Saturday, September 6, 2014

High Yield Reads - 9/6/14

Dominion on value of Moats
Summary of recent stories of interest, sometimes enduring, to investors. Note, everyone appears to have got a good vacation, there must be something to taking time off that refreshes you because the first three are as good as any I have read all year:

  • My favorite piece from this week is Sanjay Bakshi's lecture notes where takes a walk through the deep woods of second and third order effects of Gary Klein and Daniel Kahneman. There is no simple way to reconcile the two, Klein is focused on gaining insight and Kahneman on mistake avoidance, but lessons from Sherlock Holmes shed some insight. 
  • Howard Marks Risk Revisited covers a tremendous amount of cognitive terrain, not possible to summarize, just read it, but one nugget I really enjoyed was Marks' inverting Elroy Dimson's "risk means more things can happen than will  happen" to "even though many things can happen only one will."  
  • John Kay - The Wisest Choices Depend on Instinct and Careful Analysis - "We will never succeed in evaluating works of art, choosing candidates, managing risk, without the skills that can be acquired only through experience; but that experience can always be enhanced by the power of data analysis and the implementation of scientific techniques."
  • Todd Wenning documents lessons learned from Tesco's whopper of a dividend cut. Engineers know that you can learn more from failure than success and that makes it important to do a readout when things don't go your way. Yours truly owes Todd a debt of gratitude because running his Dividend Compass on Tesco a couple of times over the years convinced me to steer clear, even though I was intrigued. The dividend is the big enemy for income investors, you lose income and the shares get whacked. As Todd reminds us, no dividend is risk-less, investors should leave the party when the numbers don't make sense. He advises investors to have selling rules, so much is written about how to buy, but selling can be just as important a decision. Emotions are a chief enemy of investment success. If anything, emotions play a bigger role when selling because you become attached and anchored to your years as an owner. Better to have a checklist to buy and a checklist to sell
  • Millenial Investor - Beware experts Bearing Predictions - avoid investment decisions based on subjective predictions. he quotes Jiddu Krishnamurti "The primary cause of disorder in ourselves is the seeking of reality promised by another"
  • Dividend Mantra - Think Like an Owner - this is an important, oft-repeated concept. This post shows its tie in with dividend investing, namely - if you're an owner expect a paycheck.
  • Related to above: Peter Lynch in 1994 on Knowing What You Own, and why its better to make 10x your money in Dunkin' Donuts than swinging for the fences on something you know nothing about.

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