investment

Only a few companies are able to consistently compound shareholder wealth at superior rates of return over a very long period of time. Here are 10 lessons from 20 years of quality investing.

I grew up ski racing in Lake Tahoe.

The Wheels Keep on Turning—and the anti-mimetic breaks are breaking.

Markets, Management and Momentum

For quality investors, the Return On Invested Capital (ROIC) is one of the most important financial metrics.A high ROIC is key for value creation and it’s a great way to look at a company’s competitive advantage.

If you want to be rich, you need multiple streams of income. It’s almost impossible to get wealthy by your salary alone. The good news is, with the right mindset and skills, you can use your salary to create investments that will generate wealth for you. It’s not too good to be true. It’s simple […]

This is a long quote/excerpt from Adam Robinson I’ve been holding onto for a while, from Tribe of Mentors. Worth considering, especially if you strive to work in a data-informed product organ…

"95% of all traders fail" is the most commonly used trading statistics. But why most traders lose money? Scientist found out why!

Will Smith writes in his biography that: Becoming famous is amazing. Being famous is a mixed bag. Losing fame is miserable. The amount of fame almost doesn’t matter. It’s the trajectory that people cling to. Same with money. I think for a lot of people the process of becoming wealthier feels better than having wealth. If it’s wealth we were after, most of us would feel great, because most of us are unfathomably wealthier than we were a generation or two ago. Or ten years ago. Or five years ago. Or two years ago! What feels great is being on an upward path. That’s when dopamine takes over. That’s when you can extrapolate it and assume it goes on forever, and compare yourself to where you were before, and feel like nothing can stop you. When that path declines – even if it happens when you have a level of wealth you couldn’t fathom a few years ago – the whole sensation shatters. U.S. household net worth is $80 trillion higher today than it was ten years ago, which is astounding. But it’s about $700 billion lower than it was three months ago, which is honestly nothing. Yet one of those figures creates ten times the headlines, ten times the attention, ten times the emotions, ten times the introspection. It has nothing to do with the level of wealth and everything to do with the trajectory. The problem is that an occasional downward path is inevitable in investing. Outside of fraud, it’s completely unavoidable. The reason markets can go up a lot in the long run is because they make you pay the cost of admission of going down a lot in the short run. When people are addicted to the act of becoming wealthier – the numbers going up more than just the numbers being big – and the numbers going down is an integral part of how investing works, of course you’ll find some shattered souls. Some broken egos. Some terrible decisions being made. Same in business. Same in careers. When most people hear this they respond with the classic line, “It’s the journey, not the destination, that matters!” OK, most of the time that’s good advice. But here I think it’s backwards. An addiction to the process of making money is a version of never having enough and never being satiated. It’s a game that can’t be won but offers the illusion of a finish line right around the corner. Maybe that’s OK for some people – if you truly enjoy the game, that’s great. But I think that’s maybe two percent of investors, including professionals. My sense is a lot of people suffer naively through the game expecting it to end, and they’re frustrated when it never does. Or they think they like the game, but what they actually like is numbers going up, which is maybe half the game. An indifference to the process – the path of the journey – and a focus on the outcome and goal is probably the best most people can do with money. Or maybe an acceptance of the process, knowing it’ll be a constant chain of surprise, volatility, setback, and disappointment, but if you can stick around long enough the odds of eventual growth and success are in your favor. That’s very different from enjoying the process, which can quickly turn into an addiction to needing more. Money buys happiness in the same way drugs bring pleasure: Incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is ever enough.

Listen now (14 min) | Plus Three other rules of thumb for real estate

“The strength of my kids is that they are too young to remember anything bad, and they are making so much money they feel invincible.” The Great Winfield

People are very good at forecasting the future, except for the surprises, which tend to be all that matter. Let me share a theory I have about risk and the right amount of savings required to offset it. The biggest risk is always what no one sees coming. If you don’t see something coming you’re not prepared for it. And when you’re not prepared for it its damage is amplified when it hits you. Look at the big news stories that move the needle – Covid, 9/11, Pearl Harbor, the Great Depression. Their common trait isn’t necessarily that they were big; it’s that they were surprises, on virtually no one’s radar until they arrived. It’s like that every year. It’ll be like that every year. It’s been like that this year. The Economist – a magazine I admire – publishes a forecast of the year ahead each January. Its January 2020 issue does not mention a single word about Covid. Its January 2022 issue does not mention a single word about Russia invading Ukraine. That’s not a criticism – both events were impossible to know when the magazines were likely planned in November and written in December each year. But that’s the point: The biggest news, the biggest risks, the most consequential events, are always what you don’t see coming. How do you live with that? One truth is that if you’re only saving for the risks you can envision, you’ll be unprepared for the risks you can’t imagine every time. So the right amount of savings/security/liquidity is when it feels like it’s a little too much. It should feel excessive; it should make you wince a little. The same goes for how much debt you think you should handle – whatever you think it is, the reality is probably a little less. Your preparation shouldn’t make sense in a world where the biggest historical events all would have sounded absurd before they happened. Most of the time someone’s caught unprepared it’s not because they didn’t plan. Sometimes it’s the smartest planners in the world working tirelessly, mapping every scenario they can imagine, that end up failing. They planned for everything that made sense before getting hit by something they couldn’t fathom. The push to be efficient with your cash and hold as little as necessary explodes when inflation is high, because people become paranoid about losing purchasing power. But it’s times like these when people become too smart for their own good. In the drive to become efficient they try to envision exactly how much cash they’ll need in the future, and hold exactly that amount, nothing more. And then of course they’ll be unprepared when the inevitable surprise hits. It’s like that every year. It’ll be like that every year.

This Minyanville  article  written by Jeff Saut covers Peter Lynch's "cocktail party" theory. It's from the book One Up on Wall Street .  ...

The definitive guide to the dollar cost averaging vs. lump sum decision.

You'll care about this one day.

"It's a different sort of place," the billionaire says.

A lot of things don’t make any sense. The numbers don’t add up, the explanations are full of holes. And yet they keep happening – people making crazy decisions, reacting in bizarre ways. Over and over. Historian Will Durant once said, “logic is an invention of man and may be ignored by the universe.” And it often is, which can drive you mad if you expect the world to work in rational ways. A common cause of everything from divisive arguments to bad forecasting is that it can be hard to distinguish what’s happening from what you think should be happening. Two short war stories to show you what I mean. The Battle of the Bulge was one of the deadliest American military battles in history. Nineteen thousand American soldiers were killed, another 70,000 missing or wounded, in just over a month as Nazi Germany made an ill-fated last push against the Allies. Part of the reason it was so bloody is that Americans were surprised. And part of the reason they were surprised is that in the rational minds of American generals, it made no sense for Germany to attack. The Germans didn’t have enough troops to win a counterattack, and the few that were left were often children under age 18 with no combat experience. They didn’t have enough fuel. They were running out of food. The terrain of the Ardenne Forest in Belgium stacked the odds against them. The weather was atrocious. The Allies knew all of this. They reasoned that any rational German commander would not launch a counterattack. So the American lines were left fairly thin and ill-supplied. And then, boom. The Germans attacked anyway. What the American generals overlooked was how unhinged Hitler had become. He wasn’t rational. He was living in his own world, detached from reality and reason. When his generals asked where they should get fuel to complete the attack, Hitler said they could just steal it from the Americans. Reality didn’t matter. Historian Stephen Ambrose notes that Eisenhower and General Omar Bradley got all the war-planning reasoning and logic right in late 1944, except for one detail – how irrational Hitler had become. But that mattered more than anything. A generation later, something similar happened during the Vietnam war. Secretary of Defense Robert McNamara viewed the world as a big math problem. He wanted everything quantified, and based his career on the idea that any problem could be solved if you obeyed the cold truth of statistics and logic. One of the key measures of success during Vietnam was body count – how many Viet Cong did American troops kill? Are more Viet Cong dying than Americans? It was easy to track, easy to show on a chart, and became an obsession. Then there was the logic: If enough Northern Vietnamese were killed, you could break the spirit of the enemy who saw their chances of victory diminished. More enemy bodies was equated with being closer to winning. William Westmoreland, who commanded U.S. forces, explained in 1967: We’ll just go on bleeding them until Hanoi wakes up to the fact that they have bled their country to the point of national disaster for generations. Then they will have to reassess their position. The war was turned into a math equation. If enemy dead outnumbered American dead, Americans would win. Ice-cold logic. But the bodies piled up, and the war went on. And on. And on. The “equation” would work only if the North Vietnamese leaders were calm, rational actors who would “calculate costs and benefits to the extent that they can be related to different courses of action, and make choices accordingly,” as one paper put it. But they weren’t. Edward Lansdale of the CIA once told McNamara that his statistics were missing something. McNamara said, “What?” Landsdale said, “The feelings of the Vietnamese people.” You couldn’t capture that on a chart. But it meant everything. In 1966 New York Times reporter Harrison Salisbury wrote: I seldom talked to any North Vietnamese without some reference coming into the conversation of the people’s preparedness to fight ten, fifteen, even twenty years in order to achieve victory. At first I thought such expressions might reflect government propaganda … but … I began to realize that this was a national psychology. Ho Chi Minh put it more bluntly: “You will kill ten of us, and we will kill one of you, but it is you who will tire first.” That’s exactly how it played out in America, where statistics meant nothing against feelings. Westmoreland once told Senator Fritz Hollings, “We’re killing these people at a rate of 10 to one.” Hollings replied, “The American people don’t care about the 10. They care about the one.” That was hard to reconcile in the statistical mind of someone like McNamara. It was like defying the laws of physics, or a typo in a math equation. But that’s how the world works. Some things just don’t compute. Investor Jim Grant once said: To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed. That’s always been the case. And it will always be the case. One way to think about this is that there are always two sides to every investment: The number and the story. Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow. The numbers are easy to measure, easy to track, easy to formulate. They’re getting easier as almost everyone has cheap access to information. But the stories are often bizarre reflections of people’s hopes, dreams, fears, insecurities, and tribal affiliations. And they’re getting more bizarre as social media amplifies the most emotionally appealing views. A few recent examples of how powerful this can be: Lehman Brothers was in great shape on September 10th, 2008. Its Tier 1 capital ratio – a measure of a bank’s ability to endure loss – was 11.7%. That was higher than the previous quarter. Higher than Goldman Sachs. Higher than Bank of America. It was more capital than Lehman had in 2007, when the banking industry was about as strong as it had ever been. Seventy-two hours later it was bankrupt. The only thing that changed during those three days was investors’ faith in the company. One day they believed in the company. The next they didn’t and stopped buying the debt that funded Lehman’s balance sheet. That faith is the only thing that mattered. But it was the one thing that was hard to quantify, hard to model, hard to predict, and didn’t compute in a traditional valuation model. GameStop was the opposite. The statistics showed it was on the edge of bankruptcy in 2020. Then it became a cultural obsession on reddit, the stock surged, the company raised a ton of money, and now it’s worth $11 billion. Same thing here: The most important variable was the stories people told and the emotions they suddenly stumbled upon. And that was the only thing you couldn’t measure and couldn’t predict with foresight. That’s why the results don’t compute. Whenever something like this happens you see people shocked and angry about how the market has become detached from fundamentals. But Grant was right: It’s always been like this. The 1920s were giddy. The ‘30s were pure panic. The world was coming to an end in the ‘40s. The fifties, ‘60s, ‘70s, were boom to bust, over and over. The ‘80s and ‘90s were insane. The 2000s have been like a reality TV show. If you’ve relied on data and logic alone to make sense of the economy you’ve been confused for 100 years straight. Japan is offering companies a 40% tax rebate to raise wages. But most companies aren’t, in part because raises just aren’t part of the Japanese business culture. Meanwhile, JPEGs of apes have risen in value several thousand percent in the last few months, in part because that is part of the crypto culture. Economist Per Bylund tweeted this recently: The concept of economic value is easy: whatever someone wants has value, regardless of the reason (if any), and its value is higher the more it’s wanted and the less there is of it. Not utility, not discounted cash flow – just whether people want it or not, for any reason. So much of what happens in the economy is rooted in emotions, which can, at times, be nearly impossible to make sense of. To me it’s obvious that the one thing you can’t measure, can’t predict, and can’t model in a spreadsheet is the most powerful force in all of business and investing – just like it’s the most powerful force in the military. Same in politics. Same in careers. Same in relationships. A lot of things don’t compute. The danger, and you see it often in investing, is when people become too McNamara-like – so obsessed with data and so confident in their models that they leave no room for error or surprise. No room for things to be crazy, dumb, unexplainable, and to remain that way for a long time. Always asking, “Why is this happening?” and expecting there to be a rational answer. Or worse, always mistaking what happened for what you think should have happened. The ones who thrive long term are those who understand the real world is a neverending chain of absurdity, confusions, messy relationships, and imperfect people. Making sense of that world requires admitting a few things. John Nash is one of the smartest mathematicians to ever live, winning the Nobel Prize. He was also schizophrenic, and spent most of his life convinced that aliens were sending him coded messages. In her book A Beautiful Mind, Silvia Nasar recounts a conversation between Nash and Harvard professor George Mackey: “How could you, a mathematician, a man devoted to reason and logical proof, how could you believe that extraterrestrials are sending you messages? How could you believe that you are being recruited by aliens from outer space to save the wo

A place for uncomfortable, unlikely, and unacceptable ideas.

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