weekly wrap 23/06/17

“If the customers are happy, and the employees are happy, the shareholders will be happy.”

Jack Ma

 

book of the week – Thinking Strategically, Dixit & Nalebuff

Thinking Strategically provides a practical approach to the often overly theoretical topic of Game Theory. I’ve been interested in the theory of games and strategic decision making since I first played Monopoly with my family as a child. My love of games and strategy actually sowed the seeds that would eventually become my passion for investing and shape the rest of my life. Dixit & Nalebuff constructed a readable and highly enjoyable adventure through the various concepts of game theory, finishing each topic with an insightful case study that forces the reader into thinking for themselves. The gem of the book for me was their explanation around ‘lowest price guarantees’ and how it is actually conducive to higher prices and resembles tactics similar to the oil cartels!

I give the book a 4/5

 

articles of interest

This week I went on somewhat of a “Mauboussin binge” reading several of his papers and listening to a recent interview he had with Patrick O’Shaughnessy. I’ve been a fan of Mauboussin’s work for many years after first being introduced to him through the book More Than You Know. Here are the articles/interviews of his I read/listened to this week:

The Base Rate Book

This is a great piece discussing base rates – something I think many sell-side analysts and investors fail to consider when evaluating the future growth prospects of a company. The gem of the article is the collection of data tables he provides showing the % of companies that have achieved varying sales growth rates over different time intervals. I think a fact that is worthwhile committing to memory is that only 9% of all companies can sustain a top-line growth rate of >20% p.a. over a 5 year period.

Measuring the Moat

In this journal Mauboussin discusses varying aspects of competitive dynamics, from Porters 5 forces to brand value. The gem in this piece is the 69 point checklist he provides in the appendices.

Looking for Easy Games

The title of this paper is a little misleading, given he spends most of the time discussing the active vs. passive debate. He does provide some interesting commentary around potential sources of pricing inefficiency in modern, passive markets. The gem in the article is a quote on the front page from Warren Buffett, “As they say in poker, ‘If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.’”

Investors Field Guide Interview

Yet another great interview by Patrick O’Shaughnessy

 

Another article that really grabbed my attention this week was regarding a topic I’ve been pondering for sometime now – the deflationary impact automation is having due to the downward pressure it’s putting on the participation rate. Charles Hugh Smith authored the article.

 

John Huber over at Base Hit Investing wrote a great letter to his shareholders regarding the shrinking moats of some consumer products companies whose competitive positions would historically have been described as fortress like.

Investor Letter

Presentation

 

Dorsey Asset Management released a great presentation around how they look at competitive advantage and capital allocation. A really interesting quote in the preso from Phebe Novakovic regarding growth and capital allocation policies was “There is no point in chasing revenue or pretending that you are in a growth market when you are not.”

 

Two great articles from Shane Parrish over at the Farnam Street Blog

Smart Decisions

Thought Experiments

 

Interview with the great Monhish Pabrai

Auscap’s latest monthly report

Safal Niveshak on why he doesn’t talk about hist investments

A great article about a great investor over at microcap club

Brent Beshore wrote a short piece on why he joined the board at Tandy Leather

Finally, a plug for my good friend Andrew White who has set up a new site that is worth checking out

 

Until next time, happy hunting for those hidden compounders!

 

 

 

 

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