weekly wrap 15/09/17

“Market efficiency depends on the relative proportion of market participants who are making investment decisions with their prefrontal cortexes to the ones relying on their more instinctive faculties, such as fight-or-flight”

– Andrew Lo


As you may have guessed from this weeks quote, I’ve been reading Adaptive Markets recently and I think it’s a great synthesis between how some financial decisions that may be perceived as irrational (such as probability matching) can be optimal under certain conditions from an evolutionary perspective. I’ll have some more notes on it next week once I’ve finished digesting it.


Joe Koster from Boyles Asset Management and curator of one of the best investment digests on the web – Value Investing World – brought up an interesting article this week that refers to something I’ve been thinking about. In the article Joe discusses a quote by Charlie Munger on how he changed his investment strategy over time:

“when I was young I scrambled around doing anything that would work. I could get tiny little obscure companies who were too cheap because they were on the pink sheets and all kinds of things. As I got more money, I decided I didn’t like all that scratching around. I was thinking about things I didn’t want to think about.”

Too often these days I beleive investors are using Buffetts quote of buying a “wonderful business, at a fair price” as a way to justify buying a good business at any price. Further, I think people forget that when Buffett and Munger were compounding their capital at over 25% per annum, they did so by purchasing obscure micro-cap companies at absurdly cheap prices. Blue Chip Stamps and Sanborn Maps were not wonderful businesses, they were no brainers. Both were trading materially below what a private investor could liquidate them for, which allowed Buffett, Munger & Co to acquire controlling stakes and reallocate capital in a more productive manner. Put another way, when Buffett and Munger started out, they were micro-cap activists. It’s a sign of the times when every investor is buy & hold.


The stock that caught my eye this week was STM Group Plc, which I’ve discussed on the blog before. They announced an impressive set of interim results which highlight some key developments they’ve made in the past 12-18 months that are now beginning to pay dividends. You can see my original thesis here but as a reminder it does not constitute financial advice.


this weeks links

Slightly out of date report from Ovis Capital

A piece from Brent Beshore on how Amazon is impacting his investment process

Absolute Return Partners discussing the current market environment

Geoff Gannon with three stocks he thinks are still attractively priced

Steve Johnson discussing Aussie reporting season

The original pitch deck from Uber

Kevin Rose discussing why their normally small cap fund is holding blue chips

An Australian fund with a great track record shows what can go wrong when pairs trading

Howard Marks latest memo

Aleph Blog discussing Joel Tillinghast’s new book big money thinks small

Legendary UK fund manager Neil Woodford reflects on a tough period of performance

Tren Griffin with a Dozen Lessons about Business and Life from Jimmy Iovine

An interesting article about The Mikan Drill

Tail Hedging is something we’ve been discussing internally lately

A wonderful presentation on the coffee can approach to investing

The original piece from Robert Kirby on the Coffee Can Portfolio

August report from The Boat Fund

With all the talk lately about trading the VIX, this is a great article discussing its shortfalls

Baron Funds June Report


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