Money World Interview with John Templeton

 

An old video but very good comments from Templeton.

Meb Faber: Aaron Edelheit, Mindset Capital, “The Best Investors Are Those That View It As A Game”

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In today’s episode, we start with Aaron’s time as the CEO of The American Home, a company he grew to over 2,500 single-family rental homes and sold in 2015 to a REIT for over $250 million. He explains why that experience has led him to be bullish on Mexican homebuilders and why he thinks one specific homebuilder is the most undervalued company in North America. Then we turn to why Aaron thinks it’s helpful for investors to play video games and why he thinks Nintendo is undervalued.

As we wind down, we touch on the cannabis space and why Aaron is bullish on the sector.

  

Would You Have Found Berkshire Hathaway in 1975?

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Probably not, from the performance charts, writes Rekenthaler in this article from the archives.

My July 25, 2018, column suggested that time travelers purchase $1,000 worth of Berkshire Hathaway (BRK.A) stock in 1975. That position would be worth $7.5 million today. Which got me thinking: How did BRK’s equity appear at that time?

Warren Buffett gained control of BRK in May 1965. The chart below depicts the value of a $10,000 investment in BRK over the next five calendar years, from 1966 through 1970. For comparison’s sake, I included the S&P 500 and the price change of a barrel of crude oil. (The latter two investments are theoretical: There were no index funds, and oil barrels came with storage costs.) All figures are adjusted for inflation.

Sean Iddings: We All Need Some Perspective

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The bull market makes us all look like geniuses, but we’re not.

It’s time for a good dose of perspective and honesty.

Follow along…

In 2013, Brian Scalabrine, a recently retired 11-year NBA player, had enough.

Scalabrine was sick and tired of hearing average Joes say they could beat him one-on-one on the court. The armchair professionals insisted that Scalabrine, a 3 point per game player, a poor player by NBA standards, would be an easy challenge. 

Scalabrine wanted to shut them up. Scalabrine took on four of Boston’s best amateur ballers, dubbed it the “Scallenge” and recorded it for all to see. Some had Division - 1 college experience. All had supreme confidence they would win.

Here is how it went.

Dave Collum: 2020 Year In Review

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Imagine, if you will, a man wakes up from a year-long induced coma—a long hauler of a higher order—to a world gone mad. During his slumber, the President of the United States was impeached for colluding with the Russians using a dossier prepared by his political opponents, themselves colluding with the FBI, intelligence agencies, and the Russians. 

A pandemic that may have emanated from a Chinese virology laboratory swept the globe killing millions and is still on the loose. A controlled demolition of the global economy forced hundreds of millions into unemployment in a matter of weeks. Metropolitan hotels plummeted to 10% occupancy. The 10% of the global economy corresponding to hospitality and tourism had been smashed on the shoals and was foundering. 

The Federal Reserve has been buying junk corporate bonds in total desperation. A social movement of monumental proportions swept the US and the world, triggering months of rioting and looting while mayors, frozen in the headlights, were unable to fathom an appropriate response. The rise of neo-Marxism on college campuses and beyond had become palpable. 

The most contentious election in US history pitted the undeniably polarizing and irascible Donald Trump against the DNC A-Team including a 76-year-old showing early signs of dementia paired with a sassy neo-Marxist grifter with an undetectable moral compass. 

Many have lost faith in the fairness of the election as challenges hit the courts. Peering through the virus-induced brain fog the man sees CNBC playing on the TV with the scrolling Chiron stating, “S&P up 12% year to date. Nasdaq soars 36%.” 

The man has entered The Twilight Zone.

Charlie Munger: How to Identify a Resilient Economic Moat

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When considering a company's investment potential, according to Warren Buffett (Trades, Portfolio), it is critical to determine whether it has "a moat around it with a very valuable castle in the middle." While such a moat can take different forms, its function is the same: protecting the company from competitive threats.

"Moats have been breached time after time. Imagine the Eastman Chemical Company going broke. Imagine all these great department stores being on the edge of extinction. Imagine all those monopoly newspapers going down. Look at the strength of the American auto industry compared to what it was, say in 1950. I think the moats are disappearing rapidly. I mean the old classical moats. I think it's probably a natural part of the modern economic system, as in old moats stop working."

"Berkshire owns the Burlington Northern railroad. You can hardly think of a more old-fashioned business than a railroad business. It's an excellent asset. Who is going to create another trunk railroad? We made that a success, not by conquering change but by avoiding it. It helps to have a position that almost can't be taken away by technology. How else will you haul goods across the land, from Los Angeles to Chicago?"

Charlie Munger: CalTech interview 14. December 2020

 

Charlie Munger appeared for the first time since January on a public interview with Caltech faculty.

Taylor Collins: Mind Blowing Valuations – Tesla, AirBnB, DoorDash

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The stock market, and in particular, stocks popular among millennial “Robinhood traders” (who have never had the privilege of experiencing a deflating bubble) have been all the rage lately.

It’s fascinating to see companies like Tesla being added to the S & P 500, when it took 16 years for the company to even turn an annual profit. What’s even more astonishing is the enormous market capitalization of Tesla (and similar companies we’ll look at), when compared with their senior and more established competitors.

Tesla’s market cap currently stands at $658 billion ($659 billion if rounding up), beating out Warren Buffett’s Berkshire Hathaway by roughly $133 billion. This is incredible considering Tesla only has a global market share of 1% for passenger vehicles. The chart below illustrates how Tesla’s market cap exceeds the combined market cap of the world’s biggest auto makers – keep in mind Tesla has added 80 billion to their market cap since this chart:

Frank Holmes: Bitcoin Cracks Record High Due To Institutional Buying

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This week the Federal Reserve left interest rates near zero and committed to continue its bond-buying program until “substantial progress” has been made regarding employment and inflation. Initial jobless claims increased for the second straight week, hitting 885,000 in the week ended December 12—the most since early September.

I was floored to see just how much the Fed is buying—and will continue to buy—each month. The central bank is gobbling up as much $120 billion of debt, split between $80 billion of Treasuries and $40 billion of mortgage-backed securities (MBS).

The size of the Fed’s balance sheet now stands at a staggering $7.36 trillion, or 34% of gross domestic product (GDP).

Mohnish Pabrai Shares Insights on Identifying 10 to 100-Baggers - Part 1

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Renowned value investor Mohnish Pabrai (Trades, Portfolio) recently gave a lecture for the Fall 2020 Value Investing Course at Peking University's Guanghua School of Management. During the lecture, Pabrai shared his insights on how to spot 10 to 100-baggers, which he calls the holy grail of investing. Pabrai also held a question-and-answer session after the lecture in which he answered questions from students and sit-in audience. 

Howard Marks: Prospective Returns Are Low on Everything.’ Howard Marks Outlines Investment Opportunities, Risks

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Barron’s: What’s the biggest question we’ll face when the Covid-19 pandemic winds down?

Howard Marks: The rate at which we’ll return—and the extent to which we’ll return—to our prior behavior. My guess is we’ll go a good bit of the way back to what used to be business, or life, as usual. For the most part, life won’t be fundamentally changed. The things that you or I now would consider out of the question, like going to the movies, a sporting event, or a party, will become commonplace again once the disease is under control.

You’re not a stock picker, but do parts of the stock market look appealing?

On the other hand, when you look at the nontech companies, there are a lot of areas where business models are severely challenged by the pandemic and other trends. If you can find among those companies some where the reality isn’t going to be as bad as the expectation, then you can make money in those holdings. It is all a matter of looking for situations where the merits are underestimated by investors.

Jonathan Boyar: Spotting Investment Opportunities In Out Of Favor Industries

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Over the long run, stock markets are fairly efficient. In the shorter term, however, valuations can go to extremes both on the low and high sides. Investors usually create these anomalies by piling into whatever is currently in vogue and indiscriminately selling whatever is out of favor.

When industries fall out of favor, Wall Street sometimes drives the market cap of companies within that sector far below what an acquirer would pay for the entire company. That leads to buying opportunities for discerning investors with the patience to wait for the industry to right itself. Of course, it’s anyone’s guess when the tide might turn—investors may need to suffer through years of under-performance before these investments eventually pay off. It’s often well worth the wait, however.

Alta Fox Capital: “Makings of a Multibagger” and the Goal for Constant Improvement

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Alta Fox consistently seeks to identify exceptionally high-quality businesses at cheap multiples of normalized earnings over a medium-term time horizon of 3-5 years. Our hunt for quality at a cheap price often leads us to structurally inefficient small and micro-cap equities where there is less competition from institutional investors. However, at Alta Fox, we have always indicated our belief that high-quality, attractively priced companies can be found in many places, regardless of market cap. 

Charlie Mungers ‘Bag Of Tricks’

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Charlie also revealed how he created near a billion dollars in value for the University of California, Santa Barbara when a friend was struggling to sell her family’s 1,800 acre ocean front ranch. Despite two miles of frontage to the ocean, a perfect climate and great views, draconian planning laws significantly inhibited the use to which the land could be put. Recognising an opportunity to realise value, Charlie donated $70m to the University of California, Santa Barbara to buy the land. Charlie knew the University wasn’t subject to the Santa Barbara zoning laws and could therefore develop needed student accommodation on the site. This outside-the-box thinking effectively created a billion dollars of value for the University and a once unattainable sale price for the friend.

“We all start out stupid, and we all have a hard time staying sensible. You have to keep working at it. Berkshire would be a wreck today if it were run by the Warren I knew when we started. We kept learning. I don't think we'd have all the billions of stock of Coca-Cola we now have if we hadn't bought See’s. Now, you know how we were smart enough to buy See’s. Barely. The answer is barely.”

“I am continuously invested in American equities. But I've had my Berkshire stock decline by 50% three times. It doesn't bother me that much. That's just a natural consequence of an adult life, properly lived. If you have my attitude, it doesn't really matter. I always liked Kipling's expression in that poem called “If”. He said, success and failure, treat those two imposters just the same. Just roll with it.”

Giddy-up: What investment icons learnt from punting (gambling)

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And the great lesson in humility that every gambler learns very quickly – that is, that even the smartest people can’t win them all – is also a lesson that should be imprinted on the brain of every investor.

“Investing is a game of skill – meaning inferior players can’t expect to be above-average winners in the long run,” Marks wrote in a seminal piece on the similarities between gambling and investing, appropriately titled "You bet!"

“But it also includes elements of chance – meaning skill won’t win out every time. In the long run, superior skill will overcome the impact of bad luck. But in the short run, luck can overwhelm skill, and the two can be indistinguishable.”

“Success in gambling doesn’t go to those who pick winners but to those with the ability to identify superior propositions," Marks says. "The goal is to find situations where the odds are generous to one side or the other, whether favourite or underdog. In other words, a mispricing.

“It’s exactly the same in investing. People often say to me, 'YZ is a great company with a bright future, so I bought the stock.' They’re picking a favourite but ignoring the proposition. The former alone isn’t enough; they should consider the latter as well.

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” Warren Buffett

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A critical pearl of wisdom from Warren Buffett teaches us that with any potential stock investment we may make, as soon as our buy order is filled we will have a choice: to remain a co-owner of that company for the long haul, or to react to the inevitable short-term ups and downs that the stock market is famous for (sometimes sharp ups and downs).

The Stoicism Of Ben Graham

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Graham didn’t propose that a stereotypically stoic – that is, unemotional – temperament is a necessary condition of success as an investor. He did, however, consciously imbibe classical Stoicism. Hence the investor should strive to be “inversely emotional” (the term is Jason Zweig’s rather than Graham’s; see “If You Think the Worst Is Over, Take Benjamin Graham’s Advice,” The Wall Street Journal, 26 May 2009). Neither as a friend nor as a parent, spouse, etc., can or should you stifle all of your emotions. But as an investor, you should reason – that is, neither enthuse nor despair. Through reason perhaps you can – and through emotion you certainly cannot – ascertain sensible prices of securities and levels of markets, and act accordingly when prices don’t reflect values.

"The more you do so, the greater is the degree to which you’ll recognise as vices – and thereby discount – those passions that the crowd perversely regards as “good.” Moreover, you’ll acknowledge and cultivate as virtues those attitudes and behaviours that the crowd typically ignores (or regards as “bad”)."

Smead Capital Management: Humility Produces Alpha

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Joe Kennedy was getting his shoes shined in 1929 and the shoeshine boy was giving him stock tips. Think of how humiliating it might have been to Kennedy, who had dramatically reduced his common stock ownership. This upstart had been making money and couldn’t wait to pass along his wisdom to Mr. Kennedy. Joe quickly surmised that there was nobody left to buy stocks and established a huge short position in the stock market. The fortune he made by betting against stocks was part of the wealth which led his son, John F. Kennedy, to become President of the United States in 1960.

We were at our grandkid’s soccer game recently and we struck up a conversation with one of the parents. They worked for a successful fintech company (which we owned for a long time) and explained to us that they had invested in Shopify (SHOP) at around $140 per share. I looked it up over the weekend and was astounded by what the numbers told me.

Old West Investment Management Q3 2020 Investor Letter

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Where does the market go from here? Hard to say, but look at these eye-popping returns of

certain stocks since January 1:

PAYPAL + 77%

TESLA + 422%

NVDIA + 120%

APPLE + 54%

These returns are for the first nine months of 2020. One has to ask: have these businesses improved that much in nine months, or is the market forming a bubble ala 1999? In determining whether the market is in bubble territory, I love a quote from legendary investorSir John Templeton: “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”

The returns shown above, in my opinion, smack of euphoria. 

Bob Farrell: Learn a lesson -- before you get one

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Ten rules to remember about investing in the stock market

1. Markets tend to return to the mean over time

2. Excesses in one direction will lead to an opposite excess in the other direction

3. There are no new eras -- excesses are never permanent

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

5. The public buys the most at the top and the least at the bottom

6. Fear and greed are stronger than long-term resolve

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names

8. Bear markets have three stages -- sharp down, reflexive rebound and a drawn-out fundamental downtrend

9. When all the experts and forecasts agree -- something else is going to happen

10. Bull markets are more fun than bear markets