Peregrino

What are the best stock screening tools that you use? Looking for low-cost, preferably free options. Appreciate any suggestions!

30-year zero's https://ritholtz.com/2017/05/interesting-thing-buffett-seides-bet/ In order to achieve the $1,000,000 pay-off to charity, Mr. Buffett and Mr. Seides agreed that they should both post 50% each to an investment guaranteed to mature at the one million necessary for charity. They chose a zero-coupon US Treasury bond purchased on or about January 1st, 2008, with a maturity date on January 1st, 2018 for the full $1 million. At the time of the purchase, effective 10-year interest rates at the time were higher than 4%. “What we actually did with the money – the collateral – beat the S&P 500 by a mile. We made one trade, and that trade was effectively to equities, we put it in Berkshire Hathaway, and now the collateral has made 300% during this time. The real winner was the charities and cash, not even the S&P 500.”

Wasn't a huge fan. Having read a lot on decision making lately (particularly Tetlock, and some stuff on Shannon/Thorp/Kelly), I didn't feel like it had that much new in it. That said, as an introduction, it would probably cover a lot of ground in a very accessible manner, and it was also entertaining.

The biggest advertisement for the need for shareholder activism is the ongoing disparity between the returns achieved by public market investors (mid single digits, though not for the members of cob&f) and those achieved by private equity (high teens, net). Some of the differential can be explained by time arbitrage, and some can be explained by leverage, I suppose, but increasingly it is becoming clear that unless we public market shareholders do more, private equity will keep eating our lunch. These are the same companies, facing the same macro environment, and yet more and more money is being handed to private equity, locked up for decades, and drowned in fees. If someone would only be more engaged, and disciplined enough to hold off trading something just because they can, those returns could be ours! I read presentations on stocks and see analysts noting possible PE interest in a name as a potential catalyst to the upside and I think, "Wake up! If you're right, that guy's going to get 20% a year out of that name even at the stepped up valuation you've pinned your hopes on and your big dream is taking your pennies and walking away sated? Don't just hand it to him!" Alas...

I have only read the "Global Asset Allocation" book. You get what you pay for.

Jurgis - I hope no one thought I was making it sound easy! My intent was to expand on a pattern that I've seen in a few companies now that can be an indicator that something very interesting is going on and is a call to investigate more. It's a check on my natural instinct to say, "looks like a terrible industry, move on!" Hopefully now I will say, looks like a terrible industry, but not for everyone, what are they doing different and is it sustainable? That check is one of the main things I took away from the book. No one would say convenience stores are sexy, and I doubt it would top anyone's idea of a great industry like the CPG space was for many years. Nevertheless, Alain and his team managed to do something incredible there. Its a belief of mine that every great investment idea should make you really uncomfortable. It's sort of the opposite of Mohnish Pabrai's dictum to only invest in no-brainers. I think you should be scared poop-less that you missed something big and obvious for why this ball of amazing-ness has landed in your lap. It is situations like that where you make money because they require you to use your professional judgment to say, no, this is compelling, despite what everyone else sees on the surface. In that sense I think investing is about choosing the things that make you uncomfortable. Does that resonate with you at all Jurgis? If so, what's your poison? What kind of situations make you sit up and pay attention?

I try to keep two heuristics in mind as I look at opportunities: pay attention to the skinny cow and the odd duck. After reading this book it reminded me of the latter. The skinny cow is a concept borrowed from an investing book by Gene Hoots. The idea is that everyone at a cattle auction would pay top dollar for the fat cows, but a good farmer could buy the skinny cow at a discount and fatten him up for cheaper than it would cost to buy him already plump. This is what I think of as the traditional value play where you're essentially betting on the power of mean reversion. Multiples and profits normalize over time and you can make extra-normal returns by buying when those factors are depressed. After reading the Couche-Tard book it reinforced my conviction in the second category, the odd duck. I think of these as companies that manage to make solid profits in industries with terrible economics where competitors struggle. One thing that makes this search strategy complicated is that this is what short sellers look for in companies to short. And most of the time the short sellers are right, the industry economics prevail. But rarely, they don't. And when they don't, they can be very profitable places to invest because it's a sign that something extraordinary is going on. Couche-tard's ability to generate the cash flow, out-earn and ultimately buy out/consolidate competitors in the 80's and 90's was the signal that something interesting was going on. I hadn't begun investing until the 2000s so I couldn't have seen the dynamic playing out, but reading the book reinforces what to look for today. The Buffett example that falls into this category is Clayton Homes. Other mobile home manufacturers continually went bust as credit cycles turned because they would overextend credit. Clayton never did and grew into its competitor's markets when they would go belly up. It's the kind of industry that an investor would look at for the first time and see a graveyard, and decide to move on to greener pastures. Or worse, where an investor would pick a company in distress, betting on mean reversion, only to see it go out of business and decide to avoid the industry in the future. In some sense its the exception to Buffett's dictum that "when a management with a reputation for brilliance tackles an industry with a reputation for bad economics, its the reputation of the industry that remains." Or maybe it just qualifies the theory to situations where new management is brought in to turn around the company versus instances where the management has grown up in that industry.

The real interesting, and timely, thing about the Madoff story relayed by Thorp is that according to Bloomberg, Madoff is trying to help some former investors by arguing that his fraud started in 1992, so anything they took out of the fund prior to that year was not part of the Ponzi scheme. (https://www.bloomberg.com/news/articles/2017-06-23/madoff-clients-fighting-for-fortunes-get-help-from-the-con-man) But if you follow the timeline for when Thorp figured out the fraud, it's 1990. Not surprising that a liar continues to lie - mostly surprising that anyone would take his statements as evidence...

Like some who have commented, I found it hard to get through the hardback version when it first came out a few years ago. I had a lot of momentum in the early chapters because the concept was new to me and I found it neat. But then I put it down and never picked it back up. Recently I listened to the audio version over the course of a few weeks during my commute and very much enjoyed it. I think it's a much better medium for the message.

The man himself gives a pretty good list in the attached speech:

Couldn't agree more. It's rare that I don't end up finishing a book on either Buffett or Munger, but I couldn't justify reading more when the material I encountered about 1/3 of the way through was already so well trodden elsewhere. Perhaps newcomers to Berkshire would get some value out of it if it were the first book they encountered on Charlie, but Damn Right! was more entertaining and Charlie's longer lectures on Worldly Wisdom that can be found on youtube were better returns on time. I do, however, like the 25iq blog posts.

If the guy can get people to save more he'll have done the world a big favor. I agree with those who say that the best parts of the book were the very basic lessons in personal finance (keep fees low, make sure to start early because compounding matters) as well as the internal motivation stuff, not surprisingly as that is kind of his shtick. The investor profiles were very weak, and the main recommendation to use an insurance policy to get all the downside protection of a bond without sacrificing the upside of the equity markets struck me as a bit naive and too much in the vein of "all you really need is this one thing, it's that simple". What I found particularly helpful were some of the ways he got me to think about money on a personal level. Sometimes we all have this vague feeling that it'd be really great to have billions on billions of dollars because then it would allow us to do all this cool and maybe even meaningful stuff only then to get a bit sad that the numbers are so big it seems unachievable so there goes the cool stuff and there goes the meaningfulness. What he did was get me to actually calculate how much I would need to do some of those things that mattered to me, and that made it much more realistic as a goal.

Has anyone else read this book? I first became introduced to it in a speech given by Bob Bruce who was a PM at First Manhattan for many years and helped revive the value investing program at Columbia Business School and it has become a favorite. I think it, along with Bruce Greenwald's "Value Investing", are the two best introductions to investing in the value school. This book does a great job of explaining how powerful the flywheel of quality compounding on itself can be for investor returns. Which makes it a great companion to the Greenwald book as I've always suspected that Greenwald leaned towards the Ben Graham/cigar butt/statistical cheapness end of the spectrum (and consequently holds his nose a bit when discussing how to value growth and quality) whereas Arnold is much more in the spirit of a modern day Phil Fischer. In any case, it has a series of profiles of famous value investors and explains some of the nuances that made each of them unique, and in the final few chapters (which is what I think the book really adds to the conversation) Arnold tries to put them all together within a framework that can be applied. Those new to value investing can benefit from reading the whole book, while those with more experience can just skip to the sections at the back. NB. I believe the most updated version of the Arnold book re-named it "Value Investing"...

The best article about Andy Beal is called "The Banker Who Said No" and it recounts how he basically shut his bank down before the '08 crisis and ended up being investigated by his regulators for holding "too much capital". http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html I printed it out and read it every so often when I'm having trouble finding new ideas because it reminds me not to compromise my return thresholds. I love the article because it talks about how tempted he was to put money to work during a terrible period for doing so, and used all sorts of distractions to keep himself from doing anything stupid. Until I read the Michael Craig book however I never knew one of those was poker...