Gustavo Ballvé on September 9th, 2014
Food for thought, Home, Mental models

Interesting post by the CEO of RBC’s US Wealth Management unit on LinkedIn’s Pulse – an interesting and improving source, by the way. Mr. Taft highlights the power of Buffett’s punch card analogy for investments, which by itself would be an useful reminder when we are in “dayly grind” mode. I’ve posted directly and indirectly about “waiting for the fat pitch” in other occasions, as you can see herehere and here .

Then he takes it to another, more personal level, and reminds us that the analogy applies to (even) bigger life decisions as well: you will probably make 10-20 life-changing / -defining decisions in your lifetime, so make sure you have the resources/ processes/ mental models to make the best possible decision at each time.

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Gustavo Ballvé on June 27th, 2014
Food for thought, Mental models

Morningstar has just held its huge 2014 Conference and it has tons of videos in its website. Chris Davis of Davis Selected Advisers reacts to ages-old questions (for instance, of separating “growth” and “value”) in elegant yet decisively “let’s cut through the common notion” way. Beware of “boxes”, “filters” in general, but especially of those that are too narrow or inadequate. Video and my highlights inside, but the above link has a transcript as well. Read more »

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Gustavo Ballvé on June 5th, 2014
Food for thought, Home, Mental models, Science

It may seem like a strange topic to get rolling again, but it feels good to start writing and this subject really caught my attention as an analyst attending several events every year.

Two articles highlighted by the folks at Abnormal Returns (here – Scientific American and here - discuss a recent, preliminary study on the benefits (for learning purposes) of taking notes on paper vs on a laptop. It turns out we tend to write extensive notes, almost a transcript of the lecture, when using a laptop, while noting down the insights on paper (simplifying things a bit).

Well, count me guilty as charged. I use an iPad Mini with a keyboard, and even though I have been aware of this problem – even wrote about it here on March 2011, at least in terms of really paying attention vs tweeting blurbs out of context – I tend to make extensive notes in the hope that I will later, with time, reflect on all I’ve heard that day and create a “sharp, concise and actionable” synthesis… 90% of the time I just can’t find the time to do it afterwards. I am trying to change that, but old habits die hard.

That said, the articles and the study seem to focus on lectures – the near-monologue exposition of a topic by a professor in front of a classroom with several students, with usually little or no room for discussion/interaction. However, my experience with case discussions in class, moderated by a professor (the usual business school method), is that even an anxious note-taker like me just can’t do it – he’s either participating or following the discussion. In fact there’s not that much to write down except for insights or other points and even disagreements to discuss later with the professor or, more usually and more usefully, with your classmates.

Anyway: we’re back. Hopefully for good.

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Gustavo Ballvé on November 26th, 2013
Food for thought, Home, Mental models

Very quick read at aksblog called “Failure is The Most Likely Option“. Even though I am an engineer, and even though I am keeping track of US healthcare developments to help my study of Brazilian HC companies, what I wanted to highlight from the askblog post isn’t either one of these two points. What interests me as we approach the end of the year is to think about Edge Investimentos in light of the “start small and build incrementally” sentence. Yep, that’s pretty much what we’ve done so far: we’ve built up processes, the team and the culture, little by little, while we grew responsibly – albeit from a very small base. We are planning extensively to grow responsibly in 2014, even though we remain fully aware of the temptation to grow quickly – which could mean straying from our strategic objectives.

Once this process is ingrained in all of us, it’s a matter of not confusing prudence with the fear of failing – and keep grinding.

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Gustavo Ballvé on November 13th, 2013
Corporate Governance, Corporate Strategy, Food for thought, Home, Portfolio Management, Risk management

I am tweeting tidbits from a HBR Webinar by Bob Kaplan called Building the better framework to manage risk. You can also follow the hashtag #HBRwebinar.

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Gustavo Ballvé on November 6th, 2013
Food for thought, Home, Investment Themes, Portfolio Management, Risk management, Signal or Noise

Very interesting post today by The Brooklyn Investor showing, with real-life examples, what great CEOs or investors (or someone who’s both in the case of Warren Buffett) can do to generate value for shareholders and clients even when the market is flattish or going down for long periods of time. He’s humble enough to say that this is far from the norm, especially because share buybacks are far from a sure thing, but that’s precisely the point of, well, pointing out these examples: it is possible and it’s our job as stock pickers to focus substantial portions of our time to finding these great companies run by great people. And of course the entry price is vital (that goes without saying) but in these examples he shows that the patient investor could have made “mistakes” and still have come out pretty well – albeit after too long a time for most people. It doesn’t detract from, and in fact enhances, the main point of seeking “special” companies and their outstanding leaders.

Other posts tagged with “buybacks” available here.

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Gustavo Ballvé on October 3rd, 2013
Food for thought, Home, Mental models

The things you stumble upon on TV nowadays… can actually be quite interesting! I left the TV on as I worked on a worksheet and CNN announced an Talk Asia interview with illusionist Franz Harary. Sure enough, I almost changed channels but didn’t. All in all the interview was surprisingly interesting because Mr. Harary went about why his illusions work – basically, because the audience wants them to and because he has become a master at controlling the audience’s experience (sometimes at immense creative and financial cost, sometimes very simply and cheaply). It’s also interesting because he’s very honest about what “essential glitch” in our brains he’s tapping into, and that’s always an issue dear to me in this blog. Finally, it’s very interesting because of the way he sees his work and craft as relevant: he sees himself as a “catalyst for creativity”, for imagination, and he thinks it can help when developing curiosity into new Science and technology.

Maybe it’s because my first son was born very recently, but that made a whole lot of sense to me. The vídeo for part one is embedded inside the post. Read more »

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Gustavo Ballvé on September 16th, 2013
Corporate Strategy, Food for thought, Home, Mental models, Portfolio Management, Risk management, Tech

As long-term investors, we are always trying to understand where the companies we cover are competition-wise. There are many different “tools” and “frameworks” to assess competitive aspects between companies in an industry and its suppliers, clients, etc. etc. – or between industries, even between countries. We try to use Porter’s 5 Forces, we try to make sure the company we invest in (or want to) has a big, wide Blue Ocean ahead of it (competitively speaking, of course), we hope to be aware of all the possible angles from which a Disruptive Innovator could come in and eat the company’s lunch… You get my idea: we are ultimately trying to assess who will keep for “himself” most of the industry’s or value chain’s “profit pool” – today and in the “future”.

I’m using quotes a lot because there are many pros and cons in each tool or framework, many different ways to define and measure each of those things, and many smart and not-so-smart ways to use all of this – we can even criticize the “checklist” use of many of them simultaneously for the illusion of completeness. We still have to try to understand for years, sometimes decades into the future, something that very well-educated, intelligent and experienced company executives, industry consultants, academics (and so on) can get oh-so-wrong, so often.

All this from reading this NY Times’ article about the semi-conductor industry, whose products power so many of our beloved consumer gadgets that make the likes of Apple so rich, and what they could do to change the game – if anything. Very interesting read, especially when you consider the technology-induced pickle in which the New York Times itself is in!

I guess the biggest point is to be humble about your ability to predict the future of competition for anything, especially if you will invest your own and other people’s money for the long term based on such assessments. Margin of Safety is the one “trend” still going strong after some 90 years…

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Gustavo Ballvé on September 5th, 2013
Corporate Strategy, Food for thought, Home, Mental models, Portfolio Management

Great timing by this article, called “Why Investment Performance Is a Distraction”, highlighted with “Quote of the Day” honors at Abnormal Returns. A few days ago we at Edge Investimentos received good news: our fund was one of few equity funds in Brazil granted 5 stars by Exame magazine, and we posted this to our website with this caveat (it was in Portuguese but went something like this:) “we like good news but we are not in the business of placing high in magazine rankings – we are in the business of providing good long-term returns while incurring the least possible risks, always focusing first on capital preservation”. And one of the ways to try to be consistent at this is by obsessing over our processes, all of them – it has been a recurring topic in these pages and in our portfolio management reports…

It’s always great to be reminded to NOT keep our eyes on some performance “goal”, but rather to focus on processes. That said, the article tries to expand the investment-related dangers of setting specific goals to general management situations – and I partially disagree. While there is certainly more than enough literature (and posts) on the dangers of managers focusing on skewed metrics like EPS, sales growth and others, in some more operational areas the benefits of setting more controlled, narrow goals aligned to strategic objectives (think of a well-done balanced scorecard project) can be immense. There is a lot of truth to the “what gets measured gets done” quote after all, especially in the more operational areas of a company – we just have to remember to focus more on the questions we ask than in setting goals and “imposing” metrics that aren’t always well thought-out.

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Gustavo Ballvé on August 29th, 2013
Corporate Strategy, Food for thought, Home, Mental models, Portfolio Management, Signal or Noise

It’s been a while since my last post and the explanation is simple: earnings season, a perfect occasion to test hypotheses and reconnect with contacts in the industries we cover – but also a perfect storm of incoming noise regarding companies we own (or would like to, at the right price). In any aspect, a huge but immensely rewarding time drain (I should say “investment”)!

Farnam St. blog has just interviewed Michael Mauboussin and it’s a good read, especially because Shane Parrish asks about how Mauboussin developed into his current role and it’s an interesting story.

If you take nothing else from the interview (there’s a book list!), here’s something: “nullius in verba”. Go check it out.

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