THE WEEKEND BULLETIN (VOL. 1 | ISS. 7)
A weekly digest of some interesting stuff from around the world-wide-web for the discerning investor.
Volume 1 | Issue 7 | January 04, 2020
Section 1: Investing Wisdom
Let's start the new year/decade with two posts on truly long term thinking:
First is a fund that has no fund manager!! It’s a fund that was set up in 1935 with the objective of buying 30 diversified stocks in equal quantities, and never transacting thereafter (with a few exceptions). The fund has almost all its assets in four sectors: industrials, energy, basic materials and financial services - no technology or healthcare exposure. How do you think would a fund like this have performed? You can read about it here (paid article but with recent data) or here (slightly dated article but free).
The second is a private equity fund that recently raised capital with a 27 year investment horizon!! And that is not the only interesting aspect of this fund. What it does is as interesting as it’s investment tenure. The fund purchases businesses (either partly or whole) from owners that are looking to retire, with the intention of never selling. You can read about them in this slightly winding annual letter, or simply browse through their website.
Sometimes investors forget the basics, especially when they witness a frenzy. The technology world is witnessing a similar situation currently. As tech business evolved from software to SAAS, one important metric got left out - gross margins. And this is now coming to light with the debacles at Wework, Uber, Lyft etc. Read here to understand why gross margins matter.
Speaking of basics, what are some of the traits that make up good investment analyst? Good analysts don’t just consume a lot of detail in an academic fashion. They build knowledge in a purposeful, strategic way... some of the things they do include: (Read Here)
Section 2: Mental Models & Behavioral Biases
A man is either a librarian or a salesman. He's retiring. What are the odds that he is a librarian? A lot of people say, "The odds that he’s a librarian must be at least 90 percent.” That's the story, librarians don't work super hard. The trouble with this logic is in the US, salesmen outnumber male librarians 100 to 1. Before you even considered the fact the man is “retiring,” you should have assigned only a 1 percent chance he was a librarian. Ignoring the base rate can lead you wildly astray. This twitter thread with multiple reading links within explains further.
Section 3: Lessons From History
This nearly two decade old article traces the evolution of early computers and operating systems. In doing so, it explains a very interesting concept that these developments faced, what the author calls a ‘chicken and egg problem’. Numerous businesses face this issue even today, particularly businesses that strive on network effects. This is as relevant today as when it was written.
Section 4: Personal Development
The beginning of a new year is a good time to review personal habits and beliefs, to let go of some old baggage and pick up a few good ones. In case you are looking for some advice, here is a very good one.
Section 5: Trivia
While Icelandic tradition encourages reading on Christmas, as we saw last week, this man does so everyday:
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Have a wonderful weekend!!
- Tejas Gutka.
P.S. Click here to read past issues.