Don't Fall in Love...

by Scuttlebutt Investor


...with a stock.  Women (or men) make much better bedfellows.  Falling in love hinders your ability to be objective when evaluating an investment.  We often tend to fall in love with companies that make products we buy or use.  

Peter Lynch (brilliant investor) is famous for coining the investment philosophy "Invest in what you know".  There is merit to making investments in companies or products that you know or use in your everyday lives.  We are more likely to understand these companies and their competitive advantages because we are consumers of their products.  Warren Buffett has a similar investing philosophy which he refers to as "Circle of Competence".  He recommends staying within the bounds of companies and industries that you understand when it comes to investing.  However, I don't believe that this philosophy works in isolation.  There is another side to the coin, which is valuation.

The problem is that companies we love are also often companies that other people love and the fact that so many people love them typically drives the stock price up. Sometimes this elevated stock price for a loved company is justified, sometimes it is not.  It depends on whether or not the thing that makes the companies so lovable (I call this the competitive advantage) is durable (can last for a long time).  The issue, however, is that investors often fall so deep in love with a company that they forget the other side of the coin.  Love clouds judgement (when it comes to stocks as well as people!).       

Despite being well aware of this Love Bias as I call it, I have fallen victim to it at times.  Companies like Disney (DIS), Apple (AAPL), Google (GOOG) and Nike (NKE) are companies that are broadly loved by consumers.  That doesn't mean that they are necessarily overpriced.  They are amazing companies that make amazing products and a higher valuation may be justified.  My point is that a disciplined value investor needs to do the work to determine if a loved company is reasonably priced.  They shouldn't merely buy it because they love their products or services.  

Happy Valentines Day!


Weekly Watching: Value Investing Videos - 1/4/15

by Scuttlebutt Investor


While perusing over the last couple weeks and with the help of some links sent over by a friend, I came across some great videos on value investing from some of the masters. So instead of the usual Weekly Reading post, I've replaced it with Weekly Watching.  Take some time to watch these videos and take some notes as there are some great nuggets in them.  The videos are from talks hosted at the Google campus over the last several months.  

 

 

Whitney Tilson (from Kase Capital fomerly T2) discusses his investment approach and analyzes an investment in Google (GOOG) stock.  He also takes some questions from the audience.  I wouldn't necessarily call Tilson a value investor in the purest sense but he is very intelligent and this is my favorite video of the bunch.

 

Mohnish Pabrai runs Pabrai Investment Funds and is also the author of "The Dhandho Investor" and "Mosaic: Perspectives on Investing".  In this video, he discusses value investing concepts like asymmetric bets, circle of competence, the difference between risk and uncertainty and compounding. 

 

Guy Spier is the head of a Zurich based investment fund called the Aquamarine Fund, which is styled after Warren Buffett's 1950s investment partnerships.  In this video, he discusses his book "The Education of a Value Investor" and how he found his path to a value investing approach.  

 

 

Tobias Carlisle is the Managing Director of Eyquem Investment Management.  He recently wrote a book entitled "Deep Value".  In the video, he discusses some topics from his book including the behavioral reasons why stocks become undervalued, ways to avoid making behavioral errors, mean reversion and a simple metric for generating outstanding returns.  This video is a bit slow and somewhat dry as compared to the other videos, but still has some insightful tidbits.


Weekend Reading - 11/29/14

by Scuttlebutt Investor


I haven't written in a while because I have been working on an analysis of spin-off opportunities per a previous post.  I have decided to delve a bit deeper into CDK Global (CDK), in which there has been a lot of activist interest lately.  The CDK Global piece should come out in a couple weeks.  In the meantime, some reading piquing my interest this long weekend.  

Also, a great reading list for Investors:


Weekend Reading - 10/26/14

by Scuttlebutt Investor


Currently piquing my interest:

A blast from the past: