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June 2011

Recs

3

RS Weekly Update - Munger, Berkshire and Stress

June 29, 2011 – Comments (1)

Dear Fools,

Picking up where we left off last week, here is tendency #17 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #17 – Stress-Influence Tendency

Ah stress. We never really seem to get enough of it do we? Kidding of course. I think we are all probably trying to figure out ways to avoid stress, and this quest most likely ends up causing stress in the process.

Munger refers back to Nobel Prize winner Pavlov’s research involving dogs. To be blunt, Pavlov spent much of the rest of his life (after of course his discoveries regarding Pavlovian conditioning) giving stress-induced nervous breakdowns to dogs. The point was to then try to reverse these breakdowns and keep meticulous records all the way through. As a dog lover and owner of two golden retrievers this stresses me out just reading it. But his findings were interesting. He found that:

•  He was able to predict how easily a particular dog would break down;
•  The dogs that were hardest to breakdown were also the hardest to return to their pre-breakdown state;
•  Any dog could be broken down (I found this one particularly fascinating); and
•  The only way to reverse a breakdown was to reimpose stress (OK, maybe I’m more fascinated by this.)

It’s amazing to think that a mental breakdown caused by heavy stress could be cured only by reimposing stress on the subject. But it’s there as a possibility that we can’t ignore. As investors it can be very easy to stress; it’s our money on the line after all. It’s important for us to be able to recognize what causes our stress and realizing that it can lead us down the road to faulty thinking. If for example you hold an uncomfortably large position in a stock, you may be losing sleep at night thinking about what you’ll do if it tanks; now that’s stressful! The solution to that one is very simple though and it’s one that we profess here at The Fool ad nauseam: diversify, diversify, diversify. That’ll help you sleep at night.

Foolish best,

Jason (TMFJMo)


Berkshire Hathaway

Berkshire Beckons: http://bit.ly/mkAvt0

Activision Blizzard

This could be one of those moves that really makes an impact: http://onforb.es/kmzGeI

Straight from the Onion

And this was before Anheuser-Busch got bought out. But the student to gun ratio? Yikes!: http://onion.com/lCckm1

Jason owns shares of Activision Blizzard and Berkshire Hathaway   [more]

Recs

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RS Weekly Update - Munger, Perception and New Buys

June 23, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #16 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #16 – Contrast-Misreaction Tendency

This is one that we all have to deal with from time to time. We as humans have to rely so often on perception; however our perception may not necessarily be the reality. This tendency is best described by a number of simple examples Munger uses:

•  You go ahead and opt for the $1,000 leather dashboard for your new car simply because compared to the $65,000 you just spent on buying the car it seems like an insignificant amount;
•  A woman with terrible parents “settles” for a mediocre at best man simply because when compared to her parents he is of a much higher standard;
•  Vendors set prices artificially high for a period of time so that when they drop the price consumers then feel like they are getting a deal when in fact they aren’t.

These are just a few examples but they get to the crux of the matter that often we will settle for a solution or answer simply based on our comparison with another situation. At best this is lazy; at worst it can be fatal and we have to work hard to avoid it. Using mental models and checklists are ways around scenarios like these, but we have to also be honest with ourselves and adhere to the practice.

In investing if we aren’t careful we can suffer from averaging down, or buying more of a position simply because the price is lower. “Well I bought the stock just two weeks ago at $30, but today it’s only $15 so hey I must be getting a steal!” Not so fast. Have you checked to see if your thesis is still intact or if any news has come out to warrant the drop in price? Was your valuation even reasonable in the first place? How about when a lying, thieving CEO is dismissed and replaced with someone with only moderate skill levels and experience? Are you about to say that comparatively speaking this guy is way better so we must be better off now? If so, then you need to rethink it entirely.

Some final words of wisdom from our good man Ben Franklin that Munger often looks back to: “A small leak will sink a great ship.” Indeed it will, so pay attention to all the leaks no matter how big or small they may be.

Foolish best,

Jason (TMFJMo)


Berkshire Hathaway

It was just too good a deal to pass up, so I’ve added a little Berkshire to the portfolio. Check out my take here: http://bit.ly/mRWlCX

Gap

Yep, two in one month. Global retailer Gap just looks like a value proposition worth taking a chance on. Check out my write-up here: http://bit.ly/mma687

Anheuser-Busch InBev

After reading “Dethroning The King” I have been looking a lot more into Anheuser-Busch InBev (NYSE: BUD) lately and I like what I see.

Straight from the Onion

Special thanks to Jacob Roche for linking me to this one; a resounding no: http://onion.com/lk69uf

Jason owns shares of Berkshire Hathaway   [more]

Recs

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New Rising Star Buy

June 16, 2011 – Comments (0)

OK, so this idea may not necessarily be new, but it's too good a deal to pass up:  [more]

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Rajeev Peshawaria and Great Leaders

June 10, 2011 – Comments (0)

Fools,  [more]

Recs

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RS Weekly Update-Munger, Social Proof & Leaders

June 08, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #15 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #15 – Social-Proof Tendency

No matter how young or old, Social-Proof Tendency can rear its ugly head when we least expect it. It would seem logical that the older we get the more immune we become to it (by virtue of maturity, knowledge, etc.), but this is not always the case. For sure plenty are subject to it all the time and don’t even realize it.

As your parents more than likely asked at one point or another in your life, “Well if your friends jumped off a bridge, would you do it too?” Smartass that I was when I was a kid, when my parents asked I usually just answered, “Yep.” Of course I knew I wouldn’t really, and so did my parents (I think). But the point got across that I needed to be able to think and act for myself. And this applies in virtually everything in life that we do.

The most common triggers for this tendency are stress and puzzlement or some combination of the two. When we are stressed or bewildered, it’s very easy to simply go along with the crowd. It seems the rational thing to do and why would so many do something that could harm them? It’s a quick solution. In order to fight this societies need to stop any bad behavior before it gets out of hand and also foster and foment good behavior at all times. Prison (or the threat of it) is a good example of attempting to stop bad behavior. Do something bad and your freedom is taken away; pretty simple. It doesn’t always work, but it does a pretty good job at keeping the majority of society decent. And as parents, we raise our children to be good people and to treat others as they would like to be treated. For the most part that works too.

How about in investing? Is it worth it to just go along with the crowd? In most cases, no it isn’t. Many investors (myself included) will say that you need to be able to go against popular opinion in order to be truly successful over the long-haul. We call this being a contrarian. Make no mistake, being a contrarian for the sake of just being a contrarian could get you in a world of trouble. But if you’ve done your homework and have a viewpoint that’s different, it can often lead to investing success.

I’ll conclude with a quote from the late Benjamin Graham that is echoed by Warren Buffett and investors everywhere today:

“You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."

These are seriously words worth remembering.

Foolish best,

Jason (TMFJMo)


Rajeev Peshawaria

I had a tremendous opportunity to conduct an interview with Mr. Peshawaria, author of the book Too Many Bosses, Too Few Leaders. Here are parts one and two; look for part three on Friday.

Part one: http://bit.ly/lrQYkV

Part two: http://bit.ly/m7E4Co

Activision Blizzard

In case you missed it, here’s a quick video take on Activision Blizzard’s new Call of Duty Elite subscription model and the upcoming E3 show in L.A.: http://bit.ly/klkNMi

Straight from the Onion

Serious competition: http://onion.com/kUsWrw

Jason owns shares of Activision Blizzard   [more]

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RS Weekly Update - Munger's Deprival and More

June 01, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #14 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #14 – Deprival-Superreaction Tendency

When I first read Fooled By Randomness by Nassim Taleb a year ago the concept of losses hurting about twice as much as gains fascinated me. At first I didn’t know that I actually bought into it. But the more I think about it the more it makes sense to me. It’s not just a money thing either. People generally react more strongly to losing (or even the threat of losing) something that they care about (or even love) than when they gain.

Munger refers to an interesting example of this tendency he has seen in many of the Berkshire Hathaway shareholders he knows. Even after they have achieved phenomenal gains from holding the stock, they still won’t sell or gift their shares otherwise; they simply cannot not have them. Now Munger attributes this kind of behavior sometimes to three tendencies including Reward-Superresponse (Tendency 1): “status quo bias” from the Inconsistency-Avoidance Tendency (Tendency 5); and the “endowment effect” from the Excessive Self-Regard Tendency (Tendency 12). But for the most part he believes it is a result of this Deprival-Superreaction Tendency. In other words, they simply can’t grasp the idea of parting with their shares. They don’t want to miss out on any potential future gains for one. But even more, they identify themselves (at least in some small part) through the ownership of those shares.

Is this rational? That of course depends on your perspective. If you can say that you are holding shares to be a part of future gains, well that’s rational as long as you’ve done your research and can provide a rational argument for why the shares should continue to appreciate in value. But if it’s because you somehow identify yourself via ownership of the shares, well then I think you need to take a step back and reassess the situation. That pretty much qualifies with loving the stock in my book. Not cool.

Foolish best,

Jason (TMFJMo)


Activision Blizzard

Call of Duty is going subscription; kinda Netflix-y don’t ya’ think?: http://bloom.bg/mcyKYJ

Starbucks

Emerging markets are going to be a huge market for Starbucks as they continue their push: http://bloom.bg/iw6YtY

Watchlist Stocks

It was interesting to see mention of Masimo and RealPage as top 10 holdings in the Baron Opportunity Fund. I may have to really look at building an opportunity fund of my own starting with these two holdings: http://bit.ly/mjBLD0

Mind Bogle-ing

Robert Pozen had some nice things to say about investing legend John Bogle: http://bit.ly/kIqqL5

Straight from the Onion

Not to make light of any of these, but man it sure feels this way sometimes doesn’t it?: http://onion.com/lRJdEl

Jason owns shares of Activision Blizzard and Berkshire Hathaway   [more]

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