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Happy Hour: Lucky Streak

March 16, 2018

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Jon

Morgan Housel is out with a great post on the relationship between luck and risk that you really should read.

Luck is the flip side of risk. You cannot understand one without appreciating the other.

If risk is what happens when you make good decisions but end up with a bad outcome, luck is what happens when you make bad or mediocre decisions but end up with a great outcome. They both happen because the world is too complex to allow 100% of your actions dictate 100% of your outcomes.

One of the biggest mistakes investors can make is confusing luck for skill and good decisions. When you’re dealing with probabilities there’s always a chance that an unlikely possibility makes you money. Continue Reading…
Happy Hour: Innovation, Debt, and Euphoria

March 9, 2018

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Jon

Nothing is more mind-boggling than our ability to repeatedly fall prey to financial euphoria. Equally so, is our ability to recognize it only after the fact. Though a few recognize it sooner, nobody really knows until its over, after the crash.

What’s almost as mind-boggling is how each new generation of investors gets the opportunity to experience it first hand.

Innovation (financial or other) and/or debt, taken to an extreme, are behind all of the booms and busts. Investment trusts and excessive margin debt in the late ’20s. The explosion of mutual funds in the late ’60s. Junk bonds in the ’80s. Dotcoms in the late ’90s. Housing Bubble and mortgage blowup in ’08. Bitcoin most recently. What’s next? ETFs? Continue Reading…
Galbraith: Bubbles and the Bias Behind Speculation

March 7, 2018

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Jon

John Kenneth Galbraith sat before a Senate Committee Hearing to explain his version of the events that led to the ’29 crash. I’ve referred to this hearing before. A number of prominent financial minds were called to offer their view of the market in 1955.

Galbraith was there to offer some historical context. As it turns out, his statement to the Committee is one of the better explanations for stock market euphoria that I’ve read.

Greed and fear are only part of it. While explaining the lifecycle of a bubble, Galbraith, adds that investors end up “fooling themselves.” Confirmation bias kicks in after taking a position. They look for things that confirm their beliefs and shun anything that goes against it. Simply, they see what they want to see.

It reinforces the need to be openminded, avoid filter bubbles, and seek disconfirming evidence. Then ask one simple question: What could go wrong? If no answers come to mind, try harder. Continue Reading…
Happy Hour: Buffett on Investing vs. Gambling

March 2, 2018

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Jon

Buffett sat with CNBC for an interview this past Monday. The Q&A gives Buffett a chance to elaborate on topics he touched upon in the annual letter and answer other questions as well: healthcare, airlines, Apple, etc.

Almost all of his comments are things he’s said before. He offered a few details on the new healthcare partnership with Amazon and JP Morgan. The healthcare industry incentivizes advancing research and medical breakthroughs, not lowering costs. It’s in desperate need of cost improvements, so it will be interesting to see how that plays out.

Two other parts stood out as well.

The first is something Buffett learned from Graham decades ago. Stocks are pieces of businesses. Continue Reading…
Lessons from the 2017 Berkshire Letter

February 28, 2018

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Jon

Warren Buffett’s always-anticipated annual letter was released last weekend. It was shorter than I expected. I’m not surprised either.

Buffett’s older letters are better, more specific about his thought process, and more educational for dedicated investors. His more recent letters are almost the opposite – more general in nature, certainly more PC, yet still educational but for a broader, arguably less savvy, shareholder base.

The section over the last few years on “The Bet” is a good example of this. We all pay attention to what something costs. But usually, that’s the last thing a new investor thinks about when picking which funds to own (lack of fee transparency doesn’t help). Once it’s explained that high fees hurt returns, most people get it. Continue Reading…
Happy Hour: Munger & Buffett Reading

February 23, 2018

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Jon

It’s annual letter/meeting season and if you follow Munger or Buffett at all, you might already know what this is about.

So first Munger, then Buffett.

The Daily Journal annual meeting was held last week. Charlie Munger is the Chairman and always gets peppered with random questions unrelated to the company. There are some good questions, some repeat questions get asked every year, but Charlie’s answers are great and often entertaining.

Of course, the downside to the random questions at these meetings is that you really have to read the entire thing to find the real nuggets. Thankfully, a couple people recorded the meeting, transcribed it, and shared it for the rest of us to enjoy.

I’ll share one (don’t want to ruin the rest for you). Links are after the quote: Continue Reading…

Happy Hour: Lucky Streak

Happy Hour: Innovation, Debt, and Euphoria

Galbraith: Bubbles and the Bias Behind Speculation

Happy Hour: Buffett on Investing vs. Gambling

Lessons from the 2017 Berkshire Letter

Happy Hour: Munger & Buffett Reading