The 5th YYX Annual Value Symposium is back on, via video in May 27, 2020, and I will be presenting in a TEDx Talk format.
I was stuck at home for sixty days with wife and kids. During that time I took on projects that I wouldn’t normally have the time for, such as making maple syrup, brewing beer, making pasta, and baking bread.
I developed a deep sense of appreciation for the miracle of economic specialization. Bread is like $3 and it’s a shit ton of work. I understood specialization as a concept. I understood the benefits, especially when it comes to trade and economic development. But now, anybody that comes up with some protectionist nationalist argument, I would tell them to go make bread.
Are you in quarantine with two young children like me? We are all doing our best and trying to navigate the current crisis. Below are three different fun activity packs to keep your young children busy. They were free and fun. It worked for me. My kids are five and two. I’m supposed to be working and educating my kids at the same time. It’s sort of impossible. Formal home schooling is not working because the two year old like to crash the party. Plus, even without a toddler, it only works for so long. So you kind have to improvise as you go. My approach is learning while having fun. Basically they are having fun and they don’t know that they are learning. That’s the best kind.
Here’s the downside: You need a printer and lots of ink. (If there’s anything left after printing everything your teacher sent.)
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.
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.
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 just recently found out that Charlie Munger was interviewed by Ruth Porat, CFO Alphabet Inc. I found a set of notes from this blog: http://d0j.blogspot.com/2016/09/notes-from-charlie-munger-talk.html. The notes are from 2016. Despite the weird formatting, it looks legit and it’s Charlie in the picture. However I can’t find any video evidence of this. Usually Google Talks are recorded, available on Youtube with 40 views. There’s nothing on Google either (I even tried Bing in case Google was suppressing results). It appears to be a private talk. If anybody know more about this feel free to share.
Other business: I got back from the Fairfax AGM and have a ideas for a couple new posts in the coming weeks.
I made a copy of the notes below just in case they get lost on the Internet. It seems to be the only copy I could find.
Charlie Munger notes from Alphabet interview. Sorry for the formatting. It’s straight copy and paste from the website.
Reposted from d0j.blogspot.com
By thus spake hareesh nagarajan
Notes from the Charlie Munger Talk
Charlie Munger was interviewed by Ruth Porat, CFO Alphabet Inc earlier in the Mountain View campus today. Here are some (unedited) notes I jotted down:
munger: “What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.”
take a simple idea and take it seriously
to get a good spouse, you need to deserve a good spouse
the google culture is unique
what do you like about google culture?
you got more brain power
larry created a different culture
ruth “incrementalism leads to irrelevance”
charlie: not all companies keep growing. you cannot compound infinitely
berkshire hathaway is decentralized
we are similiar to google in how to accumulate money. we dont know what to do with it.
investing money is difficult
professional investment used to be simple and stupid in old days
when u compete with idiots you can do well
ruth “competition is one click away”
audience “which sectors are attractive to you”
folks that have momentum
if i had to buy one tech stock id buy google
the Chinese are hungry. the engineers are coming out of poverty
berkshire is like a swimmer that keeps swimming with or without the tide. we dont anticipate swings in the tide.
vc in 2000 took 100B
sam goldwyn — “Gentlemen, You May Include Me Out “
we own the biggest carbide cutting tools company
these israeli guys run it as fanatics
we dont know anything about carbide cutting tools.
but these israeli guys are winning
the culture they’ve created fosters winning
berkshire avoids mistakes by continous learning
judging people has been crucial
our philisophy: if a guy can juggle 20 milk bottles, then why would we interfere?
a mistake we learned from:
guy we had from beginning from berkshire had cancer. we kept him. but he signed bad contracts. we learned from that. you dont want wrong compassion
advice for the young:
underspend your income.
you may not get rich but you won’t do badly.
keep at it.
investing money is harder TODAY
world today is radically different
you don’t have the time to find value stocks like warren used to.
ibm let gates put out software on their hardware. they lost.
“it’s never going to be easy”
avoid the crazyness
crazy bubbles should be avoided.
“i want a fair advantage”
you have to specialize to succeed
5-10% time to think of your hobbies
what i learned from other fields:
psychology was most important. “why is everyone so crazy”
i was going to synthesize psychology with everything else i do.
psychologists on the other hand just focus on psychology.
but i’m trying to figure out how to use psychology in investing and everything else i do .
you have to be alert when the rare opportunity comes by. u have to have patience.
‘your opportunities are rare but you have to move’ said his great grandfather
few decisions get to be very important
venture capital is a bubble. there has been overpaying.
i dont understand computer software. i dont understand your culture.
but it can’t be easy
what we are good at: “we know how to buy businesses”
you need to be able to destroy your own idea.
you should be ok with making a dumb mistake
everyone is useful. he can always be used as a bad example