Value Investing World is a blog dedicated to promoting the multidisciplinary approach to investing and development of – as Charlie Munger describes it – a latticework of mental models. Although largely focused on linking to investing and economic material it deems of interest, it will also post and link to material from other disciplines that it thinks worth reading or watching.
"I’m firmly convinced that markets will continue to rise and fall, and I think I know (a) why and (b) what makes these movements more or less imminent. But I’m sure I’ll never know when they’re going to turn up or down, how far they’ll go after they do, how fast they’ll move, when they’ll turn back toward the midpoint, or how far they’ll continue on the opposite side. So there’s a great deal to admit uncertainty about." --Howard Marks (Mastering the Market Cycle)
As I've mentioned before on this blog, I think paying attention to the macro landscape is best done with the mindset of identifying risks, as opposed to making forecasts. Though as the quote from Howard Marks above shows, while it's possible to develop skill at identifying those risks and even knowing when they may be imminent, you still never know precisely when or to what extreme they will manifest themselves.
As I continue to go back through the old Berkshire Hathaway Annual Meeting transcripts, I've been paying special attention to when Buffett and Munger have identified some of those big picture risks. And the excerpt below, from the 2006 meeting, is a good example.
CHARLIE MUNGER: I also think that some of the sin that was in the manufactured housing finance a few years ago has shifted into the finance of the stick-built houses.
There is a lot of ridiculous credit being extended in America in the housing field. And it had a horrible aftermath in the manufactured housing sector, and my guess is there will be some trouble in the stick-built sector in due course.
WARREN BUFFETT: Well, dumb lending always has its consequences and usually on a big scale, because you don’t see it for quite a while. So, therefore, it’s like a disease that doesn’t manifest itself for a few weeks.
And you can have an epidemic of something like that, and by the time you know you have an epidemic, you’re very well into it. Well, that’s what happens in dumb financing.
...You certainly had it in commercial financing in the ’80s, and you had the RTC and the savings and loan crisis and all of that because, literally, one dumb project was put up after another.
A developer will develop anything he can borrow the money against. It’s that simple. And when the lending institutions pour the money out for something, it will get built.
And that happened in manufactured housing. It happened in commercial real estate in the ’80s. I think it’s happened in conventional housing here in recent years.
And if you look at the 10-Qs that are getting filed for the first quarter of some lending institutions, and 10-Ks that were last year, and you look at the balances increasing on loans for interest that’s accrued but was not paid because people had adjustable mortgages, but they’re only adjustable so far, but the lending institutions are taking in the income as if it were paid, you’ll see some very interesting statistics.
CHARLIE MUNGER: Yes. And some of this dumb lending is being facilitated by contemptible accounting. The accounting profession has not stopped compromising its way into terrible behavior.
Marcus Aurelius on Embracing Mortality and the Key to Living with Presence (LINK)
"The longest-lived and those who will die soonest lose the same thing. The present is all that they can give up, since that is all you have, and what you do not have, you cannot lose." --Marcus Aurelius
"The job of the board is to get the right CEO, to prevent that CEO from overreaching. Because sometimes you have some people that are very able, but they still want to take it all for themselves. But if they take nothing and they’re the wrong CEO, they’re still a disaster. So low pay itself is not the criteria. So you want the right CEO. You do not want them overreaching. And then I think the board needs to exercise independent judgment on important acquisitions, because I think CEOs — even smart CEOs — are motivated, frequently, in acquisitions by other than rational reasons." --Warren Buffett (2006)
Value Investing with Legends Podcast: The All-Important Power of Consumer Brands (with Tom Russo) (LINK)
"There are things in life that you don’t have to make a decision on and that are too hard.... One of the interesting things about investment is that there’s no degree of difficulty factor.... We get paid, not for jumping over 7-foot bars, but for stepping over 1-foot bars. And the biggest thing we have to do is decide which ones are the 1-foot bars and which ones are the 7-foot bars so when we go to step we don’t bump into the bar. And that is something that I think we’re reasonably good at. Now maybe we cast out too many things as being too hard and thereby narrow our universe. But I’d rather have the universe be interpreted as being a little smaller than it really is, than being interpreted as larger than it is." --Warren Buffett (2005)
Connor Leonard's presentation to the Value Investing Club at Google (LINK)
"If you’re analyzing something like WD-40, or See’s Candy, or our brick business, or whatever...they may have good or bad prospects but you’re not likely to be fooling yourself much about what’s going on currently. But with financial institutions, it’s much tougher. Then you throw in derivatives on top of it, and...no one probably knows perfectly — or even within a reasonable range — the exact condition of some of the biggest banks in the world.... I just think you have to accept the fact that insurance, banking, finance companies — we’ve seen all kinds of finance company...frauds and just big mistakes over time — just one after another over the years. It’s just a more dangerous field to analyze. It doesn’t mean you can’t make money in it. We’ve made a lot of money on it. But it’s difficult." --Warren Buffett (2005)
Influencers Transcript and Video (Yahoo Finance): Charlie Munger (LINK)
Berkshire Takes Tax Hit as Victim of ‘Ponzi-Type’ Solar Scheme [H/T Linc] (LINK)
U.S. Recession Would Spur ‘Massive’ Corporate Bond Losses, Eisman Says (LINK)
Chick-fil-A’s Lean Menu Helps Chain Bulk Up ($) (LINK)
Jeremy Grantham on the battle to save society from climate change: ‘We’re not winning’ ($) (LINK)
The Intelligent Investing Podcast: Christian Olesen - Cambria Automobiles (LINK) [Disclosure: As of the date of this post, I own shares for myself and clients at Sorfis Investments in Cambria Automobiles.]
"Now the search expenses that brought us Ajit Jain, now there was an investment that really paid a dividend. I can think of no higher return investment that we’ve ever made that was better than that one. And I think that’s a good life lesson. In other words, getting the right people into your system can frequently be more important than anything else." --Charlie Munger (2005)
GMO Quarterly Letter: Stop Worrying About Your Portfolio (LINK)
Notes From Sohn New York Investment Conference 2019 (LINK)
Renaissance Paragone: An Ancient Tactic for Getting the Most From People (LINK)
The Giant Panda Is a Closet Carnivore - by Ed Yong (LINK)
AI Evolved These Creepy Images to Please a Monkey’s Brain - by Ed Yong (LINK)
For Audible Members, the current sale is 50-70% off all titles, so it's probably worth going through your wish list. A couple on my list that I noticed fell in the 70% off category were AI Superpowers and The Fifth Risk.