Interesting Reading – February 18, 2017
In this series, we suggest worthwhile reading material on a variety of topics of general interest.
Daily Journal Corporation Annual Meeting – February 15, 2017. Charlie Munger spoke for nearly two hours at the Daily Journal annual meeting in Los Angeles. There are a number of unofficial transcripts available. The notes linked to above were provided by Adam Blum via Mohnish Pabrai’s Twitter account. In addition, a good video of the event has been posted on YouTube by another attendee. The notes are a great way to get up to speed quickly but those who have a couple of hours to spare might prefer the video. At age 93, Mr. Munger appears to be in good health and as is obviously as sharp as ever. Topics ranged from the Daily Journal’s business operations to investments to life advice. Mr. Munger’s only book recommendation was Edward Thorp’s A Man For All Markets which we plan to review in the near future. Readers may also be interested in our recent analysis of Daily Journal as well as the company’s fiscal first quarter 10-Q.
Apple: The Greatest Cash Machine in History? – Musings on Markets, February 9, 2017. Professor Aswath Damodaran updates his thoughts regarding Apple and revisits his previous valuation work. There is a great deal that has been written on Apple since the company’s latest earnings release, much of which has focused on very short term factors such as the upcoming 10th anniversary iPhone release. This article is different because it is an update of valuation work on the company that dates back to 2010. Apple is increasingly attracting value investors who typically are not attracted to technology stocks. The most notable recent example can be found in Berkshire Hathaway’s recent 13-F filing which revealed a very significant increase. (As an aside, Prof. Damodaran has recently published a new book, Narrative and Numbers, which is on our list to read and possibly review.)
Snap’s Apple Strategy – Stratechery, February 13, 2017. Snap’s upcoming initial public offering has been widely discussed over the past few weeks. Is the company the next Facebook, the next Twitter, or something entirely different? Ben Thompson believes that there are similarities between Apple’s historical strategy and Snap’s vision: “Not only is Snap not promising a traditional moat, it is in fact selling its humanity as a company. That the company and its Steve Jobs-admiring CEO in fact do understand users better than everyone else, that that will result in sustainable differentiation, and that the prize will be the top end of the advertising market.” Readers may also be interested in our recent analysis of the Snap S-1 filing and Professor Damodaran’s much more rigorous valuation article.
Should You Always Keep Stocks for a Full 5 Years? – Gannon on Investing, February 15, 2017. Where do you draw the line between a “trade” and an “investment”? Is this a matter of the amount of time an investment is held, or based on the investment thesis playing out irrespective of how long that process takes? If we take Warren Buffett’s advice seriously, we should think of stocks as partial interests in an actual business. Just as we would not buy a gas station and sell it a couple of months later, we probably should buy stocks with a view of holding for at least several years. Geoff Gannon provides his thoughts on holding stocks for a minimum of five years and when it might make sense to bend that rule if a clearly superior opportunity comes up. This link is to a twelve minute podcast but the text of the discussion is also available.
Six Sigma Buffett, Taxes, Fund Returns etc. – The Brooklyn Investor, February 14, 2017. This article attempts to analyze the level of outperformance of various famous managers and to compare the difficulty of compiling track records of various lengths. While that analysis is interesting, a short digression on Warren Buffett’s views of the 1986 tax reform law might be even more interesting for readers who are trying to evaluate how current tax reform proposals might impact their investments or their personal finances.
Larry Cunningham on Kraft-Heinz Bid for Unilever – Latticework.com, February 18, 2017. Larry Cunningham shares his concerns regarding the Kraft-Heinz bid for Unilever and what Berkshire Hathaway’s partnership with 3G might mean for Berkshire’s culture in the long run. Observers of Berkshire’s partnership with 3G have frequently noticed that Warren Buffett’s traditional style of acquisitions (friendly, no hostile actions, no bidding wars, leaving management in place) is almost the exact opposite of 3G’s standard procedure (sometimes unfriendly, haggling over price, significant restructuring). So far, the partnership has worked well but perhaps not without risking Mr. Buffett’s legacy. (Read our review of Larry Cunningham’s latest book, The Buffett Essays, covering the famous 1996 symposium with Warren Buffett and Charlie Munger).
The Happy City and our $20 Trillion Opportunity – Mr. Money Mustache, February 10, 2017. Although this is ostensibly a book review of Happy City by Charles Montgomery, it is really more of a general discussion regarding the less than optimal choices society has made over the years when it comes to infrastructure spending. The cost of modern American style infrastructure – wide roads, expansive parking lots, and unwalkable sprawling suburbs – is extremely high and may not provide good value for the money or result in any increase in happiness. With talk of a massive new federal infrastructure spending initiative, perhaps this is the right time to think about whether the traditional approach is the best use of our scarce resources.