Six Questions to Consider Before Investing

Great piece by Charlie Munger

The Art of Soft Picking

6 Questions to Consider Before Investing

Thanks to Austin Value Capital for compiling the returns on famous investors .

These returns are till 2017.

Shows how hard it is to recall outperform the market

Scroll below and see returns from Charlie Munger , Guy Spier , Francis Rochon and Chuck Akre

Prof Michael Porter gave a lecture about Strategy at Havard Business School to a couple of CEO's.

Here are 5 key takeaways from that lecture: 1. Strategy is about creating value for customers you choose to service. Strategy is all about choice, and the most fundamental choice is who you choose to serve. the worst mistake you can make is to try serve everybody you cannot meet the needs of every customer)

Ten Ways to Create Shareholder Value by Alfred Rappaport.

"I should point out that no company- with the possible exception of Berkshire Hathaway- gets anywhere near to implementing all these principles" 1. Do not manage earnings or provide earnings guidance

If a company doesn't follow this principle it most likely won't follow the rest

Jeff Bezos(@JeffBezos )recently sat down with Lex Fridman (@lexfridman )

It was a 2hr long interview , so I decided to share the most important parts with you

Thread:
1. How to make decisions
2. How not to resolve disagreements 1. How to make decisions

Jeff said Amazon is the most customer centric company in the world and now he wants to make Blue Origin the most decisive company in the world .

But how does one make good decisions?

Jeff talks of one way and two way doors .

Most decisions are

Berkshire’s Good Luck Hiring

“If Charlie and I and Ajit are ever in a sinking boat — and you can only save one of us," Warren Buffett once said, "swim to Ajit.

The Story of Ajit Jain

Berkshire’s Vice Chairman of Insurance Operations The Indian born Ajit graduated from IIT-Kharagpar in 1972 with a BTech Degree in Mechanical Engineering.

He then proceeded to get his MBA from Harvard and started working for McKinsey & Co

In ‘81 he quit his job at McKinsey and in ‘82 Michael Goldberg , his former boss at

Warren Buffett’s Banker

Byron Trott

In 2002 , Byron got a call from hank Paulson, the then CEO of Goldman Sachs , who told him to go meet Warren Buffett and that he will be now “covering him”

Byron flew over to Omaha and a scheduled 1hr meeting ended up running for 3hrs Warren Buffett, who is not very fond of using investment bankers , gave Byron an assignment that other bankers had previously failed at.

He wanted Byron to create a security that paid Berkshire to borrow money.

With the catch that investors would also get the right to

“Superior sales and distribution by itself can create a monopoly, even with no product differentiation.”- Peter Theil

Key takeaways from Distribution Moat- An Undepreciated Moat by The Nomad Investor When buying high quality companies, we want them to have growing moats so that they can fend off existing or future competitors. The distribution moat, which can be categorized as an intangible asset, is one moat that goes relatively unrecognized.

Key takeaways from Intangibles and Earnings by @mjmauboussin and D.Callahan.

The economy is shifting from one that is built on tangible investments to one built on intangible assets. This has complicated the interpretations of financial statements.This is because tangible investments are reflected on the balance sheet and intangible assets are reflected on the income statement. Tangible investments are capitalized over periods of time while intangible

To Buy or Not to Buy: Assessing Mergers and Acquisitions by @mjmauboussin, D Callahan, D Majd

“Although M&A’s can create value in certain cases, they often have the potential to destroy value when not executed strategically and thoughtfully." 1. It can be difficult for M&A to create value if:
a. The premium is too large the buyer can't recoup its investment even if the deal makes strategic sense

b. Competitors can replicate benefits of a deal and take advantage of the buyers lack of focus

Just finished reading Measuring the Moat by @mjmauboussin, D. Callahan and D. Majd.

Here are some take aways: 1. Value Creation is the spread between a company's ROIC and cost of capital, and how long the company can maintain that spread (durability).

Takeaways from The Superinvestors of Graham and Doddsville by Warren Buffett.

"If you found any really extraordinary concentrations of success, you might want to see if you could identify concentrations of unusual characteristics that might be the causal factors. "- W. Buffett Many professors claim that the market is efficient and the approach of buying undervalued securities with a significant margin of safety is out of date. They claim that there is no discrepancy between price and value and that any investor who seems to "beat the market" is just...

Thanks to Austin Value Capital for compiling the returns on famous investors .

These returns are till 2017.

Shows how hard it is to recall outperform the market

Scroll below and see returns from Charlie Munger , Guy Spier , Francis Rochon and Chuck Akre

Key Takeaways from "Operating Leverage" by @mjmauboussin, D.Callahan and D.Majd. Operating leverage measures the change in operating profit as a function of the change in sales.
The easiest way to think about operating leverage is as the ratio of fixed to variable costs

Connor Leonard groups businesses into 3 categories:

1. Companies with a Legacy Moat
2. Companies with a reinvestment moat
3. Capital Light Compounders

Let’s go into this categorization and I’ve added some examples 1. Companies with a legacy moat

This is a company that earns above average returns but has no room to deploy incremental capital. It has no room for growth.

So the business racks up huge amounts of cash but has no place to deploy it and thus returns the cash to shareholders

In 1977, Warren Buffett wrote on article in Fortune: "How Inflation Swindles the Equity Investor”

Here are some key takeaways from that article: "The central problem in the stock market is that the return on capital hasn't risen with inflation.
It seems to be stuck at 12%"

Why EBITDA is Nonsense

“Everytime you hear EBITDA , substitute it with bullshit earnings”- Charlie Munger

EBITDA is touted as a valuable measure of a company’s performance.

However it is nothing but a smoke screen that obscures the true economic performance of a business EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization .

When interest, taxes , depreciation and amortization are taken out of the equation any company can look great.

This is why Warren Buffett notes that if people are using EBITDA they are either

Key takeaways from What Makes Quality
Undervalued by @Invesquotes

Thread: Before we go any further, we first have to identify what quality is. A company is regarded as being high quality if it is:
-well financed
-resilient
-a compounding machine

Key takeaways from "Durable Principles for Real Asset Investing" by Bruce Flatt of Brookfield
Asset Management
"Do not follow fashion, follow value for big returns in the long run"- Bruce Flatt 1.Look for opportunities away from the crowd. Invest in places where capital is running away from, this is hard to do but very rewarding when accomplished.

This picture is actually placed around
Brookfield offices to cement this thinking