I was approached to write a review for the blog. So here it is.
In his new book, Quality Shareholders, Professor Cunningham touched on a concept that I had in mind for a long time – that certain shareholders, Quality Shareholders (QSs), are more beneficial to have than others. The idea that there is a Quality Shareholder (QS) class is what this book is about. The concept in my head wasn’t as articulate. It needed a little polishing. I like how Professor Cunningham lays it out. The book brought clarity and structure to the concept. QSs are defined as shareholders who buy large stakes and hold for long periods. They see themselves as part owners of a business, understand their businesses, and focus on long-term results, not short-term market prices.
It’s a great business book that’s under the radar. You probably never heard of Alain Bouchard or Alimentation Couche-Tard (ATD). But convenience store chain Circle-K probably rings the bell. Alain Bouchard and ATD are the low profile type, French Canadian, and convenience stores are a boring business. Combined all that together and it doesn’t vibrate “best seller” list. But if you are looking for quality content, then you won’t be disappointed.
Circle-K is the global leader in convenience store. But how did 4 guys (Alain + 3 partners) from Montreal, Québec, achieved that kind of success? And who dreams of becoming a convenience store leader?
What kind of success you asked? Well since the IPO in 1984 Couched-Tard is up 875x. It’s up more than 10x in the last ten years. It’s closing in $60b in sales (well pre-covid). Not bad for a boring business.
Summary: Great book if you are looking to further your business/investment knowledge for the slow summer days.
If I have the time I will try to write notes to share.
If you follow Warren Buffett then Lawrence A. Cunningham (@CunninghamProf) doesn’t need an introduction. Lawrence is a lawyer, a professor at GW, a corporate director, and a Buffettphile. Mr. Cunningham is better known for documenting Warren Buffett and Berkshire Hathaway for decades. He’s the author of many books. His most famous work is the The Essays of Warren Buffett: Lessons for Corporate America. Investors that want to learn more about Buffett and BRK has turned to Professor Cunningham’s work.
I’m looking forward to reading the book. Investors, entrepreneurs, and business leaders could learn from some of the best shareholder letters written. The book is separated in 16 chapters. Each chapter represents a company. Most letters have one author, but companies like Leucadia-Jefferies and Markel Corporations have two. This is truly some of the best people in business, separated in three categories: 1) Classic (Buffett, Goizuieta +), 2) Vintage (90s), and 3) Contemporary (SEACOR, Google, Constellation Software +). The only ones I never heard of on the list were Charles Fabrikant from SEACOR, Brett Roberts from Credit Acceptance Corp, and Robert Keane from Cimpress N.V. I will have to look them up.
Buffett is the dean of shareholder letters. They all learned the art from Buffett. They all tried to emulate him. But they have their own style, own personality, and all try to bring something different to the table. These guys (and two ladies) are great writers. There is something special about this group of authors. They focus on discipline, capital allocation, conservatism, being rational and the long-term. What makes a great shareholder letter? They treat shareholders as partners. They provide a comprehensive clear report.
This book is great business writing pulled together into a book. I’m waiting for my copy and will be great references on the book shelve.
Thank you Professor Cunningham for your work and being generous with your time.
A new book about the most successful money maker in the history of modern finance is out and it’s not about Warren Buffett. It’s about a guy named Jim Simons and his firm Renaissance Technologies. He started investing in his 40s and didn’t anything about the topic.
The book is a coup because Simons shuns the limelight and rarely gives interviews. It’s great that Gregory Zuckerman succeeded in getting Jim to talk. Rumors about his performance has swirl around for years but the real numbers are much higher than anyone anticipated.
Today, Mr. Simons is considered the most successful money maker in the history of modern finance. Since 1988, his flagship Medallion fund has generated average annual returns of 66% before charging hefty investor fees—39% after fees—racking up trading gains of more than $100 billion. No one in the investment world comes close. Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio all fall short.
Simons ranked second on Institutional Investor’s list of top-earning hedge fund managers in the world last year, and first the year before and the year before that, despite the fact that he retired in 2010.
For the occasion, I updated my links about Jim Simons and Renaissance Technologies in the resource section. I plan to read the book and post my notes when I get to it.
Before I get to the book I want to share a little story. Something positive actually happened on Twitter. It turns out that Twitter doesn’t have to be carnage pit filled with trolls. There’s a nice guy on it and his name is Todd Wenning (@ToddWenning).
A while back I read Harriman’s New Book of Investing Rules. The book is 500 pages of wisdom by some great investors. There are some well-known names and less familiar names like Todd. The investors profiled range in style and strategies. One of the articles in the book was written by Todd Wenning (@ToddWenning). I really enjoyed Todd’s piece and I reached out to him on Twitter to let him know.
Todd was a man of his tweet. I did received his book, Keeping Your Dividend Edge, and I was more than happy to read it. See, something positive came out of Twitter.
I like Todd’s philosophy on investing and dividends. His thinking really resonated with me. Invest like you are buying a business. Study the business, study the fundamentals, figure out the competitive advantage, and can you make a reasonable assumption that the company will be able to maintain its success for a decade or more to come. Focus on the long-term and get paid in growing dividends and capital appreciation.
Todd’s book is about dividend investing. It’s a short read with approximately 120 pages. There’s nothing wrong with a small read. It’s actually refreshing. The book doesn’t waste your time. It’s delivers on content. It goes straight to the point. It’s concise and clear. Just the plain blue cover signals no b.s., no hype.
You will become a better investor if you read this book and actually apply it’s principles. You will. Todd didn’t reinvent the wheel here. Dividend investing has been a staple strategy. But what Todd did is to remind us of the art of dividend investing.
I feel that dividend investing is a lost art. Or investing for income in general. Most income investors are doing it wrong. It’s like health. Everybody wants to be fit and healthy but they are doing it wrong by buying into trends and taking short-cuts. I feel it’s the same with income/dividend investing. People are approaching it the wrong way.
Investors are turned off by blue chips dividend payers because of the low ~2% yield so they chase high-yield stocks. We live in a world where investors are buying bonds for capital gains. The world has turned upside down. The most probable cause is the 10-year plus of ultra low interest rates is distorting financial markets. It’s been a tough stretch for savers in need of yield. Another cause is buybacks as the preferred way to return money to investors.
You can’t just invest for the dividend. If you don’t do your homework it could led to trouble. Dividends should be part of a grander strategy. A good strategy should include dividends as a part of total performance. It’s a key component of long-term share price movements. You can’t guarantee a dividend because a company doesn’t have to pay one, but with the right analysis you can have pretty good idea if they will pay one and raise it over time. If you aim for let’s say a conservative 6% to 7% annual return (S&P Index has returned 10%+ in the last ten years). With a 3% yield you have accomplished half your returns. One aspect of dividends I like is that it’s a tangible returns. It’s a real return. It’s real cash that you receive. And I like cash because it allows me to allocate more capital.
Dividend investing is about patience. Focus on the long-term. Focus on the business. Focus on the fundamentals. Focus on the cash flow because that’s where dividends are from. Dividends need to come from cash produced by the company (not accounting earnings).
Dividends are not a magic pill. A company can’t guarantee a dividend because unlike a bond, there’s no obligation to pay. Dividends can be cut. We have seen blue chips like GE, Pfizer, and more recently Vodafone slash their dividends. A company might take on too much debt and get in trouble. The share price of the company you invested in can languish, or worse disappear. Taxes could be an issue if not handle properly. Todd’s book has a whole chapter on avoiding dividend cuts. Usually the main reason is the lack of sustainable free cash flow. If a company can’t covert a dividend with free cash flow, they need to fund the payouts with cash on hand, debt, or asset sales. Expect trouble if that happens.
The holy-grail of dividend investing success is the compounding effect. The combination of the increased in value of your stock (capital gain), dividends, and growing dividends reinvested that creates bigger dividends, that gets reinvested can turn your investment into a snowball what creates wealth.
In case it wasn’t clear by now Todd makes the case for smart dividend investing. In case you need to read it again, if you want success in the stock market you need a long-term patient approach. Dividends helps you focus on the business. It helps you focus on the fundamentals of the business. It helps you forget about the daily gyrations of the stock market. I have no clue what the stock market is going to do, so it would be more profitable to forget it and concentrate on trying to find the right stock to buy. Dividends also help you take hit. If you have an investment that is down 15% (because it happens) and the business is sound, you have your dividends coming in and an opportunity to buy the business 15% cheaper.
Long-term thinking, patience, and persistence are qualities which should pertain to investors. Dividends delivers on these fronts. Keeping Your Dividend Edge deserved a place on your investing book shelf.
The Extra 2% is a mix of many interests of mine like sports, finance, and business. With the NHL and the NBA finished for the year, it’s time for summer sports and summer reading. Baseball holds a special place. Maybe it’s because I played it when I was a kid. Maybe it’s because of the 1994 Expos and their possible come back. Or maybe I played too much Ken Griffey jr. the video game. Or maybe it’s because baseball is such a different sport from all the other major sports. There’s no clock; you go home after 27 outs. Or the real reason is probably because it’s so goddamn much fun to hit a ball with a bat.
The book documents the turnaround of the Tampa Bay Rays by three financial wiz kids from possibly one of the worst run franchises to a team that’s making the mighty Red Sox and Yankees sweat. And that’s with a tiny fraction of their budget. If the Rays considers spending $8 million on a closer, it’s a huge decision with many implications. If the Red Sox or Yankees spend $8m on a closer and it doesn’t work out, it’s a rounding error.
It’s the classic David vs Goliath story. The only difference in this story is that the large majority of fans are cheering for the two Goliaths. Since the Rays can’t compete on financial ground, they need to find another way to win games. They have to find an edge else where. They have to do things differently. They have to be creative. This is a good follow up book on Michael Lewis’ Moneyball. It’s a similar play. Both the A’s and the Rays are a small payroll team that was willing to discard old baseball wisdom. If you dare going against 100 years of conventional wisdom, you better make sure you are right.
The book is a great case study. Stuart Sternberg, Matt Silverman and Andrew Friedman accomplished so much in so little time. They turned a perennial loser into a contender. They are lessons to learned. The title, the extra 2%, reminds of something Anthony Robbins said (I think it was him). He said something like if you only try to improve 1%, it can make a huge difference in the long run. You might not noticed it at first, but that 1% will add up. Just think of what happened to a golf ball when it you hit it a couple degrees off. It matters.
In a way, the book could have been published now. Stuart Sternberg is still the owner. The Rays are still fighting the mighty Red Sox and Yankees. The Rays are still hustling for a division title. They are still a low budget team. They still don’t have anybody watching them. And they still don’t have stadium deal. Also I should mention that Mark Cuban, owner of the Dallas Mavericks, wrote the forewords.
I don’t really care about the Rays but I pay attention to them from a distance, that is their stadium saga. Rumors in Montreal is that if the Rays can’t get a stadium, Montreal is waiting in the wings to welcome them. Montreal first need to built a stadium and there’s a team of investors working on that. Despite the success of the Rays, Tropicana Field is empty. Tropicana Field is awful and the Rays have a lease until 2027. Is Montreal going to wait another 9 years for a team?
I don’t blame the fans in Tampa or surround areas. I think it’s a Florida problem in general. Most major sports franchise in Florida are not major hits. It’s a college state (and Nascar). Floridians love their college sports. People in Tampa are baseball fans, but they are Cubs fan, Red Sox fans, and Yankees fans. Most Floridians are from there and cheers for their former home club.
To conclude, it would be interest to hear an update from Jonah on the Tampa Bay situation.
I read the book Metro 2033 by Russian author Dmitry Glukhovsky. For a change, I read of piece of fiction. Metro is an international best-seller and deservedly so. Metro 2033 was originally published online in Russian for free because it was rejected by the conventional publishers. The book became a hit and an English version of Metro 2033 with its sequels Metro 2034 and Metro 2035 are available. The books were also adopted in a video game format, Metro Redux (includes both 2033 and 2034), and Metro Exodus just came out. The games are first-person shooter survival horror but I haven’t had a chance to tried it out and they do look good. Point your weapon and blow up stuff. Kotaku has a review of the Exodus here. There’s also discussion of a TV series or a movie. I hope a TV series format is adopted because there’s just so much stuff to cover that I don’t think a 2 hour movie would do justice. But again look what at what they did with The Lord of Rings trilogy or Harry Potter.
Metro 2033 is based in the Moscow Metro in a not so far future (2033) after the nuclear weapons blew up the world. I didn’t know this, but the Moscow metro system is one of the world’s largest (196 stations) and it’s also used has a nuclear bomb shelter. Moscow is ready for nuclear war. Here’s a map of the Moscow Metro:
They also have another “secret” metro, Metro-2, that supposedly runs parallel to public one. Apparently it’s only for special government function. The Russian government has neither denied or confirmed its existence.
There’s a lot in this book. A lot. Artyom, the protagonist, has a mission that caries him across the metro. Each station has its own story. Artyom has various encounters with communists, neo-nazis, cannibals, cultists, bandits among others. All these people are leaving underground and they don’t really like each other. The book is very ambitious and quite an achievement for a first novel. I was intrigued to learn about the author. It would be fun to have a conversation with the author to learn more about his aspiration for such a book. Here are a couple interviews with Dmitry Glukhovsky:
In some interview he mentioned the video games Fallout having an influence on him. I played the originals (Fallout 1 & 2) when I was a kid and absolutely loved them. There are some difference however. Fallout presents the post nuclear apocalypse world as rough, tough, but playful and cheerful. Metro presents the post nuclear as rough, tough, gritty and dark. One version is Americanized and the other is Russianized. In Fallout exploring the world is the fun part. In Metro you don’t leave you station. In Fallout, a mutant can become your friend. In Metro you avoid monsters. Fallout is for a younger audience. Metro is for a more mature audience.
The post-apocalyptic theme might seem over-exploited. It’s really in vogue right now with all the zombie shows/movies/games coming out. Metro is not another run of the mill product. Dmitry did not simplifying the theme and the tone of his work is not water down. This is not a series for idiots. It’s complex. It’s high-quality. I believe that by not trying to be a mass-market product, by not trying to be everything for everyone, Dmitry has built something extremely solid that became has became a massive international best-seller.
The success also led to the creation of the Metro universe. There are over 100 books published in the world of Metro written by authors all over the world (*link in Russian).
This is a good franchise. My reading pile is growing and I will try to get them the rest of them. I don’t know when but I will.
I have a pile of things I need to read and I have a pile of things I want to read. And there’s Red Notice by Bill Browder which was on neither pile. I picked up for $20 at the book store just because it looked good. I actually heard about Bill Browder a couple years ago from his frequent TV appearances. He also had a documentary on Netflix. Here’s a little known fact: Bill Browder is the grandson of the head of the American Communist Party who ran for President a couple times.
Bill Browder has a story and it’s one hell of a story. This book has two parts. The first part, my favorite, is about his early day investments after the breakup of the Soviet-Union. Browder was where nobody else wanted to invest. This mean he bought stuff for ultra-cheap. He would invest in companies at 0.5x P/E and such. Assets where absolutely mispriced. The gap between price and value was extremely large. Capitalism wasn’t a well understood concept and they were basically just giving stuff away for free. Nobody knew how to value anything except for vodka and cigarettes. You could buy companies at a tiny fraction of its oil reserve. The book a couple examples of his investments and it’s fascinating. I kind of wish he made another book only about his investment in Eastern Europe/Russia after assets where privatized.
The second part of the book is the main reason why it was written. It’s the part where Browder goes to war against Putin. Browder was deported from Russia after trying to expose corruption in the country. He hired a lawyer named Sergei Magnitsky to be part of the team to help him out. Then in 2008 Sergei Magnitsky uncovered a massive tax fraud. He found evidence that a group of well-connected Russian officials had stolen a whopping $230m. He was arrested and tortured to make him withdraw his testimony. He didn’t. His conditions grew critical and he died. Then Browder went on a crusade to seek justice. It looked impossible and it wasn’t easy. The Russian says that Browder is the real criminal and has commited fraud. Russian issued a “Red Notice”, like the title, which refers to the extradition request served by Russia on Interpol, demanding Browder’s arrest. It was denied.
Browder is behind the The Magnitsky Act, a law named after Sergei Magnitsky, which was signed into law in 2012 by President Barack Obama. The law is intended to punish Russian officials responsible for the death of Russian lawyer Sergei Magnitsky in a Moscow prison in 2009. The bill received bipartisan support. At the moment, I believe the law has been expanded to cover the globe, not just human right abuse in Russia.
In the book, Browder has an interesting theory about Putin. At first Browder was a Putin supporter. Browder was an activist investor. He would go after corruption and exposed crook at companies and it worked…for a while until it didn’t it. Doing what he was doing as a foreigner it was surprising that nobody killed him. People die in Russia for much less. Browder believed he was protected by Putin at first. When Putin was first elected, he wasn’t the Putin of today. Putin didn’t have all the power. The Russian oligarch did. And Browder was going after the oligarch. Putin and Browder’s interest were aligned. Then the oligarch folded to Putin because he started jailing them and Putin gain the power. That’s when Putin and Browder weren’t working together anymore but it conflicted. So Putin tried to get rid of Browder and it got messy.
“This book reads like a thriller, but it’s a true, important, and inspiring real story. Bill Browder is an amazing moral crusader, and his book is a must-read for anyone who seeks to understand Russia, Putin, or the challenges of doing business in the world today.”Walter Isaacson, author of Steve Jobs and The Innovators
“So how do you really understand and gain that great insight? Pick one business. Any business. And truly understand it. I tell my interns to work through this exercise – imagine a distant relative passes away and you find out that you have inherited 100% of a business they owned. What are you going to do about it? That is the mentality to take when looking at any business. I strongly encourage you to start and understand one business, inside out. That is better than any training possible. It does not have to be a great business, it could be any business. You need to be able to get a feel for how you would do as a 100% owner. If you can do that, you will have a tremendous leg up against the competition. Most people don’t take that first concept correctly and it is quite sad. People view it as a piece of paper and just trade because it is easy to trade. But if it was a business you inherited, you would not be trading. You would really seek out knowledge on how it should be run, how it works. If you start with that, you will eventually know how much that business is worth.” -Li Lu
Li Lu is the only guy that manages Charlie Munger’s money. And he has an incredible story about his up bringing. Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager possibly one of the successor to he is in line to become a successor to Warren Buffett at Berkshire Hathaway.
His book seems rare and hard to find. There’s a copy on Amazon: Moving the Mountain. He’s expensive so it’s probably one of these rare books that you might find by accident somewhere. Li Lu also wrote the foreword to the Chinese version of Poor Charlie’s Almanack.
I finished Berkshire Beyond Buffett by Lawrence Cunningham (@CunninghamProf). Prof Cunningham is well known for his work on Berkshire Hathaway (BRK) and Warren Buffett. Prof Cunningham’s books on BRK and Buffett are among the best. He’s been a follower for decades and has direct access to Buffett and its managers. If you want to read this book, I would assume it’s not your first book about Buffett and BRK. There’s ton of material you can read before this one. If you don’t know where to start, here’s a good start: The Essays of Warren Buffett: Lessons for Corporate America.
This book on Buffett/BRK book is different. This is not a Warren Buffett centric book. It’s more like the bio of BRK. And not just a book full of happy stories about BRK.
BRK is structually complex and highly decentralized. Lawrence had access to many people in BRK organization to realized this book with Buffett’s blessing. Despite its popularity, few people understand Berkshire and many assume it cannot survive without Buffett. They are wrong and this book proves them wrong. This is a comprehensive portrait of the corporate culture that unites BRK’s subsidiaries and the traits that ensure the conglomerate’s continued prosperity.
“The special Berkshire culture is deeply ingrained throughout our subsidiaries, and these operations won’t miss a beat when I die” – Warren Buffett
The book also goes on to explain why many companies picked BRK as their home, even when a more lucrative offer was on the table. It goes beyond the dollar amount. For many entrepreneurs, their business is their baby. It’s their life’s work. And it’s very important for them to preserve it.
I’m glad I read this book. I was looking forward for a book like that for a while. One that goes inside and throughout the subsidiaries. Even the smallest ones. Cunningham talked to many family businesses belonging to the Blumkins, Bridges, and Child and several entrepreneurs like at FlightSafety and Justin Boots.
An interesting question why aren’t there many more companies like BRK? Markel is the closest clone that I can think off. BRK has been cloned before, but you don’t seem to hear about their success. The reason is because it goes beyond the corporate structure. It’s about the attitude. Berkshire takes a partnership attitude toward its shareholders whereas most corporations are hierarchies, with shareholders seen to own a residual claim on firm assets, an equity stake after liabilities are covered by assets. BRK is simple, but hard to replicate.
Here are some characteristics among many others:
Decentralized. The managers of the subsidiaries have massive power.
It rarely uses intermediaries — brokers, lenders, advisers, consultants and other staples of today’s corporate bureaucracies.
No strategic plans administrated by an acquisitions department.
Berkshire defined itself as a partnership from the outset: “While our form is corporate, our attitude is partnership.”
While American companies borrow heavily, Berkshire shuns debt as costly and constraining, preferring to rely on itself and to use its own money.
BRK generates abundant earnings and retains 100 percent, having not paid a dividend in more than 50 years.
Berkshire earns some $30 billion annually — all available for reinvestment.
In addition, thanks to its longtime horizon, Berkshire holds many assets acquired decades ago, resulting in deferred taxes now nearing $100 billion.
The principal leverage at Berkshire is insurance float. This refers to funds that arise because Berkshire receives premiums up front but need not pay claims until later, if it all.