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Weekend Reads – 5/26/23

May 26, 2023 by Jon

Quote for the Week

I think one of the most pervasive problems in the financial markets is investment with too short a time horizon. The fact that people look at quarterly returns of mutual funds is incredibly dysfunctional. I mean, there’s no way that you can expect somebody quarter in and quarter out or month in and month out to produce superior returns. There just aren’t pricing anomalies that are significant that are going to resolve themselves in a matter of months or weeks and so it’s a silly game to play. By extending your time horizon to three years, or four years, or five years, it opens up a whole host of investment opportunities that aren’t available to people that are playing this silly, short-term game. — David Swensen (source)

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Wise Words from Sam Zell

May 25, 2023 by Jon

Sam Zell got his start in real estate as a junior at the University of Michigan. A friend’s landlord bought an adjacent house and planned to tear down both properties to build a 15-unit apartment building. Zell pitched the owner on managing the new building. The owner said yes. Zell and his friend got a free apartment out of the deal, a management business, and the rest is history.

By the time Zell graduated from law school, he managed about 4,000 apartments and owned over 100 more. After graduation, he sold the management business to Bob Lurie and headed to Chicago to play in a bigger market. Three years later, Lurie partnered with Zell in Chicago. They would go on to build one of the largest real estate portfolios in the country.

In 1973, the real estate market was in the tank. Too much building led to oversupply. Inflation was sky-high. Zell saw an opportunity. He and Lurie switched gears to focus on distressed properties.

They bought $4 billion worth of real estate by convincing lenders the only way they could carry the property was by paying an interest rate below inflation. They created an arbitrage play. In total, they took on $4 billion in debt at an average fixed rate of 6% while inflation was 9% to buy apartments at half the cost to build them new. That ability to buy property below replacement cost was a staple throughout his career. When the market turned, the property values rose, and they made their first fortune. Continue Reading…

Weekend Reads – 5/19/23

May 19, 2023 by Jon

Quote for the Week

Price does matter. You increase your profit potential immensely if you buy low. If I buy at 32 and the stock goes to 75, I make a good profit. But if I buy at 20 and it goes to 75, I make a much higher return. Even a great company can be priced too high if there’s a lot of glamour attached to it. In that sense, temporary bad news about a good company may create a buying opportunity. It’s my job to find unusual companies and then judge whether the price they’re selling at is too high. — Philip Fisher (source)

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American Business History by Walter Friedman

May 17, 2023 by

American Business History book coverBuy the Book: Print | eBook

American Business History is a brief but dense introduction to U.S. businesses from the early colonies to the present day and what made the U.S. environment so unique and dynamic compared to the rest of the world.

The Notes

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Weekend Reads – 5/12/23

May 12, 2023 by Jon

Quote for the Week

The common thread that runs through all equity bull markets is confident expectations of higher earnings ahead. The common thread that ties the onset of all bear markets together is the loss of those confident expectations of higher earnings ahead. History shows that bull markets can go well beyond rational valuation levels as long as the outlook for future earnings is positive. — Peter Bernstein (source)

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Lessons from the 2023 Berkshire Meeting

May 10, 2023 by Jon

Warren and Charlie were back to answering questions last weekend at the Berkshire annual meeting. For over five hours, the duo answered questions from a packed house.

The broader lesson from the meeting revolved around the duality of mistakes. It’s an inevitable aspect of investing that creates setbacks for some but opportunities for others.

Let’s dive in.

New Opportunities

New things coming along don’t take away the opportunities. What gives you opportunities is other people doing dumb things… In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number of people doing dumb things. And they do big dumb things. — Warren Buffett

The question related to how new tech (AI) might impact industries and markets and how investors might benefit from it. Of course, new tech impacts businesses. It always has. Creative destruction is a byproduct of innovation but it rarely happens instantaneously. It’s also hard to predict which companies might suffer the most. Continue Reading…

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