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I’m out of town for the week visiting family and playing some golf, so just the links today.
Also, no posts next week because of the Thanksgiving holiday. I’ll be back to the regular grind after that. Have a great Thanksgiving!
Here’s what I’ve been reading this week. Continue Reading…
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John Graham was a wealthy pork packer based near the Union Stock Yards in Chicago. His son Pierrepont was headed to Harvard for his first year of college.
That bit of news kicked off a series of letters from ‘ole dad offering advice that started with education.
Of course, Graham is a fictional character in the book Letters of a Self-Made Merchant to His Son written by George Lorimer in 1901 but the advice still works.
The book is filled with early 1900s maxims and wisdom on education, business, life, and more. Continue Reading…
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Letters from a Self-Made Merchant relates the fictitious correspondence of John Graham, a wealthy Chicago pork packer, to his son. The elder Graham shares some timeless advice with his son on business, career, college, and life.
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Anything written by Seth Klarman is hard to come by. His book, Margin of Safety, is out of print and can only be found used at a famously high asking price. His Baupost letters are highly protected. And the few articles can be traced back to the ’80s and ’90s.
But in the writing, it’s apparent that Klarman is a value investor deeply rooted in Ben Graham’s teaching. The recurring theme — protecting capital is goal number one.
Another theme is the combination of flexibility and turning human nature to his advantage. The human psyche has some general tendencies that work really well in most circumstances except when it comes to investing. Klarman bargain hunts with that in mind but it often leads to areas investors are rushing to avoid.
There are other themes too, which are best left in his own words.
Here’s Klarman: Continue Reading…
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Some people happily pay a premium for quality. If you think a product — like iPhones, designer bags, or shoes — is higher quality, it might be worth paying more. Sometimes you actually get more than your money’s worth. Other times, the premium is the cost of being associated with the logo.
It’s no different with stocks.
Investors pay a premium for stocks labeled “quality” or “excellent.” Sometimes, it’s worth it.
In 1987, Michelle Clayman tested the performance of so-called “excellent” companies based on fundamentals relayed in the book In Search of Excellence.
The book labeled 36 publicly traded companies as “excellent” based on specific fundamental criteria: asset growth, equity growth, return on capital, return on equity, return on sales, and price to book. Clayman looked at the performance of 29 companies (of the 36 still in existence) to see how well “excellence” performed. Over a five year period (1981-1985), an equal-weighted portfolio of the 29 “excellent” stocks beat the S&P 500 by 1.1% per year. Continue Reading…
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Every bull market bust comes with lessons. One is that bull markets offer the illusion of permanence.
For example, the longer a bull market drags on, returns are more likely to be normalized and expected. When double-digit returns are all you know, the easy assumption is to expect more of the same.
It’s a repeated lesson because there’s always a new crop of investors experiencing their first bull market and some of the old crop forgets what the last bear market was like.
But some market busts are so impactful it creates a sea change. The hardest taught lesson was felt at the depths of 1932. Continue Reading…
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