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Charlie Munger’s Art of Stock Picking (and Worldly Wisdom)

October 11, 2017

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Jon

Stock picking has been viewed as a faux pas for some time…wrongly. There is nothing wrong with picking stocks if it’s done intelligently.

Intelligently can’t be emphasized enough because it’s often done stupidly. Which is why the act gets condemned outright. Except, some investors pick stocks and do it well by using a framework as a guide.

In a speech, Charlie Munger offered up his framework that he’s improved upon over his career. For Munger, stock picking revolves around disciplined decision making.

Instead of trying to know everything about everything, he tries to make the least stupid mistakes. And in an activity were mistakes have big consequences, keeping them to a minimum has an immense impact on returns. Continue Reading…
Happy Hour: Gravity and Taxes

October 6, 2017

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Jon

Anytime Warren Buffett does a deal for Berkshire, he makes the rounds on business news. This week he made a deal and sat for the usual interview with CNBC (video and transcript linked below).

These interviews can be hit or miss sometimes because they want his perspective on everything. But two things stood out: the certainty of gravity and taxes.

The first is something he’s asked every time and fits with the last post. Interest rates act like gravity on asset prices.

But because interest rates have stayed low for so long, it becomes easier to ignore the risks interest rates pose. The longer things stay the same, the more investors expect it to continue: Continue Reading…
The Consequences of Reaching for Yield

October 4, 2017

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Jon

In 1992, Seth Klarman warned investors of being too greedy toward yield. He watched investors chasing anything that came close to the high yields they once earned in the 1980s.

Well, history may not repeat but it does rhyme.

A similar thing has been happening for a few years now. This time around, I doubt greed is the driver. Rather, fear of not earning enough is pushing investors into higher-yielding assets. Junk bonds, emerging market bonds, and stocks look more attractive because the assets investors once relied on for yield fall way short of their needs.

Howard Marks explained the problem perfectly in a recent interview: Continue Reading…
Happy Hour: Overconfidence

September 29, 2017

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Jon

Charlie Munger has a unique way of describing the errors of our ways. These “errors” can be simply described as human nature.

And yet, overconfidence has a funny way of making people believe they’re immune to these errors. Somehow, they’re the exception to the rule.

In an article, Murger wrote about the perils overconfidence can have on something as simple as higher costs on average returns. This was in relation to foundations taking on more costly consultants for investment advice, but it’s certainly not limited to the professionals.

Everyone deals with these same issues in (and outside of) investing: Continue Reading…
Charlie Munger’s Guaranteed Misery

September 27, 2017

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Jon

Charlie Munger once gave a graduation speech in 1986 on how to guarantee a life of misery. He borrowed the idea from a speech Johnny Carson gave several years earlier. Instead of speaking about what leads to a life of happiness, Carson did the opposite.

So Carson rattled off three sure things he knew would lead to misery: ingesting chemicals in an effort to alter mood or perception, envy, and resentment. If you focused on only those three things you can have the most miserable life you’ve always wanted.

Munger liked Carson’s speech so much, he expanded on it, adding four more ingredients that would guarantee misery: Continue Reading…
Happy Hour: Dow 1,000,000

September 22, 2017

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Jon

Warren Buffett made a Dow 1,000,000 call this week. He thinks it will be surpassed in the next 100 years.

It’s hard to imagine a century from now. That number might even seem impossible to some people, but the math checks out. It works out to a conservative 3.8% annual return over the next century.

Really, the number is not that important. What is important is Buffett’s faith in America’s ability to offer a competitive advantage for businesses over the next century. And if businesses have the opportunity to do well, workers do well, the country does well, and owner’s of businesses (investors) will prosper. Continue Reading…

Charlie Munger’s Art of Stock Picking (and Worldly Wisdom)

Happy Hour: Gravity and Taxes

The Consequences of Reaching for Yield

Happy Hour: Overconfidence

Charlie Munger’s Guaranteed Misery

Happy Hour: Dow 1,000,000