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RS Weekly Update - Munger, Leaders and Earnings

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August 24, 2011 – Comments (1)

Dear Fools,

Picking up where we left off last week, here is tendency #22 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #22 – Authority-Misinfluence Tendency

Are you a follower or a leader? Mankind in general seems to be naturally subject to following leaders in some capacity. We have our President of the United States, religious people have God (or something to that effect whatever their religion may be), and companies have CEOs. So no matter what we do in life, in some way shape or form there is a leader involved. The problem is that just because someone is a leader doesn’t necessarily make them competent. And following poor leaders can lead to horrible results, so we need to be extremely careful.

Munger refers to a funny example in this passage from the writings of Cialdini (we’ve mentioned him before in these writings). A doctor left written orders for his nurse treating a patient’s earache that stated, “Two drops, twice a day, ‘r. ear.’” The nurse consequently turned the patient over and tried to put the drops in his anus.

My initial read evoked a nice chuckle, but there is a lot to be learned here. Did the nurse take the instructions too literally? Or was the doctor at fault for not being clear? Regardless, the nurse felt she was doing the right thing as she was following doctor’s orders. But she obviously misunderstood in some capacity. And to be fair, the doctor could've added the extra four letters and avoided all confusion to begin with. But what's done is done, right? Glad it wasn't me.

Of course we can go on and on about misinterpreted or confused instructions. They happen all the time. Heck I think I run into at least one of these scenarios every day with one of my daughters (at least it feels that way sometimes). But when we invest, it is imperative that we get leaders who know what they are doing. Their employees are following their orders and we need to know that they not only know how to lead, but also that they make smart choices and communicate them effectively. And as investors, we need to know what in the world they're saying, thinking and doing. So clear, effective communication is a tremendous quality in a CEO.

This one really takes me back to principle four of Investing the Stock Advisor Way which states: “Fish Where Others Aren’t” The gist of this is that we’ve no interest in following the crowds. We do our own thinking, our own research and make our own decisions. You might even say that we try to be our own leaders.

Foolish best,

Jason (TMFJMo)


Lessons for Leaders

I capped off our time with Rajeev Peshawaria with this article on the seven traits extraordinary leaders possess. In addition you can see the video of Mr. Peshawaria’s talk here at Fool HQ: http://bit.ly/nUdkee

Elbit Systems

Earnings for Elbit Systems look pretty good and they see a stronger second half of the year: http://bit.ly/omgVzI

Gap

Gap’s earnings for the quarter didn’t knock many socks off, but the company is making it through a difficult retail environment OK and I think they’ll pull through stronger than ever: http://bit.ly/osGSgo

Portfolio Returns

Man August 18 was BRUTAL. But as of close on 8/18/2011 the Motley portfolio amazingly enough is still in positive territory with returns of 0.98% (I'm just going to call that 1%) and Mr. Market is still in negative territory with -2.75%. So the gap has narrowed a bit from last week to 3.73%, but still beating the market and in positive territory so that's a good thing.

Straight from the Onion

Uh-oh…this doesn’t look so good: http://onion.com/n21bK0

1 Comments – Post Your Own

#1) On August 24, 2011 at 9:11 PM, HarryCarysGhost (99.68) wrote:

HA,HA,HA-

I actually wish that congress had the cohenas to put that bill forward.

Let it ride baby. When your on a losing streak might as well go for the big score, or go down in flames ; )

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