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Five Good Questions Podcast

Welcome to Five Good Questions. I’m your host, Jake Taylor. Fact: the average American watches 5 hours of television per day. What would the world be like if we dedicated one of those hours to reading books instead? I don’t know, but I’d like to find out. So to inspire others to read more, I ask five good questions of interesting authors and share the results with you every Friday. Let’s see if together, we can’t rescue some of those lost hours.
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Aug 18, 2017

Hi there!

I hope you're having a great 2017!  Here's a quick video update while we're between seasons of Five Good Questions.

Topics include:
Omaha
Toronto
Mexico
Lake Shasta
Ireland

A business development

2 recent books I enjoyed

Plus, a big reveal at the end...

See you soon for Season 4!

With gratitude,

Apr 7, 2017

Aswath Damodaran holds the Kerschner Family Chair in Finance Education and is Professor of Finance at New York University Stern School of Business. Before coming to Stern, he also lectured in Finance at the University of California, Berkeley. He has been voted "Professor of the Year" by the graduating M.B.A. class five times during his career at NYU and was profiled in Business Week as one of the top 12 U.S. business school professors.  Professor Damodaran currently teaches Corporate Finance and Equity Instruments & Markets. His research interests include Information and Prices, Real Estate, and Valuation.


1.  Why has access to increased data and computing power ironically made us more dependent on and susceptible to storytelling?


2.  What makes numbers so powerful? How do we guard against being fooled by numbers, especially when we’re fooling ourselves?


3.  There seems to be competition amongst many firms on who has the most “unbiased” process and is the most quantitatively-driven. What are some potential shortcomings of being so quant focused?


4.  Your book is chock full of great insights on some of the biggest business and investing stories over the last few years including, Amazon, Uber, Valeant, Ferrari, GoPro, Yahoo and Vale. To take one interesting example, can you walk us through how both numbers and narrative impacted your valuation of Uber?


5.  What’s the one narrative today that’s likely to eventually cause the most financial pain over the next 3-5 years?

Mar 31, 2017

Sean Iddings is co-founder of the Intelligent Fanatics Project which helps investors and entrepreneurs see further by standing on the shoulders of organizational and leadership giants. The book series, of the same name co-authored by Ian Cassel, is the introduction into the overall project. Sean is also a member of MicroCapClub and runs Unconventional Capital Wisdom, a registered investment advisor in New York State.

http://amzn.to/2nQlEu2

1. What is an “intelligent fanatic,” and why do we want to recognize them as investors? What are some qualities you didn’t like in some of the leaders or their organizations you highlighted in the book? Why?

2. Who was John Patterson and how did he embody an intelligent fanatic?

3. Finding a Jeff Bezos or Warren Buffett after they’re big and famous seems easy. How do we find an intelligent fanatic early enough to invest in them to really see the benefits? Are there markers we can look for a priori to success?

4. A large addressable market with a big runway for growth was a common theme among everyone profiled. The timing also happened to coincide with an epoch of unprecedented economic growth in the US. If you consider that the tide might not be coming in as quickly in the developed world as it once was, are the spectacular results of an intelligent fanatic still replicable?

5.Many of the intelligent fanatics chose a lowest-cost-provider business model to succeed. Is that the most likely way to succeed for them? Or are there others who were able to create differentiated products instead?

Mar 24, 2017

Dr. Michael Shermer is the Founding Publisher of Skeptic magazine, a monthly columnist for Scientific American, a regular contributor to Time.com, and Presidential Fellow at Chapman University. His new book is "Skeptic: Viewing the World with a Rational Eye." He is also the author of “The Moral Arc: How Science and Reason Lead Humanity Toward Truth, Justice, and Freedom”, “The Believing Brain: From Ghosts and Gods to Politics and Conspiracies”, “The Mind of the Market”, “Why Darwin Matters: Evolution and the Case Against Intelligent Design”, and “The Science of Good and Evil”. He has been a college professor since 1979, also teaching at Occidental College, Glendale College, and Claremont Graduate University, where he taught a transdisciplinary course for Ph.D. students on Evolution, Economics, and the Brain. As a public intellectual he regularly contributes Opinion Editorials, book reviews, and essays to the Wall Street Journal, the Los Angeles Times, Science, Nature, and other publications.

Dr. Shermer received his B.A. in psychology from Pepperdine University, M.A. in experimental psychology from California State University, Fullerton, and his Ph.D. in the history of science from Claremont Graduate University. He appeared on such shows as The Colbert Report, 20/20, Dateline, Charlie Rose, and Larry King Live. His two TED talks, seen by millions, were voted in the top 100 of the more than 1000 TED talks.

1.  How has reasoning and scientific thinking changed the way we view morality and created a more just world?


2.  Why do people think that things are bad and getting worse when, in fact, they are good and getting better? That is, why all the doom and gloom pessimism when optimism and gratitude should be the response to all the progress we have realized in our time?


3.  There are many reasonable and smart people on both sides of the climate change issue. What are your thoughts these days?


4.  There are many products that seem to fall into the “can’t hurt, might help” category. Is there anything wrong with taking advantage of the placebo effect?


5.  Are there any investment takeaways from your research and insights?

Mar 17, 2017

Dov Baron has been sharing his wisdom and expertise privately and on international stages with professional leaders for more than 30 years. He has interviewed and worked with leaders featured on Oprah, Ellen, CNN, Fox, MSNBC, CBS, Huffington Post, Larry King, New York Times, Washington Post, Forbes, and the Wall Street Journal.

Dov was named by Inc Magazine as one of the Top 100 Leadership Speakers.
His current podcast “Leadership and Loyalty Tips for Executives” is the #1 podcast for Fortune 500 Executives.

In addition to being a speaker, author, and a radio host, Dov Baron is the leading authority on Authentic Leadership and creating a corporate culture that generates fierce loyalty, particularly when dealing with Millennials.

http://amzn.to/2m2KMhE

1. Why is loyalty the single most important characteristic of any organization?


2. It’s easy to imagine finding meaning if you work for the Red Cross, Patagonia, or maybe Whole Foods. But if you’re in a more “regular” business, how do you find that all-important meaning for you and your employees? Especially given that surveys find doing meaningful work as highly important to millennials?


3.What’s a Chief Relationship Officer?


4. Vulnerability is a hot topic these days, and everyone agrees that it’s an important part of leadership. But what are some tactics we use to actually be vulnerable, especially if it’s not something we’re predisposed toward?


5. What are the 4 C’s?

Mar 10, 2017

Maureen Monte is a leadership and team consultant with over ten years experience in building winning teams. She has a BS & MS in Mechanical Engineering and an MS in Leadership and her client list includes Kellogg, SalesForce, Huntington National Bank, and La-Z-Boy. She is the author of Destination Unstoppable which documents the true story of helping a talented but dysfunctional boys varsity hockey team become state champions - in six weeks. Her process works in the locker room and the board room!

1. How did an elite high school hockey team become the narrative of your story?

2. Why are sports teams such an apt environment for strengths-based work?

3. What’s the secret to good team chemistry? How about outside of the sports world?

4. What’s an abundance mindset and why is it so important to cultivate it? Does our society have a bias toward some strengths?

5. What’s a trust bank?

Mar 3, 2017

David Hassell is the founder and CEO of 15Five, the leading web-based employee feedback and alignment solution that is transforming the way employees and managers communicate. Named "The Most Connected Man You Don't Know in Silicon Valley" by Forbes Magazine, David has also been featured in The New York Times, The Wall Street Journal, Inc., Entrepreneur, Wired, Fast Company, and the Financial Post. You can learn more about 15Five and David Hassell at www.15five.com.

1.  Children ask upwards of 300 questions per day. As adults we only ask a handful. Why do we change, and are we missing something as adults by asking fewer and less thoughtful questions?


2.  You have two “must ask” questions every boss should be asking. What are they, and why are they so effective?


3.  What are some tips for managing introverts?


4.  What are the best questions to ask to help a remote team succeed?


5.  How have you personally used asking better questions to influence the evolution and success of your company, 15 Five?

Feb 24, 2017

Jack Vogel, Ph.D., conducts research in empirical asset pricing and behavioral finance, and is a co-author of two books: DIY FINANCIAL ADVISOR: A Simple Solution to Build and Protect Your Wealth and QUANTITATIVE MOMENTUM.  His academic background includes experience as an instructor and research assistant at Drexel University in both the Finance and Mathematics departments, as well as a Finance instructor at Villanova University. Dr. Vogel is currently a Managing Member of Alpha Architect, LLC, an SEC-Registered Investment Advisor, where he heads the research department and serves as the Chief Financial Officer and co-CIO. He has a PhD in Finance and a MS in Mathematics from Drexel University, and graduated summa cum laude with a BS in Mathematics and Education from The University of Scranton.

http://amzn.to/2kXjWnh

1.  Let’s start with some basic definitions that seem to trip people up. What are the differences between “growth” and “momentum” strategies?


2.  You argue in your book that value and momentum investing are like cousins, or two sides of the same behavioral coin. So why does the idea of momentum investing remain so repulsive to most value investors? Why the religious zealotry in an industry that prides itself on being hyper-rational?


3.  If you’re index fund investor, you’re effectively investing in both value and growth strategies at all times. Why might you be better off with a basket made up of value + momentum instead?


4.  There are so many different ways to slice momentum. What criteria did you find that worked to define the quality of momentum and what were some reasons all momentum isn’t created equally? And where does trend following fit in? Is there any timing information in momentum?


5.  For a concentrated value investor, can adding momentum be as simple as, if individual Stock A and Stock B are on par, pick the one with the strongest relative strength? Or are you in favor of a more diversified approach?

 

Feb 17, 2017

In this week's Five Good Questions, we're interviewing Erik Kobayashi-Solomon about his book The Intelligent Options Investor.

Erik Kobayashi-Solomon is a 20-year veteran of investment banking, hedge funds, and third-party analysis industry. He is also the co-founder of IOI Investor Services, LLC, a company that helps institutional and individual investors close the gap between their investment responsibility and their skill set. His book, The Intelligent Option Investor, was published by McGraw-Hill as a well-regarded contribution to the value investing community.

1. Many value investors may feel like options are dangerous, I know I did. Why was I wrong to be fearful and how can options be a useful tool for an investor?

2. Assuming your analysis leads you to believe a company is undervalued, why might options be better expression than just buying and holding? What about the element of timing that options introduce?

3. If you don’t believe in the Efficient Market Hypothesis, why should you be especially attracted to options investing?

4. What is delta, and what can it tell us about Mr. Market?

5. What are LEAPS and are they a good first step for a traditional value investor to dip their toe in the options water? How would address the concern that an investor might feel about getting comfortable with the relative trade-offs of premium price vs. tenor and strike price?

Feb 3, 2017

 

Suzanne Heywood is a Managing Director of EXOR. Suzanne grew up sailing around the world on the Schooner Wavewalker (she is currently writing another book, “Wavewalker” about this experience which included getting shipwrecked in the Indian Ocean). After university she started her professional career in the UK Government at the Treasury and then went on to become a Senior Partner at the management consultancy firm McKinsey. Suzanne is also a board member of CNH Industrial and The Economist and Deputy Chairman of the Royal Opera House. She has a MA from Oxford University and PhD from Cambridge University. Suzanne is an expert in organizational design and for many years led work on this topic for McKinsey globally.

1. What are the keys to effective communications with employees during a reorg?
2. Walk us through what a successful reorg looks like.
3. What’s the 20-30-50 rule of thumb?
4. What are the biggest mistakes made during a reorg? Why do reorganisations fail?
5. If you have to let someone go, what are some creative ways to do so in a classy and humane way?

Jan 27, 2017

Alex Soojung-Kim Pang is the founder of The Restful Company and a visiting scholar at Stanford.   He spent more than a decade as a science and technology forecaster, most recently as a senior consultant at Strategic Business Insights. Alex received a Ph.D. in History and Sociology of Science from the University of Pennsylvania.

http://amzn.to/2jmwHcM

Five Good Questions:  

1. What’s Wallas’s four-stage model of creativity?

2.What’s the Default Mode Network?

3. Our society idolizes the 80-100 hour work week as a requirement for success.  How do you explain the paradox of the most productive and creative people working much less than that?  Also, what is this notion of “deep play” that a lot of creative people practice?

4. What was a Bill Gates’s “Think Week” and what can we learn from it?

5. How has your daily, weekly, monthly, and yearly schedule changed based on what you learned writing a book about rest?  How has it impacted how you think about work and creativity?

Jan 20, 2017

Marko Dimitrijevic is the founder and chairman of Volta Global, a private investment group in venture capital, private equity, real estate, and public markets.  Marko Dimitrijevic has more than 35 years investing experience and has founded and managed two investment management companies with over $3 billion in assets.  He is the author of Frontier Investor: How to Prosper in the Next Emerging Markets.  Marko is a pioneer in conducting on-the-ground due diligence, particularly in frontier markets.

http://amzn.to/2jNNx0N

1. Can you give us a feel for how bad the home country bias is, and why it exists?

2. Let’s talk about some execution details.  Aside from a passport, how do you research frontier markets?  Would an individual’s best bet be country specific ETFs?  What are your thoughts about hedging currency risk?

3. Which investment style pairs best with frontier market investing?  Deep value, GARP, activist something else?

4. What’s the story of the evolution of Singapore and how does it illustrate the success of frontier market investing?  Where’s the next Singapore?

5. Economic progress has typically followed the pattern of farming to manufacturing to service / knowledge economy.  Is it possible that the disruption of robots and AI which are already displacing human labor will make it impossible for frontier countries to gain a foothold on the ladder?

Jan 13, 2017

Samuel Arbesman is a complexity scientist and Scientist in Residence at Lux Capital. He is also a Senior Fellow of the Silicon Flatirons Center for Law, Technology, and Entrepreneurship at the University of Colorado and a Research Fellow of the Long Now Foundation. In addition to Overcomplicated, he is the author of The Half-Life of Facts.

http://amzn.to/2iU3Mst

Five Good Questions:  

  1. I view this book as a beautiful blend of technology and philosophy.  What is the difference between “complicated” and “complex” in your view?    

  2. What is “the kluge” and how is becoming an impactful part of our lives?     

  3. How is a top-down, physics-inspired approach to technology losing ground to a bottom-up, biology-inspired approach?

  4. What are some ways we can fight the increasing complication we see in technology?  What’s a T-shaped individual?

  5. Is it just part of human nature to seek band-aid solutions which add to the eventual complexity and frailty of our systems?
Jan 6, 2017

Martin Ford is a futurist and the founder of a Silicon Valley-based software development firm. He has over 25 years experience in the fields of computer design and software development. He holds a computer engineering degree from the University of Michigan and a graduate business degree from the University of California, Los Angeles.  Martin is an expert on the subject of accelerating progress in robotics and artificial intelligence—and what these advances mean for the economy, job market and society of the future.

http://amzn.to/2iU3q5j

  1. The decimation of the value of human labor due to technology has been proclaimed and proven wrong for time immemorial.  Humans have always found new ways to contribute and avoid obsolescence, transitioning from hunter gatherers to farmers to manufacturing workers to service providers.  Why is this time different?    
  2. Why are white collar jobs the most at risk?  Are there any industries that may be a last stand for human labor?
  3. What are the investment implications of a world where robots allow for most of the gains to flow through to capital owners and there’s nothing left for labor?  Are we heading toward a type of technofeudalism?
  4. I lean libertarian in my views, but you convincingly advocate for a basic guaranteed income, which sounds very socialist on the surface.  I was surprised to see Friedrich Hayek was also a strong proponent.  Can you explain your reasoning, especially in the context as a technological dividend for society?  
  5. In your view, does the singularity look more like the movie Wall-E where humans become feeble and are cared for by benevolent robots, or more like The Matrix where the robots eventually want to enslave us to protect themselves from humans pulling the plug?  Or maybe a third option?
Dec 30, 2016

Adam Kucharski is an assistant professor in the Department of Infectious Disease Epidemiology at the London School of Hygiene & Tropical Medicine.  His research uses mathematical and statistical models to understand disease outbreaks.  In 2014, he was recruited to analyze the Ebola epidemic in West Africa.  Adam earned his PhD in applied maths at the University of Cambridge.

1.  What is it about gambling that seems to attract world-class mathematicians throughout history?

2.  What mathematical techniques have been best applied successfully to gambling?

3.  What was the genesis and evolution of Monte Carlo simulation?  What are its shortcoming?

4.  Why is poker such a good challenge for artificial intelligence?

5.  In free chess, computers-plus-human hybrids are still currently getting the best of computer-only opponents.  What are the implications for other domains like gambling and investing?

Dec 16, 2016

Julius Bailey is an Associate Professor of Philosophy at Wittenberg University. He is a philosopher, cultural critic, social theorist, and diversity lecturer. Julius is the founder of Project Eight, a youth service organization that focuses on leadership and civic participation. He holds Masters Degrees from Howard (Philosophy) and Harvard Universities (Af Am Studies) and a Doctorate from University of Illinois (Philosophy and Education).

1. How would you define “hip-hop”? A lot of people confuse it with rap music, but it’s really so much more culturally, right?
2. How did gangsta rap impact hip-hop?
3. Warren Buffett has often espoused following your own personal inner-scorecard. How does that tie in with hip-hop and authenticity?
4. There appears to be a zero-sum-game mentality with many MCs where they build their reputation through bragging about their own success and dissing or diminishing others. I know my personal favorite artists have been the ones who are more vulnerable and less about describing money, cars, alcohol, and women. How have rapper’s philosophic outlooks evolved over time?
5. Who’s on your Hip-Hop Mount Rushmore?

Dec 9, 2016

John Burke serves as the President of Trek Bicycle Corporation.  John joined Trek Bicycle Corporation, which his father founded in 1984, and has been its CEO since 1997.  He served as chairman of President George W. Bush's President's Council on Physical Fitness & Sports.  John is an avid cyclist who has finished Ironman Wisconsin twice as well as completing the Boston and New York Marathons.

http://amzn.to/2fBYYGa

1.  You describe yourself as independent, and it’s clear you don’t care which side of the aisle an idea comes from if it makes sense to you.  How do we break the stranglehold the two parties seem to have right now?

2.  If you could make only three specific changes, what would they be?  What are the prime movers we might focus on to make the biggest differences?

3.  It seems like one party wants to “do more with more” and one leans toward “do less with less.”  With technology constantly increasing human capabilities, how come no one is saying “let’s do more with less”?  Is a low-performance government just a given?

4.  Is Social Security truly fixable?  Or will we just default slowly through printing and watering down our fixed liabilities?

5.  What can we do to fix a tax code that so clearly plays favorites and is overly complicated?

Dec 2, 2016

Benjamin Bergen is a professor of Cognitive Science at UC San Diego.  He teaches and does research on language and the brain.  Ben’s the author of two books; Louder than Words, which proposes a new theory of how people understand the meanings of words, and What The F: What Swearing Reveals About Our Language, Our Brains, and Ourselves.  He earned a PhD in Linguistics from UC Berkeley.

http://amzn.to/2fTisa9

1.  Is there truth to the myth that swear words come from a different part of our brains?  What’s aphasia?

2.  How do swear words operate with their own grammar?  It seems like fuck is a Swiss Army Knife of words.

3.  There appears to be a Gresham’s Law to swear words where once a word takes on a taboo meaning, it drives out all of it’s non-profane meanings.  How do swear words evolve?

4.  What’s the story behind Samoan children’s first word?

5.  Is the internet leading to a homogenization of swearing?  It seems like new swear words could bubble up more readily through the use of hashtags, but are we also losing some local color in the process?

Nov 25, 2016

In this week's Five Good Questions, we're interviewing Sundeep Bajikar about his book Equity Research for the Technology Investor.
http://amzn.to/2elyFVD

Sundeep Bajikar is a portfolio manager of the Acteve Model Portfolio, which is based on a value investing philosophy and process described in his book Equity Research for the Technology Investor. Previously, Sundeep was a Wall Street analyst for 9 years at Morgan Stanley & Jefferies. He spent the 9 years before that in the technology industry at Intel. He holds an MBA in Finance from Wharton, and M.S. degrees in Electrical and Mechanical Engineering from the University of Minnesota.

Five Good Questions:

1. If you’re a generalist investor, do you have any business venturing into technology investments? Or are you setting yourself up for failure by venturing outside your circle of competence? Or is it that exact mindset that creates the opportunities?
2. What are your views on discussing investments with others? It seems like a difficult balance of gaining valuable insight vs. tainting your own views?
3. There are so much data out there. What do you focus on? What’s your key message to individual investors?
4. Most historical “technology” investments (airplanes, cars, radios, internet) have shown a few big winners, but mostly a lot of zeroes for shareholders. It seems all the value flows through to the consumer. How do you avoid that as an investor?
5. With such a wide range of outcomes in tech, how do you handicap the odds and magnitudes of different outcomes to get a ballpark of a probabilistic future?

Nov 18, 2016

In this week's Five Good Questions, we're interviewing Malcolm Balk about his book The Art of Running.
http://amzn.to/2dUpCvI

Malcolm Balk is a runner, coach, Alexander Technique teacher, cellist, and father of two based in Montreal, Quebec. Malcolm trains colleagues from the Alexander world to teach The Art of Running which is based on his book of the same title and which aims to help runners improve their performance and enjoyment.

Five Good Questions:

1. Who was Alexander, what was his technique, and how does it relate to running?
2. What is S.M.A.R.T. running?
3. In our achievement-driven society, emphasis is placed results over process. Your book argues putting process over results, which happens to fit with how some of the best investment thinkers view the world. Why do you put process over results?
4. What’s the mantra/checklist I should be telling myself while I’m running to maintain good form?
5. What’s the connection between running and deep thinking exercises, like reading?

Nov 11, 2016

In this week's Five Good Questions, we're interviewing Jeremy Miller about his book Warren Buffett's Ground Rules.
http://amzn.to/2fibqAi

Jeremy Miller is a research analyst at a large New York-based asset manager.

Five Good Questions:

1. Having thoroughly read the partnership letters and presumably followed Buffett closely after that period, what percent of Buffett’s current wisdom would you guess he had by 1970 when he closed the partnerships?
2. Who was Harry Bottle, and why was he so critical to the decentralized model of what Berkshire has become?
3. Everyone remembers American Express as a formative investment for Buffett because he moved from purely quantitative to more qualitative, but a strong argument could be made that his Dempster investment was also highly formative. What did he learn from that experience?
4. Buffett has famously said that he believes he could still do 50% per year on a small portfolio. Do you agree or disagree with his claim?
5. What’s the difference between conservative and conventional?

Nov 4, 2016

In this week's Five Good Questions, we're interviewing Jeff Gramm about his book Dear Chairman.
http://amzn.to/2eQaVZV

Jeff manages a hedge fund and teaches value investing at Columbia Business School. His recently published book, Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, has been praised as "a terrific read" by Andrew Ross Sorkin in the New York Times, "a revelation" by the Financial Times, "a grand story" by The Wall Street Journal, and “an engaging and informative book” by The New Yorker.

1. I’ve heard you previously interviewed and have been impressed with your thoughts around governance and board dynamics. How can boards help management make better strategic decisions, especially with respect to capital allocation?
2. I’ve heard Munger say you could teach an entire MBA just from studying GM. Could you walk us through some of your insights, specifically during the period of Ross Perot’s involvement?
3. Of all of the stories, which one was your favorite to research?
4. We all see these major headlines of activists battling with management, but what percent of the work would you guess is being done behind the scenes?
5. The arc of activism seems to have gone from Graham’s “would you mind releasing some of these pent up assets, please?” to Icahn’s 1980s hostile takeovers to Loeb’s poison pen and quite personal attacks. Maybe it’s softening a little from there? Where do you see the future of activism going from here?

Apr 5, 2016

Wrapping up Season 2 of Five Good Questions.

Hi!

We hope you enjoyed Season 2 of Five Good Questions. I'm still in awe at the intellectual generosity of these amazing authors!

It's time for me to hit the road for shareholder meeting season. If you'll be in Toronto for Fairfax or in Omaha for Berkshire, shoot me an email or come up and say hi. I'd love to meet you and chat.

I'll also be traveling to China for a few weeks of exploring with my wife. We're evening doing a marathon on the Great Wall-- wish me luck!

I've already got a massive stack of books cued up for next season, and I may or may not be working on my own book. More details to follow...

Thank you again for supporting 5GQ's mission of creating more inspired readers.

Apr 1, 2016

Jason Zweig is an investing columnist at The Wall Street Journal and editor of Benjamin Graham’s The Intelligent Investor. He's also author of Your Money and Your Brain (2007), on the neuroscience and psychology of financial decision-making, and The Devil’s Financial Dictionary (2015), a satirical glossary of Wall Street jargon.


1. The entire book was written with tongue in cheek and there are some hilarious definitions. What inspired you to write a book of this nature?

2. I enjoyed the entry on the term “panic” and how it related in multiple ways to the Greek god Pan. Can you explain the multiple parallels that exist?

3. I like to imagine two intersecting continuums for intelligent investing. On one of them is a “be the casino” approach most like Joel Greenblatt vs. a highly concentrated, individual company research like how Charlie Munger ran his fund. On the second continuum you have an all-weather, always-invested-and-rebalancing approach most like Ray Dalio vs. a fear-and-greed, holding-cash-for-opportunities-approach of Seth Klarman. In which quadrant would you find yourself drawn to or at least want your money managed?
                                             [All Weather]

                                                      ↑

                            [Be the casino] ← → [Concentration]

                                                      ↓

                                          [Opportunistic]

 

4. I found it surprising to be reminded how much of the terminology of Wall Street is derived from gambling parlance. “Making a bet,” “blue chip,” etc. Do you believe that the markets are like large casinos or do they actually serve to allocate resources to worthy enterprises?

5. What is the one quality people should work hardest to cultivate in order to succeed as investors?

Mar 25, 2016

Edward Chancellor is a financial historian, journalist and investment strategist.  In 2008, he joined GMO’s asset allocation team.  He graduated from Trinity College, Cambridge with first class honours in Modern History, and from St Antony's College, Oxford with a Masters of Philosophy in Modern History.  He is a former deputy US editor for Breakingviews.com, and worked for Lazard Brothers in the early 1990s.  Edward is the author of Capital Account, Devil Take the Hindmost, and Capital Returns.

  1.  Let’s start with the basics: what is the Capital Cycle theory?  I’d seen it explained in different ways over the years, but never this clearly and obviously.  I feel kind of dumb for not understanding sooner the seemingly larger investment implications of this theory.    
  2. What’s a real life example that most clearly illustrates a successful investment using the Capital Cycle theory framework?  Additionally, what do you make of the game theory aspects of individual companies faced with competition over-investing in their industry?
  3. How does the Capital Cycle theory of investment different from value investing?  Isn’t the goal of both to buy during peak pessimism?  For Capital Cycle, you’re buying when management is pessimistic and not re-investing in a low return environment.  For value investing, you’re buying when the market is depressed about the future prospects of the business.  What’s the difference, if there is one?
  4. Where have investors gone wrong when using the Capital Cycle theory?  I’m imagining a technologically obsolete industry facing extinction, say the wagonwheel industry.  At some point there were no real returns on invested capital in that business to be had.  Might we mistakenly expect a low point in the cycle to rebound when really it’s heading to zero?
  5. Other than in-person meetings to determine if the subject is even on their radar, how do you properly evaluate management’s capital allocation skills?  Let’s take Jeff Bezos.  He’s been re-investing in Amazon continually for a few decades with very distant future return prospects.  Is that good capital allocation or madness?  How can we tell the difference?  
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