Old School Value Nugget Fest (Mar 13th Edition)
Plane rides are super uncomfortable but I enjoy it because it’s the occasional chance where there are no distractions.
No pinging, no buzzing, no email, no internet.
Great time to catch up on some reading while on the plane to Chicago this weekend. The book for this flight was “Good Stocks Cheap”.
Title: Good Stocks Cheap
To keep it short, novices will appreciate the book being easy to read and follow with step by step explanations of the entire process.
The author does a great job of keep all ideas flowing and to the point. Even when he goes through calculations, he doesn’t leave it up to you to figure it out. He shows you which numbers are for what. The downside is that there are no tables in the book. It makes following the numbers super difficult. You need to go to the website to get the accompanying financial statements to follow some of what he is referring to.
Experienced investors will be able to skip most of the basic definition and explanations like what Operating Income is. But the framework provided is a great reminder of the value investing process and the need for an internal checklist.
I’ll be sharing some notes next time but I found it well thought out. It’s definitely an old school value investing book. There’s nothing sexy about it at all. I doubt it’s going to sell millions (sorry to the author) because it’s flat out common sense. Something the majority of the “investing” public rejects.
Here’s the full investing framework from the book. The best way to use it is to understand the full context, internalize it and then make it your own.
Old School Value Articles You May Have Missed
What We’re Reading in the Media
Fascinating read about a down to earth couple who found a loophole in a particular lottery game and milked the cow for as long as they could – about $27M worth of milk.
Their discipline and sticking to their strategy is something to admire.
Lessons From 15 Years Of Short Selling: 12 Reasons Not To Short
Whitney Tilson gives 12 reasons not to short. Whatever your opinion is of Tilson, it’s worth a read. I’ve never shorted and I don’t think I have the capacity or willpower to go through the short side and all the other stuff that comes with it.
I’d rather go with the easier side of investing instead of the time driven and sometime maniac pressure that comes with short selling. When going long, as you long as you can do your analysis and be patient about it, it usually pays off.
But on the short side, not only do you have to know 10x more than the longs, but your timing also needs to be correct.
Something most value investors are horrible at.
Another Downgrade for Fairholme
Seems like yesterday when Fairholme and Bruce Berkowitz was named the best fund and manager. Fairholme is down 7.9% as of Feb and things are not looking great with analysts leaving the firm.
Fairholme’s position in Sears did not incite any confidence with investors either.
“Manager Bruce Berkowitz embraces complexity” stands out to me. Based on the framework image above, looks like it could be related to
- cleverness bias – seeking investments that make you feel smart
- intermixing bias – favor holdings that seem offbeat
But Berkowitz is a world class manager and I’m sure he’ll get back to the top in no time.