Phillip A. Fischer wrote one of the most relevant books on investment: "Common Stocks and Uncommon Profits". He was the guy that opened Warren Buffett's mind to the "growth" part of the value of a company. Follows some selected sentences from the book
"Absence of conflict may not mean a basically happy relationship so much as fear of the consequences of conflict"
"You must learn what is important and train yourself to ignore the rest"
"Proof of any pudding is in the eating"
"Stockbrokers: men who know the price of everything and the value of nothing"
"Finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear"
Sunday, December 23, 2007
Friday, December 21, 2007
How to get out of trouble
Munger's advice on the topic on BRK's 2007 general meeting: "The best legal experience I ever got when I was very young. I asked my father why he did so much work for a big blowhard, an overreaching jerk, rather than for his best friend Grant McFaden. He said, “That man you call a blowhard is a walking bonanza of legal troubles, whereas Grant McFaden, who fixes problems promptly and is nice, hardly generates any legal work at all.” My dad was teaching me a lesson and it worked.
Considering its size, Berkshire has supported fewer lawyers than any company I can think of. We’ve gone through the world like Grant McFaden, the pioneering Omaha Ford dealer.
Figure out what you don’t want and avoid it and you’ll get what you do want. Warren had the same instincts I had. We haven’t had our share of disappointed, angry people that ruin so many lives. It’s easy to get into that position. Ask the question: How can you best get what you want? The answer: Deserve what you want!"
Or how Buffett also said once: "The best way to get out of trouble is to stay out of trouble in the first place." - Priceless
Considering its size, Berkshire has supported fewer lawyers than any company I can think of. We’ve gone through the world like Grant McFaden, the pioneering Omaha Ford dealer.
Figure out what you don’t want and avoid it and you’ll get what you do want. Warren had the same instincts I had. We haven’t had our share of disappointed, angry people that ruin so many lives. It’s easy to get into that position. Ask the question: How can you best get what you want? The answer: Deserve what you want!"
Or how Buffett also said once: "The best way to get out of trouble is to stay out of trouble in the first place." - Priceless
Mind hack
Frequently I find it very useful reading something apparently unrelated to the problem I'm supposed to be looking into. Most of the time, the most important thing in reading is not what you're reading, but what it makes you think. When we're facing a challenge, our minds tend to have it running on a parallel process at the back of our minds. Sometimes when reading a completely unrelated subject, we help our brain to actually look at the problem from a different position/frame of mind that leads to great solutions.
The greatest competitive advantage of all
The greatest competitive advantage of all is to do certain things differently from what human nature would lead us to. Having the discipline to do our homework, build conviction, manage risks and focus on the long-term results instead of following the herd into a doomed search for instant gratification through frenzy trading and yearly bonus is what can put us ahead.
Tuesday, December 18, 2007
My idol, Jehane Noujaim
A presentation about a girl that dreams of world peace. And actually has a concrete idea of how to help it happen using film and photography. Her point: how can people understand each other if they don't know what the other side is being told? This is fantastic. Really!
Is a short in oil the best hedge?
Over the last few weeks I’ve been thinking about what could be the best hedge nowadays. It seems to me that a short/put in oil or oil related companies could be it. Why?
Because the current oil bull market has been based on expanded demand and geo-political risks, not on supply constrains. Geopolitical risks are hard to gauge, but since they’ve been high for a while, mean reversion, at least, should be on your side over the medium term.
As for the supply/demand balance, the idea is to hedge against lower global growth, a scenario where oil demand would certainly abate. On the other side, progress in new sources in Russia and Brazil will eventually hit the market, as well as an increase in Iraq production as soon the situation become more stable there.
And last but not least, alternative sources are finally coming through, motivated both by higher oil prices and environmental concerns.
Bottom line is that I’d bet a great amount that oil prices will be substantially lower over the next 5 years. Maybe “short oil” could be more than a hedge. It could be a theme. Next step would be to search for the best vehicle.
Because the current oil bull market has been based on expanded demand and geo-political risks, not on supply constrains. Geopolitical risks are hard to gauge, but since they’ve been high for a while, mean reversion, at least, should be on your side over the medium term.
As for the supply/demand balance, the idea is to hedge against lower global growth, a scenario where oil demand would certainly abate. On the other side, progress in new sources in Russia and Brazil will eventually hit the market, as well as an increase in Iraq production as soon the situation become more stable there.
And last but not least, alternative sources are finally coming through, motivated both by higher oil prices and environmental concerns.
Bottom line is that I’d bet a great amount that oil prices will be substantially lower over the next 5 years. Maybe “short oil” could be more than a hedge. It could be a theme. Next step would be to search for the best vehicle.
Best Business Model Ever
A joint venture between an acupuncturist and a voodoo priest. Total scalability with 0 marginal costs!
Reflections on some defining moments
As I was running in the park today I start thinking about some few situations that ended up being very relevant to who I am, what I do and the culture I inoculated in the business I founded 20 years ago.
The first one was in mid-school. I had a math teacher that whenever someone would go into dithering preambles he would interrupt and say: "Don't tell a story. Ask a question". That might not sound big if you're not from a latin background, but for those who are, it's a major breakthrough. It was a great lesson in terms of objectivity and I was reasonable enough to understand that that would be the best way to go most of the times, although some context sometimes is all-important.
The second I can vividly remember was also from a professor, this time of physics, in high school. When students complained that his tests were too long and there wasn't enough time to do them, he would answer: "You're leaving too much thinking to be done during the tests. The time to think is during studies." That thought me to try to explore to the max the potential consequences of every concept I got introduced to. Do tons of what-if analysis. Take them to extremes. The fact that was before PCs was even more helpful, for it forced me to really incorporate the concepts and models, have them "hardwired" in my brain to run the simulations. To this day, its rare for me to face a crisis that is unexpected, that I haven't already gone through in a mental simulation. The only collateral effect I should warn all that would consider follow this path is that it leads to many sleepless nights.
The third came when we were starting our business. We were having a meeting with the guy that was to be our first accountant. As we discussed the structure, he said "Ah! The privilege of starting with a white sheet of paper". His eyes gleamed with this look not even the best actor can simulate, emphasizing how much in meant. From that moment on we decided to keep our "sheet" spotless. To this day, our company might not be the most efficient structure tax-wise or the biggest in its pond. But it has a wonderfully simple and stable structure that allows us to keep doing what we love most of the time.
Then there was Warren Buffett. Nowadays Buffett seems to be everywhere and I really don't know if that means that everyone is benefiting from his extreme wisdom or if overexposure has banalized it actually reducing his effects. But for me in the early 90s, it was a revelation. It's not only that he says great things, it's the way he says it, his ability to synthesize. Like in "In order to finish first, first you have to finish".
And last but definitely not least there's the fact that I was born in Rio de Janeiro, Brazil in the early 60s, to a upper-middle class family of medical professionals, with a strong ethical view of the world. That meant that no security could be take for granted. From 64 to the late eighties, Brazil was a military dictatorship where people could disappear at night and be "suicided", businesses-owners were forced out businesses in favor of government cronies. Later, as democracy gradually returned, Rio was to always in the opposition to federal government, meaning economic degradation and ramping crime rates, frequent waves of riots and kidnappings. On the economic front, utterly incompetent and short-sighted Governments played havoc. Hyper-inflation was constant and heterodox economic plans - that never worked but always resulted in losses for savers - happened with unbelievable frequency. My take on all of that, probably my deepest ingrained acquired reflex, is: "as much as you take care and be conservative, you shouldn't rely on whatever material or financial riches you have. The only reliable value is in your knowledge and in your relationships. So be humble, be nice and never stop learning and making new friends."
The first one was in mid-school. I had a math teacher that whenever someone would go into dithering preambles he would interrupt and say: "Don't tell a story. Ask a question". That might not sound big if you're not from a latin background, but for those who are, it's a major breakthrough. It was a great lesson in terms of objectivity and I was reasonable enough to understand that that would be the best way to go most of the times, although some context sometimes is all-important.
The second I can vividly remember was also from a professor, this time of physics, in high school. When students complained that his tests were too long and there wasn't enough time to do them, he would answer: "You're leaving too much thinking to be done during the tests. The time to think is during studies." That thought me to try to explore to the max the potential consequences of every concept I got introduced to. Do tons of what-if analysis. Take them to extremes. The fact that was before PCs was even more helpful, for it forced me to really incorporate the concepts and models, have them "hardwired" in my brain to run the simulations. To this day, its rare for me to face a crisis that is unexpected, that I haven't already gone through in a mental simulation. The only collateral effect I should warn all that would consider follow this path is that it leads to many sleepless nights.
The third came when we were starting our business. We were having a meeting with the guy that was to be our first accountant. As we discussed the structure, he said "Ah! The privilege of starting with a white sheet of paper". His eyes gleamed with this look not even the best actor can simulate, emphasizing how much in meant. From that moment on we decided to keep our "sheet" spotless. To this day, our company might not be the most efficient structure tax-wise or the biggest in its pond. But it has a wonderfully simple and stable structure that allows us to keep doing what we love most of the time.
Then there was Warren Buffett. Nowadays Buffett seems to be everywhere and I really don't know if that means that everyone is benefiting from his extreme wisdom or if overexposure has banalized it actually reducing his effects. But for me in the early 90s, it was a revelation. It's not only that he says great things, it's the way he says it, his ability to synthesize. Like in "In order to finish first, first you have to finish".
And last but definitely not least there's the fact that I was born in Rio de Janeiro, Brazil in the early 60s, to a upper-middle class family of medical professionals, with a strong ethical view of the world. That meant that no security could be take for granted. From 64 to the late eighties, Brazil was a military dictatorship where people could disappear at night and be "suicided", businesses-owners were forced out businesses in favor of government cronies. Later, as democracy gradually returned, Rio was to always in the opposition to federal government, meaning economic degradation and ramping crime rates, frequent waves of riots and kidnappings. On the economic front, utterly incompetent and short-sighted Governments played havoc. Hyper-inflation was constant and heterodox economic plans - that never worked but always resulted in losses for savers - happened with unbelievable frequency. My take on all of that, probably my deepest ingrained acquired reflex, is: "as much as you take care and be conservative, you shouldn't rely on whatever material or financial riches you have. The only reliable value is in your knowledge and in your relationships. So be humble, be nice and never stop learning and making new friends."
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