“The first rule of compounding: Never interrupt it unnecessarily.”
- Charlie Munger
I love this Munger quote. (h/t to @LiviamCapital). I may have it pinned on my wall. (Right next to another Munger quote I have on my wall: “The goal of investments is to find situations where it is safe not to diversify.”)
I thought about Charlie’s first rule of compounding the other day when a friend asked if I trimmed a position that has run quite a bit this year.
I haven’t touched it.
Why not? Shouldn’t I trim when something becomes “expensive”? Shouldn’t I put the money in something “less expensive”? Isn’t that what “active managers” do?
Warren Buffett's deputy grew his retirement fund from $70,000 to $264 million in under 30 years. He detailed how he did it, shared the way he shrugged off investment losses, and offered tips on saving for retirement in a recent Washington Post interview.
Ted Weschler, who helps Buffett manage Berkshire Hathaway's investment portfolio, discussed his approach with Allan Sloan for the writer's latest column. ProPublica first disclosed the size of Weschler's nest egg in June, citing federal tax returns it obtained.
In the book, Inside The House Of Money by Steven Drobny there’s a great interview with Jim Rogers on all things macro-investing before it was called macro-investing. During the interview Rogers recounted two stories that demonstrated to him the madness of investors. Here’s an excerpt from the interview:
I don’t know, there have been some nice ones. When you ask about favorites, that implies success. I usually prefer talking more about the things I have gotten wrong, because I learned from them.
The best one, the one I loved the most, was defense stocks in the 1970s. After the Vietnam War, defense went into the tanks—everybody hated defense, nobody was spending money on defense, so these were dollar stocks at best. I bought a lot of them.
In Ronald Chan’s Book – The Value Investors, Jean-Marie Eveillard provides two examples of when he had the courage to say no. Here’s two excerpts from the book:
Because I became worried about the Japanese stock market in the late 1980s due to its gigantic credit boom, we sold all of our Japanese stocks in mid-1988. Some investors questioned us for pulling out from the second largest stock market in the world, but I said it’s better to take some money off the table than to participate in market mania.
Obviously, I was wrong and unhappy in the next 18 months because the market went up another 30 percent, but in 1990 when the market collapsed, we owned nothing in Japan and our decision was proved logical.
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.
In this interview with Outlook Business, Michael Mauboussin discusses the three big behavioral mistakes that investors make. Here’s an excerpt from the interview:
Mauboussin: Investors make a lot of behavioral mistakes but I’ll mention three I think are particularly prominent.
The first is this notion of being overconfident. People tend to be overconfident in understanding the future and the way that manifests for investors is they tend to project ranges of outcomes that are vastly too narrow. So investors really need to try to calibrate themselves to appropriate distributions of outcomes to offset that overconfidence.
The second really big one is called confirmation bias that basically says once you’ve made up your mind, made an investment, you can to seek information that confirms your point of view and dismiss or disavow information that doesn’t confirm it. One of the essential tasks of an investor is really to understand new information as it comes in and to revise your views appropriately.
The third big one is a failure to use base rates. So base rates are essentially a record of what’s happened in the past to companies in similar situations. An understanding of base rates in terms of sales growth rates or earnings growth rates or return on capital patterns can allow investors to have a much better understanding about how the future may unfold for a particular company or an industry.
