An Outsider's Insight, More Down Than Up, and Charlie's Example You Can Actually Use

50% Up Doesn't Help Much if You're Already 80% Down.

Jeff’s Random Words

We did our second “First Fridays” live podcast this week. It was a lot of fun. We invited Jim Gillies on as a guest because we wanted to talk about Charlie Munger and he’s someone who’s MET Charlie Munger. But while Jim was on, we also spent a few minutes talking about the 2023 Smatterfolio (do we need to call it the Investing Unscriptedfolio now?). Jim hasn’t been following along all year so he offered some (very insightful) macro thoughts on some of the companies. We should have that podcast posted soon so check it out once it’s out.

I wanted to talk a little bit about the three stocks in my portfolio because I think they’re instructive of how this year has been. First, here’s where my portfolio stood on November 30:

Rough. Having a stock down 80% hurts (even if this is a fake, fun one-year contest, I also own Outset so…). Here’s what I think is wild. Check out how these stocks did in just November:

Outset was up 51% in a month and it barely made a dent in the year-to-date results. That’s math for you! Anyway, my point is that none of this matters. These month-to-month movements of the stock prices are often disconnected from the actual business. The company released its earnings on November 7, but it was kind of a nothing-burger because it had pre-released earnings a few weeks prior. But there’s no way the company is 50% better than it was 30 days ago. It’s also probably not 80% worse than it was in January, even with this year’s challenges.

The numbers are fun, and they make the portfolio contest possible (stay tuned for the 2024 version with some special guest contestants!). But every time we review these stocks I am reminded to watch the business and not the stock.


Jason’s Random Words

So many words have been written and spoken about Charlie Munger this week already. And while I’m a bit loathe to add to them, I want to share a few thoughts anyways.

Charlie Munger was — is still, he’s dead but his wisdom isn’t — my favorite investor. There have undoubtedly been better stock pickers. Peter Lynch comes to mind as one. Buffett did it longer (my guess is Charlie probably hasn’t spent much time reading company filings in recent years). Others have made more of an effort to share their wisdom and experiences with others (again Lynch for example, who wrote multiple books).

Charlie stands out for two reasons. First, his approach always resonated with me. We talk about frameworks on the Podcast a lot, and I got much of that from reading about Charlie Munger’s mental models. The inversion principle in particular stands out, specifically moving away from a search for thesis-confirming data, and towards thesis-breaking information was transformational for me.

And I think this is partly why I own so many stocks, and I tend to start small. It’s a bit ironic, considering that Charlie favored a concentrated approach, owning less than 20 stocks at a time when he managed an investing partnership.

He’d undoubtedly have derided my nearly-100-name portfolio as an expression of my ignorance and lack of real conviction in anything.

But I’m no Charlie Munger. And I think maybe that’s one of the most important lessons that I have learned from studying him, Buffett, Lynch, and others. Shelby Davis, for example, turned some $50,000 into close to a billion dollars over 30 years or so. When he died, he owned almost many hundreds of different stocks, according to The Davis Dynasty.

The big lessons:

By and large, the biggest successes come from buying well and waiting a long time. It’s Charlie who said the big money is in the waiting, but the results of Davis, Buffett, Peter Lynch, and a hundred others prove this out.

Beyond that, there are a lot of different ways to make a portfolio that work. Like Davis, Peter Lynch bought hundreds of different stocks for the Magellan Fund. However, Lynch (and Davis to a lesser extent, and later in his career) had plenty of help, with analysts on staff doing a lot of the filtering and heavy lifting of research.

You have to figure out what works for you. Build a process that you’re comfortable with, and frameworks that help you make more good decisions and fewer bad ones. Ones that increase your ability to hold for many years — think multiple decades — especially matter to increasing your returns.

Most importantly, follow Charlie’s example beyond your stock portfolio. Live a full life. Pursue things that interest you greatly. Read often, and read broadly. Make the most of what you are skilled at. Love your family. Find pleasure in life. Be worthy of what you want. And invert. Always invert.

You can do it. I believe in you.



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