WM 27 November 2022

Quotes

Lessons & Thoughts

Phil Fisher's Don'ts and Do

Graham

Stock selection framework

Investment checklist

Business analysis

Circle of competence

Analysing management

Accounting

Mindset

Value investing

Business analyst vs Security analyst

Peter Lynch's 4 stock categories

1. Cyclicals

2. Fast Growers

3. Stalwarts

4. Asset Plays

5. Slow growers

6. Turnarounds

Trading's routine

Cognitive Biases

Cognitive ease is our tendency to go for pleasure and avoid pain. Yet comfort and ease tend to lead to bad decision, while hard work and pain pays the most reward. No pain no gain.

Halo effect: the world is not black or white, just many shades of grey and even multicolor and pluridimensional. Yet, many investors are absolute in their views: all great or terrible. No middle ground, hence tendency to disagree with and be closed opposite to opposite views. Love is blind after all

What you see is all there is: another myopic bias consisting in not considering change and what you do not know, tendency to hear what you want to hear and increase your belief that WYSIATI. We prefer the familiar to the unknown. Fear aversion.

Anchoring effect: explain why most people confuse price with value. The last price they see tend to influence their views of value. This is often why people are reluctant to sell (because it is already down a lot)

Regression: we look for causes and effects (whys) when most things tend to regress to the mean

Hindsight bias: it's always obvious after the facts

Illusion of skill. Buyers and sellers take different decisions based on broadly the same information. They trade based on different opinions. In the short term, this is a zero sum game based on random luck, as for one winner, there must be a loser, while the commissions and taxes do skew the trade odds to the downside.

Loss aversion: losses are 2-3x more painful than gains, subconscious is trying to protect you from pain. Main reason why investors do not cut losses early enough or take profits too quickly

Commitment bias: it is difficult for an investor to say publicly what he/she owns and that change their mind (even as facts change). Investors are in-vested. They wear their convictions in public and are often reluctant to change their clothes in public.

Recency bias: myopic bias where we tend to put too much weight on short term and recent events. It explains why the market exaggerates one direction and extrapolates from recent past (when things are great we think they will get better)

Endowment effect: we value items more when we own them

Confirmation bias: we filter information based on what we want to hear. To avoid keep an open mind and always assume you could be wrong, whilst remembering that no one knows everything and everything changes.

Probabilistic thinking: actions are triggered by e-motions. Therefore we take views tainted with emotions, when investing is a game of probabilities, buying odds when they are good, but always conscious that the future is uncertain and that the odds change all the time as a result. Losses are painful, but they are likely and often contained within a certain probabilistic volatility band.

Bull market's behaviour

Price vs value

When to sell
Avoiding the worst 10days

Break outs

Becoming a full time investor

Science or Art?

Invest for real return after tax

an 18% IRR in Argentina is not the same as an 18% IRR in Switzerland

Journaling

How to be interesting in conversations

A start up has two lives

Scandals and double standards

Jinx: superbowl advertisers and NFL stadium name changes

All you need is love

Then and now: what do you prefer?

Sleep

Weight gain/loss seasonality

When did you become so afraid of your own citizen?

Covid marked the start of a new era. An era of governments overreaching their powers to coerce the masses to obey rules. Forced mass vaccinations were not useful. Natural immunity would have done better. The fact that morbidity was higher with elderly and obese people begs the question about why society accepts to prolong the lives of people that are condemned come what may. The last crisis (the energy crisis) is now leading governments to impose restrictions on the temperature. 30km / h in cities also the new rules, the effectively nudge car drivers to abandon their cars (the ultimate symbol of individual freedom) take a bike or public transport.

Macro news

Money

GDP

CPI

Yield Curve

Dollar down

As hedge funds (Ackman joining the frey) adding to their bets against the HKD peg

Precious Metals

Cryptos

Crypto is dead. Long live crypto? Clearly, the FTX debacle will be followed by a major backlash. The regulator is corrupt and was bribed by FTX. Therefore, do not expect the blame to fall on SBF, but on the industry itself. The banks have won and therefore, Bitcoin use will fall until the next monetary stimulus kicks in and until the next halving (May 2024)