Archives for May 2016
Latticework of Mental Models: Bayes Theorem
A statistics professor who travels a lot was concerned about the possibility of a bomb onboard his plane. He determined the probability of this and found it to be low but not low enough for him. So now he always travels with a bomb in his suitcase. He reasons that the probability of two bombs being onboard would be infinitesimal.
Do you think he has really reduced the risk?
Even those who aren’t well versed with the basic concepts of probability can say that the professor’s logic seems absurd.
Well, the bomb riddle is a famous joke among mathematicians. Nevertheless, it’s a thought provoking joke.
So to help you think about the riddle, let’s explore another related thought experiment.
A man wakes up in the middle of the night with a splitting headache. He remembers that there are few aspirin bottles in the bathroom. He dizzily stumbles into his bathroom to grab one of the four bottles in the dark and pops a pill from that bottle. An hour later, instead of getting relief from headache, he starts feeling a terrible nausea. Suddenly he realizes that only three of the four bottles in the bathroom contained aspirin and the fourth bottle contained poison.
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8 Big Ideas from a Super Investor: Philip Fisher
Note: This article formed part of the April 2015 Special Report sent to subscribers of our premium newsletter Value Investing Almanack.
If you are a Warren Buffett fan, chances are slim that you haven’t heard of Philip Fisher. He belongs to the league of those very few super investors who have shaped Buffett’s investing style.
In his 2013 letter to investors, Buffett ranked Fisher’s book next to Ben Graham’s books –
…Phil Fisher put it wonderfully 54 years ago in Chapter 7 of his Common Stocks and Uncommon Profits, a book that ranks behind only The Intelligent Investor and the 1940 edition of Security Analysis in the all-time-best list for the serious investor.
Despite being considered as a super investor, Philip Fisher was little known to general public and rarely interviewed. He is widely respected and admired in the value investing circles all over the world. He is also known for his ‘scuttlebutt’ 
approach, which simply means seeking information from competitors, customers, and suppliers, all of whom have a vested interest in the company.
He wasn’t among those who made decisions just by reading annual reports. He believed in getting first hand information about the company from various sources.
Now, when it comes to following an advice, it’s more sensible to first take up the recommendation about “what NOT to do” instead of “what to do”. So, in the spirit of inversion, let me explore some of the don’ts in investing recommended by Fisher through his various interviews and writings.
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InvestorInsights: John Huber
A young, super-smart value investor and money manager shares his insights and experiences in sensible, long-term investing and money management.
John Huber is the portfolio manager of Saber Capital Management, LLC,an investment firm that manages separate accounts for clients. Saber employs a value investing strategy with a primary goal of patiently compounding capital for the long-term. John established Saber as a personal investment vehicle that would allow him to manage outside investor capital alongside his own account. John also writes about investing at the blog Base Hit Investing.
John can be reached at john@sabercapitalmgt.com.
Safal Niveshak (SN): Could you tell us a little about your background, how you got interested in investing and also about your wonderful blog Basehitinvesting.com?
John Huber (JH): I’ve always loved investing. My father was an engineer, but he maintained an avid interest in the stock market, and did very well investing his savings. I developed a casual interest in stocks and investing in high school through watching his investments do well, and then I became much more interested a few years later after picking up a book at the library one day about Warren Buffett. The book was the first time I had ever read much about Buffett, and like many other value investors, his approach to investing really resonated with me. His ability to articulate the simple logic of value investing captivated me enough to dive headlong into studying the topic in much greater detail, and although I had just begun a career in real estate, I soon set the goal of eventually setting up an investment firm that would be somewhat similar to Buffett’s original partnership. I spent time in real estate, managing property and operating a few small real estate investment partnerships, which eventually allowed me to save enough capital to seed my investment firm in 2013.
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Latticework of Mental Models: Winner’s Curse
Consider this thought experiment –
A friend of yours is the Chairman of the Acme Oil Company. He occasionally calls with a problem and asks your advice. This time the problem is about bidding in an auction. It seems another oil company has gone into bankruptcy and is forced to sell off some of the land it has acquired for future oil exploration. There is one plot Acme is interested. Until recently, it was expected that only three firms would bid for the plot, and Acme intended to bid $10 million. Now they have learned that seven more firms are bidding, bringing the total to ten. The question is, should Acme increase or decrease its bid? What advice would you give?
Do you advise bidding more or less?
If you’re like me and seeing this case study for the first time you’d probably go with a higher bid. After all, there are additional bidders, and if you don’t bid more you won’t get this land. Isn’t it?
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