Old School Value Nugget Fest (Nov 7th Edition)

We just published the second article I mentioned last week:

Product Quality-Based Switching Costs Alone Are Not Enough

It was fun to do a deeper dive into a single aspect of what can create a sustainable economic moat. Let me know what you think!

Gurus

Berkshire Hathaway: Progress While Preparing for Opportunity [GuruFocus]

Mostly just an overview of Berkshire’s latest results with some insight on the price level at which Buffett and Munger will repurchase shares (around $200).

Markets & Investing

Rising Risk: Accounting Shenanigans and Alternative Investments [CFA Institute]

“Nowadays, what is manipulated is not EPS, but EBITDA. And EBITDA is proving a malleable substance. In fact, as a chartered accountant, I believe EBITDA may be more pliable than EPS.

“Think about it. Unlike EPS, EBITDA is not an audited metric. It is simply a number corporations voluntarily provide to help lenders and equity analysts compare them with their peers. That leaves plenty of room to get inventive.

“Adjusted EBITDA was always a core instrument of the PE toolkit, but fund managers have pushed the envelope when deciding what to include in their calculations.”

I agree that Adjusted EBITDA can be suspect. That’s why we use EBIT and add back D&A from the cash flow statement.

What Investors Can Learn From the Best Poker Players [WSJ]

Plenty of quotes from Annie Duke, who wrote “Thinking in Bets.” The take-away from that book for me was to be very focused on my process, not on my outcomes.

“Poker, she says, is a better proxy for investing than chess, bridge or backgammon, because of the similar balance of known and unknown information. To deal with uncertainty, she says, traders and poker players must develop resilience and learn not to be guided too much by “results-based behavior.” Put another way, they must learn that it is possible to do everything right and have a bad outcome; and it is possible to do everything wrong—maybe by throwing a dart at a list of stocks—and win big.”

Company & Strategy

How TikTok Holds our Attention [The New Yorker]

If you’re out of touch and you’ve never used TikTok (like me), this is worth a read. Besides being a relatively new, addictive short-form video app, it’s owned by a Chinese company, ByteDance, which received a $3B investment from SoftBank.

This article didn’t get really get into the censorship aspect of the app, however. As a China-based company, it apparently does a lot of censoring of material from the Hong Kong protests, the Lakers/Warriors incident, Tiananmen Square, Tibet, etc. But instead of just impacting Chinese users, it impacts users worldwide.

Stratechery asked this question: “is it at all acceptable to have a social network that has a demonstrated willingness to censor content under the control of a country that has clearly different views on what constitutes free speech?”

Podcast of the Week

(Ep.35) The Acquirers Podcast: Jack Forehand – Practical Quant, Applied Value, Momentum, And Guru Replication – Stock Screener – The Acquirer’s Multiple®

This is a great podcast that gets going quickly with some interesting topics from how to recreate a Buffett-style portfolio, to value traps, to whether value investing is a bet against tech.