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Happy Hour: Howard Marks on Taking People out of Process

June 22, 2018

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Jon

Howard Marks released his latest memo this week on the intersection of people, computers, and investing. He offers an interesting perspective on the current trends in passive investing, algorithmic investing, and artificial intelligence.

The gist of the entire memo can be summed like this: whether the decision-making process behind investing is better off in the hands of humans or computers and how that might impact markets?

Let’s cover a couple things first.

There will always be a select few people with an exceptional skill set to do it all manually (arguably, even they have an internal set of rules they follow). As for the rest of us, the evidence points to real benefits in using a rules-based or algorithmic process. So I believe the real discussion for the majority of investors revolves around just how rigid, flexible, or adjustable those rules should be. Continue Reading…
Hetty Green: Lessons from The Witch of Wall Street

June 20, 2018

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Jon

How many people would celebrate a 6% return? It may not seem like much, but that’s what it took to turn $5 million into $100 million over a 51 year period.

It’s also a true story.

Through a combination of investments in loans and mortgage, real estate stretching across the country (was once the single largest real estate owner in Chicago), corporate bonds, railroad holdings, banks, and a gold mine, one person turned an impressive inheritance into a fortune that would make them one the richest in America.

And she did it despite the cultural norms of the time.

Hetty Green was born in 1834, into a wealthy Quaker family with a successful whaling business. What she learned about business, she first learned from her grandfather, helping with his daily correspondence, and later doing the same for her father.

The numbers are a conservative estimate. When Hetty died in 1916, she was valued somewhere between $100 to $200 million (roughly $2 to $5 billion today). Continue Reading…
Happy Hour: Tracking Index Returns Via ETFs

June 15, 2018

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Jon

A couple weeks ago I shared a spreadsheet that tracked index returns via index funds. The Google Finance spreadsheet functions for mutual funds are really easy to use to figure out returns over different periods of time.

For stocks and ETFs, it’s more complicated.

That said, making it work with ETFs is the better way to go since ETFs exist for every imaginable index, but there were a few issues to work through.

Well, I got ambitious.

The first problem was finding a simple solution that pulls start and end date prices, then calculate the return over the period. The second problem was figuring how to automagically update the start date for year-to-date returns when January 1st rolls around because I’m lazy and don’t want the hassle of remembering to do it manually each year.

I found a solution to both issues. It may not be the cleanest but it works. Here’s the spreadsheet with a link and a few caveats underneath. Continue Reading…
Lessons from Carret’s The Art of Speculation

June 13, 2018

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Jon

Every investor is speculating at some level. That’s Philip Carret’s argument in The Art of Speculation and he’s right. Rarely does an investor know everything about an investment (when they do it’s usually too late). There is always an unknown element just out of grasp.

Accepting that is the broadest lesson from the book. Carret dedicates the rest of it to help investors deal with the unknown in the hopes of coming out ahead.

And in that, there are some good lessons worth learning. Let’s get started. Continue Reading…
Happy Hour: The Wild Ride of GEICO

June 8, 2018

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Jon

Some of you may know the story of GEICO. It was started in 1936 by the Goodwin family. They put up 25% of the initial capital, with the other 75% coming from a single outside source.

Ben Graham entered the picture in 1948. He was offered a deal to buy 50% of the company. He wasn’t the first or even the second person offered the deal, but he was the first to not turn it down. And he broke all of his own rules by accepting.

GEICO was nothing like the deep value cigar butt that usually caught Graham’s eye. It was a growing insurance company and, as Graham relayed in a postscript to The Intelligent Investor, “the price was moderate in relation to current earnings and asset value.”

It was overpriced not long after the deal, but Graham, a bit out of the ordinary, held on.

I can’t say the same for everyone else. Which is where things get interesting. I’ll let Walter Schloss pick up the story from here: Continue Reading…
Walter Schloss on Not Trying to Be Warren Buffett

June 6, 2018

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Jon

Walter Schloss was a master of humility. In all my reading, he’s probably the most humble investor…and honest, straightforward, and simplistic.

He’s no Warren Buffett. He knew it. And he didn’t try to be him either.

What did he get for not emulating Buffett? Very little attention for one. Few people knew he existed until Buffett outed him in The Superinvestors of Graham and Doddsville in 1984.

He also built a decent track record for himself even though he fell a little short of Buffett’s (20.5% annually over 45 years — 1956 to 2000).

The few interviews he sat for, he was always asked about Buffett and their association. And he always had a great answer for why he never invested like Buffett: Continue Reading…

Happy Hour: Howard Marks on Taking People out of Process

Hetty Green: Lessons from The Witch of Wall Street

Happy Hour: Tracking Index Returns Via ETFs

Lessons from Carret’s The Art of Speculation

Happy Hour: The Wild Ride of GEICO

Walter Schloss on Not Trying to Be Warren Buffett