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Week of February 27th 🗞
Well, this was anything but a quiet week. We saw the S&P actually notch a gain amidst all of the chaos while specific stocks got hammered. My thoughts and prayers go out to the people of Ukraine. Violence is never a good thing and to see one country invade another is a sober reality that we live in an imperfect world. I hope this war ends sooner than later.
For myself, this seemed to be a somewhat uncommon week because there was some activity in the portfolio. Since I have been steeped in the Buffett and Munger school of investing whenever I am making a move in a portfolio I feel weird about it. When I am selling, the feeling that I am making a mistake is always there. I don’t know if I have ever made a selling decision that has added value.
However, on the flip side, when I am introducing a new face to the portfolio it always feels like there is the possibility of quality dilution, something which I try to keep to an absolute minimum.
The other nagging feeling is the opportunity cost of forging the future. Cash is a call option for the future and when deployed you forgo that future. It’s like insurance underwriting, you really don’t know how much the cost will be until years down the line. You can only hope to wake up every day and do the most sensible thing. Either way, inactivity is the baseline so anything other than that sometimes feels wrong. But my job is to buy pieces of business for less than what they are worth and let time take care of the rest. If I do it somewhat rationally I’ll hopefully be right about 50% of the time but the tails of when I am correct will take care of the other 50% as long as the losses are not too big.
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Alright here is the Gunslinger Top 5 for the week of February 27th:
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1) “A Small College Scores Big in the Investment Game” by Lee Smith December 18th, 1978.
In the book Tap Dancing to Work, Carol Loomis collected and expanded on ~every article written in fortune magazine about Mr. Buffett. This is one of those books I like to keep around and every once in a while I will flip through to browse some of the articles. Now, this article specifically stuck out because there is one simple sentence that brought everything I had learned about investing full circle.
I put the book down and sat in thought. Here was such a simple idea, but if you follow the blueprint to a T you can achieve a >30% CAGR and it combines both Ben Graham and Phil Fischer. I have debated making a poster with this one sentence and hanging it in my office as a reminder of what I am trying to do every day. This is my investing philosophy.
This philosophy won’t get you to 20% a year for 50 years. But if you find a business that can grow at 15% a year for 50 years, that’s ~1000x and you know what, that is more than good enough for me. The math of compounding blows my mind still to this day.
2) Buffet’s 6 qualities of an Investor from The Money Masters by John Train
I have read John Train’s books before but not this one. It was recommended during the Chris Cerrone Podcast with Bill Brewster. Chris mentioned he thinks it was the only place Buffett ever really gave the truest summary of what it takes to be a great investor and what a great business looks like. Today we will focus on the 6 points he made when describing what it takes to be a great investor.
You must be animated by controlled greed and fascinated by the investment process.
You must have patience
You must think independently
You must have the security and self-confidence that comes from knowledge, without being rash or headstrong
Accept it when you don’t know something
Be flexible as to the business you buy, but never pay more than the business is worth.
All of these are much easier said than done but should serve as the North Star for all investors. You can’t be a .400 hitter if you neglect any of these points. It’s hard yeah, but it’s supposed to be hard. I have heard Ray Dalio say that outperforming the market over a long period of time is like winning a gold medal in the Olympics, it’s THAT hard.
As I learn more and more about investing the more I feel like I don’t know and the game seems harder and harder but I guess I am just not as blissfully ignorant anymore.
3/ Advice thread
On Monday morning I put out a question on Twitter.
And thankfully there were plenty of smart individuals who stepped up and gave thoughtful advice. I was appreciative of it all but I wanted to highlight a few of the answers.
First off is the thread from Kyle Cerminara. It is an 18 unit tweet storm about everything in life from choosing who to marry to how to conduct yourself as a professional, there was nothing investing specific but all of them are wonderful guidelines to follow to live a wonderful life. Thank you Kyle.
Short and sweet Adam gave 4 simple ideas to follow. The first and last one really sunk in. I have been meditating on what it means to think about the economics of a business because it has been easy to get lost in the numbers and forget to take a step back and look at the bigger picture, the bigger picture is the economics; Supply and demand, competition, market share, pricing power, returns on invested capital. I plan to write a more expanded piece on this in the coming future.
In regards to his final point, I spoke to this in last week's Weekly:
At the end of the day, one must set up their affairs in a way that we are not Warren Buffett and the best way to do that is to have much more humility with respect to risks, position-sizing, and the possibility you are wrong.
Here are some other gems I was thankful to receive from the question:
I was incredibly appreciative of all the advice given to me by all of the wildly successful individuals.
4) Buffet’s Annual Letter
I am sure everyone reading this has had the chance to look at the most recent annual letter written by Buffett and if not I strongly encourage you to do so. Telling everyone who reads this to go read these letters is like preaching to the crowd but there was one paragraph I wanted to highlight:
“Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.” - Warren Buffett in his 2021 Annual Letter
This is a point I think can get lost in the noise but this is a nice refresher of what we are trying to do as we all build our own “mini-Berkshires” through our portfolios.
I am guilty of getting swept away by a wonderful story or a low single-digit PE but at the end of the day we are buying businesses and the odds are the fruit on the tree is really ripe after the passage of at least 2-3 years. I would consider trying to speed up that timeline as reaching for results and I have never made a smart decision in haste. It’s easy to buy something, it’s harder to hold it. Luckily as individual investors, we have no one to answer to so leave the seeds alone and let them grow. Nothing will come from replanting every couple of months.
5) Tim Ferriss’s podcast with Cal Newport
I will admit I am part of the cult of Robert Pursig and ZITAOMM and Lila, I have had trouble getting through the books before and I still haven’t sat down to read them both cover to cover. I know I should. But there is another individual who one can listen to in regards to the idea of quality and that Gentleman is Cal Newport.
Cal has written many successful books and speaks about cultivating a “deep” life. To me, the idea of “deep” life and quality life is the same. Attempting to embody the ideas he discusses will put me on the right path and I highly recommend you read all his books especially; Be So Good They Can’t Ignore You, Deep Work, and Digital Minimalism.
In this specific podcast, Cal discusses a “half baked idea” which he classifies as “Slow Productivity”. The overview is high performers in any given field might not do much on a daily or yearly basis but over decades they produce unworldly results.
The idea of slow productivity is taking your time creating something with no due date, but rather when it is done, it is done. The best example that will probably work for this crowd is Berkshire Hathaway. On any given day, week, or year there is little action but when we stretch the time frame out to decades, there is a lot done and tremendous results.
I am trying to cultivate the same type of productivity. I want each piece of content to have a long shelf life. Whether it is the weekly, a deep dive, or an investing pearl of wisdom. This might mean only 2-3 pieces a month but over a decade that is a ton of helpful content.
This week was another quiet week at WSG headquarters but I did publish my AutoZone deep dive in both written and audio form you can that find here:
Overall I found all of these pieces of content to be enjoyable and worth a deeper look (I didn’t plan that) this upcoming week will be an interesting one. I hope it entails less violence and more peace.
That’s all for this week. Enjoy your weekend. Get outside. Hug a loved one.
✌️ ☮️ and ❤️,
Please be advised, Wall St Gunslinger is not an investment advisor and does not give personal investment advice. All content is for educational and entertainment purposes only and should not be interpreted as anything other than such. Investing entails a lot of risks and should be managed appropriately. Please do your own research and consult with an investment professional before making any investing decisions. Thank you.