The text inside did not appear in our Q2 2010 report in English, but we’ve brought it to Buysiders. It’s about “visibility” in the markets: do investors really alternate between periods of “excellent” and “very poor” visibility or is that just an illusion? We choose the latter. As Warren Buffett says, “Forecasts usually tell us more of the forecaster than of the future”.
Read more about IP report excerpts, vol.7, part 1: on visibility
Many analogies with investing in this Slate post about a mountaineer’s worst mistakes. Quoting from the introduction: “(…) I was curious about the kind of attitude you develop toward error when a single mistake can easily cost you your life. I also wanted to test a hypothesis that I call “the paradox of error”: If your goal is to avoid making mistakes, then you must constantly assume that you are about to make one. That’s why fields like aviation and medicine have, at their best, a productive obsession with error.”
Quick collection of articles and papers with “psychological tidbits”. The first one is interesting as it can be seen as a sort of counter-argument against “confirmation bias”, but there’s more…
Quick post on time perspectives – plenty of connections to be made with investing from the video inside, right? Yes, as long as you retain a healthy skepticism. In fact, it’s downright scary how the “coolness” of the presentation can lead one to “lower one’s guard” to data that’s not necessarily accurate or that answers not necessarily the right questions. By Dr. Karl Menninger, here’s a quote: “One of the most untruthful things possible, you know, is a collection of facts, because they can be made to appear so many different ways.”
Spinoff & Reorg Profiles’ latest report has a very interesting section on Insider Buying, and we asked for and got Bill Mitchell’s permission to post an excerpt here. Using Sharps Compliance (ticker SMED) as an example, this section of the report discusses when “incentive stock option exercises may act as an insider signal”. Item #5 in his summary (the last paragraph) is vital, as insiders are only human and can get carried away with frothy valuations just like the rest of the market. No matter how powerful one or even a combination of “signals” may seem, there must be “fundamental value” / margin of safety.
A 1952 executive-education course serves as a reminder that now, more than ever, we need leaders who can think for themselves. “A well-trained man knows how to answer questions, (…) an educated man knows what questions are worth asking.” Without talk of incentives, this is more a proof of the benefits of a diverse and continuous education than it is a valid “diagnosis” of today’s leaders’ conduct. Still, that is a worthy enough point.
A LEX column reminds us that Buffett runs Berkshire and for over 50 years has taken calculated risks better than most; he has avoided and profited from most crises including the last one; and he has written and talked extensively about excessive risk-taking, the dangers of leverage and spendthrift economic policies and etc.. And yet he has been soundly ignored by most investors, CEOs, regulators and policy makers.
Munger’s classic speech in 1995 at the Harvard Law School is the quintessential example of the multitude of his mental models. In it Mr. Munger describes 24 “standard causes for human misjudgement” in separate, but then reminds us that these can combine to create potentially multiplied consequences. Since it can happen for good or bad, we’re better off informed and much smarter for the effort.
This 2008 article discusses red flags for Board members trying to detect fraud. For us the article doesn’t give nearly enough emphasis to incentives, but to correct that we’re linking to our Q4 2008 report excerpts. It’s vital to remember that one shouldn’t rely on checklist approaches to CG, fraud, stock research and pretty much anything else involving “systems” that are far from simple.
In the first of a series of posts, this one highlights the classic article by Robert Cialdini: “The Science of Persuasion”. It’s basically a 6-page summary for his must-read book “Influence: The Psychology of Persuasion”. We can’t stress enough how important the subject is – anyone interested in marketing, retail, personal relationships and, well, wants to reduce the risk of being tricked by a Madoff-like scheme should read this book.
