Interesting Reading – November 7, 2016

Published on November 7, 2016

Note to readers:  In this series, we suggest worthwhile reading material on a variety of topics, not all of which are directly related to investing.  Some of the articles are behind pay walls.  However, it is often possible to read such articles by going to Google News and searching for the article’s title.  

When do you give up on a stock? – Oddball Stocks, November 3, 2016.  Nate Tobik outlines his views regarding one of the most difficult decisions for investors:  when to change your mind and sell a stock.  There are obviously many reasons to give up on an investment.  The bottom line is that “if you’re holding a stock where the story changed, the company changed, the company failed to execute on plans or you have better opportunities it’s time to sell.” Phil Fisher was an advocate of selecting investments so carefully that they almost never need to be sold.  That’s a worthy goal but having selling criteria in mind, in advance, seems like a prudent policy for intelligent investors.

Do recent events foreshadow a large-scale cyber aggregated loss? – Property Casualty 360, November 2, 2016.  One of the basic principles of running an insurance company is that underwriters must take great care to never write a series of policies that, in  aggregate, could threaten the solvency of the firm based on a single event.  For risks like hurricanes, it is likely that most underwriters understand how to limit aggregate losses, but is this the case for new types of risk that may not yet be well defined?  The “cyber insurance” industry can be defined in many ways.  What happens when many insureds suffer an event like a major hack all at once?  “This could trigger a loss equivalent to a Katrina-level hurricane.”

Wells Fargo’s Stars Thrived While 5,000 Workers Got Fired – Bloomberg, November 3, 2016.  Two months after the scandal first broke, headlines about Wells Fargo continue to appear on a regular basis.  Reporters are seeking additional information through interviews with past and current Wells Fargo employees and the news isn’t getting any better.  “No one was ever penalized for doing the wrong thing until there was critical mass,” said Michael Bruns, a banker at Wells Fargo branches in Silicon Valley from 2009 to 2012. “Instead, they were promoted. They became our bosses and the people who are running the company today.” 

Chipotle Eats Itself – Fast Company, October 16, 2016.  This lengthy article is probably the best account of Chipotle’s reaction to the E. coli outbreak that took place a year ago.  The author had a great deal of access to Chipotle executives and was able to observe and inspect restaurants, central kitchens that Chipotle came to rely on after the outbreak, reactions of executives at the shareholder meeting, and much more.  The 30 to 60 minutes required to read the article is worthwhile for anyone seriously following the company.

The Competitive Advantage of an Owner-Operator – Base Hit Investing, November 1, 2016.  John Huber thinks that firms that are run by the founders can have a significant advantage because founders are often motivated by more than money.  This “driving force” can be incredibly powerful.  Not all incentives have to do with money.  Many founders have a level of intensity regarding their business that is driven by all sorts of intangible factors that go well beyond amassing wealth. Although Warren Buffett did not technically “found” Berkshire Hathaway, he effectively started the company fifty years ago and embodies the owner-operator mindset.  Whether this attitude will extend to the next CEO is a topic we have often considered.

Strength Training is Learning from Tail Events – Nassim Nicholas Taleb via Medium, November 6, 2016.  Risk and random events extend to topics beyond financial markets.  In this article, the author discusses tail events and how they apply to the human body.  “Indeed, our body should be seen [as] a risk management system meant to handle our environment, paying more attention to extremes than ordinary events, and disproportionally learning from these.”

Why C.E.O.s Are Getting Fired More – The New Yorker, November 7, 2016.  Although it is hard to shed many tears when it comes to CEOs facing adversity in light of their elevated compensation, apparently the standards for performance are higher than in the past according to James Surowiecki.  “Some C.E.O.s have a very lofty opinion of themselves, and when they’re told they have to go they’re almost always shocked.”

How I became a time-millionaire – The Financial Times, November 1, 2016.  Nilanjana Roy discusses the concept of being a “time-millionaire”, a measure that is loosely correlated with the extent to which a person has control over his or her time.  This is quite an amorphous concept and cannot be as clearly measured as money in the bank.  However, the importance of having control of one’s time cannot be emphasized enough when it comes to understanding human happiness.

Interview with Robert Cialdini – Hsu Untied, October 28, 2016.  Richard Hsu interviews Dr. Robert Cialdini, author of Influence and Pre-Suasion, which we reviewed recently.  This 25 minute podcast is definitely worth listening to for anyone intrigued by these books as well as for those who have already read the books.

What I Read, and Why – Jason Zweig, June 30, 2014. “If you want to think long-term, you can’t spend all day reading things that train your brain to twitch.”  That is a great observation, and it is getting harder and harder to avoid sound bite information online these days.  Jason Zweig provides his list of recommended reading which includes a number of blogs as well as several books, not all of which have to do with business and investing.

Interesting Reading – November 7, 2016