[The Weekend Bulletin] #99: Want vs Need, Smallcaps, Delisting,...
..Hot Streaks in Career, Human Misjudgements, 90 day challenge and more.
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Section 1: Investing Wisdom
Some interesting reads/interviews with respect to investing in small- and micro-cap stocks:
MOI Global interview of Jim and Abigail Zimmerman of Lowell Capital - discussion on the investment philosophy and process at Lowell Capital, including a demonstration of the thought process through a couple of a ideas.
Successful Investor podcast with Jennifer Oppold of Alpine Peaks - discussion on the investment journey, lessons along the way, development of investment philosophy, risk management practice, and the importance of writing (my favourite part). From the podcast description: Those who seek to make a career on the buy side (and truly, investors of all stripes) can learn much from Jennifer Oppold’s journey.
A very interesting thread on 'What they don't tell you about microcap/smallcap investing' - Smallcap investing is alluring, however, few think about the risks involved (other than volatility, and sharp drawndowns). This thoughtful thread lists some of the things that investors should bear in mind while investing in smallcaps (not meant to scare you away from smallcaps but rather to provide a checklist for you to keep handy). Some of me favourite thoughts:
For those interested in special situation investing, here is a nice thread about profiting from delisting.
Most people start on the investment journey with honest intentions. However, somewhere along the way, as incomes grow and savings reach a comfortable level, a particular problem starts to creep in - the blurring of the lines between want and need. This is probably one of the main reasons for losing the way mid-way through a wealth creation journey. This short read lists a few way in which you can avoid falling for this trap. Don't ignore the problem for its simplicity - sometimes the biggest problems arise out of this.
This investor interview is refreshingly different in that it doesn't only discuss investment philosophy and idea, but also discusses the background that influenced the investor's style, his habits and routines, and other such tidbits that we call not only learn from but also aspire to adopt.
Section 2: Mental Models & Behavioral Biases
Charlie Munger's The Psychology of Human Misjudgment is probably the mot influential talk on the subject of behavioural biases. We have all read or heard it partly or completely at least once, although given its significance, it should probably be revisited often. Making this easier is this article that summaries and explains the 25 human tendencies discussed in the talk. Make a nice collage out of this and put it up on your desk like this:
The above visual is a summary of 20 useful frameworks that can provide clarity in complex situations. You can read about them in this thread.
Section 3: Personal Development
Albert Einstein in the early 1900s. Aretha Franklin in the 1960s. Steve Jobs in the 2000s. There are certain spans of time when scientists, artists, and inventors have phenomenal periods of productivity. This is also true of most people - at least on a smaller scale. Aren’t there periods when you feel like you’re effortlessly flourishing at work, while other times you feel incompetent and uninspired? You might recognize these periods of concentrated success among your friends, peers, and competitors too.
The Northwestern University economist Dashun Wang has peeled back the mystery of why these special creativity clusters happen and how individuals and companies can multiply and extend them. Read this article to see how three words can enhance your career.
Following up last week's 14 month challenge, here are Ten 90-day challenges for your mind, body and soul.
Section 4: 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 #27:
Bill Nygren (Oakmark Funds) reminds us why history may not have all the correct answers, why EV is a better valuation metric than market cap, and what we should not forget during times like current.
I keep coming back to my favorite quote: 'investing is simple but not easy'. Its simple because there are a few basic tenets - first principles - upon which the entire discipline is built. Its not easy, as you will know whether these tenets are still working or not only over a long period of time. For instance, buying a good quality business at a reasonable price is a safe and easy way to make money. But will that investment multiply mani-fold over time? You can never be sure at the time of investing. You'll only know in hindsight, as Peter Lynch explains here.
One could draw a few similarities in where the US was during the 60's-80's and where India is currently. While a lot of it is good, some are frightening. Take for example the comparison of the structure of the stock markets in the US in the late 60's/early 70's.
A key feature of the 1960s was the increasing number of investors in the US stock market. Seven times as many Americans held shares by the end of the 1960s than during the height of the 1929 bubble.
The decade saw the rise of a new breed of investor - the professional fund manager. It was a period of significant mutual fund creation and large fund inflows.
The Nifty Fifty was a group of 50 stocks identified by market commentators, although it was never an official benchmark index. The companies shared similar characteristics: high quality franchises benefitting from surging economic growth and strong balance sheets.
The PEs of some of the Nifty Fifty moved into stratospheric territory as the 1960s progressed (60-90x)
It was said by many investors at the time that Nifty Fifty stocks should be bought and never sold. By the early 1970s they had become the darlings of many institutional investors and staples of their portfolios.
Sounds eerily familiar, doesn't it? Here is a look at how this came to be and what transpired next. They say history does not repeat, but it rhymes. Scary, either ways.
Section 5: Readworthy Passage
Let's read together a random, but read-worthy, passage from a randomly picked book.
How did Graham do it? Combining his extraordinary intellectual powers with profound common sense and vast experience, Graham developed his core principles, which are at least as valid today as they were during his lifetime:
A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.
The market is a pendulum that forever swings between unsustain- able optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.
The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.
No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the “margin of safety”—never overpaying, no mat- ter how exciting an investment seems to be—can you minimize your odds of error.
The secret to your financial success is inside yourself. If you become a critical thinker who takes no Wall Street “fact” on faith, and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your invest- ments behave is much less important than how you behave.
- From the Introduction (by Jason Zweig) of THE INTELLIGENT INVESTOR by Benjamin Graham
(I have shared some thoughts on this in a thread which you can access by clicking on the above tweet)
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That's it for this weekend folks.
Have a wonderful week ahead!!
- Tejas Gutka
[Nov 13, 2021]