Old School Value Nugget Fest (Jan 23rd Edition)

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Happy second week of the year, folks! Have you stuck with your resolutions, particularly your financial and investing ones? I’d love to hear. Let me know what’s working and what’s not.

This week’s collection of articles doesn’t have much of an integrative theme, but there are still some good ones. I’ll give you an overview of them and try to put them in the order I think they’re worth reading.

Recommended Readings

How Not To Be Stupid – Farnam Street

There are a lot of great nuggets in here. The interviewee defines stupidity as “overlooking or dismissing conspicuously crucial information” and lists 7 factors that make people act stupidly. In the article, he can only remember 6 of them, but I found all 7 better stated elsewhere:

  • Being outside of your circle of competence
  • Stress Rushing or urgency
  • Fixation on an outcome
  • Information overload
  • Groupthink or concern for social cohesion
  • Being in the presence of an ?authority” (including yourself)

Atul Gawande is also quoted in this article about the power of checklists, referencing his book “The Checklist Manifesto.” But,

“Checklists don’t help you if you’re stupid about the checklist.”

So true! So, if you don’t have an investment checklist as part of your process, make one! And USE it! Start with the one in the next article.

Final Decision Checklist – Value Investing World

“One important note though: I’ve come to believe that developing a full image in one’s mind of how a business operates, competes, allocates capital, takes care of customers, etc. is much more important than checking off certain items on a list (i.e. Holograms > Checklists). Combined with developing that image is the necessity of only investing in those things that seem like obvious bargains. But the final checklist serves as a great way to help stay disciplined, and hopefully sidestep some avoidable errors.”

10 Things Investors Can Expect in 2019 – Ben Carlson, A Wealth of Common Sense

Now, ask yourself if your checklist covers everything mentioned in this article. These things are your expectations for every day, month, and year as an investor.

For me, this was another good reminder to stick with my process. I invest in value because value does well over time, but does not do well all of the time. That just means more opportunity right now, not that I should be chasing other things. I also invest in dividend growers, because dividends always contribute to return, and getting the guaranteed positive contribution is a great way to protect your downside. Read this to remind yourself not to chase other people’s strategies (if they have them), assets, returns, etc.

“Since stocks fell hard at the end of 2018, it will feel more comforting to do something than nothing in 2019. Doing something, anything, during big market moves, makes investors feel better about themselves because it gives us the illusion of control, whether those moves are necessary or not.”

Great Value Investors Need To Be Cold-Hearted Jellybean Counters

There’s a video embedded. Basically, the point is: don’t succumb to groupthink. See “How Not To Be Stupid” (above).

Why Value Investors Are Different (1999 Barron’s Seth Klarman)

One part of the article talks about the “lost art of contrary thinking.” I.e., don’t use groupthink. Hm, I guess there IS a theme this week!

Value Tough To Pin Down – Seeking Alpha panel discussion

A wide-ranging discussion from some known value investors.

“On the other hand, the market seems to punish poor fundamentals a lot better. I think this provides a very nice climate for short ideas which I believe also fit in a value investing philosophy.”

You Would Have Missed 961% In Gains Using The CAPE Ratio, And That’s A Good Thing – Meb Faber

Sort of a value-based approach to selecting which markets to invest in.

“Now, what if we needed the CAPE ratio to be a bit more agile for us? Rather than just telling us to move out of stocks (and into bonds) and be done with it, what if we needed CAPE to tell us when to be in stocks, versus when to switch to bonds, and possibly switch back? How would that perform?”

Macro updates

Two different macro updates from you, and a “Buffet Watch” on bonds.

Question #2 for 2019: How much will the economy grow in 2019? – Calculated RISK

I’ve been a daily reader of Calculated RISK since around 2009. (I wish I’d started in 2007!) He covers all the important US economic data, and is very smart about housing. I think he’s got the better call here.

“These factors suggest growth will slow in 2019, probably to the low 2s -and maybe even a 1 handle.”

January Macro Update: 2018 Employment Was The Second Best Since 2000 – The Fat Pitch

“Summary: The macro economic story has started to change. The data from the past month continues to mostly point to positive growth, but there is a very important exception: weakness in housing is apparent. If this persists and other measures, especially employment, start to also weaken, a recession in 2019 is possible.”

Is Warren Buffett Sending a Signal About the Bond Market?

Have yields peaked this cycle?

“Its decision to issue 30-year fixed-rate bonds, rather than going with a shorter maturity or even sticking to floating-rate debt, has to factor into traders’ thinking about where rates and credit spreads are headed in the new year.” 

Stock ideas

MiMedx Group Inc (MDXG) – Prescience Point Capital

What we developed is a picture of the company that looks wholly different, and much more positive, than the prevailing public narrative. As such, we believe that MiMedx shares offer one of the most attractive investment opportunities we have ever identified. Based on conservative assumptions, we estimate that the company’s shares are worth roughly 4x the current share price. Further, we believe that over the long-term MDXG’s share price has the potential to retake or even exceed its all-time high of $18.25.


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