Jim

Why It’s so hard to copy Charlie Munger’s Secret Sauce h/t: @SamanthaMcLemor

My university's faculty search committee found out their prized hire — the founder of a violent anarchist group — had been stopped at the airport. Devices confiscated. A bomb squad called. The chair reported it like a flight delay. "Ugh, what a headache. Anyway." They kept fighting to hire him for three more years. And they did some really shady stuff to make it happen. facultyleaks.com/p/my-universit…

A physicist got banned from every casino in Vegas, then made $1 billion betting on horses Bill Benter finished his physics degree, read Ed Thorpe's "Beat the Dealer" Then moved to Vegas to count cards He was good enough to get banned from every casino in the city No more blackjack, so he found a bigger game Hong Kong, where the population bet more on horses than the entire United States 1985, he flew to Hong Kong with $150,000 and three computers in his luggage First year he lost $120,000, went back to Atlantic City to count cards, rebuilt his bankroll, came back and kept building // His breakthrough: He stopped trying to outsmart the crowd and started using the crowd's own odds as a variable in his model Over 120 variables per horse, Kelly Criterion for sizing, only bet where his probability was higher than the market price November 2001 The biggest jackpot Hong Kong had ever seen, predict the top 3 horses in 3 different races, odds of 1 in 10 million He placed 51,381 bets through his algorithm that night He won He never claimed the prize // Polymarket work like horse racing the crowd sets the price, not the house The price is what people believe, not what the probability actually is Benter made close to $1 billion finding the gap between the two Follow & watch the 15 min breakdown below of how a banned card counter built an algorithm that won close to $1 billion on horses ↓

It is amazing to me how many people seem to have lost their reasoning ability because of their dislike of Trump. It infects their views of politics, economics, the stock market, and actually makes them root against their own country. The good news is that this distorted thinking does create greater price inefficiency in the market.

Você alavanca 10x achando que vai ficar rico mais rápido. Matematicamente, está fazendo o oposto. Em 1956, um engenheiro da Bell Labs chamado John Kelly Jr. resolveu um problema que ninguém tinha formalizado: qual é o tamanho ÓTIMO de uma aposta? A resposta mudou cassinos, hedge funds e mercados de previsão. 🧵

TOM LEE: Markets will see ‘one of the best periods in our life’ in the next 1.5-2 years @seekingalpha @fundstrat @fundstratdirect

Touching thread

This is very interesting. I think the younger generation has been trained to have more of a gambling mentality because of the huge growth in sports betting, cryptos, and assets with no inherent value. They see stocks as just another trading vehicle and ignore valuations. This creates greater opportunity for investors that focus on value and can find mispricing.

It's insane how U of I admissions have gotten. Tribune did an article a few years back on how many students from China are being admitted to U of I b/c they're attracted to engineering/computer programs at U of I & they pay full out of state tuition (many are sons/daughters of China's wealthiest citizens)

@Jamesiesta @OregonMills *Can't get into U of I #FixedIt It is a fixture of my conversations with neighborhood parents about college that their kids can rarely even get into U of I. Which grinds their parental gears palpably.

This presupposes that the primary function of some colleges is for the actual students to be rural town job creators.

@OregonMills @chicagobars EIU was a popular college choice 20 years ago. All sorts of kids from Chicago area viewed it as a party school where they could get a decent education. Seems like EIU has been losing out to places like Mizzou and Iowa for kids who don't want to go to U of I

@chicagobars Charleston did a poor job at supporting EIU’s growth. Hostile police presence at times.

@2024dion Yes, nearby towns of Mattoon and Paris are already economically depressed. Lots of unemployment, meth use. It's sad. EIU provides well-paying jobs to lots of people (everyone from professors to registrars) and a lot of these people will have a tough time recovering

EIU is the largest employer in its rural 17,000 resident town by a country mile. The decline of college enrollment is going to crush so many viable small towns in this country. It’s really sad.

Breaking: Iran re-closed the Strait of Hormuz. IRGC fired on tankers. The US is sending Vance, Witkoff, and Kushner to Pakistan for round 2 talks. Iran's state media says they won't participate. Iran's parliament speaker says there's progress. Contradictory signals everywhere. Here's how Grok's portfolio is set up: Defense at 42.9% of the book (LMT, NOC, GD, BWXT, AMTM, KBR, PSN). Direct beneficiaries of escalation premium. LMT earnings Thursday with $77-80B sales guidance and a $4.7B PAC-3 contract already in the bag. Energy at 11.5% (DVN, NRG). Tight exposure but real torque if oil gaps. Power/nuclear at 15.8% (VST, TLN). The AI demand thesis is secular. These don't care about Iran either way. AI at 24% (MU, AVGO, MSFT). Some headwind risk in a risk-off tape. AVGO is +25.8% since first entry so there's cushion. Healthcare 5.7% (UHS). Defensive. If the bear case fires (oil above $130, SPX crashes to 6,100-6,350), roughly 54% of the portfolio is positioned to rally. If talks restart and the ceasefire extends, the AI sleeve catches the bid. Either way, the barbell does its job. LMT Thursday is the tell. Your money, your call. Not advice.Breaking: Iran re-closed the Strait of Hormuz. IRGC fired on tankers. The US is sending Vance, Witkoff, and Kushner to Pakistan for round 2 talks. Iran's state media says they won't participate. Iran's parliament speaker says there's progress. Contradictory signals everywhere. Here's how Grok's portfolio is set up: Defense at 42.9% of the book (LMT, NOC, GD, BWXT, AMTM, KBR, PSN). Direct beneficiaries of escalation premium. LMT earnings Thursday with $77-80B sales guidance and a $4.7B PAC-3 contract already in the bag. Energy at 11.5% (DVN, NRG). Tight exposure but real torque if oil gaps. Power/nuclear at 15.8% (VST, TLN). The AI demand thesis is secular. These don't care about Iran either way. AI at 24% (MU, AVGO, MSFT). Some headwind risk in a risk-off tape. AVGO is +25.8% since first entry so there's cushion. Healthcare 5.7% (UHS). Defensive. If the bear case fires (oil above $130, SPX crashes to 6,100-6,350), roughly 54% of the portfolio is positioned to rally. If talks restart and the ceasefire extends, the AI sleeve catches the bid. Either way, the barbell does its job. LMT Thursday is the tell. Your money, your call. Not advice.

Jon Rahm's long term golf caddie Adam Hayes just listed his home in North Carolina for almost $14 Million The 5,435 square-foot house sits on 100 acres of land roughly 20 miles northwest of Charlotte - WSJ

Somehow it gets ignored, and people love to hate on it, but $AAPL has an incredible business. You can make a real case it’s the best in the Mag 7. It constant reports massive free cash flow with very little incremental capital, which is what actually compounds and where your returns come from. This is a business that converts scale into cash better than almost anyone. And instead of blowing its money on stupid pet projects I call “never ending black holes”, its capital allocation strategy is elite. It simply bets on itself by buying back shares. At the end of the day, there are very few companies where you get this combination of growth, margins, and durability all at once, and that’s why you can argue it’s the best business in the Mag 7. 🌹

The wait is finally coming to an end

@WSJ $BRK.B looking more and more attractive, especially with the buyback restarted. intrinsicvaluepershare.com/berkshire-valu…

back in 2014, Alice Schroeder (wrote "Snowball" about Buffett) did a Reddit AMA "I was fortunate to have spent 10 years getting to know Warren Buffett by spending days and weeks with him." some really good excerpts in there, I'll pick 8 1. on how little common equity investors know "Before writing The Snowball, I was an analyst at several firms on Wall Street, a regulator, a CPA, and now I invest, and serve on corporate boards." "I've been inside the sausage factory and know how complex business is in the real world. In that context, a lot of investor opinions display a high level of confidence based on a relatively sparse set of facts. So as you develop your skills its important to be mindful of the risk of overconfidence. This is where the margin of safety and circle of competence have done wonders for Warren. I would look at how he's applied those in investing and really think through the implications of "don't lose money."" 2. time management "Warren is a master of time management. He knows how to ease people off the phone without making them feel dismissed. He is great at saying no and I learned a lot about saying no tactfully. That's an important time management technique. Also, he manages his energy, reading when it's optimal, talking on the phone when he's got the right energy for that and so forth. It's fairly compartmentalized and he does not multitask through his day." 3. valuing a company "Warren's way is very simple. I have copies of an envelope or two where he did his calculation on the back - literally. If the margin of safety is wide enough, it almost doesn't matter what method you choose. I know you want something more specific. I have to generalize, a lot, but hopefully this is helpful. Essentially it's a three step process. one: Is it an addressable investment? He rules out a lot of stuff that has too much tail risk, or he has no edge on the market. For example, thinking you can be smarter at buying Johnson & Johnson than everyone is essentially market timing. Warren rules that out unless he has some insight he is convinced no one else has. He may not always be right but it's the right approach and works over time. two: Downside protection. He looks for multiple ways to avoid losing money. If you look at the preferred stock deals he did after the financial crisis, he fenced in these companies and built in so many ways to avoid losing money it was almost funny. He will pass on huge upside opportunities if he can't get downside protection when its an investment as opposed to a bet such as March Madness deal. three: Capital generating power. His focus is on how much capital an investment can produce that can be reinvested either within the business or elsewhere. He prefers the easy route (reinvestment) however, ultimately he's agnostic, money is money and for a dollar he puts out he wants x% back. The x% has declined over the years with Berkshire's size and falling interest rates. 4. anecdote from 2004 / foresight "Here's a good one. I bought a house in 2004 and when I told him he was aghast. That's when I knew we were in a serious housing bubble. Finally he said, well, don't worry, you'll be able to sell it in ten years, so just hold on until 2014." 5. re: "what is your favorite Buffett quote/memory?" A: On who influences him: "When I get up in the morning I look in the mirror, and at that point, everybody's had their say." 6. on books/reading "I like books from business history -- anything by Galbraith, Keynes, John Brooks. Mark Twain said history doesn't repeat but it rhymes and that's really true. Warren stressed to me over and over how much studying business history has helped him. I would also recommend Generations: The History of America's Future by Strauss and Howe. or its follow up, The Fourth Turning. Apart from books I think you should know what is going on that will affect the future. Not in the sense of forecasting. But for example, I was at a conference and asked a successful entrepreneur, "How do you get ideas to start businesses" since he had started quite a few. His answer ... "I look for big companies that have a lot of employees, and I figure out ways to get rid of the employees." 7. info filtering/process "Warren does his reading in the morning. He had cataract surgery not long ago and it's made things much easier for him. He starts with the newspapers. He looks at them page by page but doesn't read every article. He is very interested in news about companies and less interested in general news. Warren is outstanding at pattern recognition and prefers to do his own synthesis so when he reads he's looking more for data points rather than other people's conclusions. The annual reports -- he reads them for the most part as they are received. He's been following some companies for fifty years or longer and as noted earlier he's got quite a memory, so the process of reading annual reports is pretty efficient for him. He can go through one in an hour or less and get what he needs. On the other hand, say when Google went public, he spent more time on their filings because it was new information. He reads a lot of annual reports of companies he would not buy to expand his knowledge. The filtering is informal. His friends will send him something they think he will find interesting. Or he will read something in the paper and ask for the report. He isn't systematic nor comprehensive. That's today though. When he was younger, he filtered using Moody's, Value Line etc. reading everything about every company, then got the reports for the ones he was interested in. That's probably more relevant to you than what he does today. Does he spend 500 hours. Well, he spends a lot of hours if it's something totally new. That said, Warren's investable universe is somewhat limited now by Berkshire's size which means he's already familiar with almost every investment. So he has probably invested that time, but it's cumulative over many years." 8. re: Weschler's "500 hours due diligence before making an investment" "My understanding is that Ted's process is similar to Warren's and the amount of time sounds right. Let's say you work 50 hours a week, that's ten weeks of work. You could spend a large part of that time reading filings and articles about the company -- and its competitors -- and the industry. Then you do scuttlebutt on the people running the company, which can quite a bit of networking. Ted has a big network, I assume he works it for information. Then there is the garden variety information gathering such as channel checks, meetings with management, plant tours, visits to retail stores. Add to this the time spent every day reading relevant news, and the various conferences that investors attend. The valuation takes time -- early on you have a hypothesis and spend a lot of time testing and refining your assumptions. 500 hours is very reasonable. The main effect of being in the sausage factory is to make me humble about the state of my knowledge. I am slower to pull the trigger and I pay attention to every bit of nuance I can find. My process is not that different from anyone else's. I do a few extra things. For example, it's useful to do a line by line comparison of press releases and filings over time to identify the "ins and outs." You can learn a lot from this. (Companies are trying to be more concise these days; even so it's amazing how often things disappear from sight when news is bad.) I also look at who is on the board and audit/risk committees. If you had looked at JP Morgan's risk committee composition along the way and seen the head of a museum on it who had no business experience, that was a signal. So I look at this sort of thing. The advent of Reg FD has created a situation in which companies are forced to, essentially, lie to investors. So a company is not thinking about a divestment until the day it is suddenly announced. Loan loss reserves are adequate, and management has unshakeable confidence in that, until the day they are suddenly increased by a walloping amount. Inside the company, there are teams of accountants, consultants, bankers, executives and ultimately the board working on the projects that lead to these surprises. Most big events develop gradually over time. Companies used to do more signaling that helped investors adjust timely to changes rather than the present requirement to throw investors over the cliff. I think that in preventing companies from giving inside information to favored people, Reg FD pushed the system too far the other way." -- last...a non-investing anecdote "Dining with Warren is such an experience. Once, we were at a restaurant and Warren ordered a steak. The waiter offered him truffle sauce. The look on his face was priceless. it was as if someone said, would you like some arsenic, Mr. Buffett?"

lol who did this.

i don't want to sound overly bearish or alarmist, but with all the news we're getting - especially the tanker being attacked - i think monday we may see the market down as much as 30 bps

Nobody in the "credentialed class" ever thought any American President could get the Strait of Hormuz opened. Dozens tried, yet they all failed: until now. Trump somehow did it. I never thought I'd live to see the day when the Strait of Hormuz was OPEN to movement of oil.