Saturday, April 26, 2014

High Yield Reads - 4/26/14

Summary of recents posts and pieces of interest, sometimes enduring, to investors:

  • Josh Peters "Time to Tighten Portfolio Standards" - great reminder that even though its slim pickings on good things to buy to not cave in on quality. Only invest in companies that can make it through the next downturn
  • Morgan Housel - "America's Biggest Edge Over the Rest of the World" demography really matters. Like many important things, its a massively important fact hiding in plain sight. One other edge I would suggest is that the US has the highest percent of its population who got into leaky, disease infested boats and crossed an ocean, so risk taking genes matter, too.
  • James Altucher can really write, in this piece he takes scalpel and skewer to the financial industry, the whole thing is worth reading, like everything he does its all over the map. Two pieces of practicality:
Three types of people:
  1. People who hold stocks FOREVER. Think: Warren Buffett (has never sold a share of Berkshire Hathaway since 1967) or Bill Gates (he sells shares but for 20 years basically held onto his MSFT stock).
  1. People who hold stocks for a millionth of a second (see Michael Lewis’s book “Flash Boys” which I highly recommend.) This is borderline illegal and I don’t recommend it.
  1. People who cheat.

E) What stocks should I hold?Warren Buffett has some advice on this (and I know because I wrote THE book about him. A friend of mine who knows him told me my book was the only book that Buffett thought was accurate about him).
So since I don’t know anything, I will let Warren Buffett take over here.
He says, “if you think a company will be around 20 years from now then it is probably a good buy right now.”
I would add to that, based on what Warren does. It seems to me he has five criteria:
  1. A company will be around 20 years from now.
  1. At some point, company’s management has demonstrated in some way that they are honest, good people. If you can get to know management even better.
  1. The company’s stock has crashed for some reason (think American Express in early 60s, which he loaded up on. Or Washington Post in the early 70s. Or Coca-Cola in the early 80s).
  1. The company’s name is a strong brand: American Express, Coke, Disney, etc.
  1. Demographics play a strong role.

  • Tren Griffin on A Dozen Things He Has Learned from Jeff Bezos - Bezos is really gem.  My favorite thing that he does is attaching his 1997 shareholder in every subsequent year. This is the exact opposite of what most people do - namely throw a dart and then draw a bullseye around where it landed.

    This year's letter contained this little nugget of gold:

    "Pay to Quit is pretty simple. Once a year, we offer to pay our associates to quit. The first year the offer is made, it's for $2,000. Then it goes up one thousand dollars a year until it reaches $5,000. The headline on the offer is "Please Don't Take This Offer." We hope they don't take the offer; we want them to stay. Why do we make this offer? The goal is to encourage folks to take a moment and think about what they really want. In the long-run, an employee staying somewhere they don't want to be isn't healthy for the employee or the company. "

    Think about how many people are totally ineffective in your average company, say 40%? In any company, probably 10-20% actively spread dissent. Someone there has a black belt in organizational jiu jitsu. 

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