Some interesting stuff that would be worth your time today …
- For the September edition of our Value Investing Almanack newsletter we had compiled the thoughts of many well known value investors on the subject of “when to sell”. Ian Cassel, a full-time micro-cap investor, was gracious enough to provide his insights on this topic for Almanack readers. Recently he penned a wonderful post on his blog expanding on the idea…
Qualitative analysis and field based research acts like corrective lenses that will let you see further. You will have an edge on most investors if you make investments based on expected 3 – 5 year returns instead of 3 – 12 month returns.
One of the biggest mistakes or wrong reasons to sell a stock is boredom. Don’t be a bumble bee buzzing around from one position to the next. Find a few great companies early and FOCUS on evaluating their business performance, not stock performance. The hardest part of achieving multi-baggers is having the patience and conviction to hold through multi-year periods of under-performance. Successful investors can disconnect emotion from investment decisions and can differentiate business performance from stock performance.
Boredom is an offshoot of Do Something Bias. In investing, having a loaded gun (cash) helps but firing it because of an itchy finger is a mistake.
- Charlie Munger has said, it’s wise to embrace your errors, and even to rub your nose in them. What Jesse Koltes has written is a blueprint for what every investor should do with each of their investment mistakes, i.e rip apart your blunders and see what went wrong…
…most of all our own egos are all quite willing to let errors fade into the background, never to be recalled again. I don’t want to let that happen with Horsehead. Forgetting would only compound what has already been a painful, permanent loss of capital. I want to collect up the broken pieces and build a cairn at this point in the path. I also want to think diligently about the very real possibility that I have been fooling myself.
- When Brian Chesky, Airbnb’s founder, ran out of cash he came up with the idea of selling Obama themed (Yes, US president Barrack Obama) cereals. He branded them Obama-Oats. This gave his team enough profits to continue running their business for few more months. When Paul Graham heard their ingenuity he figured that Airbnb team was like Cockroaches. Pretty gross metaphor! Isn’t it? But it’s this quality of resourcefulness that eventually made Graham invest in Airbnb. Airbnb today has massively disrupted the Hotel industry. Watch Brian recount this experience in this short snippet from his lecture at Stanford University.
Lesson: Be like a cockroach!
- Being intelligent and being rational are two different things...
Are you intelligent — or rational? The question may sound redundant, but in recent years researchers have demonstrated just how distinct those two cognitive attributes actually are…[Fortunately] Rationality, unlike intelligence, can be improved through training.
Having high IQ in absence of rationality can become dangerous especially for investing. Add a spoonful of negative emotions (greed, fear, envy) to it, and you have the perfect recipe for an inevitability called disaster. Allow me to quote Warren Buffett here…
Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
- Understanding a business requires you to understand the nature of competition in the industry. Here’s an excerpt from the book Competition Demystified by Prof. Bruce Greenwald-
In the 1920s, RCA, manufacturing radios, was the premier high-tech company in the United States. But over time, the competitors caught up, and radios became no more esoteric to make than toasters. In the long run everything is a toaster, and toaster manufacturing is not known for its significant proprietary technology advantages, nor for high returns on investment.
Competitive advantage because of low cost structure emanating from superior technology is short lived. Because, as Greenwald says, in the long run almost every hot technology ends up becoming a toaster. He writes –
…the idea that information technologies will be the source of competitive advantages is misguided. Innovations that are common to all confer competitive advantage on none.
Even Rajiv Bajaj talks about it in the context of automobile industry. Especially in two wheelers, the technology is no more the differentiating factor.
- Derek Sivers is one of my favourite thinker. He has an unconventional perspective. Where the world demands instant answers, Sivers asks us to become slow thinkers. He writes…
It’s a common belief that your first reaction is the most honest, but I disagree. Your first reaction is usually outdated. Either it’s an answer you came up with long ago and now use instead of thinking, or it’s triggering a knee-jerk emotional response to something that happened long ago…Someone asks you a question. You don’t need to answer. You can say, “I don’t know,” and take your time to answer after thinking.
- “Are you fully baked?” asks Seth Godin.
The average knowledge worker reads fewer than one business book a year. On the other hand, the above-average knowledge worker probably reads ten.
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