feynmanresearch
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A case of variant perception would be Cheniere Energy( LNG). Carl Icahn and Seth Clarman both have sizable stakes in it, but for the life of me, I can't figure out what they see in that company
OK. Let's take that as an example. How many positions in your portfolio are such that most people will either not understand why you hold the position or will think that you are wrong (crazy, etc.)?
I'm not putting you personally on the spot, this is a question to everyone on this thread.
Let me make it even easier: what percentage of your portfolio is in positions where you believe to have "variant perception"?
For me personally, the number is 0%. Actually, it's probably negative: I have couple positions where I am pretty sure the market is right and I am wrong, so those would count as negative "variant perception". ;)
I have 10% of my portfolio in Gilead Sciences( GILD)
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It is probably easier to find a great company and invest in it without having a "variant perception" on it. Anyone who bought MSFT or even BRK X years ago did not have to have "variant perception". They just needed to buy and hold.
Read Munger on the pari-mutuel system or Howard Marks on 2nd Level thinking. Finding a great company is not enough.
OK. It's not enough (actually, it is enough if you bought BRK 20 years ago and held, but I won't argue with you). I said so much above. If you are genius and can do "variant perception", great.
Edit: reading Munger and Howard Marks in no way guarantees that someone will suddenly be able to do "variant perception" on their investments BTW.
Should the rest of us just slit our wrists and buy index funds?
Actually I'll add couple more edits:
1. Even someone who bought BRK at the top of past peaks, did really well. So not much for pari-mutuel comment from Munger, although he is definitely right short term and for some companies he's right long term.
2. Most people buy stocks all time (DCA) and not at single moment, so they can get great companies at variety of prices, some better some worse.
3. Buying great company at low(ish) price is not "variant perception". It's just valuation.
WTH is "variant perception" anyway? I'm gonna partially agree with Hielko that it's mostly meaningless phrase. Can you give examples? Mike Burry and CDSs? (even he was not alone in that perception, so is it really "variant")? Berkowitz and AIG/SHLD/Fannie? Are these really "variant" either? Ackman and HLF? Or Icahn and HLF? ;)
If I bought AAPL in 2013, was that "variant perception"? Valuation? Both? Neither?
A case of variant perception would be Cheniere Energy( LNG). Carl Icahn and Seth Clarman both have sizable stakes in it, but for the life of me, I can't figure out what they see in that company
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It is probably easier to find a great company and invest in it without having a "variant perception" on it. Anyone who bought MSFT or even BRK X years ago did not have to have "variant perception". They just needed to buy and hold.
Read Munger on the pari-mutuel system or Howard Marks on 2nd Level thinking. Finding a great company is not enough.
This. It's not enough to just buy a very good to great company- one must buy it when its undervalued, which often times happens during times of financial distress such as an overall macro crisis or temporary unjust judgement of companys prospects which is not likely to be permanent over the long-term. In short,being an contrarian is often a must if one is looking for consistent, long-term outperformance.
Another ways to achieve outperformance would be to detect great companies before the market recognizes them or bet on the direction of the moves of the overall market( I don't think anyone could do this consistently, time after time). Nothing wrong's with buying good to great companies and let them grow, but if you want to manage OPM, its a must that you deliver alpha. For a personal portfolio, I don't see anything wrong if an investor just bought good to great companies and held them for years
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great read. Great answer below, couldn't write it any better.
SumZero: What advice would you give to someone interested in pursuing investing?Torin Eastburn, Monte Sol Capital: Read The Intelligent Investor. Then read every word Warren Buffett has ever written, starting with his partnership letters. If you lack a business education, take Level 1 of the CFA exam to learn the basics of accounting, valuation, and corporate finance.
Start investing as soon as possible. Lose money quickly so that you can experience first-hand the humiliation of being wrong and paying a monetary penalty for your stupidity. Never, ever forget that feeling.
Keep reading and investing. Read everything. Each moment you spend not reading, you lose ground to your competitors who are reading. Undertake a lot of deliberate practice by making actual investments and putting your theses down in writing, even if you’re the only person who ends up reading them. You can’t just buy XYZ because you think to yourself, “this seems cheap”. That is not investing. You must have concrete reasons for believing that your differentiated view is the correct view. You must be able to explain those reasons clearly to yourself and to others. You must have a strong understanding of the unit economics of the business, and a well-reasoned opinion about how they will change in the future. You must know how the private market values businesses in the industry where you’re investing.
Nobody will be good right off the bat. Investing is hard. By definition you are unlikely to beat the market. You stand no chance at all without thousands of hours of practice. But personally I believe it is possible to consistently outperform provided that you have a contrarian temperament and you are eager to put in the work.
I don't know. This sounds pretty ridiculous to me. Humiliated for picking a losing stock? That's completely absurd & irrational. That whole section of the interview comes off as pretty pretentious. I don't think there's any risk of "forgetting the feeling" of losing money in a stock considering no one bats a thousand in this business. My worst picks have been down 80%, my best up 500%+. The individual gains and losses don't mean much; it's what they create in aggregate that counts. Just like a painting is more than just the individual strokes used to create it, so is a portfolio more than the individual winners and losers used to generate its returns.
The weighting, timing, magnitude, all these things matter. If you had two stocks allocated 50% each, would you rather have a situation where one went to zero and one went up 10x, or would you rather have each one go up by 10% to avoid the "humiliation" at having been wrong about one?
And, just a pet peeve of mine, I hate the concept of having a "differentiated" thesis, variant view or whatever you want to call it. Why? Because it's marketing bullshit that suits use to come across as more insightful than they are. "The market thinks this, but I think that opinion is wrong," conjuring straw men to tear down to make the thesis sound better. When really, you have no clue what every other market participant thinks or if your perspective is truly unique.
You can find out what sort of expectations are priced in but not the reasons for those expectations. If you say you can, and then craft some sort of story or narrative for your pitch based on that, you're not really performing analysis. You're marketing. There's nothing wrong with marketing, it's almost a necessary part of business development. But it's important to be aware of the difference when you're reading content that is even somewhat commercial in nature.
One last thing, reading can be important but reading everything really isn't necessary. Most content is entirely useless and detracts value. Good for this guy for being successful with his style; seems like a smart dude. Personally? I've found that by cutting out extremely thorough research, my quality of life has gone up and my returns are still pretty good. It's very easy to talk yourself out of a good idea or overthink a problem. More often, the keys to whether an investment pays off are few. I've found focusing on the few things that really matter for each company does the vast majority of the heavy lifting.
It is possible for one business to consistently outperform another even without having a structural competitive advantage. Despite all the talk about huge moats at Coca-Cola and American Express and See’s Candy and so on, Berkshire Hathaway’s largest holding by far is Wells Fargo, a bank. Banking is a commodity service and a simple business. The customer deposits money and then later on withdraws it. In the meantime the bank lends that money. That’s it.This is just weird, IMO. Wells Fargo certainly has structural advantages over many other banks and does have something of a moat. Not the world's strongest one, but nothing to sneeze at.
I mostly agree with the rest of his comments, but these in particular really stuck out to me. Maybe I'm being too nitpicky, most of this was pretty good.
His comment about Wells Fargo was definitely strange. Banking is more complicated than that- if Wells Fargo didn't have an edge, then Buffett most likely would have not invested in it. If his argument holds true, any bank is a strong candidate to invest in, and we all know how that turned out in the recent past
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Late 2014, when I was 22.
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Shares a lot in common with Thinking Fast and Slow but is more biographical . It's also a much easier read.
Thanks for the recommendation. It has been in my to buy list for a while-I'll be happy to finally pull the trigger.
I have a very interesting blog on how value investing and behavioral finance interconnect: http://seekingalpha.com/user/37577646/instablog
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I owned one of the funds for a while, after years of under performance I dumped it. This was in a retirement account for my wife. I remember they are huge on Hong Kong real estate, or were for a while.
Conceptually I've liked how Whitman thinks. But I can't stand how he writes (CSHHW) with all the crazy acronyms for everything. Since CSHHW I have trouble reading his books without stopping at each acronym and thinking "what in the world does CSTBCNWC mean? (cheap stock trading below current net working capital)".
I agree. I struggled to read the Aggressive Conservative investor because of his writing style. Although that book definitely has some strong insights in it
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Thanks. I have not contacted them. I am not a shareholder.
Consider yourself lucky. ;)
Why?
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Delirium Tremens
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I haven't shorted anything yet, but Zillow Group(Z) and Famous Daves of America( DAVE) are definitely currently priced way above their intrinsic value.
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[amazonsearch]Classics: An Investor's anthology[/amazonsearch]
This book was written by Charles Ellis, the author of Winning the Losers game. The book has writings and articles from the most successful money managers, starting before World War 2 to late 1980s.Some famous investors profiled are: Paul Cabot, Benjamin Graham, Lord Keynes, Warren Buffett, Philip Fisher, T-Rowe Price, John Templeton etc
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[amazonsearch]John Neff on Investing[/amazonsearch]
This is really good book, that I think is not appreciated/known as much as it should be.John Neff managed the Windsor fund from 1964 to 1995, consistently beating the market average year after year. He describes his investment philosophy in a very straightforward way. Unlike some other authors, he provides concrete examples of his investment,alongside with his rational for undertaking them.
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[amazonsearch]The Elegant Universe[/amazonsearch]
For those who are interested in the qualitative ideas behind Special and General Relativity, Quantum Mechanics, and String Theory, without the heavy to digest mathematics that underpin those theories, [amazonsearch]The Elegant Universe[/amazonsearch] is a very good read. And I am enjoying it a lot!
Cheers,
Gio
I actually started reading this book, but I failed to finish it, as I got distracted with work and school. Definitely plan to finish it in the future though
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http://www.amazon.com/Who-Gets-What-Why-Matchmaking/dp/0544291131
A book about designing markets.
I'm liking it so far, though it's a bit long-winded and you have to get to 100+ pages before he gets to a market design algorithm, but overall I think it's definitely worth reading and unique.
Let me know your final thoughts after you finish reading it. The topic sounds definitely interesting.
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Most of my favorite books on valuation are mentioned above.
The books mentioned above cater to different sets of needs and provide different perspectives.
Damodaran's investment valuation is most comparable to McKinsey's book, in that they do a deep dive on the minutia of valuation. Except for the part about using beta to estimate required returns, it is useful to know almost all the other facets of valuation covered in these books. You might not actually make LIFO to FIFO adjustments or currency translation adjustments in real world valuation - it is one thing to know how these are impacting the financial statements and consciously ignore them for simplification and not knowing what is going on and if it is a positive or negative or if these effects cancel out over the long term. Even if you end up just using multiples, knowing the underlying assumptions behind them helps you to think more clearly. I found out I had been abusing the DCF method before I read Damodaran's book in depth - one of many many but this is most glaring.
I personally liked Damodaran's book much better than McKinsey. Perhaps because I started with Damodaran's book and breezed through McKinsey as they cover very very similar material with a slightly different terminology.
I also like Jeffrey Hooke's book and Greenwald a lot. They provide a completely different perpective, Hooke's a high level overview and how to value different types of businesses using industry specific methods. Greenwald comes about from a completely different angle based on moat vs. no moat and reinvestment opportunity.
I think reading Damodaran or McKinsey's book and both Hooke's and Greenwald provides a nearly comprehensive valuation toolkit for investors.
Vinod
If you had to chose between the McKinsey book and Damodaran's book, which would you chose?
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This books is on my to buy list. Google is definitely a fascinating modern company that everyone should get to understand, at least on a basic level.
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I am looking forward to reading Marks book. I have heard so many good things about it
Good books on risk?
in General Discussion
Posted
The Most Important Thing by Howard Marks. Also, Fooled by Randomness, Anti-fragile and the Black Swan( all three by Nassim Nicholas Taleb)