Some random thoughts on articles that caught my attention in the last month. Note that I try to write notes on articles immediately after reading them, so there can be a little overlap in themes if an article grabs my attention early in the month and is similar to an article that I like later in the month.

A request: I'm just going to start blanket including this request at the start of each month's post. One of the reasons frequency of posts / podcasts / other public stuff can fall off is because I look at them and wonder: "Is it really worth my time doing these for this small an audience?" A lot of work goes into pretty much everything I do publicly, and I hope that the output is generally of interest / high quality. If the work is of interest and there's someone you think would like this blog / the podcast, please share it with them. It would mean a lot; positive feedback / increased readership is what keeps the public posts coming!

Podcast: Chris and I will be releasing a podcast Weds or Thursday; our schedules didn't allow for concurrent blog / podcast posting this month but hopefully you won't hold that against us!

Monthly value theory ponderings: jealousy

I wanted to follow up briefly on something i touched on in the idea of intrinsic reward from investing mentioned in last month's blog post as well as something I mentioned on last month's podcast. Over time, I've come to feel that perhaps the most dangerous thing an investor can feel is jealousy. I think Charlie Munger has several riffs on how jealousy is dangerous for any human, all of which I increasingly agree with over time

Let me first define what I mean be jealousy. I think there are two types of jealousy in investing: AUM jealousy, and returns jealousy. AUM jealousy would be something along the lines of "I'm definitely smarter than that guy; how is he running $50m while I'm only running my personal account?" Returns jealousy would be "Darn it, I'm up 10% on the year, and the index is up 15% and all my friends are up 20%". Again,

Why do I think jealousy's so dangerous? Well, first, it just takes up a bunch of headspace that would be more productive devoted to other things. But I think the main reasons are that it encourages arrogance and excessive risk taking. On the arrogance side, thinking "I'm a way better investor than this person" is dangerous. It's entirely possible it's true, but I've found a lot of times when I dismiss someone like that it's because they're telling me something I don't want to hear, and ignoring them makes me ignorant of some risk I'm taking. For example, a natural inclination when you tell someone one of your top ideas and they say, "I don't know; XXX is a big risk" is to dismiss that person as a dumb dumb who just doesn't get "it". I promise you it would be better to look into that risk; you don't need to convince him the risk is reasonable, but you should probably make sure you fully understand it yourself. Similarly, it's entirely possible that you are way smarter than the guy running $50m, but that doesn't mean you can't learn anything from him or he's not better than you in other areas. Perhaps he's a better salesman, and you need to learn from him how to pitch yourself and your fund better (something I'm personally working on!). Perhaps he's better at seizing opportunity than you, so his returns are better than yours because he's really ready to swing at fat pitches. On the excessive risk taking side, I feel like I've seen tons of people take extra / careless risks because they were behind some internal benchmark, whether that was the indices 3 year trailing returns, a bunch of rival fund's returns for the years, or simply an internal "I want to compound money at this rate" benchmark. Here's a dirty secret of people who post really strong one year numbers: sometimes it's because they've done really solid work and they're getting what they deserve. Sometimes it's because they're taking on huge risks that they may or may not be cognizant of. I think the most frequent return profile for funds that end up suffering a blow up is +30% one year, +50% the next year, and then down 75%+ in year three because they were taking some mammoth risk that they didn't realize.

Anyway, why do I mention this? Because we're approaching the end of the year, and I hear wildly different things from a bunch of friends I talk to when I ask them how everything's going with the year. Some of them feel like everyone is doing well but them ("I'm flat for the year, and it feels like everyone is up 40%"). Some of them feel like everyone is having a hard year ("I'm flat on the year, and it feels like everyone I talk to is down 20%, the market sucks, value is dead, etc."). Some of them think fundraising is impossible in this environment ("How do I differentiate myself in a world where the indices are up double digits every year?" This one hits very close to home!). I think all of those feelings are pretty dangerous, as they can lead to a lot of excessive risk taking or risk avoidance (if you think everyone is way ahead of you, why not just double down and try to catch up? If the market sucks and everyone is blowing up, why not just raise a bunch of cash?). The most important thing is to stick to your process (assuming your process is good!) and trust that, in the long run, it will work out well

Charter and share buybacks mini-rant

Building on my tweet / sneak peek earlier this month, a mini-rant on my largest position, Charter (disclosure: long through LBRDA and GLIBA). Long time readers / cable followers will remember you can effectively track Charter's share repurchases by following the form 4s filed monthly by A/N. Basically, A/N has agreed to sell a proportionate amount of their shares back to Charter so that their ownership stake doesn't creep up as Charter buys back shares, and once a month they'll file a form 4 selling their shares back to Charter at ~the average price Charter bought shares back.

So, for example, here's September's form 4, which should true up A/N for August's repurchases. Factoring in the prefs that A/N owns (which don't show up under ownership in the form 4), I estimate that form 4 means Charter bought back ~1.7% of their shares in August at an average price of $391.68.

For bulls like me who think intrinsic value is way higher than the current share price (I think the company's share price should start with a "6" sometime in 2021; perhaps sooner if the market gets more excited about the mobile initiative), those repurchases are fantastic.... but they're also frustrating. Why? Charter continues to be a momentum buyer of its own shares, as their repurchases appear to increase as their share price increases. Remember: Charter started the year off with it's share price below $300, and if you track their share repurchases they were barely buying back shares (for example, here's their form 4 from February relating to their January repurchases). In fact, I estimate that as Charter's shares approached $400 over the past two months, Charter repurchased roughly as many shares as they did combined in Q4'18 and Q1'19, when their shares were consistently trading in the high $200s / low $300s.

in Q4'18 and Q1'19, when their shares were consistently trading in the high $200s / low $300s. That's frustrating. A huge piece of Charter's share price rise this year has simply been them delivering on what they consistently promised over the past several years: massively cutting 2019 capex as the merger integration reaches its endpoint. Why couldn't they have been aggressive in repurchasing shares when the stock was way lower before giving guidance? Or, since the company traditionally hasn't given guidance, why not just skip the 2019 capex guidance and aggressively repurchase shares lower until the stock market caught up? I know the company has argued they didn't want to let leverage drift higher while they invest in the mobile product, so a decent piece of their flexibility for repurchases is tied to the mobile ramp. I 100% understand that, but it still feels like there were some unforced errors in the execution of the repurchase plan (in particular, the binge buying when the Softbank / Altice for Charter rumors were in the air and the stock approached $400 in summer 2017). In the long run, it won't make a mammoth difference for the company, but I do think that they cost themselves a decent bit of long term, per share value by not executing on the repurchase program better.

I'll caveat all this by noting it's possible I'm wrong. Charter could be buying back more shares from A/N than their agreement requires them to do. Traditionally, A/N has sold in exact proportion to the share repurchase, so I doubt something has changed here, but just wanted to put that caveat out there.

While I'm feeling feisty, I'll go ahead and throw one more thing out here: readers know I'm basically a Malone / Maffei fanboy at this point, but my one criticism of them would be they tend to get less aggressive with repurchases as their share prices decline. Pick just about any of their companies, and you can probably find several examples of repurchases that track Charter's: higher repurchases as the business performs well, lower repurchases as things get rockier only to ramp up as business picks up and the share price rises.

"Gold Star" followup

Books

I read Investing Against the Tide this month. I generally don't read "how to invest" books anymore; I think once you're past the beginning stage, your time is better spent reading business history books, learning about companies, or just doing something else as most of the how to invest books are pretty repetitive, but I got suckered into this one for some reason. I think this book would be fine to read if you were just starting a PM role running billions of dollars of mutual fund money, but if that's not you I would probably pass. Not because it was bad or anything, I just don't think the lessons of "I had my global team of analysts met with 500 companies a year, and I would call them up for a quick download whenever I looked at something new" are going to be applicable to many investors. If you're looking for a how to invest book, I would stick with You Can be a Stock Market Genius, which I've long considered the best book for think about how to get an edge in the stock market (I know I'm far from alone in that feeling).

Anyway, something about this paragraph in the book jumped out at me. The author mentions looking at ten year data so that he can look through a full business cycle valuation of a business. Honestly I think that's something most investors do (at least I do). When I first come across a company, my first instinct is to pull up a five years financial summary and a long term chart. I'm not doing technical analysis or anything (another thing I disliked about the book; it recommends technical analysis!); I'm just looking at how the stock has performed, if the stock is cheaper or more expensive than it's historically been, if the company's results are relatively steady or a bit more cyclical, etc. My worry here is that by doing that i'm instinctively biasing myself in one way or the other towards the company. So, say I'm looking at two companies: company A's stock has gone up 6x over the past ten years, and company B's stock is flat. Aside from that share price performance, the companies are exactly the same. I'd be more likely to think company A is a "compounder" with a good business, while I'd view company B with a more skeptical eye.... this despite the fact I just said they're the exact same business outside of their stock charts! My other worry is that anchoring to historical valuations can cause you to miss inflection points. One of the big areas that investors have found success in is what I've previously referred to as "pulling an Adobe": making some income statement investments that temporarily cause your valuation and financials to look crazy but that deliver huge long term gains. My worry is that if you instinctively anchor to historical valuations, you will inherently bias yourself against investing in anything that is investing through their income statement or reaching an inflection point towards higher growth. An example might be helpful here: today MSFT trades for ~30x P/E. I don't have any view on the stock; however, it's certainly expensive compared to its last ~10 years valuation. In 2016-2017, it traded for ~20x P/E, and in 2012-2013, it traded for about 12x. If you have bought in the 2012/2013 range, you almost certainly would have sold in 2014 at 15x.... and over the next five years watched in semi-horror as the business inflected upward and the multiple skyrocketed. Maybe selling at 15x was the right move, maybe it wasn't, but I would guess being anchored to a historical multiple would serve as a huge drag that would have given you a blind-spot to a business inflecting positively upward that deserved a higher than normal multiple.



Sports media update: A core tenant of the monthly update: continued highlights of the increasing value of sports rights (mainly because of my love of MSG (disclosure: Long)).

Other things I liked