Weekly Commentary November 28, 2016 – December 4, 2016
Current Model Portfolio
There was no company news this week.
Elliott Management Corp’s letter to Cognizant Technologies (Elliott Management Corp.)
Activist investor Elliott Management recently wrote Cognizant Technologies board discussing its view of value creating policies. (link) The letter gives another perspective of the IT services business and potential value creating strategies.
Competitive Advantage Period: The Neglected Value Driver (Credit Suisse)
An older research report by Michael Mauboussin discussing the Competitive Advantage Period. (link) Given our preference for quality, we believe this is a must read.
12 Ways How the”Ideal Company” Should be Run (value&opportunity)
A useful 12 point checklist on how an ideal company is run. (link)
A Century of Ideas (Columbia Business School)
This book goes through some of the ideas generated at Columbia Business School. Chapter 2 discusses value investing. (link)
Musing on Markets (Aswath Damodaran)
In a number of recent posts, Professor Damodaran of NYU discusses the myths of DCFs. (link)
Business Quality: The Great, the Good, and the Gruesome (Hurricane Capital)
A good reminder of the 4 questions asked by Charlie Munger and Warren Buffett when analyzing an investment opportunity (link)
Walter Schloss One Page Investment Manual (Jae Jun)
From quality on the previous link to deep value, Jae Jun of Old School Value tweeted Walter Schloss’s one page investment manual. Walter Schloss was very quantitative looking at deep value stocks trading below book value (link)
Two Investment Principles (Base Hit Investing)
Base Hit Investing two key investment principles: Focus on the quality of the business and position sizing (link)
Fair &Fine??? (Manufactured Luck)
An article discussing the importance of a partner with integrity. Unfortunately, everyone does not have it. (link)
Excessive Diversification is Pointless & Damages Returns (Intrinsic Investing)
A blog post by Intrinsic Investing discussing portfolio diversification and risk. It has an excellent chart, from A Random Walk Down Wall Street, illustrating that at the 20th security, a portfolio is diversified and adding an additional stock does little to reducing risk, assuming all stocks are in not the same sector. (link) Our goal is to build a portfolio of 25-30 stocks with no residual cash. We elect for a slightly higher number of stocks. As illustrated by our investment in Miko International and Universal Health, Emerging Market small cap investing comes with some risks that warrant a slightly higher number of stocks, but 25-30 stocks should be sufficiently diversified but not too diversified.
It also discusses why the quest for assets rather than performance leads so many funds to excess diversification, while performance oriented funds tend to close.