Value Investing World: An Investing Principles Checklist from Poor Charlie

Value Investing World: An Investing Principles Checklist from Poor Charlie

An Investing Principles Checklist from Poor Charlie

From Poor Charlie's Almanack:
-

An Investing Principles Checklist

-
Risk – All investment evaluations should begin by measuring risk, especially reputational

• Incorporate an appropriate margin of safety
• Avoid dealing with people of questionable character
• Insist upon proper compensation for risk assumed
• Always beware of inflation and interest rate exposures
• Avoid big mistakes; shun permanent capital loss
  -

Independence – “Only in fairy tales are emperors told they are naked”

• Objectivity and rationality require independence of thought
• Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment
• Mimicking the herd invites regression to the mean (merely average performance)

-
Preparation – “The only way to win is to work, work, work, work, and hope to have a few insights”

• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
• More important than the will to win is the will to prepare
• Develop fluency in mental models from the major academic disciplines
• If you want to get smart, the question you have to keep asking is “why, why, why?”

-Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom

• Stay within a well-defined circle of competence
• Identify and reconcile disconfirming evidence
• Resist the craving for false precision, false certainties, etc.
• Above all, never fool yourself, and remember that you are the easiest person to fool
  -

“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

-

Analytic rigor – Use of the scientific method and effective checklists minimizes errors and omissions

• Determine value apart from price; progress apart from activity; wealth apart from size
• It is better to remember the obvious than to grasp the esoteric
• Be a business analyst, not a market, macroeconomic, or security analyst
• Consider totality of risk and effect; look always at potential second order and higher level impacts
• Think forwards and backwards – Invert, always invert
  -

Allocation – Proper allocation of capital is an investor’s number one job

• Remember that highest and best use is always measured by the next best use (opportunity cost)
• Good ideas are rare – when the odds are greatly in your favor, bet (allocate) heavily
• Don’t “fall in love” with an investment – be situation-dependent and opportunity-driven
  -

Patience – Resist the natural human bias to act

• “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
• Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
• Be alert for the arrival of luck
• Enjoy the process along with the proceeds, because the process is where you live
  -

Decisiveness – When proper circumstances present themselves, act with decisiveness and conviction

• Be fearful when others are greedy, and greedy when others are fearful
• Opportunity doesn’t come often, so seize it when it comes
• Opportunity meeting the prepared mind; that’s the game
  -

Change – Live with change and accept unremovable complexity

• Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
• Continually challenge and willingly amend your “best-loved ideas”
• Recognize reality even when you don’t like it – especially when you don’t like it
  -

Focus – Keep things simple and remember what you set out to do

• Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat
• Guard against the effects of hubris (arrogance) and boredom
• Don’t overlook the obvious by drowning in minutiae (the small details)
• Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”
• Face your big troubles; don’t sweep them under the rug
  -

In the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness.

Value Investing World: Interview with Peter Bevelin, author of Seeking Wisdom - from Darwin to Munger

Value Investing World: Interview with Peter Bevelin, auth

Wednesday, October 17, 2007

Interview with Peter Bevelin, author of Seeking Wisdom - from Darwin to Munger

Being such a big fan of Peter Bevelin's book, Seeking Wisdom - from Darwin to Munger, and the Charlie Munger approach to learning, I felt quite lucky when Mr. Bevelin agreed to answer a few questions. If you haven't yet read his book or Poor Charlie's Almanack, you can get them both HERE. Enjoy!

-

-

Interview with Peter Bevelin, author of Seeking Wisdom - from Darwin to MungerBy Joe Koster-Q: In the introduction of your book, you mention that you owe a great debt to Warren Buffett and Charlie Munger and that if you had listened to them earlier in your life, you would have avoided many expensive mistakes. Could you elaborate a bit on how you first came across Warren and Charlie, how your process of learning from them began, and maybe even mention a couple of the mistakes that you may have avoided had you come across them earlier?-I first came across the name of Warren Buffett in 1986, when I was on a plane between New York and Miami and picked up Fortune Magazine in the seat in front of me. Back home in Sweden I immediately ordered Berkshire’s annual reports. But I was a slow learner. I didn’t really pick up his and Charlie Munger’s wisdom until I went to my first Berkshire annual meeting in 1994. What did I learn? – How to think about businesses and investing, how to behave in life, the importance of ethics and honesty, how to approach problems but foremost how to reduce the chance of meeting problems. As Munger says: “All I want to know is where I’m going to die so I’ll never go there.” When I hear them at the annual meeting, I am thinking about Einstein’s reply to a student. The student had challenged Einstein’s statement that the laws of physics should be simple by asking: “What if they aren’t simple?” Einstein replied, “Then I would not be interested in them.”

-They have a unique ability to distinguish masses of trivia from what is really important – to filter out situations, and find what’s at their core. They tell the simple, blunt truth rather than say things that sound good.
-In the past, I complicated things too much, I put too much trust in people that really shouldn’t be trusted, I wasn’t enough skeptical, I bought into things merely because they were cheap etc. In short, I wasn’t thinking and I was lacking the Munger ability to un-learn my own best-loved ideas. The stock certificates of some of my earlier investments in private businesses are now used as lining in my old overcoat; at least they had a nice color. And is there really any other way to approach investments than their way? Turn it around and ask what are the effects of investing in things we don’t understand, lack advantages and have a dishonest and incompetent management and that can be bought at a high price.
-I found that I could increase my chance of making better judgments if I could learn what works and not, if I adapt what I do to my personal situation, and if I could establish some values and preferences. If I then could set up some avoid-rules and filters/tests to judge what make sense or is important or not, life could be improved (even if I still do some mistakes but hopefully I am less of a fool now). Also remember that all decisions aren’t important. Some people spend more time making a judgment on what TV to buy or where to go on vacation than a life-changing decision like marriage.
-Q: Charlie Munger has mentioned that a great way to learn Adam Smith’s ideas is to first learn about Adam Smith. Do you believe that this idea of learning about the “teacher” before the “lesson” is truer in some disciplines than in others and do you have any examples when this method of learning was especially useful to you?-
Experiments have shown that we learn better if information is tied to a vivid story. So, I would say, it depends. In some cases the “Smith-model” is superior and in other cases I may learn better in some other fashion. For example, I learnt a lot from reading The Autobiography of Charles Darwin. But I also learnt a lot of Einstein’s ideas by reading Mr. Tompkins in Paperback by George Gamow. See also what I wrote about Reason-respecting (20 in the book). On the other hand, when reading, we must constantly watch out for the sensemaking trap (19 in my book) since we are so easily influenced when we are told stories or given information in a “story-format.”
-Q: As you state in the introduction, “This book is for those who love the constant search for knowledge. I have focused on explaining timeless ideas. The number of pages I have devoted to each idea does not reflect on its importance. My goal is to lay the foundation.” Once readers acquire the foundation they receive by reading Seeking Wisdom, where should they go next? Specifically, what is the first thing that you would recommend they should pick up to start learning more about the big ideas in the discipline of Math? Psychology? Physics? Biology? Chemistry? Economics? Engineering? Philosophy?-Look around you – observe reality. What can explain this? Learn some core concepts that account for reality. Start from the basics for each discipline and emphasize the understanding of general principles and use simple real-life examples to illustrate principles. Read, read and think about what you have read. Look for understanding. What is going on here? What is the core idea? What is the evidence that it is right? Also remember what Richard Feynman once asked someone who remarked that he had read a book. “But, did you learn anything?” Understand an idea’s meaning and applications. Focus on useful and obviously important and correct general ideas, concepts and principles. What does it mean? What happens? What is the effect?
-Q: As many value investors have been taught, it is more important to focus on the process of doing something instead of solely focusing on the outcome of that process. Do you have any tips that may help people along the process of “seeking wisdom?” Should someone focus their attention on learning many ideas from one or two disciplines at a time, or by learning many disciplines one or two big ideas at a time?-
There are principles, which apply to all different kind of phenomena. For example, JB Williams’s definition of value is applicable for all financial assets. Personally, I started with biology and psychology since knowing some human constraints and “brain traps” I could avoid some things by for example using some “avoid-rules.” Why can’t we all be nice, honest and rational? (And why can’t we all have wings and thus eliminate department store escalators?). I favor ideas that explain a whole range of phenomena. For example, biology (evolution and natural selection) explains why people: fear losses but take big risks when threatened, fear strangers, trust similar people, cooperate, imitate, fear social disapproval, make fast judgments, and overreact to vivid information.

-
Also, some disciplines are more reliable than others. For example, disciplines describing experimentally tested ideas, concepts and principles.
-
Some other examples on disciplines and ideas that explain a lot: Mathematics (scaling) explain how living things are shaped and constrained by basic mathematical principles. For example, why: no giants exist, a mouse can survive a big fall but not a human, some animals have short and thick legs, larger plants have leaves, small animals can’t live in cold countries, ants can lift such a big load, and grasshoppers can jump so high relative to their body sizes. Mathematics (combinatorics) and Physics (systems theory) explains why: we can’t predict the economy, is it hard to make money on new ventures, most projects take more time and money than we anticipate, nuclear accidents happen, we will have more electrical black-outs, coincidences occur, and some mutual funds beat index.
-Q: Are there any books in which you believe the models presented within those books are so important that you make it a habit to re-read them every year or every couple of years?-All of Charles Munger’s speeches. Most of them can be found in Peter Kaufman’s Poor Charlie’s Almanack. I also re-read Hardin’s Filters Against Folly.
-Q: Charlie Munger once said that he can’t afford ($) to have too many friends like Peter Bevelin because when you recommend a book to him, it is so good that Charlie feels compelled to buy a copy for all of his friends and family. So, have you made any recommendations to Charlie or read any of those “need-to-send-everyone” kinds of books recently?
-No comments.
-Q: Can you give a Top 10 list of books that really changed the way you view the world?
-Some books that I really learnt a lot from (in no order of preference):
-Cialdini Robert B., Influence: The Psychology of PersuasionDarwin Francis (editor), The Autobiography of Charles Darwin and Selected Letters
Dawes Robyn M., Everyday Irrationality: How Pseudo-Scientists, Lunatics, and the Rest of Us Systematically Fail to Think Rationally (it really introduced me to the value of always asking: Why should I believe this? – Show me the evidence + Compared to what?)
Feynman Richard, The Character of Physical Law and The Meaning of it All: Thoughts of a Citizen ScientistHardin Garrett, Filters Against Folly: How to Survive Despite Economists, Ecologists, and the Merely Eloquent
Lowenstein Roger, Buffett: The Making of an American CapitalistMontaigne Michel de, The Complete EssaysNassim Nicholas Taleb, The Black Swan
-Q: Can you talk a little about the process of writing your book? I think you did a magnificent job of pulling things together into a logical and understandable order and I imagine it was quite the experience organizing all the models that you have acquired over the years from your mind down on to paper.
-Gene Fowler once said: “Writing is easy. All you do is stare at a blank sheet of paper until drops of blood form on your forehead.” Most people can do what I did. I am not especially smart or talented. It just takes curiosity and real interest. After being inspired by Charles Munger’s lectures on worldly wisdom (from Outstanding Investor Digest), and after reading Darwin, I took some time off business and started reading books in biology, neuroscience, psychology, and physics. As Warren Buffett once said: “I think you can learn a lot from other people. In fact, I think if you learn basically from other people, you don’t have to get too many ideas on your own. You can just apply the best of what you see.” Then I wrote down what I learned – I put together some key thoughts as a crude working model (what I found was that I couldn’t really synthesize things sitting in front of the computer. Like Arthur Schopenhauer said: “Thoughts die the moment they are embodied by words.” I could only see various connections between things and the big picture when I was out walking thinking about something else). Since sorrow feels worse than happiness feels good, I concentrated on learning causes of what I wanted to avoid – things with huge consequences.
-I also spent some time visiting the Neurosciences Institute in La Jolla where I got some real understanding of how our anatomy, physiology and biochemistry constraints our behavior. I also interacted with a lot of science people via the Internet. Remember, I did this not to write a book, but to improve my own thinking and as a kind of memorandum to my children. I had no time constraints. And I loved it! Exploring and learning new things give me great satisfaction. When I started to read and write some of my friends said: what’s that good for? Why do you waste time studying that? How can that help you make money? Usually I don’t like to answer these questions, not because I don’t believe that the basic insight into how things work will not pay off at some time, but because I believe that acquiring insight is in itself a worthwhile effort. As Benjamin Franklin said: “ If a man empties his purse into his head, no one can take it away from him. An investment in knowledge always pays the best interest.”
-Q: Finally, is there anything people may be surprised to know about you? Any unique interests?
-People immediately assume that merely because I have written a book containing a lot of science, I must be a professor or an academic. I am not. Regarding any unique interests – nothing that would interest your readers.
-I wish you and your readers a happy day – Everyday!

Posted by Joe Koster at 10/17/2007 or of Seeking Wisdom - from Darwin to Munger

Value Investing World: Charlie Munger - USC Law School Commencement - May 13, 2007

Value Investing World: Charlie Munger - USC Law School Commencement - May 13, 2007

Thursday, May 17, 2007

Charlie Munger - USC Law School Commencement - May 13, 2007

Here are my notes from Charlie Munger's keynote address. I didn't originally intend for it to be a semi-transcript but I had to take Charlie's advice: "Deliver to the world what you would buy if you were on the other end." And so that's what I did.

------------------------------------------------------------------------------------------------

Charlie Munger - USC School of Law Commencement - May 13, 2007
Safest way to get what you want is to deserve what you want.

Deliver to the world what you would buy if you were on the other end.

There is huge pleasure in life to be obtained from getting deserved trust. And the way to get it is to deliver what you would want to buy if the circumstances were reversed.


There’s no love that’s so right as admiration based love and that love should include the instructive dead.


Wisdom acquisition is a moral duty. It’s not something you do just to advance in life. As a corollary to that proposition which is very important, it means that you are hooked for lifetime learning. And without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know. You’re going to advance in life by what you learn after you leave here.

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.

…so if civilization can progress only with an advanced method of invention, you can progress only when you learn the method of learning.

Nothing has served me better in my long life than continuous learning.


I went through life constantly practicing (because if you don’t practice it, you lose it) the multi-disciplinary approach and I can’t tell you what that’s done for me. It’s made life more fun, it’s made me more constructive, its made me more helpful to others, its made me enormously rich. You name it, that attitude really helps. Now, there are dangers in it because it works so well that if you do it, you will frequently find you’re sitting in the presence of some other expert, maybe even an expert superior to you (supervising you), and you’ll know more than he does about his own specialty, a lot more. You’ll see the correct answer and he’s missed it. That is a very dangerous position to be in. You can cause enormous offense by being right in a way that causes somebody else to lose face. And I never found a perfect way to solve that problem. My advice to you is to learn sometimes to keep your light under a bushel.

Marcus Cicero is famous for saying that the man who doesn’t know what happened before he was born goes through life like a child. That is a very correct idea. If you generalize Cicero, as I think one should, there are all these other things that you should know in addition to history. And those other things are the big ideas in all the other disciplines. It doesn’t help just to know them enough so you can [repeat] them back on an exam and get an A. You have to learn these things in such a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life. If you do that I solemnly promise you that one day you’ll be walking down the street and you’ll look to your right and left and you’ll think “my heavenly days, I’m now one of the of the few most competent people in my whole age cohort.” If you don’t do it, many of the brightest of you will live in the middle ranks or in the shallows.


The way complex adaptive systems work and the way mental constructs work is that problems frequently get easier, I’d even say usually are easier to solve if you turn them around in reverse. In other words, if you want to help India, the question you should ask is not “how can I help India”, it’s “what is doing the worst damage in India? What will automatically do the worst damage and how do I avoid it?”

In life, unless you’re more gifted than Einstein, inversion will help you solve problems.

Let me use a little inversion now. What will really fail in life? What do you want to avoid? Such an easy answer: sloth and unreliability. If you’re unreliable it doesn’t matter what your virtues are. Doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.

Another thing I think should be avoided is extremely intense ideology because it cabbages up one’s mind. You see it a lot with T.V. preachers (many have minds made of cabbage) but it can also happen with political ideology. When you’re young it’s easy to drift into loyalties and when you announce that you’re a loyal member and you start shouting the orthodox ideology out, what you’re doing is pounding it in, pounding it in, and you’re gradually ruining your mind. So you want to be very, very careful of this ideology. It’s a big danger. In my mind, I have a little example I use whenever I think about ideology. The example is these Scandinavia canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools of the Aron (sp) Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into, and I think the same is true about a really deep ideology. I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another and that is: I say that I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who support it. I think only when I’ve reached that state am I qualified to speak. This business of not drifting into extreme ideology is a very, very important thing in life.


Another thing that does one in, of course, is the self-serving bias to which we’re all subject. You think the true little me is entitled to do what it wants to do. And, for instance, why shouldn’t the true little me overspend my income. Mozart became the most famous composer in the world but was utterly miserable most of the time, and one of the reasons was because he always overspent his income. If Mozart can’t get by with this kind of asinine conduct, I don’t think you should try.

Generally speaking, envy, resentment, revenge and self-pity are disastrous modes of thoughts. Self-pity gets fairly close to paranoia, and paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity. It’s a ridiculous way to behave and when you avoid it, you get a great advantage over everybody else or almost everybody else because self-pity is a standard condition, and yet you can train yourself out of it.

Of course the self-serving bias is something you want to get out of yourself. Thinking that what’s good for you is good for the wider civilization and rationalizing all these ridiculous conclusions based on this subconscious tendency to serve one’s self is a terribly inaccurate way to think. Of course you want to drive that out of yourself because you want to be wise, not foolish. You also have to allow for the self-serving bias of everybody else because most people are not going to remove it all that successfully, the human condition being what it is. If you don’t allow for self-serving bias in your conduct, again you’re a fool.

The correct answer to situations like [the Saloman case] was given by Ben Franklin, “If you would persuade, appeal to interest not to reason.”


Another thing, perverse incentives. You do not want to be in a perverse incentive system that’s causing you to behave more and more foolishly or worse and worse - incentives are too powerful a control over human cognition or human behavior. If you’re in one, I don’t have a solution for you. You’ll have to figure it out for yourself, but it’s a significant problem.

Perverse associations, also to be avoided. You particularly want to avoid working under somebody you really don’t admire and don’t want to be like. We’re all subject to control to some extent by authority figures, particularly authority figures that are rewarding us. Getting to work under people we admire requires some talent. The way I solved that is I figured out the people I did admire and I maneuvered cleverly without criticizing anybody so I was working entirely under people I admired. You’re outcome in life will be way more satisfactory and way better if you work under people you really admire. The alternative is not a good idea.


Objectivity maintenance. Darwin paid particular attention to disconfirming evidence. Objectivity maintenance routines are totally required in life if you’re going to be a great thinker. There, we're talking about Darwin’s special attention to disconfirming evidence and also about checklist routines. Checklist routines avoid a lot of errors. You should have all this elementary wisdom and then you should go through a mental checklist in order to use it. There is no other procedure in the world that will work as well.


The last idea that I found very important is that I realized very early that non-egality would work better in the parts of the world that I wanted to inhabit. What do I mean by non-egality? I mean John Wooden when he was the number one basketball coach in the world. He just said to the bottom five players that you don’t get to play. The top seven did all the playing. Well the top seven learned more, remember the learning machine, they learned more because they did all the playing. And when he got to that system he won more than he had ever won before. I think the game of life, in many respects, is about getting a lot of practice into the hands of the people that have the most aptitude to learn and the most tendency to be learning machines. And if you want the very highest reaches of human civilization, that’s where you have to go. You do not want to choose a brain surgeon for your child from 50 applicants where all of them just take turns doing the procedure. You don’t want your airplanes designed that way. You don’t want your Berkshire Hathaway’s run that way. You want to get the power into the right people.

[Told the story of Max Planck and his chauffeur. After winning the Nobel Prize, Planck toured around giving a speech. The chauffeur memorized the speech and asked if he could give it for him, pretending to be Planck, in Munich and Planck would pretend to be the chauffeur. Planck let him do it and after the speech someone asked a tough question. The real chauffeur said that he couldn’t believe someone in such an advanced city like Munich would ask such an elementary question and as such, he was going to ask his chauffeur (Planck) to reply].
In this world we have two kinds of knowledge. One is Planck knowledge, the people who really know. They’ve paid the dues, they have the aptitude. And then we’ve got chauffeur knowledge. They have learned the talk. They may have a big head of hair, they may have fine temper in the voice, they’ll make a hell of an impression. But in the end, all they have is chauffeur knowledge. I think I’ve just described practically every politician in the United States.

And you are going to have the problem in your life of getting the responsibility into the people with the Planck knowledge [and away from the people with the chauffeur knowledge]. And there are huge forces working against you. My generation has failed you a bit…..but you wouldn’t like it to be too easy now would you?


Another thing that I found is that an intense interest in the subject is indispensable if you’re really going to excel in it. I could force myself to be fairly good in a lot of things but I couldn’t be really good at anything where I didn’t have an intense interest. So to some extent, you’re going to have to follow me. If at all feasible, drift into something where you have an intense interest.


Another thing you have to do, of course, is to have a lot of assiduity. I like that word because it means: sit down on your ass until you do it. Two partners that I chose for one little phase in my life had the following rule when they created a design, build, construction team. They sat down and said, two-man partnership, divide everything equally, here’s the rule: if ever we’re behind in commitments to other people, we will both work 14 hours a day until we’re caught up. Needless to say, that firm didn’t fail. The people died very rich. It’s such a simple idea.


Another thing, of course, is that life will have terrible blows in it, horrible blows, unfair blows. And some people recover and others don’t. And there I think the attitude of Epictetus is the best. He said that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self-pity, but to utilize the terrible blow in constructive fashion. That is a very good idea. You may remember the epitaph which Epictetus left for himself: “Here lies Epictetus, a slave maimed in body, the ultimate in poverty, and the favored of the gods.”

I’ve got a final little idea because I’m all for prudence as well as opportunism. [He talked about his grandfather, Judge Munger, who under spent his income all his life and left his grandmother in comfortable circumstances, which he had to because there were no pensions for federal judges back then. Along the way, he bailed out Charlie’s uncle’s bank back in the ‘30s by taking over 1/3 of his good assets in exchange for bad assets of the bank. He remembered his grandfather’s example in college when he came across] Housman’s poem:
The thoughts of others
Were light and fleeting,
Of lovers’ meeting
Or luck or fame.
Mine were of trouble,
And mine were steady,
So I was ready
When trouble came.

You can say, who wants to go through life anticipating trouble? Well I did. All my life I’ve gone through life anticipating trouble. And here I am, going along in my 84th year and like Epictetus, I’ve had a favored life. It didn’t make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact it helped me.


The last idea I want to give to you…..is that this is not the highest form that a civilization can reach. The highest form a civilization can reach is a seamless web of deserved trust. Not much procedure, just totally reliable people correctly trusting one another. That’s the way an operating room works at the Mayo Clinic. So never forget, when you’re a lawyer, that you may be rewarded for selling this stuff but you don’t have to buy. What you want in your own life is a seamless web of deserved trust. And so if your proposed marriage contract has 47 pages, my suggestion is you not enter.


Well that’s enough for one graduation. I hope these ruminations of an old man are useful to you. In the end I’m like an Old Valiant for Truth in The Pilgrim’s Progress. “My sword I leave to him who can wear it.”

Posted by Joe Koster at 5/17/2007

Value Investing World: Charlie and Checklists

Value Investing World: Charlie and Checklists

Wednesday, May 23, 2007

Charlie and Checklists

"Checklist routines avoid a lot of errors. You should have all this elementary [worldly] wisdom and then you should go through a mental checklist in order to use it. There is no other procedure in the world that will work as well." -- Charlie Munger - 2007


If I wasn't such an obvious introvert and would have had the chutzpah to get up and ask Charlie Munger (and Mr. Buffett as well) a question at the Berkshire Hathaway meeting this year it would have been, “Can you give some of examples of the checklists you use everyday that you think are the most important?” I don’t know if Charlie would have answered it because I think he believes a lot in coming to your own conclusions, although he's been gracious enough to prescribe and describe some of his mental models over the years. The only real examples I can remember him giving of process related checklists are:

Charlie Munger’s Two-Track Analysis:

1. First, what are the factors that really govern the interests involved, rationally considered?
2. And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things – which by and large are useful, but which often misfunction.

One approach is rationality – the way you’d work out a bridge problem: by evaluating the real interests, the real probabilities and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions – many of which are wrong.

And

Charlie Munger’s “ultra-simple general notions”:
1. Solve the big no-brainer questions first.
2. Use math to support your reasoning.
3. Think through a problem backward, not just forward.
4. Use a multidisciplinary approach.
5. Properly consider results from a combination of factors, or lollapalooza effects.


Peter Bevelin has some checklists in his book Seeking Wisdom: From Darwin to Munger that may also be worth a look to all interested persons.

Aura Minerals | MiningWatch

Aura Minerals has become a study  in what can go wrong inj the world of junior mining companies.  We started watching the company a few months back and it has been downhill ever since.

Aura Minerals | MiningWatch

Aura Minerals

Honduran Civil Society Groups Reject Proposed Mining Law That Puts Corporate Interests Before Human Rights
 

Tuesday, January 24, 2012

Communiqué: Twenty-one Honduran environmental, indigenous and human rights organizations have issued a joint statement demanding that the Honduran government create space for real and effective debate over a proposed new mining law. They also report that the congressional commission that wrote the law has been under pressure to get it passed.

 Tags: Reforming Mining Laws and Policies, Corporate Social Responsibility, Aura Minerals, Honduras, Breakwater Resources, Goldcorp




MINING Watch

About Us

MiningWatch Canada is a pan-Canadian initiative supported by environmental, social justice, Aboriginal and labour organisations from across the country. It addresses the urgent need for a co-ordinated public interest response to the threats to public health, water and air quality, fish and wildlife habitat and community interests posed by irresponsible mineral policies and practices in Canada and around the world.

The MiningWatch Canada office opened in April 1999. MiningWatch Canada shares infrastructure and services with the Canadian Parks and Wilderness Society (CPAWS) in a central Ottawa location.

The aims of MiningWatch Canada are to:

• ensure that mineral development practices are consistent with the goals of sustainable communities and ecological health;
• strengthen technical and strategic skills within communities and organisations faced with impacts of mineral development;
• impose appropriate terms and conditions on mining and in some cases prevent the development of projects that would adversely affect areas of ecological, economic and cultural significance; and
• advocate policies to improve the efficiency and reduce the risks of mineral development.

MiningWatch Canada is a direct response to industry and government failures to protect the public and the environment from destructive mining practices and to deliver on their sustainability rhetoric. With technical and strategic expertise from across Canada, MiningWatch Canada carries out and/or supports the monitoring, analysis and advocacy necessary to affect the behaviour of industry and public decision-makers.

A national non-profit with dedicated staff in an Ottawa-based office, and supporting initiatives from partners in affected communities in Canada and around the world, MiningWatch Canada is governed by a Board of Directors comprised of a range of experts, community leaders and activists from across Canada.





MiningWatch Canada is a member of the Canadian Council for International Cooperation (CCIC) and adheres to its Code of Ethics.



Please call or write to us at:

MiningWatch Canada
250 City Centre Ave., Suite 508
Ottawa, Ontario K1R 6K7
Canada
tel. (613) 569-3439
fax: (613) 569-5138
e-mail: info(at)miningwatch.ca

Related Items

• MiningWatch Canada Personnel
• MiningWatch Canada Annual Reports
• MiningWatch Canada Board of Directors
• MiningWatch Canada Members
• The Need for MiningWatch Canada
• MiningWatch Canada Activities

JPMorgan’s Trading Losses May Be Bigger Than Expected -- Daily Intel

JPMorgan’s Trading Losses May Be Bigger Than Expected

• By Kevin Roose

Who's counting?

 

If you were up at 2:30 a.m. today, having the night sweats while feverishly awaiting today's Supreme Court verdict, you might have noticed a little story on DealBook that said that the amount of money JPMorgan Chase lost on its London Whale's trades, which were once dismissed as a "tempest in a teapot" by a guy with good cuff links and estimated at around $2 billion, had multiplied to as much as $9 billion.

The $9 billion figure, which was broken by Teri Buhl yesterday, is not necessarily the amount JPMorgan has lost as of this moment — it's the maximum amount it could lose, since the Whale's trades are still being unwound.

CEO Jamie Dimon has said he still expects the bank to be profitable on the quarter, and a person with knowledge of the situation told Intel this morning that the current mark-to-market value of the loss likely stands somewhat lower, more in the neighborhood of $5 to 6 billion.

JPMorgan's stock is down this morning, but it's not entirely clear why. There is no new information about the details of the London Whale's trade, or the market effects of unwinding such a massive CDS position. Even if the loss is $9 billion or more, the same things that made investors jumpy two weeks ago — lax oversight of the CIO, regulators' likelihood to put a crimp on JPM's earning power in future quarters — are still true.

What's new, though, is that it seems the CIO got direct orders from someone very high up at JPMorgan, perhaps Dimon himself, to exit the whale trade, stat, no matter how much a speedy exit would cost the bank:

The bank’s exit from its money-losing trade is happening faster than many expected. JPMorgan previously said it hoped to clear its position by early next year; now it is already out of more than half of the trade and may be completely free this year.

We should know more on July 13, when the bank reports its earnings and discloses more about the extent and size of the trading losses. This morning, a JPMorgan spokesman declined to comment.

JPMorgan Trading Loss May Reach $9 Billion [DealBook/NYT] 

Source:
http://nymag.com/daily/intel/2012/06/jpmorgans-whale-losses-may-be-bigger.html

Former Drug Developer Discovers Next-Generation Biotech Stocks - ACHN, ACOR, AMRN, IDIX, MDVN - Foolish Blogging Network

Former Drug Developer Discovers Next-Generation Biotech Stocks - ACHN, ACOR, AMRN, IDIX, MDVN - Foolish Blogging Network


Management is the key ingredient

Raghuram "Ram" Selvaraju, an analyst I recently interviewed for The Life Sciences Report, began his initial career in translational drug discovery at Serono in 2000 with early and remarkable success.

As a young researcher he demonstrated real insight and ability when he discovered the first novel protein candidate ever developed entirely within the company.

Fast forward to March 2012, and we find Selvaraju in the middle of another singular event when he became the first analyst ever hired by Aegis Capital Corp. in the company's 26-year existence.

In between these extraordinary life experiences, Selvaraju managed for get himself ranked as a #1 "Best on the Street" analyst in the Wall Street Journal in 2006 when he was at Rodman & Renshaw.

Before talking about stocks I want to know his formula for success.

While he admits that his scientific background is important, it's just one piece of the puzzle.

How do you pick biotech companies?

"The most important thing about assessing development-stage companies in the biotech universe is the quality of management," he says.

Unlike quantitative comparables among companies developing similar therapies, management, "Is not something you can measure on a standard scale. It's a sliding scale at best," he says.

"What I look at in the context of management is track record.

If a team has been successful before you can bet on them doing it again." It works the other way around too. "If we see a management team that has failed multiple times before," he says. "We're not going to give it a lot of credence."

...........................................................................................


The first companies on Selvaraju's list are served up with care like pearls on satin.

He loves Amarin Corporation plc (NASDAQ: AMRN), Medivation Inc. (NASDAQ: MDVN) and Ironwood Pharmaceuticals Inc. (NASDAQ: IRWD).

"The common thing that all three of these companies share is that they are all development-stage companies," he says.

"They do not currently have revenues, and they are all heavily dependent on the future of a single drug."

Amarin's AMR101 (icosapent ethyl), an ultra-pure fish oil for hypertriglyceridemia, has already been filed with the FDA.

The product has an extraordinary safety profile which is important for drugs competing with statins, which may elevate liver enzymes for which patients have to be monitored constantly.

Amarin's PDUFA (Prescription Drug User Fee Act) date for AMR101 is July 26th, and "I fully expect that we will see drug approval on that date," he says.
..................................................................


Medivation is in a similar situation with its Enzalutamide (formerly MDV3100) which was filed with the FDA on May 21.

The product is partnered with Japanese big pharma Astellas Pharma Inc. (OTCPK: ALPMF).

Enzalutamide has shown strong outcomes in hormone-refractory, chemotherapy-experienced prostate cancer patients, "Which is the hardest possible patient population in prostate cancer to treat," he says. "

And, most importantly, the drug showed virtually no side effects."
 

Selvaraju believes the whole package is nothing short of excellent. "I would expect that the drug could potentially be approved before the end of this year," he says.

....................................................

Ironwood Pharmaceuticals is developing linaclotide for chronic constipation and irritable bowel syndrome.

The product acts locally in the GI tract and is not absorbed systemically which contributes to its strong safety profile.

Competing products have cumbersome and uncomfortable side effects and tend not be effective.

Linaclotide produces symptomatic relief at an 18–30% rate on a placebo-adjusted basis, "Which turns out to be two to three times as effective as its closest competitor," says Selvaraju.
..........................................................

I ask about peak sales for these three products.

"In my view, I think Amarin, Ironwood and Medivation all have legitimate blockbuster opportunities with their drugs," he says.

"Amarin's drug AMR101 could be the biggest. I think sales could be somewhere in the $6–10 billion ($6–10B) range at peak."

Selvaraju throws out some familiar biotech names that have become popular with media, bloggers and day traders, but "These (Amarin, Ironwood and Medivation) are the real next-generation biotech companies in my opinion," he says.

"I feel that these three companies, which have been financed with far less capital (than other companies) and their drugs are in my opinion going to be much more widely used and much more popular."

Selvaraju also has a hepatitis C (HCV) theme.

"The HCV sector is very important in the world of the sellside analyst today," he says. "Some disease areas are always going to be hotter than others, and others come into and go out of fashion from year to year-- a bit like clothing lines from your favorite designers.

So, HCV is what I would classify as the flavor of the year," he says.

Salvaraju loves to analyze comparisons among companies in the same therapeutic space.

"Achillion Pharmaceuticals, Inc. (NASDAQ: ACHN) has in my view been neglected somewhat," he says. "There has been some acquisition speculation over it but not anywhere near as much as I think there should be.

If you look at one comparable to Achillion, a company called Idenix Pharmaceuticals Inc. (NASDAQ: IDIX), you will see that it trades at roughly double the valuation of Achillion.

Yet, Idenix has only one clinical-stage asset that is truly meaningful in the HCV arena, whereas Achillion has four.

So, in my opinion, the discrepancy between Idenix and Achillion doesn't make a lot of sense," he says. "  I would strongly advise the investor to consider Achillion over Idenix."

.......................................................................................................................


He knows Acorda Therapeutics Inc. (NASDAQ: ACOR) quite well.

The company is focused on multiple sclerosis (MS) which is where Selvaraju has been focused over his entire career on both Wall Street and when he was in industry.

Going with his good management theme, "CEO Ron Cohen is a canonical example of the kind of CEO that I look for," he says.

"He's extremely thoughtful and is very upfront with investors. I believe that Acorda in the long-term should be an excellent investment." Selvaraju says

Acorda's Ampyra (dalfampridine) is a highly differentiated MS drug.

"It's orally bioavailable, and it is the only symptomatic therapy that specifically addresses walking impairment.

Furthermore, it is the only drug approved for use in all types of MS, and there are several different kinds."

Related Tickers

• 
  ACHN $6.60  Achillion  Pharma
  +0.24 3.77%
• 
  ACOR $23.62  Acorda Therapeutics Inc.
  +0.33 1.42%
• 
  AMRN $12.97    Amarin Corp.
  +0.13 1.01%
• 
  IDIX $10.83     Ironwood Pharma
  +0.22 2.03%
• 
  MDVN $86.97  Medivation Inc.
  -0.03 -0.03%

 


Source:
Former Drug Developer Discovers Next-Generation Biotech Stocks - ACHN, ACOR, AMRN, IDIX, MDVN - Foolish Blogging Network


By Mike Volkin - June 22, 2012 | Tickers: ACHN, ACOR, AMRN, IDIX, MDVN | 0 Comments

Mike is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Former Drug Developer Discovers Next-Generation Biotech Stocks

By George S. Mack, The Life Sciences Report

Canada toughens borrowing rules to cool housing market

UPDATE 4-Canada toughens borrowing rules to cool housing market | Reuters

 

Thu Jun 21, 2012

UPDATE 4-Canada toughens borrowing rules to cool housing market

By Louise Egan and Randall Palmer

* Government says wants to calm housing market

* Rules shorten mortgages, limit borrowing against home

* Analysts, central bank applaud, say sales will likely cool


 

OTTAWA, June 21 (Reuters) - In its fourth crackdown in four years on a still-hot housing market, Canada tightened conditions for both borrowers and lenders on Thursday to put the brakes on home buying and deflate a possible housing bubble before it pops.

Mindful of the U.S. housing crisis, where consumers ratcheted up debt only to be sideswiped by rising interest rates, financial crisis and recession, Canadian policymakers said their new rules and guidelines would make it harder for home buyers and homeowners to take on massive debt.

Canada's bank regulator, the Office of the Superintendent of Financial Institutions, released its own guidelines to lenders, urging them to perform due diligence on the borrower's ability to repay debt and manage risks effectively.

Canadian policymakers want tighter mortgage rules to do the work that interest rates cannot, given the inability or unwillingness of central banks to raise borrowing costs in the face of global economic problems.

Bank of Canada Governor Mark Carney, who has called household indebtedness the biggest risk to financial stability in Canada, applauded the measures.
 

Canada does not have the subprime market that helped doom the United States to mortgage defaults and foreclosures, nor do lenders typically repackage and resell mortgages the way U.S. lenders did before the U.S. housing bust in 2009.

The bulk of mortgage lending still goes through Canada's big six national banks, whose relatively conservative lending and investment practices helped them emerge from the global financial crisis fairly unscathed.

Economists and policymakers have nevertheless been ringing alarm bells about rising home prices amid bidding wars, galloping condo development and soaring household indebtedness, fearing Canada is simply coming late to a housing crisis.

Policymakers have struggled to find a way to slow the housing market without derailing still-tepid growth in other sectors of the economy. Analysts believe higher interest rates, an obvious answer, have been put off until mid-2013 at the earliest given global financial malaise.

 

The changes take effect on July 9, a relatively quick implementation period that may bring forward some housing activity, but should not create the volatile bulge that followed more gradual changes to mortgage rules in 2011.

Flaherty said the government will also set a maximum gross debt-service ratio of 39 percent of gross household income and only allow government-backed insured mortgages on homes with a purchase price of less than C$1 million ($980,000).

The ratio of household debt to personal disposable income has risen in Canada to 152 percent, a level similar to that seen in the United States before the end to the housing boom there left many homeowners with less equity in their homes than the homes were worth, or in foreclosure.

   

Here Are the U.S. Bank Downgrades: Morgan Stanley Gets 2 Notches - Deal Journal - WSJ

Here Are the U.S. Bank Downgrades: Morgan Stanley Gets 2 Notches - Deal Journal - WSJ


Downgrade Day has arrived.

The markets have been awaiting this day since Moody’s put under review for a downgrade the credit ratings for 17 large global banks back in February, including five of the biggest U.S. financial firms by assets.

The downgrades are expected to raise borrowing costs and crimp some lucrative trading businesses at the banks, including at J.P. Morgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley.

Below are the long-term debt ratings of the five U.S. firms whose ratings were under review, and the impact they cited in first-quarter financial filings.

J.P. Morgan

New Rating: A2 (2 notches)
Previous Rating: Aa3
Moody’s guidance:  Up to a two-notch downgrade
What the Banks said: J.P. Morgan said its costs could hit $3.45 billion for a two-notch downgrade.

Bank of America

New Rating: Baa2 (one notch)
Previous Rating: Baa1
Moody’s guidance: Up to a one-notch downgrade
What the bank said: Bank of America said a one-notch downgrade could deliver a $2.7 billion hit.

Citigroup

New Rating: Baa2 (2 notches)
Previous Rating: A3
Moody’s guidance: Up to a two-notch downgrade
What the bank said: Citi estimated that a hypothetical two-notch downgrade could deliver a $2.1 billion hit.

Goldman Sachs

New Rating: A3 (2 notches) 
Previous Rating: A1
Moody’s guidance: Up to a two-notch downgrade
What the bank said: Goldman Sachs said its costs could hit $2.2 billion for a two-notch reduction

Morgan Stanley

New Rating: Baa1 (2 notches)
Previous Rating: A2
Moody’s guidance: Up to a three-notch downgrade
What the bank said: Morgan Stanley said it could pay as much as $9.6 billion for a three-notch downgrade by multiple rating agencies.

Morgan Stanley Up Over 4% in the After-Market: Video - Bloomberg

 June 21 (Bloomberg) -- Sheila Dharmarajan reports that Morgan Stanley is up in the after-market due to the news on Moody's downgrade being less severe than predicted. She reports on Bloomberg Television's "Taking Stock." (Source: Bloomberg)


Morgan Stanley Up Over 4% in the After-Market: Video - Bloomberg

Amazon.com Investor Relations: IR Home

Amazon.com Investor Relations: IR Home

Corporate Mission We seek to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators. 2011 Shareholder Letter 2012 Annual Shareholder Meeting In the Spotlight 04/26/12 AMAZON.COM ANNOUNCES FIRST QUARTER SALES UP 34% TO $13.18 BILLION; 16 OF THE TOP 100 BESTSELLING TITLES ARE EXCLUSIVE TO THE KINDLE STORE 04/12/12 Amazon.com to Webcast First Quarter 2012 Financial Results Conference Call 03/19/12 Amazon.com to Acquire Kiva Systems, Inc.

QUOTATION OF THE DAY: Insider Trading

"Having fallen from respected insider to convicted inside 

 

trader, Mr. Gupta has now exchanged the lofty board room 

 

for the prospect of a lowly jail cell."

 

 

 PREET BHARARA, the United States attorney in Manhattan, after Rajat K. Gupta, former head of the consulting firm McKinsey & Company, was convicted of conspiracy and securities fraud.

File under hippocrit... along with Jim Baker

Bloomberg Television: Live TV - Bloomberg 3D Photocopier

Bloomberg Television: Live TV - Bloomberg

Damn It Feels Good to be Banker -- A Wall Street Musical - YouTube

Damn It Feels Good to be Banker -- A Wall Street Musical - YouTube




by nhoughte on Aug 27, 2008

Bankers vs. Consultants. Contact: info@portal-a.com.

An LSO and Portal A Interactive Production.

http://www.portal-a.com
http://www.leveragedsellout.com

http://www.amazon.com/exec/obidos/ASIN/1401309682/levesellout-20 -- get the book by Leveraged Sell-Out.

mp3 @ http://www.zshare.net/audio/5112236545d91f6f/

Category:

Comedy

Tags:

• finance
• bankers
• consultants

License:

Standard YouTube License

Neuroscience and Financial Markets

This discussion leaves many questions to be answered by investors, like - 

Do you want money managers gambling with your pension money?  Emotional stability is one hallmark of a good investor according to Warren Buffett and John Coates is suggesting that the financial markets are dominated by bipolar emotions exaggerating moves in both up and down movements.  Markets may eventually revert to the mean but do you have the constitution to stay the course amidst the volatility?

CBC Books - The high stakes of Wall Street


27:29 (Pop-up)

John Coates  explains his ideas: 





"The Hour Between Dog and Wolf: John Coates Research in Neuroscience" suggests that the physical reactions on trading floors are similar to war zones or elite sports where the pressure to perform and survive is great. 

In such situations, the Visceral trumps the Rational.

The man behind that view spent years on the trading floor for the big players on Wall St. before studying neuroscience.




The trading floor looks like an adrenaline-fuelled battle zone and the truth isn't far off. 

Research in neuroscience suggests that being a part of this whirlwind world of buying and selling leads to physiological reactions akin to fighting in a war zone or playing in the NBA playoffs. The pressure to perform is huge and the instinct to survive is powerful.



One man who knows much about this is John Coates, author of The Hour Between Dog and Wolf.





Coates was a Wall Street stock trader for years,  at  firms like Goldman Sachs and Deutsche Bank during the dot.com boom of the 1990s.

 Seeing the behaviour of other traders,  he observed hey seemed to operate contrary to how economics is supposed to work.

"Well, I think everybody was seeing it, but I guess I was particularly struck by how anomalous the behaviour was from the point of view of economics," Coates said.

"Traders on the floor had become delusional and euphoric ... They were putting on trades in ever-increasing size with worse and worse risk-reward trade-offs. And I thought this was odd because they hadn't been this way before the bubble, and after it crashed or popped, they weren't like that any more, in fact they were like revellers with a hangover. And they couldn't believe that they had just blown five years' worth of profits on a handful of stupid trades."

There are some chemicals that your body producing that was basically having this narcotic effect on you. And that got Coates to think about the influence of the body on financial risk-taking.

We'd like to think that financial trading is based on solid reasoning and rationality, but human beings are not robots, even if some purport to operate that way.

Emotions get in the way. Fear can sink in. So can the natural instinct to fight. 

 

Through studying neuroscience, Coates explored his theory about what he was seeing on the trading floor: that physiological changes happening within traders as they gain and lose vast amounts of money may be driving the instability of the financial markets.

"The trouble is right now we've got an unstable biology coupled with risk-management practices that expand risk limits during the bull markets and contract them during the bear, and a bonus scheme that rewards high-variance trading."

Coates concludes the biology increases volatility by exaggerating movements on markets whether up or down because the reward system of bonuses encourages high risk trading;  flight or fight drives behavior when markets start crumbling and adrenaline , testosterone, and pleasure seeking kicks in when market start running to the upside.... more bonuses and more high risk taking behavior.  Egos expand brashness and the "greater fool" theory takes precedence over value investing.


Coates suggests: "I think also if there is the biological contributor to this instability, then a way of dampening it is to have more women and older men managing money because they have very different biologies from young men."



First aired on The Current (28/05/12)

Link:

http://www.cbc.ca/books/2012/06/the-high-stakes-of-wall-street.html