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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…
Lesson from a Senator: How Experience Shapes Investing Decisions

February 21, 2018

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Jon

In 1955, the Senate Committee on Banking and Currency decided a stock market study was in order. The big concern was whether the market was euphoric and what to do about if it was. They didn’t want a repeat of ’29.

So they rounded up all the big names to expound on the market. Ben Graham was one of those people who offered his enlightening two cents.

John Kenneth Galbraith was another.

I think the senators were hoping for a way to stop the market mid-boom – shut the euphoria off like a garden hose spigot – without an ensuing crash. Galbraith didn’t mince words on that possibility and who would be blamed for it:

As I say, once the boom is well underway it cannot be arrested. It can only be collapsed. And the unfortunate feature of that is that the person who does the collapsing is terribly visible.

Shocking that a bunch of elected politicians hated that outcome. Continue Reading…
Happy Hour: 4 Investing Principles

February 16, 2018

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Jon

The folks at SumZero published a great interview with Micheal Mauboussin this week that is worth reading this weekend.

The interview is not too long, but it focuses on the opportunities for active management going forward. So things like value investing, market inefficiencies, systematic strategies, and more were discussed.

However, the final question reflected on a great piece Mauboussin wrote in 2016 on ten principles that make a great investor. He was asked which of the principles were the most important to his success as an investor.

Here’s what he said: Continue Reading…

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

Lesson from a Senator: How Experience Shapes Investing Decisions

Happy Hour: 4 Investing Principles