The Weekly Investing Digest (for the week of 27/2/2023)
Investing Resources from a Week in the Fintwit Pits
Well it’s been another week rich in investing milestones. Charlie Munger hosted his annual Daily Journal Corporation meeting, where he sagely dispensed wisdom to his faithful groupies (us). Among some of the more interesting subjects were the admission of fault regarding his Alibaba investment. A mistake that was compounded by the fact that the investment was funded by margin loans taken out against the value of $DJCO’s equity portfolio. Munger also opined on what the correct position sizing for wonderful investment opportunities should be. Somewhere in the range of 100-200% of assets seemed to be where he ended up. Oh, and the Lazarus pit is actually a reluctance to do exercise and See’s Candy’s peanut brittle. Who knew?
Source: DJCO Annual Meeting
Buffett also published his yearly Berkshire Hathaway Annual Letter. Naturally, it has been decried on fintwit as little better than fortune cookie wisdom. Personally, I though it was a fabulous read. Naturally, the letter is sanitised, but if you roll back many decades you’ll see a stylistic and contextual consistency in his writing. I was struck by a line that resonated with me on a deeply spiritual level:
At this point, a report card from me is appropriate: In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck. (Remember our escapes from near-disasters at USAir and Salomon? I certainly do.)
Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire. Let’s take a peek behind the curtain.
If Substack had the ability to underline text I would have underlined the ‘one every five years’ part. For those of us inclined to quality, value, and a long (if not perpetual) holding period, this should be instructive. If the greatest investor of the post-war period, who has spent virtually his entire adult life practising the forever game, found truly wonderful opportunities at with such irregularity - what on earth are we doing turning over our portfolios?
You’ll forgive me - I know these opportunities came at odd, and uneven times. Famously the bear market of 1973-4 was fruitful, 1982 was apparently mouth watering, the Coca Cola investment was made in the late 80’s, American Express in the early 90’s, GEICO was folded in properly in the late 90’s, and Apple was purchased in 2016.
I should also revisit the first part of that quote: ‘most of my capital-allocation decisions have been no better than so-so.’ Even with discipline, a margin of safety, and an obsessive compulsive approach to the game, Buffett admits that his record - on face value - was ‘so-so’. For those of us for whom this may be a hobby or a passion, we should probably take a very hard look at our buy/sell decisions.
Source: Letter
If I can take away anything from the points of Buffett and Munger it would be a reevaluation of what an investment opportunity really is. Why would both of these men advocate for concentration? Well, it’s because truly compelling opportunities become available about every five years. It seems like the best any of us can do in the meantime is to try not to lose too much money. Twitter user Compound248 (@compound248) posted this wonderful thread that included an discussion on this very topic from the 2008 Berkshire Hathaway Annual Meeting:
Pertinently, Munger makes an observation - the purpose of active management is to identify opportunities where it would be risky not to concentrate. How do you like that for inversion?
Twitter User Modestproposal (@modestproposal1) had a great insight of management expectations:
This was the same kind of idea express by Willis Cap, who I had reposted in my very first Weekly Investing Digest:
The latter defines the bar of excellence, the former expresses how to manage one’s own expectations about it.
In my own experience, there are seldom few management teams who should even pretend that they have the right to make discretionary capital allocation decisions. The truth is, that from a shareholder standpoint, some very simple frameworks have lead to some truly spectacular results. One only needs to pull up a chart of Credit Acceptance Corporation, RCI Hospitality Holdings Inc, or NVR, Inc to get an idea of what a pretty formulaic approach to capital allocation can achieve. If I could put the proverbial cherry on top, it would simply be that a management team would make their approach plain for investors to see ex ante - no one out there is Buffett, and maybe not even Buffett is Buffett according to fintwit!
Since I’m already plagiarising my own content I may as well reiterate a previous motto:
“durable, capital light, volume growth, pricing power, defend the moat, return the capital.”
I repeat it before bed every night.
I’ve been heavy on reading this week, and have consequently been revisiting the works of Mauboussin and Greenwald on the prompting of a friend.
It’s been a few years since I read Maboussin’s Base Rate Book, but it’s been almost as enlightening reading it this time around as it was for the first.
I plan to make next week’s Issue based on my annotated findings.
That’s it for this week - make sure to subscribe to keep up with the journey
Be sure to checkout my trusted, used, and Buyback approved financial tools below. I only promote products I personally pay for, and find value added:
TIKR Terminal - for all of your historical financial information publicly listed securities. A Bloomberg terminal for a great price.
Trading View - useful for all your charting, news updates, and historical dividend and corporate action needs.