Monthly Archives: June 2011

New Audio: Ten Ways to Improve Your Investment Process – #7. Improve Your Self Management

If you want to be a successful investor, you need a great investing process. Ironically, focusing on the outcome can lead to poor results.

This is part four of an eleven-part audio series on improving your investment process. It is based on a presentation I gave to the CFA Society of Columbus on May 19, 2011 at The Ohio State University.

#7. Improve Your Self Management (audio)

PDF of presentation slides

 

Previous audio recordings in this series:

Ten Ways to Improve Your Investment Process – Introduction

#1. Know Your Outcome

#2. Define Your Investment Process

#3. Don’t Focus on the Outcome

#4. Use Checklists

#5. Improve Your Search Strategy

#6. Improve Your Risk Management

 

Links of Interest – June 24, 2011

Wintergreen Sees Opportunities in Global Markets – Video – Bloomberg

Monish Pabrai – His Project to Learn from Other Successful Investors (Includes comments on Dell and AIG) — GuruFocus.com

Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2010–2015  [Visual Networking Index] – Cisco Systems – Good data on the explosive growth expected in mobile traffic.

Expensive Markets Mean Low or Negative Prospective Returns (updated) | Value Restoration Project

Dow Jones Industrial Average and S&P 500 Total Returns Driven by GDP, Inflation and Dividend Yields” Market Indexes?

Why The S&P 500 ≠ The US Economy

Monish Pabrai – Why He Bought Wells Fargo and What Macro Trends Drive His Investing — GuruFocus.com

Five Reasons Why Stocks are Extremely Cheap – Insider Monkey

VALUE INVESTOR HAVEN: Philip Fisher’s speech to Stanford Business School – Key Quote to Ponder … and Ponder: “McDonald (legendary Stanford professor and value investing expert) wants his students to understand that the standard in Mr. Fisher’s mind of understanding a company has always been so high compared to what most of us think about” [emphasis added]

YouTube – David Stockman on TARP, the Fed, Ron Paul and Reagan [FULL VERSION] – Informative discussion of the U.S.’s current predicament from Reagan’s budget director.

Are You a C.E.O. of Something? – Key Quote:

Q. What else is unusual about how you run the company?

A.John Doerr [the venture capitalist] sold me on this idea of O.K.R.’s, which stands for objectives and key results. It was developed at Intel and used at Google, and the idea is that the whole company and every group has one objective and three measurable key results, and if you achieve two of the three, you achieve your overall objective, and if you achieve all three, you’ve really killed it.

We put the whole company on that, so everyone knows their O.K.R.’s. And that is a good, simple organizing principle that keeps people focused on the three things that matter — not the 10.

Then I ask everybody to write down on Sunday night or Monday morning what are your three priorities for the week, and then on Friday see how you did against them. It’s the only way people can stay focused and not burn out. And if I look at your road map and you have 10 priorities for you and your team, you probably don’t know which of the three matter, and probably none of the 10 are right.

I can look at everyone’s piece of paper, and their road map shows every item you were going to do and your predicted results and actual results, and then the results are in red if you missed them, yellow if they’re close and green if you passed them. I think road maps are a great principle just for managing your life. It keeps everybody focused, and it lets me know what trains are on or off the tracks.

 

The Pomodoro Time Management System in Five Minutes

 

Understanding platforms and their role in providing a durable competitive advantage

Determining whether a business has a durable competitive advantage, or moat, is an important step in the valuation process. Without a moat, over time a business’s product and services will become increasingly commoditized as competitors enter the market and drive down margins.

Michael Cusumano, a professor at MIT, has written an interesting book, Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World, on six critical principles that drive successful companies, particularly technology companies.  The book is the fruit of thirty years of experience studying successful companies.

As an investor, you need to become an expert in identifying moats. This is harder than it looks. Developing real skill in this area will give you an edge.

In the following slide presentation, Cusumano focuses on platforms: what they are and how they can provide staying power.

Cusumano Network Effect

See also:
Schmidt: Want to get rich? Build a platform – CNET

New Audio: Ten Ways to Improve Your Investment Process – #6. Improve Your Risk Management

If you want to be a successful investor, you need a great investing process. Ironically, focusing on the outcome can lead to poor results.

This is part four of an eleven-part audio series on improving your investment process. It is based on a presentation I gave to the CFA Society of Columbus on May 19, 2011 at The Ohio State University.

#6. Improve Your Risk Management (audio)

PDF of presentation slides

 

Previous audio recordings in this series:

Ten Ways to Improve Your Investment Process – Introduction

#1. Know Your Outcome

#2. Define Your Investment Process

#3. Don’t Focus on the Outcome

#4. Use Checklists

#5. Improve Your Search Strategy

 

Why it is critical to ask the right questions

As investors, we need to study cognitive biases (also known as misjudgments) and take steps to counter these psychological tendencies.

When analyzing a business, I am a big believer that before you dig in you should make a list of questions you want to answer about the company. This will focus your research. Instead of simply ploughing through the annual report, you will be looking to validate or invalidate a particular thesis.

A good generic question is, “Does the business have a durable competitive advantage?”

A poor questions is, “What will the company’s earnings be next quarter?”

Not convinced that the questions you ask can impact your awareness and what you focus on? Watch this short video.

New Audio: Ten Ways to Improve Your Investment Process – #5. Improve Your Search Strategy

If you want to be a successful investor, you need a great investing process. Ironically, focusing on the outcome can lead to poor results.

This is part four of an eleven-part audio series on improving your investment process. It is based on a presentation I gave to the CFA Society of Columbus on May 19, 2011 at The Ohio State University.

#5. Improve Your Search Strategy (audio)

PDF of presentation slides

 

Previous audio recordings in this series:

Ten Ways to Improve Your Investment Process – Introduction

#1. Know Your Outcome

#2. Define Your Investment Process

#3. Don’t Focus on the Outcome

#4. Use Checklists

 

Michael Harkin’s speech at Grant’s 2011 Conference: “Embrace Reason, Shun Theories or Think Big, and Go Broke”

Michael Harkin is great value investor with a formidable record. He is worth reading carefully. The following is his rate of compounded returns after fees:

2010…..+27.2%

Last 12 Years…..+12.7%

Since Inception 1980…..+12.9%

Here is his speech at James Grant’s annual conference in New York.

“Embrace Reason, Shun Theories or Think Big, and Go Broke”

My speech, all gall, divides in three parts.  What you shouldn’t do, what you should do, and what Jim wants me to do.  “Aw Michael, just give them CUSIP numbers,” was my invite.  I’m coming to that presently.  The face of American investing is a spittle flying, neck vein popping, barnyard noise making character who spews economic nostrums twenty to the dozen.  Foretell the economic future, make it loud and Croesus will grow jealous of your wealth shortly.  Right.  A generation of American investors has been taught this, and the idea is not only wrongheaded, it is dangerous, and I want to spend a few minutes illustrating why, but first a brief moment of personal history.

Slide 1–General Theory

When I was an eighteen year old undergraduate, I sat in the stacks at Cornell reading John Maynard Keynes’ General Theory of Employment, Interest and Money because I wanted to know something of the original flavor of this one work I had heard so much about.  I was besotted instantly, and within a fortnight I had consumed every major work that he wrote.  Worse yet, I had started using words like fortnight and besotted.  To an undergraduate mind, Keynes was instantly addicting.  He was also a trading legend.  He once cornered the market in wheat, the shorts surprised him by forcing delivery, and he calmly proposed to the Cambridge Dons that they vacate Kings College Chapel, so he could use it as his personal silo.  In the event, this didn’t fly, but imagine the cheek in trying it on.  He then claimed the wheat wasn’t in good deliverable form, got the sellers to clean it, the market recovered in the interim and he made a profit.  Great stuff, no?  And chapter 12 of this book is the wittiest and wisest 17 pages you will ever read on markets. Well worth the price of admission all by itself.   It is also part of an elaborate front to conceal a dirty little secret, one that I only found out many years later from this book.

Slide 2–Economist as Savior

This is Robert Skidelsky’s brilliant work of scholarship, in three volumes by the way, and the title of this volume tells the story in typical British understatement.  Keynes really was the savior of western capitalism.  He also wasn’t what he seemed to be, and here I have to let Robert Skidelsky tell you the tale directly.  This is from pages 524 and 525, lightly edited by me for concision.

“In 1929 Keynes had lost practically all his money, in 1931 he even tried to sell his two best pictures, his Matisse and his Seurat, but found no buyers.  Keynes personal investment philosophy changed with his economic theory” says Skidelsky, which if I can interject, is better than you can say for most of us.    After all, Keynes did once say, “When the facts change, I change my opinion.  What do you do, sir?”  Back to Skidelsky, “In the 1920’s Keynes saw himself as a scientific gambler.  He speculated on currencies and commodities.  His aim was to play the cycle.  This was the height of his “barometric” enthusiasm, when he believed it was possible, by forecasting short term rhythms, to beat the market.  The gambling instinct was never quite extinguished.”

(continue reading)

Links of Interest – June 10, 2011

Transcript of Bill Ackman’s Super Fast Speech at the Ira Sohn Conference – Insider Monkey

The Questions to Ask When Deciding Appropriate Multiples for a Stock – Contains a good checklist to accompany my post on deciding on what multiple to pay for a stock.

Bruce Berkowitz Is Extremely Bullish About Bank of America $BAC – Insider Monkey

Why Would Anyone Own a Bank? – (Video) Davis/Selected American manager Ken Feinberg

Feinberg: Quality Franchises Will Be Key for Stock Investors – (Video) Davis/Selected American manager Ken Feinberg

Cisco a ‘Statistical Bet’ – “Tweedy Browne’s Will Browne and Tom Shrager bought Cisco because of its strong financial and market position, but they are keeping a very close eye on it.”

Creighton Value Investing Panel Notes – Annual event at Creighton University the week of the Berkshire meeting.  Panelists: Whitney Tilson, Vitaly Katsenelson, Michael Green and Patrick Brennan.  Another great job by The Inoculated Investor for putting putting these notes together.

Waiting for the Fat Pitch in Poker – “So how do we take this advice into a poker game and use it to become a better player? It can be implemented in several different ways. The most obvious is in game selection. Poker profits come from playing against inferior competition, period. Waiting for the fat pitch could mean waiting for certain games, game conditions, or even a particular opponent to show up.”

YouTube – How to make Money in the Stock Market? – Good video on value investing. At the 3:40 mark, there is a great discussion of self-delusion and the requirement for “brutal honesty” if you want to be a successful value investor.

Michael Harkins, a partner at Levy Harkins & Co., talks about the data he uses to formulate his investment strategy.  Contains a great lesson on the folly of economic forecasting.  You may not be familiar with Michael Harkin, but you should be – very sharp investor and thinker.

 

New Audio: Ten Ways to Improve Your Investment Process – #4. Use Checklists

If you want to be a successful investor, you need a great investing process. Ironically, focusing on the outcome can lead to poor results.

This is part four of an eleven-part audio series on improving your investment process. It is based on a presentation I gave to the CFA Society of Columbus on May 19, 2011 at The Ohio State University.

#4. Use Checklists (audio)

PDF of presentation slides

 

Previous audio recordings in this series:

Ten Ways to Improve Your Investment Process – Introduction

#1. Know Your Outcome

#2. Define Your Investment Process

#3. Don’t Focus on the Outcome