How to know the knowable without deluding yourself?
This is the key question we investors must ask ourselves as we sift through mountains of information. What is actually investable information and what is just noise?
Disclaimer
In this episode we will review Barrons. The goal of this podcast is to point out information that is valuable to the value investor and identify information that is not valuable. The comments and critiques of articles, sources and newspapers are solely from the lens of if the information presented will lead to better investment decisions in the value investing framework. The podcast is not a general criticism of these sources or its authors. The humor used at times is not a reflection of the quality of the information presented. It only remarks on its investability.
Redacted Transcripts
“Time is running out for stocks. Trumps next move is crucial”
The title alone implies that stocks are forever dependent on Trump's decisions. Stocks survived the Great Depression, they survived WW2, they survived 17% interest rates in the 80s, they survived 2008, they survived the pandemic. They’ll survive Trump.
But we cannot know what Trump will do. Trump changed his announcements, parts of announcements several times. Each time the market reacted as if it was gospel. Those are not the end times! Those are buying opportunities.
Not useful information
“The Vatican as Investor”
The church made $46 million off their investments. Ehh ok wow. Now that I read it, it makes perfect sense of course, but I had to do a double take. The church made $46 million off their investments. There’s actually a portfolio manager for the church. Maybe donations should be treated like interest paying savings accounts?
Interesting, but not useful information
“How Berkshire is shooting out the lights”
Buffett engineered a 40,000 fold increase in value from $20 per share in 1965 to $796k a share today. That alone should indicate to all of us that we should clone everything about his approach that we can. The value investing framework is the one winnable game in town for normal people as long as we have the right mindset and practice to execute it properly. Mentors and help don’t hurt either.
In the second half of the article there is again so much unknowable speculation. Will there be a dividend after Buffet's death? Who will run the portfolio? Will Abel be more involved or less? What role will the children play? All speculation that we cannot possibly know.
Motivating, but not useful information
“Energy has been hard hit. Chevron can bounce back”
The first title and subtitle that meets my objective criteria of knowable and possibly useful. Yes, times when there’s market turmoil are the right times to think about buying. Don’t drown in the noise but drown out the noise.
Chevron is worth a look. Supposedly they have cash in the bank and have become quite cheap based on foreword earnings. I don’t care about forward earnings though. Or backward earnings and even less about sideways earnings. There’s so many ways to measure earnings it makes my head hurt. Free cash flow people. That’s where it’s at.
Plus oil has always been a bit of a thorn in my side because of OPEC. Again unknowable. They make announcements and plans and then do something else. We need to find things that are knowable. But if the price is cheap enough the risk gets lower. Plus how much of their business is in gas? Considering the AI data enter energy needs of the future that’s always worth checking.
Useful, check Chevron for a quick evaluation
“Under stress, munis still look strong”
Read half the article and stopped. Nothing I can do with the municipal bond market possibly losing tax free status and possibly not. Unknowable. Move on.
Not useful information, unknowable
“Scot’s miracle-gro has a weed problem. Can it grow again”
20 to 25% of Home Depot and Lowe’s businesses is lawn and garden. This is actually a really good strategy that even Munger made a mistake on. Take larger corporations, analyze their expenses and find companies that make up those expenses. Munger missed Google because he didn’t look at Geico's advertising spend. Miracle-Gro is sold at the big stores. worth checking out and building that into your hunting framework.
Hawthorne invested in companies that sold marijuana cultivation supplies. Someone knows how to look at the expenses of other companies and then become them. However since marijuana is illegal on the federal level they couldn’t expense their own expenses on their taxes. They bet on the government to change the law. Again unknowable.
Useful insight into business strategy. Useful insight into failure based on betting on the unknowable.
“Gold is beating everything. How to get a piece of the action”
I saw gold and skipped it. Gold isn’t my game. Lithium and copper are way more interesting. I have no passion for gold = no need to spend time reading it. If the information I consume is only valuable for afternoon conversations about the information I feel like I am running a pyramid scheme against my own brain.
Not useful information
“Fed Bashing: what could go wrong”
No valuable information here. I cannot know what will happen to interest rates because Trump tweets about firing people. What use does guessing about it have to me finding good investments?
But it’s always good to know history. Harry Truman called his then fed chair a traitor when he didn’t like freeing the central bank from the cap of government bonds. History is a great teacher especially to normalize what’s going on around us. It’s mostly all noise.
“Bracing for supply shocks, higher rates”
This is an interview with the chief economist for a forecasting firm. If the forecasts of the forecasting firm were always right, they wouldn’t exist anymore because they were all rich from their forecasting sipping Pina Coladas at a beach.
Read through two questions and skipped the rest. All noise. Just mental drain to be able to talk to people about their opinions and their forecasts while we all sound intelligent to the novice investor while accomplishing nothing.
Unknowable noise.
“Here’s an easy way to earn income for doing almost nothing”
Oh boy. That’s gonna be a wild article. So the concept is to lend out your holdings mostly to short sellers. Most stocks go for 1% to 2% but some more speculative stocks go anywhere at 50% rates. Oh and now to the risks. You get cash in lieu of a dividend thereby changing your tax rates. This incentivizes recalling the stock before dividends post. Interest is split with your brokerage; apparently the best offer is 60% for you. So if you want to earn $75 on a $1.35 million loan, rock on. Title = bait and switch in my Book.
Note useful
“Alphabet offers hope. The rest of big tech earnings might not”
I honestly think my knowledge has decreased after reading this article. There was no information in here. Almost want to read it again to check but I’ll stop
Myself.
Read or listen to earnings calls yourself. Do not read or listen to the commentary about them. This article told me nothing useful.
“The stock market surged. A downside risk looms”
What if there is zero growth? The outlook for this year is too high. The market bottom will look more like a W than a V. There’ll be a new low. A truth social post about a trade negotiation could lead to an epic rally. So would suggestions that inflation is cooling. You’d think the healthcare sector would be one of the worst performers this year… but lord behold it isn’t?? OMG.
I rest my case. Noise
“As Boeing struggles airbus should get a lift”
Really now? As compared to who? Oh yeah there isn’t anybody else. We didn’t need to read the article to know this.
“How to win if gold …. “
Gold. I am out.
“Dollar tree financial chief bought up stock”
After the Trump tariff announcements dollar tree stock declined 13% and the CFO took advantage. Now here’s some valuable information. Insiders can sell stocks for lots of reasons but there’s only one reason to buy them. Especially with their own cash in the open market. Now over the course of the next five years he has to own stock in the company as per company policies so while a must this was an opportunistic buy. However the company policy makes this a good amount less exciting.
This was Barron's weekend edition. Barrons is a great newspaper for business and investors. I learned something, I saw some interesting things, but overall as you can see, most things published in the media are just noise that has no bearing on what we as value investors do. According to Mohnish Pabrai, Charlie Munger made one investment from reading Barron's for decades.
The point of this exercise is not to say Barron's is bad, do not read it. To the contrary. This is an example of what we do. This is how we hunt. We sift through mountains of information that is noise and unknowable until we find some that is knowable. That is the game.
The trick is how to know the knowable when you see it without deluding yourself.
Until next week.
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