Thursday, October 9, 2014

Interesting Articles

Slow advance of battery technology and implications in an article published by Business Spectator.

More academia navel gazing on the NBN here. Some food for thought on ultimate landscape of our telecommunications industry, except that the focus is way too narrow given the inexorable convergence of IT and telecommunications. Man with a hammer syndrome I reckon.

John Hempton's usual considerable intellectual heft being targeted at the future of telecommunications spectrum, relatively heavy reading here. Relevance once again to possible future landscape for telecommunications industry.

A not-too-recent article on Walter Schloss here. Investing wisdom is timeless, and I strive to learn from the preeminent, both dead or alive.

Warren Buffett's recent interview here. Most memorable quotes:

1. "You know you have a bad business when you have a good manager and still get bad results."
2. "You are nothing to the stock. The stock does not care about your buy price. The stock has no feelings for you. It just doesn't care."
3."Over one lifetime, USA GDP has increased by nearly 6-fold. This has never happened before."

Enjoy and Prosper,
Yours One-Legged

Recent Musings 9 October 2014

On risks versus returns, and how some psychology of misjudgment impact on the investment process.

Investing involves estimating risks and returns. Success or failure in investing over long periods of time (5 years and above) is a byproduct of average returns per unit of risk taken. The process involves an estimation of both the probability and consequences of each possible outcome, both good and bad. Once that is done, the overall result is compared with an alternative choice of investment.

That sounds like a lot of work. It is. Unfortunately, our human brain is not wired to automatically work this way. We prefer stories which progress in a linear fashion, rather than grasping with multiple timelines with different outcomes. In areas of complexity, we are wired to make simplifying assumptions.

There is also an asymmetry of incentive involved. Dreaming about returns is much easier. Assessing risks is unpleasant. Therefore the human brain, being risk/pain adverse, does not automatically engage in risk assessment.

The brain also suffers from a recency bias. This leads to the brain over-emphasising recent events, which can lead to extreme pessimism in bear markets and extreme optimism in bull markets. Both result in mispricings which can be systematically exploited, provided one is patient and not succumb to the Action Man bias. The difficulty in staying calm and patient must also be understood in light of our natural human tendency towards collective madness, especially in moments of stress and uncertainty.

Altogether, it is much easier to dream than work. Being aware of this will give one an automatic edge over the general market.

How do we apply the above learnings to our opportunity set in the current market?

Monday, October 6, 2014

Some great fundamental guidelines from Munger

Forbes has a very good article on the recent Daily Journal Annual Meeting with Charlie Munger.

You can read the article here.  To get the most out of it, I would suggest multiple rereading.

I have distilled the following fundamental guidelines insofar as relevant to investing, with the caveat that this is not exhaustive:

1.       Pick your spots;
2.       Know your limits;
3.    Easy does it;
4.       Be patient;
5.       Act decisively when the time comes.