The Digest #57
Value vs. Growth, Take the Money, Inflation, Lazy Thinking
“You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”
— Charlie Munger
Something of Value by Howard Marks, January 11, 2021. The future of value investing has been called into question as highly speculative stocks have continued to rise further into the stratosphere. Howard Marks found a silver lining during the pandemic when he had an opportunity to spend more time with his son, a professional investor who focuses on making long-term investments in growth stocks. This interesting memo describes how Marks is currently thinking about the growth vs. value debate. At age 75, Marks clearly has not stopped learning or seeking viewpoints that are, at face value, contrary to his long-held beliefs. (Oaktree Capital)
Just Take the Money by Nick Maggiulli, January 12, 2021. Concentrated positions carry the prospect of striking it rich but also involve a risk of ruin. This is why diversification is advocated as a way to stay rich. Nick Maggiulli writes about a tweet from Jason DeBolt, a 39 year old Tesla investor who has built a $12 million position using a buy-and-hold approach. DeBolt plans to retire but is not planning to sell any Tesla stock. In fact, he intends to leverage his bet further. Maggiulli advises DeBolt to at least sell enough shares to ensure a minimum standard of living that he cannot fall below. But I doubt DeBolt will be receptive to that advice. (Of Dollars and Data)
Data Update for 2021 by Aswath Damodaran, January 9, 2021. Every January, Professor Damodaran spends several weeks compiling voluminous data on publicly traded companies and sharing his findings with readers. In his first data update for 2021, he describes the overall methodology and purpose for capturing this data. This is a valuable free resource for students, investors, and policy makers. And while on the subject of valuable free resources, I should note that Professor Damodaran allows anyone to audit his courses online, in most cases for free. (Musings on Markets)
Inflation by Daniel Gladiš, January 2021. Headline inflation in most developed countries continues to be low even as central banks are pumping money into their economies at an unprecedented rate. Central bankers all seem to want to increase the cost of living more quickly and consider low inflation to be a major threat to economic recovery. But consumer price inflation is not the only possible consequence of central bank expansion of the money supply. As part of his annual letter to investors of the Vltava Fund, Daniel Gladiš presents his views on the three types of inflation: monetary inflation, asset price inflation, and consumer price inflation. (Vltava Fund)
A Dollar Is a Dollar Is a Dollar. Except in Our Minds by Meir Statman, January 10, 2021. Professor Meir Statman is one of the pioneers in the field of behavioral finance and previously wrote a book, What Investors Really Want. Statman’s recent article in the Wall Street Journal examines several psychological quirks most people have including money illusion, the desire to spend only “income” while not touching “principal”, and how we behave when receiving financial windfalls. Several years ago, Statman wrote Value Investing in Inefficient Markets, a guest article for The Rational Walk. (WSJ)
Why I’m Taking a Social-Media Sabbatical by Chip Roy, January 11, 2021. Chip Roy is a member of Congress representing the 21st district of Texas. Rep. Roy has concluded that social media does more harm than good in society and has decided to suspend his use of Twitter, Facebook, and other sites for the foreseeable future. He advocates connecting with human beings in the real world, something that is not possible when we are glued to electronic devices. I know nothing about Rep. Roy’s political views or voting record but I find myself in agreement with his views on social media. (WSJ)
Collaboration Is Key, January 5, 2021. Shane Parrish interviews Matt Mullenweg in the 100th episode of Farnam Street’s Knowledge Project podcast. Mullenweg is the co-founder of WordPress, the incredibly successful open-source platform that runs many of the websites we visit on a daily basis (including The Rational Walk). Mullenweg believes that all proprietary software represents “an evolutionary dead end.” Whether that ends up being the case or not, the fact that anyone who has something to say can set up a WordPress blog at minimal cost and exercise his or her freedom of speech is a great contribution to society. (Farnam Street)
Thought Stop Signs: The Source of Lazy Thinking by Lawrence Yeo, January 2021. A “thought stop sign” is a word or phrase that is intended to put an end to an otherwise sound line of reasoning. In other words, it signals the end of an open-minded conversation and the closing of a mind. The rigorous search for truth, using arguments that are falsifiable, forms the cornerstone of the scientific method. Yeo describes the perils of allowing our minds to snap shut and retreat into the lazy thinking that lies beyond the thought stop sign, and he presents some approaches to help remove these stop signs from our minds. (More to That)
Time Flies When …
“Time interval is a strange and contradictory matter in the mind. It would be reasonable to suppose that a routine time or an eventless time would seem interminable. It should be so, but it is not. It is the dull eventless times that have no duration whatever. A time splashed with interest, wounded with tragedy, crevassed with joy — that’s the time that seems long in the memory. And this is right when you think about it. Eventlessness has no posts to drape duration on. From nothing to nothing is no time at all.”
— John Steinbeck, East of Eden, Chapter 7
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