The Digest #39

Published on September 9, 2020

Decision Journals

Someone on Twitter asked an interesting question last week:

Charlie Munger has been on the Costco board since 1997 and has often talked about the company and its management in glowing terms. Munger’s involvement has led me to follow the company as a potential investment.

Costco immediately came to mind as a company that I feel strongly about but have not been able to own for valuation reasons. When I wrote that tweet, I had no recollection of ever owning shares.

But I did own shares of Costco. Seventeen years ago.

This was an accidental discovery I made over the weekend as I cleaned out old files of brokerage statement confirmations. On two occasions in 2003, I traded 700 shares of Costco which was then priced at around $30 per share.

The first trade lasted six weeks and the second trade lasted just over three weeks. The trades were profitable and earned a few thousand dollars in the form of short term capital gains.

This is embarrassing to admit since I no longer believe in “trading” stocks.

Even more embarrassing is that I have no recollection of placing those trades!

Why did I choose to buy shares in January 2003 and sell them in February? And to buy the same number of shares a few months later only to turn around and sell after a few weeks? I will never know the answer to those questions. 

The truth is that human memory is not only limited but also subject to revision over time. Even if I recalled owning Costco seventeen years ago, my reasons for owning shares would likely have been modified over time. 

The cure for this problem is very simple. We should write down the rationale for all important decisions when we make them. This is what I have been doing for all investment decisions since 2010. The purpose of a decision journal is to ensure that our memories will not play tricks on us at a later date. We can go back and read precisely what was going through our minds at the time.

The 700 shares of Costco that were worth about $21,000 in 2003 are worth $242,000 today, plus the company pays a dividend. This is a compound annual return in excess of 15 percent. My discovery would sting a little less if I could at least understand why I made the decision to sell those shares.

One should not cry over spilled milk. But one should cry over repeating the same errors again and again. A decision journal can help avoid a lot of crying.

Many articles have been written about Costco and its founder, Jim Sinegal. A recent article, Learning from Costco’s Jim Sinegal, is a good place to start.

Jim Sinegal In His Own Words

The following video is an appearance by Jim Sinegal on November 21, 2019 at Georgetown University’s McDonough School of Business. His comments on the origins of Costco’s private label brand, Kirkland, are particularly interesting.

Jim Sinegal at Georgetown University on November 21, 2019

Interesting Links

Understanding Stakeholder Value: Where Do Profits Come From? by Sean Stannard-Stockton, September 3, 2020. Capitalism has lately been attacked as an exploitive socio-economic system that focuses exclusively on profits. This article provides a clear explanation of how well run companies maximize long-term economic results for owners by also focusing on relationships with employees, customers, suppliers, and regulators. Businesses that deliver great returns to shareholders are rarely zero sum games. (Ensemble Capital)

Starbucks, Monetary Superpower by J.P. Koning, August 21, 2019. This article describes how Starbucks has secured cost-free “financing” in the form of funds that customers keep on Starbucks cards. The author notes that Starbucks has $1.6 billion in such cost-free financing on the balance sheet. Although loyalty programs providing benefits like free coffee add some cost, many cards are never redeemed. Cost free financing in the form of “float” has long been a way for insurers to make money. Starbucks and other companies that offer stored value cards have done something very similar. (Moneyness)

Capital Allocation: The Financials of a New England Textile Mill with Author Jacob McDonough, September 3, 2020. Geoff Gannon and Andrew Kuhn interview Jacob McDonough, author of Capital Allocation, a recent book on Berkshire Hathaway’s early history that I reviewed in July. The discussion is a good introduction to the book or a recap for those who’ve already read it. All of the participants know Berkshire well. (Focused Compounding Podcast)

Michael Mauboussin – Great Migration Public to Private Equity, September 1, 2020. Patrick O’Shaughnessy interviews Michael Mauboussin in this podcast episode. The focus of the discussion is the shift that has taken place in recent decades with companies increasingly seeking funding from private markets rather than going public. The rapid growth of capital available in the venture capital and private equity markets has made going public only one of many available paths for young promising companies. (Invest Like the Best)

Save Like A Pessimist, Invest Like An Optimist by Morgan Housel, September 2, 2020. “Optimism and pessimism can coexist. If you look hard enough you’ll see them next to each other in virtually every successful company and successful career. They seem like opposites, but they work together to keep everything in balance.” Housel was also interviewed by Anthony Pompliano last week regarding Housel’s book, The Psychology of Money, which was released on September 8. (Collaborative Fund)

The Information Lifecycle: How Three Filters Shape the Mind by Lawrence Yeo, August 25, 2020. When the mind is presented with a previously unknown fact, information passes from obscurity into your “field of attention”. But it is only when we know how to process incoming data that it becomes information in a usable form. This essay explores the concept in more detail. (More to That)

10 Ways to Find Stillness in Turbulent Times by Ryan Holiday, September 1, 2020. “As Rome was being scourged by plague and war, Marcus Aurelius wrote about being “like the rock that the waves keep crashing over,” the one that “stands unmoved and the raging of the sea falls still around it.” “Shrug it all off,” he writes, “wipe it clean—every annoyance and distraction—and reach utter stillness.”  This is a great concept. But HOW can we “shrug it all off”? Holiday provides ten examples we can learn from. (

Quote of the Week

“Wealth hastily gotten will dwindle, 
     but he who gathers little by little will increase it.”

Proverbs 13:11

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The Digest #39
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