General Thoughts

Analyst Ratings and the Institutional Imperative

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Buffett talks a lot about the concept he calls the “institutional imperative”. In his 1989 shareholder letter, when he was describing his mistakes of the first 25 years managing Berkshire, he outlines what he means by this (emphasis mine): “My most surprising discovery: the overwhelming importance in business of an unseen force that we might call “the institutional imperative.” In business school, I was given no hint of the imperative’s existence and I did not intuitively understand it when I […]

General Thoughts

Long-term Thinking and Back to Basics

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When markets are tumbling, it’s time to get excited about stocks. This is often talked about, but rarely practiced. J. Paul Getty once said the key to getting rich is simple: “Buy when everyone else is selling and hold when everyone else is buying”. For the value investing community, Buffett’s famous “Be greedy when others are fearful” basically is the same gist. Commonly referenced and preached, but far less often practiced. I am lucky to have a great client base at […]

Case Studies

Portfolio Turnover–A Vastly Misunderstood Concept

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A while back I wrote a post about how the gap between 52 week high and low prices presents an opportunity for investors in public markets. I mentioned that this simple observation (the huge gap between yearly highs and lows) is all the evidence you need to debunk the theory that markets are efficiently priced all the time. I think the market generally does a good job at valuing companies within a range of reasonableness, but there is absolutely no […]

General Thoughts

Walking, Thinking, and Investing

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I just came across an article I just read that I thought was interesting, and thought certain readers might enjoy. Although the article has nothing directly to do with investing, I think there are some takeaways for those of us in the investment world. Certainly the article has relevance to anyone whose chosen endeavor requires the occasional deep thinking. The article is called “Why Walking Helps Us Think”. The article—as you probably guessed from the self-explanatory title—describes the benefit of […]

Case Studies

10 Years of Google and the Importance of Long Term Thinking

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“Google has a huge new moat. In fact, I’ve probably never seen such a wide moat.” – Charlie Munger, 2009 Google celebrated the 10 year anniversary of its IPO last week. Google is a company that I’ve never owned (unfortunately), but really admire. There are a few businesses I almost root for, like a fan of a football team. Costco, Fastenal, and Walmart among others are on the list. These are really high quality businesses that have made their shareholders wealthy […]

Investment Philosophy

Summary Thoughts on Investment Approach

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One of the most common questions I get from readers as well as clients involves my overall investment philosophy. I talk about this often with clients, but I thought I’d write some comments specifically pertaining to my own investment philosophy and a few aspects of my approach that I think are of central importance. Below are some points that help describe my investment philosophy. Strategy My firm has a simple investment objective: to compound our capital at high rates over […]

General Thoughts

Thoughts on Ted Weschler’s Largest Holding and Excellent Long Term Results

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“I found that the entire fund industry worked a certain way, and that their results reflected the mediocre way in which they operated.” – Mohnish Pabrai, recalling an important discovery he made at the outset of his investment career I’ve mentioned before that I keep a list of investors who I’ve studied that have achieved long term returns (over a decade or preferably longer) of 20-30%+ annual returns. It’s a relatively small list, but it is larger than you might […]

Investment Philosophy

Value Investing: Luck vs Skill Part 2

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Earlier this week I responded to a comment that centered around the role of luck in long term outperformance. Feel free to read my response to the comment in Part 1 of this post where I list the #1 main reason why most people don’t replicate the results of Walter Schloss. It’s a very simple reason demonstrated by the results of Schloss himself. Today, I’ll discuss luck in Part 2 of this post. Does Luck Play a Role in Great […]

Books

How Warren Buffett Thinks About Risk

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“Rule #1: Don’t Lose Money….” The best book I’ve ever read on Buffett is Alice Schroeder’s Snowball. I remember picking up my copy about four years ago and literally not being able to put it down. I read it for hours at a time, all the while marking pages and circling things… and I often reference certain parts of the book when thinking about investments. The book goes much deeper into Buffett’s thought process than most of the other Buffett […]

Case Studies

Thinking Differently: The Most Important Contrarian Behavior

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“I skate to where the puck is going to be, not where it has been.”  – Wayne Gretzky One of the most important skills that you can develop as an investor is the ability to think differently. This is a broad topic with many interpretations. I often talk about thinking differently here at BHI. When it comes to general philosophy or “investment theory” (as opposed to thinking about individual stock investments), I spend more time thinking about this topic than […]