Why I Read (Part III)…

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activist investors, autodidactism, books, Bruce Kovner, consensus, contrarianism, fear and greed, Howard Marks, investing, Isaiah Berlin, latticework of mental models, literature, Magic Eye, mosaic theory, Nosce Te Ipsum, reading, Warren Buffett

OK, back in June & July, I covered two key benefits of reading:

Knowledge, Experience & Inspiration – a constant & wide-ranging diet of non-fiction reading’s essential for any investor, and something you’ll find all the great investors practice & recommend. 

Nosce Te Ipsum – I believe reading literature’s equally important, it’s one of the few ways you can truly know thyself (& other people). And painful self-awareness & examination offer the best hope of avoiding the potentially devastating impact of fear & greed on your portfolio.

It’s been a long time coming – let’s tackle the final benefit of reading, which I call:  Magic Eye. It’s definitely the most exciting – I guess I’d classify it as offensive, versus the rather defensive nature of the other benefits. But some context would be useful – let’s first talk a little about how I actually read:

Ever since I was a kid, I’ve always found it incredible how the entire world (even multiple worlds) can be encapsulated in a single book. And there’s almost never-ending mountains of them, just waiting to be discovered! In fact, they really are never-ending: In the UK, for example, 150,000 new titles are published each year! Faced with those kinds of numbers, I’ve always felt an overwhelming sense of urgency – how can I ever bloody read quickly & widely enough to ever make a dent in such a mountain?!

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Why I Read…

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autodidactism, biography, bloggers, Blogroll, Bloomberg, fund managers, history, latticework of mental models, LSE, MOOCs, mosaic theory, Nasdaq, Niall Ferguson, reading, Ron Chernow, stock ideas, Ugg slut, Vanity Fair

[NB: I guess you might call this a companion piece to my February post, ‘Why I Write…’].

The immediate & obvious answer, as with most things in life, is ‘What else would I bloody do…?!‘ But I have to admit, I’m an autodidact – always have been, always will be, ever since childhood – which unfortunately made organized education increasingly intolerable** the older I got. However, when it comes to investing, the odds are stacked in my favour – organized education doesn’t offer you a hope in hell of becoming a good, let alone a great, investor. As people often notice with regard to MBAs… [Again, I can’t resist this classic!].

[** Hopefully, that all changes with the advent of MOOCs, which have the potential to offer interactive autodidactism. But don’t believe all the hype – sadly, most people just aren’t motivated enough to learn & study alone. In fact, they often have different priorities… Of course, if you’re dirt-poor & living in a third world slum, you may be incredibly motivated – I think MOOCs present an amazing business/investment (& charitable) opportunity to bring Western education to emerging & frontier markets. Forget the hollowed-out state of manufacturing…the next generation of US college kids, plus their six-figure student loans, should be bloody terrified of the rest of the world potentially competing on far more equal terms…and far less pay].

Buffett perhaps said it best, as he often does: ‘But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich‘. He was highlighting EQ, rather than IQ, but also implicit in the quote is that education (at least in the traditional sense) isn’t required to get rich either – this is particularly true when it comes to investing. I scarcely need to argue the point – simply give me a couple of books, and a day or two of your time, and that’s really all that’s needed to teach you the essentials of investing. Seriously..!

While that crash-course would certainly provide a good foundation, it’s ultimately irrelevant – as I guarantee you it could take a lifetime (or never) to become a great investor. Gulp… So, is there anything to help with/change that? Actually, yes – c’mon, you know my answer:

Read, read, read & then read some more (’til you puke..!) 🙂

The Activist Investor

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activist investors, catalyst, Charlie Munger, growth investing, Howard Marks, intrinsic value, latticework of mental models, mosaic theory, recapitalization, second-level thinking, shareholder activism, value investing, Warren Buffett

I’m obviously not averse to some growth – well, if I can buy it bloody cheap, or free – but I don’t think anybody would dream of calling me a growth investor!? But you may be surprised to hear I don’t consider myself a classic value investor either. Ideally (at least in relation to some investments), I like to think of myself as an activist investor.

In this instance, let me hasten to re-define activist in the v broadest sense: Activist investing isn’t necessarily about public engagement with a company’s management – far from it, in many cases. I believe the essence of activist investing actually lies in the investment analysis & the investment itself – not the investor (as many would presume). An activist looks at a company and, on that rare occasion, sees a v different enterprise vs. the company (most) other investors currently see…

– Perhaps he sees a company that’s genuinely worth more dead than alive. Or one that would be far more valuable in the arms of a larger rival. Or a company that has a jewel in the crown that’s obscured by other/inferior divisions, central costs, etc.

– Maybe it’s a company that has under-utilized assets that can be sold to reduce/eliminate excessive debt. Or a company that could execute a recapitalization, and transform its financial metrics & shareholder value.

– Perhaps it’s simply misunderstood – investors may simply not grasp a company’s management/business/strategy have changed in a major way, or they under/over-estimate the potential impact (for example) of some litigation or regulatory action.