businesses. He also illustrates how companies with similar growth, ROIC, and cost of capital could end up with different multiples. All in all, a very informative piece.
Mitchell (Mitch) Rales is one of the two brothers who co-founded Danaher - a company that has many claims to fames like being a 21% compounder for over four decades, a successful serial acquisition business model, a highly successful pivot from making industrial parts to being a life sciences company, and most importantly, the Danaher Business System (DBS) - a set of principles around lean manufacturing, continuous improvement, problem solving, and leadership. In what is his first long for interview, Mitch Rales traces back the journey of the company and the values that came about along the way leading to its success.
Mental Models & Behavioral Biases
Quoting an excerpt from a book, this short article provides a very helpful framework through which you can prioritise the work that you do. Rather than a simple urgent vs important classification, this is a second level filter that will help you select between two important tasks.
Personal Development
As investors there is a lot of material that we read and learn from. The author of this long-form post - a practitioner himself - advocates that we approach this undertaking more actively. He makes the distinction of active vs passiveas being more deliberate about what we read, and how we learning from it, rather than just reading everything that comes our way. The post elaborates on a few ways that we can more deliberate in choosing what to learn from, and how to learn.
Complimenting last week's 'paradox of happiness (the more you chase it, the more elusive it gets)', is this post that looks at Carl Jung's five pillars for a happy life through the lens of modern day research. Jung, once an associate of Sigmund Freud, and a giant in the field of psychology, believed that while happiness was a subjective condition (what may make you happy may not make me happy), there were some basic principles that were universal in governing a happy life.
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 118:
Michael Moubaussin and Dan Callahan pen a very informative piece on the importance of feedback in investment management. The report defines feedback as information that is applied to improve results. It discusses the various facets of the investment process that can be improved, both at an individual level as well as at an organisation level.
This article reduces the act of active investing to its simplest form. It claims that all active decisions are based on either price or valuation, and all investing styles lie somewhere in between. The position of an investment style along this spectrum is of importance as it determines the investor's time horizon as well as risk factors.
Quotable Quotes
"You have to do your homework and kick the tires. It’s not the answers that make you good in this business, it’s the questions you ask. If you ask the right questions you will always find out more than the next guy."
- Michael Price
* * *
That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[May 04, 2024]