The Capital Allocation Guide for CEOs

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The Capital Allocation Guide for CEOs

Too many CEOs don't understand capital allocation. They rose up through the sales or operations ranks, and now that they are at the top they have to wing it with respect to one of the most important aspects of running the business. Don’t get me wrong – there are some amazing capital allocators among CEOs. However, in my two decades of investing experience I have come to believe that they are a small minority. The rest have never learned capital allocation from first principles, and instead rely on a combination of conventional “wisdom” and advisors with questionable motivations. The purpose of this guide is to try to change this to help improve capital allocation across the corporate world.

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How Long Will My Money Last?

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How Long Will My Money Last?

Your money is unlikely to last you as long as most savings withdrawal calculators will tell you. That famous 4% withdrawal rule? Not so fast, especially not in the current environment. Before you entrust your retirement to some over-simplified rule of thumb, you should understand what’s really involved and what you need to know in today’s low-return investing climate.

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Why You Would Not Have Invested With Warren Buffett

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Why You Would Not Have Invested With Warren Buffett

Before becoming Chairman and CEO of Berkshire Hathaway, Warren Buffett built an amazing track record compounding capital in a small partnership in the 1950s and 1960s. Chances are you would not have invested with him: his partnership did not appear conventional and he did not invest conventionally.

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Don’t Make These 5 Investing Mistakes That General Electric Investors Made

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Don’t Make These 5 Investing Mistakes That General Electric Investors Made

If GE investors had been told about the recent challenges at the company 15 years ago, would any of them have believed them to be possible? Investors who invested in GE stock 15 years ago have lost more than 40% of their capital through the end of October 2018. This compares with a gain of over 250% over the same time period in the S&P 500 index, which tracks the performance of large U.S. stocks. What can we learn from the challenges at GE to become better investors?

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Not Learning From Investing History Can Be Hazardous To Your Wealth

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Not Learning From Investing History Can Be Hazardous To Your Wealth

“It’s different this time.” This phrase has likely cost many investors far more than they realize. Each period of time is indeed different. However, there are many insights that we can learn from history that should inform how we invest today. Failing to learn from the past mistakes of others can be hazardous to your wealth.

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5 Exemplary CEO Annual Letters Worth Reading

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5 Exemplary CEO Annual Letters Worth Reading

What makes a great annual letter from the CEO to the shareholders? The typical, generic annual letter that I read adds little to the numbers and sometimes obfuscates more than it illuminates. The best letters go beyond the numbers and help shareholders get a deeper understanding of the company, how it is performing and the decision-making process the management team employs. In this article I examine the aspects of a great annual letter and provide five examples.

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Portfolio Concentration: How Much Is Optimal?

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Portfolio Concentration: How Much Is Optimal?

Diversification is sometimes described as “the only free lunch” in investing. But is it? Not in the kind of fundamental value investing that I do.

Increased diversification comes with two potential costs:

  1. At a certain point, new investments are likely to yield increasingly lower returns.

  2. The time required to underwrite new investments reduces the quality of the underwriting of existing investments.

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When Does Volatility Equal Risk?

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When Does Volatility Equal Risk?

Conventional financial wisdom considers volatility to be one of the greatest risks in investing. A small minority of investors, mostly among value investors – a group to which I belong, take a completely opposite view and believe that it is the probability of permanent capital loss, not volatility that constitutes risk.

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What Do the Best Investors Do That the Rest Don’t?

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What Do the Best Investors Do That the Rest Don’t?

Charlie Munger, the Vice Chairman of Berkshire Hathaway and Warren Buffett’s partner said something simple yet profound at the 2017 Berkshire Hathaway Annual Meeting: “A lot of other people are trying to be brilliant and we are just trying to stay rational. And it’s a big advantage.” Some might think that becoming an excellent investor requires off-the-charts intelligence or some highly proprietary model that leads to an edge that nobody else can replicate. That is not what experience has shown.

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The Low Cost of Inaction: Don’t Just Do Something, Stand There!

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The Low Cost of Inaction: Don’t Just Do Something, Stand There!

If you have been paying any attention to the rising stock market in the last couple of years, you might be tempted to succumb to this siren-song and relax your investment criteria in order to join those appearing to make money quarter after quarter in high-expectation growth stocks. Don’t… at least not until you read this article.

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How to Lose Money in the Stock Market: The Top 5 Mistakes

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How to Lose Money in the Stock Market: The Top 5 Mistakes

I have compiled the top 5 mistakes investors make in the stock market to teach you what not to do when investing. Charlie Munger, the Vice Chairman of Berkshire Hathaway and Warren Buffett’s partner, has a favorite piece of advice, which is to always invert. What he means by that is that we should figure out what we don’t want to do and avoid it in order to get the result that we want. Let’s apply his advice by answering the following question: What is the most certain way to lose the most money investing in stocks?

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10 Insights from the Berkshire Hathaway Weekend

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10 Insights from the Berkshire Hathaway Weekend

Listening to Warren Buffett, Charlie Munger and other smart investors over the course of the weekend surrounding the Berkshire Hathaway meeting in Omaha is always informative. Below I examine my 10 insights from this year’s trip, which are a combination of new ideas and helpful reminders about those from the past that are still important today.

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How Tax-Efficient Is Your Investing?

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How Tax-Efficient Is Your Investing?

For a taxable investor, the pre-tax rate of return is not the whole story. The tax efficiency of how that pre-tax return was generated will have a large impact on the after-tax rate of return and the ultimate wealth of the investor. Long-term investing naturally results in very tax-efficient returns. The same pre-tax rate of return over 30 years achieved in the most tax efficient way could result in you having more than 2.5 times more than you would have had if your returns had been completely tax-inefficient. 

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How and Why to Be a Long-Term Investor

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How and Why to Be a Long-Term Investor

Having a long-term time horizon can help you avoid making poor short-term investment decisions. A multi-year time horizon can also give you an advantage toward achieving superior returns by allowing you to make high-potential investments that others with a shorter timeframe would avoid. This article will elaborate on why being a long-term investor can help you achieve better returns, and illustrate how you can go about doing so.

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Why Passive Investing Is an Excellent Default Choice – an Active Investor’s View

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Why Passive Investing Is an Excellent Default Choice – an Active Investor’s View

Passive investing – replicating the market’s returns through low-cost index funds or exchange-traded funds (ETFs) – has finally gained a meaningful share of the market. However there are still many investors who attempt to beat the market by investing with higher-fee active investment managers or directly in individual securities.

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