Case Study in Business Journalism

As part of my Year of Business I’ve been reading some business articles.  Often I find that the headlines are incredibly misleading, often close to opposite of accurate.  Take this example:

Read the article, and the source is a Vanguard study which you can read here.  Here’s page one with an abstract:

A more accurate headline would be “A Small Minority of Millennials Are Sitting Out The Bull Market, While Most Of Them Are Doing Exactly What Everybody Else Does” which is kind of interesting.  The truth is well put in a footnote to the article:

Wouldn’t another, perhaps more accurate headline be: “Despite Lessons Of Their Youth, Millennials Follow Traditional Investing Path”?

But consider: we’re only talking about a sample of 4 million Vanguard investors.  So: a self-selected sample of people with 1) money to invest and 2) choosing a conservative investment company!  I would guess the “typical millennial household” has no equity at all?

Buried in the Vanguard study is a story that’s almost more interesting, namely that older generations are taking more investment risk than most advisors would think is wise:

Why this greater-than-expected taste for equity market risk among older investors? It’s worth noting that many current retirees hold traditional pensions, allowing, all other things equal, for more equity risk-taking. Other possible drivers of risk appetite among older investors include concerns over health care costs, low bond yields, and a desire to fund bequests for heirs. And beyond these financial factors are the shared generational experience of investing—both cohorts enjoyed the positive results of the great equity bull market from 1982–2000.

Even the Vanguard study itself contains strange, generational based assumptions:

Who is wiser, the 1/5 of millennials who witnessed 2008 and make the choice to have a “conservative” investment strategy relative to conventional wisdom, or the Baby Boomers who are still operating on 1980s assumptions?

My point here is not to criticize, it’s just to note ongoing observations:

  • headlines can be very misleading
  • when you go to the source of a story, it always gets deeper and more interesting
  • small inaccuracies of language, shorthands, and misleads can compound until we have a distorted picture of reality.  Was this not itself one of the causes of 2008 crisis?

The Gambler (2014)

Saw this clip on some retweet of this fellow’s Twitter.

I was struck by

  • the bluntness and concision of the advice
  • the fact that the advice contains a very specific investment strategy down to what funds you should be in (80% VTSAX, 20% VBTLX)
  • the compelling performance of an actor I’d never seen opposite Wahlberg (although I’d say it drops off at “that’s your base, get me?”)

It appeared this was from the 2014 film The Gambler

The film is interesting.  Mark Wahlberg plays a compulsive gambler and English professor.  There are some extended scenes of Wahlberg lecturing his college undergrads on Shakespeare, Camus, and his own self-absorbed theories of literature, failure, and life.  The character is obnoxious, self-pitying, logorrheic and somewhat unlikeable as a hero. Nevertheless his most attractive student falls in love with him.  William Monahan, who won an Oscar for The Departed, wrote the screenplay. The film itself is a remake of 1974 movie directed by James Toback, in which James Caan plays the Mark Wahlberg role.

Here’s the interesting thing.  Watching the 2016 version, I realized the speech I’d seen on Twitter that first caught my attention is different.  The actor’s different — in the movie I watched it’s John Goodman.

What happened here?  Had they recast the actor or something?  The twitterer who put it up is from South Africa, did they release a different version of the movie there?

Did some investigating and found the version I saw was made by this guy, JL Collins, a financial blogger.

Here’s a roundup of his nine basic points for financial independence.

He did a pretty good job as an actor I think!  I believe the scene in the movie would be strengthened from the specificity of his advice.  And the line about every stiff from the factory stiff to the CEO is working to make you richer is cool, maybe an improvement on the script as filmed.  I’ll have to get this guy’s book.

It would make a good commercial for Vanguard.

VTSAX vs S&P 500:

Readers, what does the one to one comparison of JL Collins and John Goodman teach us about acting?

What Will Trigger The Next Crisis?

What Will Trigger The Next Crisis? is a subtext of many a Wall Street Journal article, but this week that was the headline on what I found to be an unusually succinct and comprehensible roundup of possible catalysts.

Interest Rates Jump

Bad-Loan Boom

China Cracks

Supply-Chain Disruptions

were four of the possibilities, but the one that caught me was

Italy Dumps The Euro

But Italy may be wavering. Italian bond yields spiked in May after two parties with anti-euro leanings tried to form a new government. The crisis could escalate again once politicians return from holidays. Some 59% of Italians want to keep the common currency, official surveys show—the slimmest majority in the eurozone.

I like the idea that a bunch of Italian politicians coming back from vacation is a global financial crisis waiting to happen.

La grande bellezza

In this same issue of the WSJ:

Tilray, Canopy, and The Canadian Marijuana Gold Rush

As part of my Year of Business I’ve been reading lots of investing websites.  An area of insane hype at the moment is Canadian marijuana stocks.

(The picks and shovels play here might be stock images of marijuana leaves).

Recreational marijuana will be legal in Canada in October, and unlike the United States, where federal regulation of the plant makes doing anything on the national level very difficult, it’s all good up there in Justin Trudeau land.

Once Constellation Brands, makers of Corona beer, made a $4 billion deal with Canopy Growth (traded on the New York Stock Exchange as CGC) it was off to the races.

I did not invest in Canopy Growth because a quick image search of CEO Bruce Linton did not inspire confidence.

An interesting aspect of Canada’s marijuana rules are that the packaging has to adhere to very strict regulation, with very little advertising.  This, it seems to me, presents kind of a Zen marketing challenge.  How will one brand distinguish itself from another?

Blessedly I have kind of a Peter Lynch advantage here.  From watching lots of Trailer Park Boys, I know that “BC Hydro” and marijuana from British Columbia is highly prized by the Canadian consumer.  Even a low information Canadian marijuana consumer might know to ask for weed from British Columbia.

Tilray, traded on the NASDAQ as TLRY, is a respected marijuana grower based in Naniamo, British Columbia.  Here is their respectable looking management team.

A few more observations:

  • It is worth remembering our Charlie Munger here.  Here he is talking in 2014 about why Berkshire Hathaway, the original textile company, was doomed:

The other rare example, of course, is Berkshire Hathaway. Berkshire started with three failing companies: a textile business in New England that was totally doomed because textiles are congealed electricity and the power rates were way higher in New England than they were down in TVA country in Georgia. A totally doomed, certain-to-fail business.

In a way, marijuana itself is congealed electricity.  I’m told power rates are cheapest in Ontario, where Canopy is based.  And of course Medicine Hat, Alberta, is the sunniest city in Canada.

Echodale Park in Medicine Hat, by Michael Ireland on Wikipedia

  • I find it interesting and a testament to the world’s absurdity that if you had eight ounces of marijuana in New York City, the minimum jail sentence is three years, while down the street billions of dollars of shares of marijuana growers are being traded.  Maybe Governor Cynthia Nixon will correct that imbalance.  (Since I first discussed this on Twitter, Tilray’s stock went up 67%)


  • If the President of the USA really cared about us defeating Canada, wouldn’t he work towards legalizing marijuana immediately, so that US companies could compete without Canada getting a jump on us?


  • At first I thought legalized marijuana would end up being just like any commodity, like corn or something.  But the technical know-how to extract and present CBD or THC as an oil or in something like a Dosist pen might give an advantage to companies with good processes.  Note this picture of a laboratory on Tilray’s website:

  • It’s my casual observation that a lot of very dumb bros, like guys who are too dumb to be in tech, are in the marijuana business.  There’s something great about a field where many of your competitors will be dumb.  (There are also many very, very smart people in this field.)


Charlie Munger Deep Cuts

In 2011 Warren Buffett and Charlie Munger came to visit The Office to film a video for the Berkshire Hathaway annual meeting. I hadn’t heard of Charlie Munger.  From the Internet I learned that he was a brilliant dude in his own right, as well as a guy Warren Buffett trusted, learned from, and considered his closest partner.

At lunchtime, everyone was huddled around the more famous Buffett, while Charlie Munger was sitting by himself.  In this way I ended up having lunch with Charlie Munger.

From his Wikipedia page I knew he’d been a meteorologist in World War II, so I asked him about that. His job was hand drawing weather maps to make predictions as the US was sending planes over the Bering Strait to our then-ally the Soviet Union.

Ever since this encounter I’ve read everything I can find by Charlie Munger.

This is a good place to start.

In my hunt for Munger deep cuts, came across this speech he gave in October 1998 at the Santa Monica Miramar Hotel to a group of institutional investors.  Stunningly blunt and direct advice on how to invest:

In the United States, a person or institution with almost all wealth invested, long term, in just three fine domestic corporations is securely rich. And why should such an owner care if at any time most other investors are faring somewhat better or worse. And particularly so when he rationally believes, like Berkshire, that his long-term results will be superior by reason of his lower costs, required emphasis on long-term effects, and concentration in his most preferred choices.

I go even further. I think it can be a rational choice, in some situations, for a family or a foundation to remain 90% concentrated in one equity. Indeed, I hope the Mungers follow roughly this course. And I note that the Woodruff foundations have, so far, proven extremely wise to retain an approximately 90% concentration in the founder’s Coca-Cola stock. It would be interesting to calculate just how all American foundations would have fared if they had never sold a share of founder’s stock. Very many, I think, would now be much better off. But, you may say, the diversifiers simply took out insurance against a catastrophe that didn’t occur. And I reply: there are worse things than some foundation’s losing relative clout in the world, and rich institutions, like rich individuals, should do a lot of self insurance if they want to maximize long-term results.

If only stupid Harvard had listened!


My controversial argument is an additional consideration weighing against the complex, high-cost investment modalities becoming ever more popular at foundations. Even if, contrary to my suspicions, such modalities should turn out to work pretty well, most of the money-making activity would contain profoundly antisocial effects. This would be so because the activity would exacerbate the current, harmful trend in which ever more of the nation’s ethical young brainpower is attracted into lucrative money-management and its attendant modern frictions, as distinguished from work providing much more value to others. Money management does not create the right examples. Early Charlie Munger is a horrible career model for the young, because not enough was delivered to civilization in return for what was wrested from capitalism. And other similar career models are even worse.

More Munger deep cuts from the 2017 Shareholders Meeting of Daily Journal Co., (I found here on the wonderful Mine Safety Disclosures website but it’s in a couple places).  Daily Journal Co is a business that, as I understand it, exists on the fact that companies have to publish legal notices somewhere, and this company more or less has a monopoly on the business.

Munger gets real:

the Mungers have three stocks: we have a block of Berkshire, we have a block of Costco, we have a block of Li Lu’s Fund, and the rest is dribs and drabs. So am I comfortable? Am I securely rich? You’re damn right I am.

Could other people be just as comfortable as I who didn’t have a vast portfolio with a lot of names in it, many of whom neither they nor their advisors understand? Of course they’d be better off if they did what I did. And are three stocks enough? What are the chances that Costco’s going to fail? What are the chances that Berkshire Hathaway’s going to fail? What are the chances that Li Lu’s portfolio in China is going to fail? The chances that any one of those things happening is almost zero, the chances that all three of them are going to fail.

That’s one of the good ideas I had when I was young. When I started investing my little piddly savings as a lawyer, I tried to figure out how much diversification I would need if I had a 10 percentage advantage every year over stocks generally. I just worked it out. I didn’t have any formula. I just worked it out with my high school algebra, and I realized that if I was going to be there for 30 or 40 years, I’d be about 99% sure that it would be just fine if I never owned more than three stocks and my average holding period is three or four years.

Once I had done that with my little pencil, I just…I never for a moment believed this balderdash they teach about. Why diversification? Diversification is a rule for those who don’t know anything. Warren calls them “know-nothing investors”. If you’re a know-nothing investor, of course you’re going to own the average. But if you’re not a know-nothing —if you’re actually capable of figuring out something that will work better—you’re just hurting yourselves looking for 50 when three will suffice. Hell, one will suffice if you do it right. One. If you have one cinch, what else do you need in life?

Li Lu is himself a super interesting character.

A student leader in the Tiananmen Square protests, escapes China (with the help of Western intelligence?) ends up penniless at Columbia, hears about a lecture by Warren Buffett and misunderstands that this has something to do with a “buffet” and becomes of the most successful investors in the world?

More from Munger on a range of topics:

on Lee Kuan Yew and the history of Singapore:

Lee Kuan Yew may have been the best nation builder that ever lived. He took over a malarial swamp with no assets, no natural resources, nothing, surrounded by a bunch of Muslims who hated him, hated him. In fact, he was being spat out by the Muslim country. They didn’t want a bunch of damn Chinese in their country. That’s how Singapore was formed as a country—the Muslims spat it out. And so here he is, no assets, no money, no nothing. People were dying of malaria, lots of corruption—and he creates in a very short time, by historical standards, modern Singapore. It was a huge, huge, huge success. It was such a success, there is no other precedent in the history of the world that is any stronger.

Now China’s more important because there are more Chinese, but you can give Lee Kuan
Yew a lot of the credit for creating modern China because a lot of those pragmatic communist leaders—they saw a bunch of Chinese that were rich when they were poor and they said, “to hell with this”. Remember the old communist said, “I don’t care whether the cat is black or white, I care whether he catches mice”. He wanted some of the success that Singapore got and he copied the playbook. So I think the communist leadership that copied Lee Kuan Yew was right. I think Lee Kuan Yew was right. And of course, I have two busts of somebody else in my house. One is Benjamin Franklin, and the other is Lee Kuan Yew. So, that’s what I think of him.

on real estate:

MUNGER: Real estate?

Q: Yeah, real estate.

MUNGER: The trouble with real estate is that everybody else understands it and the people who you are dealing with and the competing with, they specialized in a little 12 blocks in a little industry. They know more about the industry than you do. And you got a lot of bullshitters and liars and brokers. So it’s not that easy. It’s not a bit easy.

Your trouble is if it’s easy—all these people, a whole bunch of ethnics that love real estate,. You know, Asians, Hasidic Jews, Indians from India, they all love real estate; they’re smart people and they know everybody and they know the tricks. And the thing is you don’t even see the good offers in real estate. They show the big investors and dealers. It’s not an easy game to play from a beginners point of view; whereas with stocks, you’re equal with everybody if you’re smart. In real estate, you don’t even see the opportunities when you’re a young person starting out. They go to others. The stock market’s always open, except venture capital. Sequoia sees the good stuff. You can open an office—Joe Shmo Venture Capitalist—startups come to me. You’d starve to death.

You’ve gotta figure out what your competitive position is in what you’re choosing. Real estate has a lot of difficulties. And those Patels from India that buy all the motels, they know more about motels than you do. They live in a god damn motel. They pay no income taxes. They don’t pay much in worker’s compensation and every dime they get, they fix up the thing to buy another motel. Do you want to compete with the Patels? Not I.

on Sumner Redstone:

Well, I never knew Sumner Redstone but I followed him because he was a little ahead of me in Law School, but Sumner Redstone is a very peculiar man. Almost nobody has ever liked him. He’s a very hard-driven, tough tomato, and basically almost nobody has ever liked him, including his wives and his children. And he’s just gone through life. There’s an old saying, “Screw them all except six and save those for pallbearers.” And that is the way Sumner Redstone went through life. And I think he was in to the pallbearers because he lived so long. So I’ve used Sumner Redstone all my life as an example of what not to do.

He started with some money, and he’s very shrewd and hard-driven. You know he saved his life by hanging while the fire was up in his hands. He’s a very determined, high IQ maniac, but nobody likes him and nobody ever did. And though he paid for sex in his old age, cheated him, you know always had one right after another.

That’s not a life you want to admire. I used Sumner Redstone all my life as an example of what I don’t want to be. But for sheer talent, drive and shrewdness, you would hardly find anybody stronger than Sumner. He didn’t care if people liked him. I don’t care if 95% of you don’t like me, but I really need the other 5%. Sumner just…

on the movie business:

And the movie business I don’t like either because it’s been a bad business-—crooked labor unions, crazy agents, crazy screaming lawyers, idiosyncratic stars taking cocaine-—it’s just not my field. I just don’t want to be in it.

on copying other investors:

Q: On the topic of cloning, do you really believe that Mohnish said that if investors look at the 13Fs of super investors, that they can beat the market by picking their spots? And we’ll add spinoffs.

MUNGER: It’s a very plausible idea and I’d encourage one young man to look at it, so I can hardly say that it has no merit. Of course it’s useful if I were you people to look at what other—what you regard as great—investors are doing for ideas. The trouble with it is that if you’d pick people as late in the game as Berkshire Hathaway, you’re buying our limitations caused by size. You really need to do it from some guy that’s operating in smaller places and finding places with more advantage. And of course, it’s hard to identify the people in the small game, but it’s not an idea that won’t work.

If I were you people, of course I would do that. I would want to know exactly what the shrewd people were doing and I would look at every one of them, of course. That would be a no-brainer for me.

on Li Lu:

 I got to tell you a story about Li Lu that you will like. Now General Electric was famous for always negotiating down to the wire and just before they were at close, they’ll add one final twist. And, of course, it always worked, the other guy was all invested, so everybody feels robbed and cheated and mad, but they get their way in that last final twist.

So, Li Lu made a couple of venture investments and he made this one with this guy. The guy made us a lot of money in a previous deal and we’re now going in with him again on another—a very high-grade guy and smart and so forth.

Now we come to the General Electric moment. Li Lu said, “I have to make one change in this investment.” It sounds just like General Electric just about to close. I didn’t tell Li Lu to do it; he did it himself. He said, “You know, this is a small amount of money to us and you got your whole net worth in it. I cannot sign this thing if you won’t let me put in a clause saying if it all goes to hell we’ll give you your money back.” That was the change he wanted. Now, you can imagine how likely we were to see the next venture capital investment. Nobody has to tell Li Lu to do that stuff. Some of these people, it’s in their gene power. It’s just such a smart thing to do. It looks generous and it is generous, but there’s huge self-interest in it.

on Al Gore:

Oh, I got another story for you that you’ll like.

Yeah get that thing (peanut brittle out of here or I’ll eat it all).

Al Gore has come into you fella’s business. Al Gore, he has made $300 or $400 million in your business and he is not very smart. He smoked a lot of pot. He coasted through Harvard with a Gentlemen’s C. But he had one obsessive idea that global warming was a terrible thing and he understandably predicted the world for it. So his idea when he went into investment counseling is he was not going to put any CO2 in the air. So he found some partner to go into investment counseling with and he says, “we are not going to have any CO2”. But this partner is a value investor. And a good one.

So what they did was Gore hired his staff to find people who didn’t put CO2 in the air. And of course, that put him into services-—Microsoft and all these service companies that were just ideally located. And this value investor picked the best service companies. So all of a sudden the clients are making hundreds of millions of dollars and they’re paying part of it to Al Gore, and now Al Gore has hundreds of millions of dollars in your profession. And he’s an idiot. It’s an interesting story and a true one.

Warren Buffetts, real and fake

These dudes started a fake Warren Buffett account on a bet, and within a few days it was retweeted by Peggy Noonan, Kanye, etc.

Impressed with how generic and bland the advice was.

The worship of Buffett as an oracle is not just a US phenomenon.  If anything it may be stronger in Asia.  In Korea in 2007, I saw subway vending machines selling biographies of Warren Buffett.  In this video, being interviewed by a Chinese magazine, you can see Warren Buffett’s partner, Charlie Munger, attempt to explain why he thinks he and Buffett are so popular in China.  He suggests that it’s because much of their advice is very Confucian:

Actual Warren Buffett’s advice is free and very available.  You can read all of Berkshire Hathaway’s letters to shareholders, which are funny and interesting at times (the better you are at skimming the boring parts, the more enjoyment you will get out of them).  You can see everything he invests in — he legally has to tell you!

Investing is simple, but not easy

is a quote often attributed to Buffett, though I myself cannot find the original source for it.

Buffett himself was asked about the fake account on CNBC:







This aspect of Buffett is much celebrated:

It’s sometimes forgotten or overlooked that he also owns a $7.9 million house in Laguna Beach.

Though in fairness he bought it in 1971 for $150,000.

Normal world we’re living in

from today’s WSJ