A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.
Thirty Years – Reflections on the Ten Attributes of Great Investors (Michael Mauboussin @mjmauboussin, Dan Callahan, and Darius Majd; Credit Suisse)
After decades of investing, Michael Mauboussin reflects on what he has learned and consolidated it into ten well-constructed and concisely-written attributes. 1) Be numerate (and understand accounting); 2) Understand value (the present value of free cash flow); 3) Properly assess strategy (or how a business makes money); 4) Compare effectively (expectations versus fundamentals); 5) Think probabilistically (there are few sure things); 6) Update your views effectively (beliefs are hypotheses to be tested, not treasures to be protected); 7) Beware of behavioral biases (minimizing constraints to good thinking); 8) Know the difference between information and influence; 9) Position sizing (maximizing the payoff from edge); 10) Read (and keep an open mind). He ends with a recommendation for how to achieve peak performance within an investment organization.
This is Mr. Gates’ response to Robert J. Gordon’s book The Rise and Fall of American Growth. The dramatic change in the standard of living from 1870 to 1970 was astounding. We went from candle lit homes, chamber pots, and transportation by horse to electric lights, computers, plumbing, cars, and planes all within 100 years. Mr. Gordon cannot imagine that the next 100 years will have the same dramatic increase. Mr. Gates “couldn’t disagree more.” The headwinds Mr. Gordon references may be the very problems that could get solved over the next 100 years, causing this century to be deemed great.
Seeing the signal through the noise is incredibly difficult. Since the Great Recession, the S&P 500 grew at an annualized rate of 18.1% while individual investors in the SPY (S&P 500 index ETF) only had an annualized return of 11.8%. There was no shortage of noise during this period to distract investors. Headlines such as “Europe’s debt crisis. Companies still not hiring. The Gulf oil spill. These are uncertain times to say the least” are dramatic and eye-catching. This is great for news providers (more ad revenue) but detrimental for investors. To apply the work of Daniel Gardner and Philip E. Tetlock in Superforecasters, it’s important for investors to weigh various outcomes and continuously make small adjustments to those forecasts and not let your own biases drive your investment decisions.
Aviation Experts Urge Caution on Releasing Self-Driving Cars (Daniel Michaels and Andy Pasztor, @DanMichaelsWSJ, WSJ)
As someone that commutes to work by car, self-driving cars are extremely attractive. The ability to read and use the time more productively is invaluable. Airline pilots are reminding us that we’re in the early stages of autopilot and to proceed with caution. This comes at a time when there have been several accidents involving Tesla’s autopilot function, including one fatal accident. As with most computer systems, there are limitations and as Shawn Pruchnicki, a former commercial pilot said “It’s quite ridiculous we would give somebody such a complex vehicle without training.” Tesla is taking steps to address these concerns and vows “to step up efforts to educate customers about the way its autopilots work.”
Think Amazon’s Drone Delivery Idea Is a Gimmick? Think Again (Farhad Manjoo, @fmanjoo, WSJ)
The offering of Amazon Prime has greatly increased the importance of speedy deliveries. This has made them more reliable on delivery partners and the infrastructure (roads, airports, etc.) they use. The first step to address the issue was abandoning their price advantage (not collecting sales tax) in favor of building warehouses all over the US. This allowed them to meet the 2-day shipping service offered in Amazon Prime. The more difficult step is going to be expanding their shipping capacity, which may include re-thinking the way goods are delivered and reducing reliance on outside companies. The warnings from the department of transportation and missing of deliveries during the holidays two years ago (due to UPS being overwhelmed) are clear incentives to re-invent deliveries. Drones could be the solution to their problem. It might not work for all items and geographic locations, but it could be very disruptive.
For more information about positions owned by Ensemble Capital on behalf of clients as well as additional disclosure information related to this post, please CLICK HERE.
While we do not accept public comments on this blog for compliance reasons, we encourage readers to contact us with their thoughts.
Past performance is no guarantee of future results. All investments in securities carry risks, including the risk of losing one’s entire investment. The opinions expressed within this blog post are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. All opinions are subject to change without notice and due to changes in the market or economic conditions may not necessarily come to pass. Nothing contained herein should be construed as a comprehensive statement of the matters discussed, considered investment, financial, legal, or tax advice, or a recommendation to buy or sell any securities, and no investment decision should be made based solely on any information provided herein. Links to third party content are included for convenience only, we do not endorse, sponsor, or recommend any of the third parties or their websites and do not guarantee the adequacy of information contained within their websites. Please follow the link above for additional disclosure information.