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RS Weekly Update - Respect the Munger



September 07, 2011 – Comments (0)

Dear Fools,

Picking up where we left off last week, here is tendency #24 in Charlie Munger’s take on the psychology of human misjudgment from Poor Charlie’s Almanack.

Tendency #24 – Reason-Respecting Tendency

The desire to learn is in our blood. Sure it may be stronger in some than in others, but I think we are born with that hardwired curiosity that grows as we do. Think about children for example. One of the first words they learn to use and communicate with their parents is “Why?” To be sure this seems to be the only word they know for some time as they ask it in regard to everything.

A critical component of this tendency is to lay out the reasons for doing something. Instead of just asking (or telling) someone to do something, there needs to be an understanding of what needs to be done and why it needs to be done. There can be no doubt that the effective communication of why things need to be done can teach both parties involved in the transaction, but particularly the recipient of the orders being given.

Munger refers to a designer of oil refineries and his rule of telling who was to do what, where, when and why in his work. The obvious goal here was effective communication. What’s better is when recipients receive this kind of reasoning, they learn more effectively about what it is they’re doing.

But remember that this sword cuts both ways and while mindless communication of meaningless and/or incorrect reasoning can increase compliance with one’s orders or requests, it won’t generate the same kind of learning and ultimately results in more questions and sub-optimal performance.

As an investor I want management that communicates effectively. Whether it’s an earnings call, a press release or an interview I want to be able to wrap my head around what they’re saying without having to jump over the moon to do it. I also want to invest in businesses I understand and want to follow. If we can check these two boxes on the hunt for great investments, the chances for success are bound to improve. And I can respect that.

Foolish best,

Jason (TMFJMo)

Munger’s Tendencies

This should all look familiar; I am giving the tendencies some context by throwing in some companies. Here are the first two:

Tendency 1:

Tendency 2:

Portfolio Returns

Another week and another report. Looks like Thursday was a bit of a kicker, but the Motley portfolio is still looking down on the market. As of market close on 9/1/2011 it has returned 5.51% versus the market's mean comeback of 2.71% which means that we are still beating the market by 2.8%. So last week was up 3.89% on the market and this week up 2.8%; a loss of over a full point, but no worries. We've got some great companies in the portfolio and I have a few more ready to go soon.

The market's losses will be my gains.

St. Jude Medical

St. Jude gets the nod for their migraine device in Europe. While the FDA wants more data for approval here, this certainly doesn’t hurt the cause. Especially considering it’s a potential $1 billion market opportunity:

Straight from the Onion

Has it come to this?:

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