Moats, investing greats, value, bad behaviour and Larry Swedroe - the best investing blogs and podcasts from the past week
As the boss of Berkshire Hathaway Inc, Warren Buffett writes an open letter to the company’s shareholders every year. Usually around February time.
Those letters are so closely watched that entire books have been published, strategies developed, funds launched and miles of headlines written, on the back of what he has to say.
As one of the most inspirational investors around (by which I mean incredibly consistently successful), that’s not really a surprise. Buffett’s doctrine has gathered many followers.
Faced with the kind of turbulence we’ve seen in markets this year, he’s more in fashion than ever. Rather than stressing over inflation and recession around the corner, there’s a sense in his style of laughing in the face of adversity - and that’s a comfort to those that might not feel the same confident swagger.
If you look back through those letters - and you can do that here - you’ll notice that year-to-year some of the most important stuff commonly associated with Buffett never changes. In fact, not only does the message stay the same, but sometimes the wording doesn’t change either. And neither should it. It’s symbolic of his approach that he doesn’t need to waste time rewriting what he’s said so many times before.
This is the kind of thing I mean (it’s taken from his most recent letter):
“Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.”
Buffet’s affection for durable businesses with competitive advantages that give them moat-like protection is one of his open secrets. They are hard to find and they come in all shapes and sizes. Some moats are meaningful and others are mirages.
This brings me onto this recent letter from James Bullock, a portfolio manager at the fund management firm Lindsell Train: The Triumph of Experience Over Hope. There is some great writing out there when it comes to Buffett and moats and enduring businesses, but this takes things in a slightly different direction.
Companies that have existed for decades, and even centuries, are outliers: the average business cycle is much, much shorter than that. But there’s no clear premium afforded to stocks that stick around a lot longer - despite the fact that their moats can get bigger and better. It’s an interesting little anomaly, and that letter takes a deep dive into it.
Highlights from the past week
The Motley Fool Money podcast - Lessons From Great Investors
Pound for pound I don’t think I’ve ever heard as many investing “quotes from legends” as I did in this podcast interview with David Rubenstein. So if you’re after some solid inspiration from investing greats, then this is definitely worth a listen. And to be fair, he is interesting and it’s an interesting conversation.
Rubenstein is a co-founder of The Carlyle Group. These days Carlyle is a quoted business, but perhaps 20 years ago it was a slightly mysterious, somewhat threatening private equity monolith. What never really comes out of this is why he’s written a book at all (How to Invest: Masters on the Craft) and why he chose to interview the people he did. I suppose, who doesn’t want to hear from some of the best investors in the world, right? And he does speak to some of the best… Ray Dalio, Seth Klarman, Stan Druckenmiller, Marc Andreessen… some pretty serious people. I have no idea about the book, but this podcast interview has some common sense ideas, albeit not exactly ground-breaking.
Motley Fool - Interview With Value Investor Bill Nygren of Oakmark Funds
Another post from Motley Fool, but this time it’s a Q&A interview article with Bill Nygren, the US value manager. It starts slow but gets better and it’s unashamedly US-focused. But the interest here is really in Nygren’s commentary on how his team tracks down potential investments, their blend of value and quality, the importance of management - plus a number of shares in his portfolio.
Investors Chronicle - IC Interviews: Simon Thompson
I’m slightly suspicious of the idea that there is a lot of read across from moves in US markets, and even the US economy, to what we’re experiencing here in the UK. Simon Thompson seems optimistic that the worst expectations for inflation, rates and the economy won’t come to pass next year. I hope he’s right.
Thompson is the small-cap specialist at the IC and very closely watched by investors looking for ideas at the smaller end of the market. It’s been a train wreck for AIM this year, but his 2022 bargain portfolio is apparently up by 10%. There is some interesting stuff here on the qualities he’s looking for (solid cash flows and working capital, low debt and low exposure), plus views on shares and sectors where there might be pockets of value.
Small caps have been tough going this year, but this discussion strikes some cautious optimism. Indeed, Thompson’s bullish views on small-cap oil and gas and mining (specifically copper) are notable. That’s traditionally been the most speculative, story-driven end of the small-cap world, so pretty surprising to hear him banging the drum there.
Investment Uncut - S4 Ep. 8 The Intelligent Fund Investor with Joe Wiggins
There’s an interesting moment in this discussion (well, there are lots) when Joe Wiggins is talking about the disposition effect (the tendency for self-directed investors to sell winning shares and hold losers) and how it reverses when it comes to investing in funds. The difference with funds is that there is somebody else to blame when things go wrong - so it becomes much earlier to do the right thing.
Joe’s book, The Intelligent Fund Investor, came out last week and it’s something slightly different. The perils of bad behaviour in investing tends to focus on human inability or unwillingness to act rationally. With funds, of course, there’s a middle-person, and that hands-off nature is part of the reason why funds are suggested as such a good idea. But it’s not that simple - we can still screw up which funds we buy, and this is where Joe’s book comes in. Topics range through being wary of star fund managers, different risk scenarios, stories, fund manager incentives, chasing performance and the importance of investment beliefs.
Excess Returns podcast - An Evidence-Based Approach to Markets with Larry Swedroe
Larry Swedroe is an educator and prolific writer on rules-based factor investing, so he’s definitely worth a listen. Like many quants, he tends to frame things as probabilities rather than definitives, but he definitely has some interesting (slightly bearish) views on the outlook for markets.
He’s recently written a book with Andrew Berkin called Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests Today. So naturally, they get him on to the subject of value and other factor premiums. Overall, definitely one for factor enthusiasts. Larry signs off with his big lesson for investors: all risk assets go through long periods of underperformance - so understand the factor premiums, diversify, rebalance and stay the course.
Have a great weekend,
Ben
PS. Check out more articles, research and podcasts below…
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Ideas That Changed My Life
Of Dollars And Data
My Favorite Investment Writing of 2022
Behavioural Investment
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This Year Could Have Been Worse For Investors
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The Other Lost Decade For Stocks
This Week in Intelligent Investing
[Podcast] How to Invest When You Like the Business But Not Necessarily the Management Team
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[Video] How To Invest A Bear Market w/ David Gardner (TIP499)
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[Podcast] Small Caps Podcast with Paul Scott – episode 23
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