Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating ones I read this week.
Sink or swim
Author Sam Arbesman gives a great interview with Farnam Street:
People who cannot deal with change are going to be at a huge disadvantage in the world. These type of people might not have been disadvantaged in previous generations, where change proceeded rather more slowly, but as the many fundamental changes around us -- in what we know and in what the world likes -- continue to accumulate, we often have to deal with large numbers of these changes in a single lifetime. In the book, I chronicled the large number of computational information storage technologies (ranging from floppy disks to the Cloud) that I have used over the course of three decades, which is a far cry from the one or two that people of the Middle Ages might have used for storing information (books and scrolls). Those who can't adapt will have a great deal of trouble in this world.
Set and forget
The Wall Street Journal tells an amazing story about a manager-less fund that has beaten most managers:
ING Corporate Leaders Trust has outperformed most of its competitors over the past decade, thanks to outsize holdings in energy and railroads, which both benefited from rising oil prices. The fund was also underweight in financials, which helped it dodge the worst of the 2008 bear market.
So who is the savvy portfolio manager who made those bets?
There is no such manager.
The 22 stocks in the $750 million portfolio are all descended from a portfolio chosen in 1935, set up so the stocks wouldn't be traded except in a handful of cases, such as a dividend elimination, a debt default or a downgrade. David Snowball, publisher of the Mutual Fund Observer website, calls it "the ghost ship of the fund world."
Fighting confirmation bias
AJ Jacobs writes an article that has nothing to do with investing, but brings up a point more investors should follow:
The best piece of advice I ever got was from my dad. He said: Never take advice from just one person.
Doesn't matter if that person has four Ivy League doctorates, or is an advice columnist syndicated in 325 newspapers, or is the 14th bodily reincarnation of the compassionate Enlightenment-Being. There's a good chance the advice is biased, outdated, or irrelevant. As my dad sees it, we are all flawed creatures, even the most brilliant of us, and we each offer only our limited perspective.
Which is why I encourage you to always get a second opinion. Or a third opinion. Or better yet, a 100,000th opinion.
Nice guy, terrible analyst
This kind of stuff makes me sad:
Two Washington State University economics students have demonstrated that it simply doesn't pay as much for a pundit to be accurate as it does to be confident. It's one thing to be a good pundit, but another to be popular.
"In a perfect world, you want to be accurate and confident," says Jadrian Wooten. "If you had to pick, being confident will get you more followers, get you more demand."
Corporate ladder
Shane Parrish discusses errors companies make when promoting people:
False Record Effect. A group of managers of identical (moderate) ability will show considerable variation in their performance records in the short run. Some will be found at one end of the distribution and will be viewed as outstanding; others will be at the other end and will be viewed as ineffective. The longer a manager stays in a job, the less the probable difference between the observed record of performance and actual ability. Time on the job increased the expected sample of observations, reduced expected sampling error, and thus reduced the change that the manager (or moderate ability) will either be promoted or exit.
Hero Effect. Within a group of managers of varying abilities, the faster the rate of promotion, the less likely it is to be justified. Performance records are produced by a combination of underlying ability and sampling variation. Managers who have good records are more likely to have high ability than managers who have poor records, but the reliability of the differentiation is small when records are short.
More than money
Here's a letter Warren Buffett wrote Katharine Graham when Berkshire Hathaway (BRK.B -0.68%) made an investment in the Washington Post (GHC -0.20%) in 1973:
The stock is dramatically undervalued relative to the intrinsic worth of its constituent properties, although that is true of many securities in today's markets. But, the twin attraction to the undervaluation is an enterprise that has become synonymous for quality in communications. How much more satisfying it is going to be to watch an investment in the Post grow over the years than it would be to own stock in some garden variety company which, though cheap, had no sense of purpose.
I am additionally impressed by the sense of stewardship projected by your communications to fellow shareholders. They are factual, complete and interesting as you bring your established newspaper standards for integrity to the newer field of corporate reporting.
One for me ...
The Economist writes about how QE impacts wealth:
The most recent figures show that the top 10% of households own about 91.4% of outstanding stocks and mutual funds, up from 84.5% in 2001. The richest 1% own almost half of all stock and mutual funds. No surprise then that the recent jump in consumer sentiment recorded by the University of Michigan was led by the better-off; upper income households (the top third) had a 15 point increase in sentiment, the bottom two-thirds rose just five points. No surprise, either, that since the start of the crisis, inequality (as measured by the Gini coefficient) has risen, not fallen.
Stalking growth
Investor Tim Vick talks about finding the next Berkshire.
Enjoy your weekend.
