Signal Or Noise
There is a certain beauty and corresponding reverence to the scientific method. The “problem” is that humans are using it: we are subject to biases and, most importantly, incentive systems. I highlight a Wired article about a young billionaire who has declared “a war on bad science”. His foundation’s work seeks to shed light on the instances of bad use of the scientific method, when data was perhaps ignored and corners perhaps cut. Analysts know what I am talking about: brushing away data points that seem “incoherent” with a theme, weighting independent factors disproportionately… We have all been there, no matter how hard we fight to be 100% rational and intellectually honest.
It was my birthday yesterday and I want to share a great information source with my readers: the Valor Intrínseco blog (translation: Intrinsic Value), which joins our blogroll. The blog posts are only in Portuguese, but its subject matter is Value Investing and the material they source is, 99% of the time, in English. I am more than glad to help this “competitor” out because great work always deserves praise – and because there is so much noise in the investment world, we need all the help we can get to hone in on the good stuff.
It is impossible not to be criticized when you are in the spotlight. Case in point: Warren Buffett. In the space of two weeks he has been criticized for supporting Hillary Clinton in the US presidential race, for a Corporate Governance “manifesto” co-signed by several CEOs (I’ll adress that in a separate post), and now for being increasingly “relentless” in his search for efficiency.
Sometimes the obvious must be repeated, and such are the times in Brazil. We highlight a text by Seth Godin on that ageless dilemma: the short run and the long run.
Readers may be wondering why a business and investment blog run by a Brazilian citizen doesn’t publish stories on our (many) corruption scandals and investigations. The answer is easy: as I stay away from corruption in my personal and professional life, I prefer to highlight the stories of the hundreds of millions of Brazilians who do the same – who are MUCH more relevant to me than these powerful, dirty few.
How NOT to understand Buffett after so many years: just read this Financial Times LEX piece on how GM is an “opportunity” for Buffett right now. Yes, GM.
This LEX piece on sell-side research reflects several old, recurring and ever more vital themes I try to address at Buysiders.com: conflict of interests, incentive systems, the power of brands, halo effects and whatnots – and ultimately how hard it is to actually KNOW something when it is so hard to filter out the noise. All this is more evidence that trustworthy, independent analysis is growing in value by the second.
Very interesting post today by The Brooklyn Investor showing, with real-life examples, what great CEOs or investors can do to generate value 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, 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.
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.
Two years ago the S&P downgraded the credit rating of the United States sovereign debt, triggering a global equities sell-off and motivating me to write a long post called “Don’t panic”. If excessive pessimism brought on by third-party “research” was unwarranted, excessive optimism nowadays is too. There will certainly be a large number of articles saying how bad the S&P screwed up – first one right here – so, again, read them with the necessary pounds of salt. I haven’t done, and won’t do, the research on the current state of the US economy to say anything about it. I’m still qualified enough to say, again, don’t panic – but don’t believe the hype either.