Some Books and Websites That Have Been Taking Up My Time
I get a lot of questions from readers about what investing sites I use, what books I’m reading, etc.
So, here are two sites and four books I’ve been spending time with lately.
GuruFocus: Buffett/Munger Screener
I write articles for GuruFocus (click the “Articles” link at the top of the page to see all of them). So, it’s a conflict of interest to recommend premium membership to the site. What I will say is that if you are a premium member – I think the most useful part of the premium membership is the various predictable companies screens. There’s a Buffett/Munger screen, an undervalued predictable companies screen, and you can also just filter companies by predictability score (GuruFocus assigns companies 1-5 stars of predictability in 0.5 star increments). I think the best thing GuruFocus ever developed is the predictability score. And it’s a good use of your time to type in some ticker symbols and see which of those companies are high predictability, which are low, etc. Do I personally invest based on predictability? No. GuruFocus doesn’t rate BWX Technologies (BWXT) and it assigns predictability scores of 1 (the minimum) to both Frost (CFR) and George Risk (RSKIA). I have about 85% of my portfolio in those 3 companies. So, I have almost all my money in non-predictable companies according to GuruFocus. The predictability score isn’t perfect. But, for non-cyclical and non-financial stocks that have been public for 10 years or more – I think it’s a pretty good indicator. Use it like you would the Z-Score, F-Score, etc. It’s just a vital sign to check. Don’t just buy a stock because it’s predictable or eliminate it because it’s unpredictable according to GuruFocus’s automated formula.
I can’t vouch for the accuracy of the data on this site. But, that’s true for summary financial statements at all websites. Once I’m actually researching a stock, I do my own calculations using the company’s financial statements as shown in their past 10-Ks on EDGAR (the SEC website). What I like about Quickfs.net is that it’s simple and clean. Most websites that show you historical financial data give you way too much to look at. When you’re just typing in a ticker you heard of for the first time – which is what I use these sites for mainly – what you need is a “Value Line” type summary of the last 10 years. It shouldn’t be something you need to scroll down to see. As sites age, they get more and more complicated showing more and more financial info. You don’t need more than what Quickfs.net shows you. If you like what you see of a company at Quickfs.net then you should go to EDGAR yourself and do the work. Quickfs.net is for the first 5 minutes of research. The next hours should be done manually by you – not relying on secondary sources like Quickfs.net, GuruFocus, Morningstar, etc. None of them are a substitute for EDGAR.
Deep Work: Rules for Success in a Distracted World
This is a great concept. It’s not a great book though. I recommend reading the book only because focus is probably the most important concept in all of investing. If you can focus the way the author of this book talks about – you can become an above average investor. If you can’t focus the way this author talks about – I’m not sure you can ever become an above average investor. In fact, I actually think you can’t. Focus is the foundational skill for an investor. You can teach most everything else. I’m not sure you can teach focus. But, this book tries to teach focus. So, I do recommend it. Value and Opportunity reviewed this book last year.
By the way, Value and Opportunity is a great blog. You should read it.
Tao of Charlie Munger
I just said “Deep Work” wasn’t a great book. That’s true. But, it’s not a bad book. This book is really, really not a good book. However, it has some great quotes from Charlie Munger in it. And, although I was disappointed by the book as I read it – I did find myself quoting the book quoting Munger in the weeks after I read it. So, the author did actually imprint some of Munger’s quotes on my psyche. I guess it’s worth $12 on Kindle for that. Don’t expect much out of this book though. Just think of it as a collection of quotes from Charlie Munger.
The Founder’s Mentality
This is a Chris Zook book. You might know that I’ve read all of Zook’s books. They’re basically about profitable growth. How can a business grow for a long time in a way that compounds wealth for the business’s owners at an above average rate? I’m sure that’s not how Zook would phrase it exactly. But, that’s how I approach his books. This is a good book. It’s probably my least favorite Zook book so far. But, I do recommend it to all value investors. This kind of book is very useful for buy and hold investors. For example, I was just talking to someone about Howden Joinery and I mentioned that in about 6 years the company will have fully saturated the U.K. with its namesake concept (the concept is a chain of depots for local, small builders who are renovating kitchens). The founder/CEO is also about 61 now. So, I told this person I was talking to that while I thought Howden would likely return something like 12% a year as a stock – I was only interested in viewing the stock as a 6-year commitment. In 6 years, the founder would be about retirement age and the company would be producing a lot of free cash flow it could no longer put back into its core concept (Howden depots) in its core country (the U.K.). So, I just felt that it’s possible the company’s phase of value creating growth would be over at that point. I think it’ll continue to be a durable business. But, most companies start to stray once their original concept is mature and once they move on to the second generation, third generation, etc. of management. When I invest in a growth company, I want it to be run by the founder and to still have room to roll out its core concept in its core country. I think Howden has about 6 more years of that period left in it. I’m not sure I would be able to so clearly explain my thinking on Howden if I hadn’t read this book and Zook’s other books. So, I recommend them all.
Global Shocks: An Investment Guide for Turbulent Markets
Now, this is actually a great book. Though I’m not sure it’s a great topic. And it’s a topic I’d recommend most value investors avoid. Full disclosure, a member of my extended family knows the author of this book. So, I actually heard about the book before it came out. It’s not a topic I would have found searching through Amazon. The topic is basically financial crises. However, it’s really focused on financial crises through the lens of monetary policy meaning especially foreign exchange and asset bubbles. It’s very useful for value investors to hunt in countries that have been devastated by these sorts of crises. It’s also useful to avoid countries that may be in bubbles. I would recommend this book with a caveat. Most value investors I talk to are already way too worried about things like the overall price of the stock market, whether a country is in an asset bubble, foreign exchange rate levels, etc. I started investing as a teenager in the late 1990s. So, I went through years like 1999-2001 and 2007-2009. Even when the stock market is overvalued, you can find stuff to do. The market is clearly overvalued now. And yet I hope to add a new stock to my portfolio later this year. I think it’s good to understand these things. But, I also think it’s good to be practical about it. If you’re a value investor and a stock picker – you should be capable of both believing that a market is overvalued and also believing that it isn’t pointless to keep reading 10-Ks, looking through spin-offs, etc. day after day. Hope is having something to do. And there’s always something for a stock picker to do. So, I recommend the book. But, I also recommend staying focused on individual stocks rather than macro-concerns. If you know you’re the kind of person who tends to get overwhelmed – don’t read this book. For everyone else, it’s an interesting read. Some people think it’s dry. I don’t. It helps if you’re interested in financial history. There’s a lot of (recent) financial history in this book.