Ciò Che Stiamo Leggendo

Dad’s 70th birthday prompted my current “workation” in Italy, which has provided ample time for reading, thinking and writing. One week in and I’ve already managed my way through an entire briefcase of printed material brought along for the ride, six books and a decade of annual filings from a prospective investment – and all while managing a two-year-old (still) adapting to the time change, but having no problem digesting a daily dose of pasta.

A few weeks ago, we began publishing a weekly email for investors which included nuggets (somewhat) related to portfolio holdings, articles of interest and other ideas expanding our circle of competence. Since this list ran a bit longer than usual, we decided to share it more broadly to increase the odds that someone actually reads it.

Let me know how we did – I’m reachable by email for the next two weeks. If you need immediate assistance, please contact our domestic office superstar, Nancy Walsh. Happy reading.

  • Financial journalism is in the change business: focusing on whatever has just changed and focusing most intently on what has changed the most and the fastest. As a result, intelligently consuming news is much harder than it used to be. Jason Zweig reminds us that – Consuming Financial News Without Being Consumed By It – requires a strong filter to take in news only from those sources we can trust.
  • Recent headlines out of Greece provide a timely example on this last point. For our own thoughts, which have changed little over the past five years, see A Model For Failure. While the turmoil in Greece is likely to continue in the near term, we suggest investors pay more attention to what is going on in China, where Market Moves Are Doomed to Fail.
  • Stocks ask you different questions at different prices. One needs fewer answers at a low price versus a high price. Today, we have lots of difficult questions. In this recent speech, Don’t Be Surprised, FPA’s Steven Romick offers some guidance in our search for answers: Have conviction, but be flexible. Rigidity can lead to unpleasant surprises.
  • The Big List of Behavioral Biases is an extraordinary compendium of irrationality, an imperfect register of the  strange ways in which rational economics goes astray.  Unfortunately, the longer the list grows, the more perplexing it becomes.
  • We continue to battle the complexity of “The Big List” with Simple Rules, one of Wall Street’s “must read books of the summer” per Bloomberg. The concept of Simple Rules is not new – Bruce Lee called it hacking away at the unessential – addition, by subtraction.
  • Benjamin Franklin: An American Life, Walter Isaacson outlined Ben Franklin’s “Plan for Future Conduct” and his four simple rules for success: 1) it is necessary for me to be extremely frugal for some time, till I have paid what I owe; 2) endeavor to speak truth in every instance; to give nobody expectations that are not likely to be answered, but aim at sincerity in every word and action – the most amiable excellence in a rational being; 3) apply myself industriously to whatever business I take in hand, and not divert my mind from my business by any foolish project of suddenly growing rich; for industry and patience are the surest means of plenty; and 4) resolve to speak ill of no man whatever.
  • Warren Buffett has plenty of horsepower and output. But when asked about his success, Buffett emphasized that it was RQ that made the big difference, not IQ. IQ represents the horsepower of the motor, but the output – the efficiency with which that motor works – depends on RQ. Read more from Credit Suisse on IQ vs RQ.
  • As the Internet has moved from our desktops to our pockets, its nature has changed in ways we are far from understanding. The Web Is Dead, published nearly five years ago, offered a brief glimpse into the transition we are only just beginning to see today.
  • The first “internet casualty” in the media industry was print, but it appears we are quickly approaching a tipping point in the shift from traditional to digital media. Disruption on this scale combined with a lack of understanding can create significant opportunity. Recent industry research from PwC and Magna Global offer some perspective.
  • For cable networks, many markets outside of the US still represent significant growth opportunities. Discovery Communications appears to be well positioned abroad as management recently secured European TV Rights To The Olympics. EuroSport is an underappreciated (and likely undervalued) platform asset.
  • Well positioned “abroad” may soon take on new meaning, according to Elon Musk. While I personally prefer the satisfying growl of an Italian engine, Tesla’s accomplishments have been nothing short of extraordinary. Perhaps even more shocking is what is in the works. For a quick glimpse, click here and here. For the best read of the summer to date, check out, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.
  • If space travel doesn’t do it for you, we’d recommend reading through the Letters to Shareholders at Credit Acceptance for a model of transparency and discipline at a more old-fashioned business. We don’t own shares, but value the perspective offered by Don Foss, who opened his first car lot in 1967.
  • Despite the advances in peer-to-peer lending and robo-advisors, entrenched players in the finance industry are unlikely to be disrupted by new media entrants or space travel. Firms that emphasize specialization rather than commoditization – like Oaktree (where we do own shares) – should increasingly attract a prominent allocation among growing investment dollars. This report from PwC considers the changes in the landscape for alternatives.
  • Finally, another sports analogy compliments of Credit Suisse. In this piece, Triple Crown Teachings, Michael Mauboussin recommends investors (and gamblers): first, consider the base rate in assessing future outcomes; second, promote cognitive diversity and avoid “organizational inbreeding” and; finally, always focus on mispricing.

 Rapallo