Friday, August 12, 2022
Volume 3, Issue 41
“I am not in the entertainment business.”
— Jim Lehrer (1934-2020), Co-Founder of the PBS NewsHour
Reading the News
I recently came across Reading the news is the new smoking, a thoughtful essay by Adam Mastroianni, a psychologist who writes Experimental History. The premise of the essay is that consuming news is akin to smoking because it imposes both negative effects to the reader as well as externalities to those who interact with the reader. While I have considered the negative impact of news on the reader before, I have not previously considered the broader angle of how this impacts relationships with others.
Over the past decade, I have backpacked thousands of miles and have often been “off grid”. The last extended backpacking trip I took was exactly three years ago. I wrote A Silent Interlude when I returned to explore several topics, one of which was being free from the news cycle. Here is a brief excerpt:
Isolating yourself is not a desirable or realistic option. We need to be aware of what’s going on in the world and in our communities, and being informed can lead to opportunities. Warren Buffett doesn’t read five newspapers every day for no reason. One must find the right balance between exposure to the news and avoiding unnecessary noise. This task has become much more difficult as the perceived pace of “news” increases. The best way to prove to yourself that this is true is to remove yourself from the news cycle for a week or more and observe the changes to your mental state that will inevitably result. One can then calibrate news consumption and frequency accordingly.
I firmly believe that it is healthy and desirable to disconnect entirely from modernity every so often. This is still possible in many locations, although the cost of satellite communication is quickly dropping to the point where backpackers might soon be scrolling TikTok videos in the wilderness.
Years ago, I heard Warren Buffett describe his habit of reading five newspapers per day. I decided that I would emulate his habit. Although I never quite read five papers, I subscribed to the print editions of The Wall Street Journal, The Financial Times and my local newspaper and spent at least two hours reading them every morning. I would often return to the papers over lunch or in the evenings.
After doing this for some time, it dawned on me that I was putting too much emphasis on secondary sources of information. As an investor, it is far better to read primary sources such as SEC filings than to consume secondary sources such as newspapers or analyst reports. As a citizen, there’s no point in getting your blood pressure spiking by constantly reading about the latest political developments. I eventually cut back, and I now allocate about thirty minutes per day for the news.
Why do I continue to read the news at all? Unless I am purposely trying to disconnect from everything, I want to be aware of the broad contours of what is taking place in the world. There is no doubt that newspapers amplify and sensationalize bad news and that most news is obsolete quickly, but there are strategies to deal with this.
I have settled on the strategy I wrote about in Staying Informed Amid the Noise, especially the idea of browsing, curating, and consuming content. There has to be some balance between quitting the news entirely and being consumed by it mentally. Of course, the purpose of the Weekly Digest newsletter is to play a role in content curation for readers. I try to include content that I’ve read during the week that has some signal rather than the typical useless noise.
GEICO closes California insurance offices, lays off hundreds by Randy Diamond, August 1, 2022. Earlier this week, I wrote about GEICO’s recent results and noted that the company’s low expense ratio has softened the effect of high losses driven by rapid inflation in the automotive sector. Lower advertising and employee-related costs were credited for the low expense ratio. This article indicates that cost-cutting continued into the third quarter. GEICO is still selling policies in California through its website and mobile apps. It will be interesting to see how GEICO’s results evolve over the second half of 2022, especially compared to Progressive. (Sacramento Bee)
Policy and Tradeoffs by Roger Lowenstein, August 10, 2022. The old quip about legislation and sausage-making having many similarities was abundantly on display last weekend in Washington. In exchange for retaining a tax break that narrowly benefits the private equity industry, senators agreed to impose a new tax on stock repurchases. Roger Lowenstein writes about this incoherent change and the potential effects it will have on the allocation of capital. (Intrinsic Value by Roger Lowenstein)
Dividends On Demand: Choose Your Own Payout Ratio by Adam Mead, August 9, 2022. Selling shares to create a “dividend” can be a perfectly rational strategy but it is psychologically very difficult for investors. “Many investors restrict the cash flow from their equity investments to the periodic dividends they receive. They are content to let the company’s board of directors decide the payout ratio (how much of current earnings to pay out as a dividend) and trust the remainder to be reinvested back into the business. There is another way, and you might not be surprised to learn that Warren Buffett has weighed in on the topic. The answer: “manufacture” your own dividend, as you see fit, by selling shares. Though perfectly rational, this is easier said than done.” (Watchlist Investing)
Should You Die With Zero? by Nick Maggiulli, August 9, 2022. There is a trade-off between using money to improve your quality of life in retirement and running the risk of eventually running out of money. This article discusses a book that advocates using (or giving away) more money while alive rather than dying with a large estate. In my opinion, the big problem involves long-term care costs, particularly for those who wish to avoid nursing homes. In-home care costs can easily consume $200,000 per year or more if needed on a 24/7/365 basis. Personally, I’ll be delighted to leave a larger estate to my heirs in exchange for the peace of mind of knowing that my final days will not be spent in an institutionalized setting. (Of Dollars and Data)
E-Bikes Gain Ground for Americans Avoiding Gas Cars by Christopher Mims, August 6, 2022. Anyone who lives in a major city has noticed the proliferation of e-bikes along with e-scooters. While most coverage of this trend is positive, there are some serious problems. These motor vehicles are widely used inappropriately (and illegally) on sidewalks or trails at great risk to pedestrians and runners. There is nothing wrong with e-bikes provided that they are treated as the motor vehicles they are and used on the street. Thankfully, more cities are constructing bike lanes where both electric and non-electric bikes can be safely used. (WSJ)
Investors Are Their Own Worst Enemies: Or, The Simple Joy of Buy-and-Hold Investing by Kingswell, August 11, 2022. Many investors in Peter Lynch’s famed Magellan Fund managed to find a way to get poor investments results. Market timing was to blame. “Lynch crushed the market in 1980, earning an eye-popping 70% return. Results like that draw a lot of attention, resulting in magazine profiles and television interviews that attract new investors to the fund manager with the Midas touch. Then, when Magellan struggled a bit the following year and underperformed the market, those same johnny-come-latelies jumped ship in search of the next big thing.” (Kingswell)
Resources, Resources, Resources by Conor MacNeil, August 11, 2022. This is an outstanding list of resources for investors. I do not use data services for looking into investments, but there are a couple in this list that look like great ways to save some time at the initial stages. My favorite item in the list is roic.ai, a website that allows you to pull up years of data and transcripts for thousands of companies. The “Classic View” of a stock replicates many of the features of Value Line. The “Monitoring” feature pulls up recent tweets and reddit posts tagged to the ticker symbol. This is a terrific resource that you should definitely check out. (Investment Talk)
Rare Skills by Morgan Housel, August 10, 2022. A list of skills that seem simple to cultivate but are nevertheless quite rare, such as quickly getting to the point. “After writing every sentence it helps to ask “Would the reader still get my point if I deleted that line?” Not “Does that sentence make sense?” Millions of unnecessary sentences make sense. Treating words like they cost you something is the right mindset.” (Collaborative Fund)
The Incredible Power of No by Sahil Bloom, August 10, 2022. Many people, especially early in their careers, find it very difficult to say no to requests. To be sure, sometimes saying yes can create opportunities. But being willing to say no, when appropriate, can be powerful. “You have a personal flywheel. Before it gets spinning, saying yes will help you identify the actions that will get it moving. Once it gets spinning, saying no will help you ruthlessly prioritize the actions that accelerate its pace.” (The Curiosity Chronicle)
What’s It Like at the Most Expensive Motel 6? Actually, Pretty Nice by Dawn Gilbertson, August 10, 2022. I’m not old enough to remember paying $6 to rent a room at Motel 6, but I do remember paying under $30 at this budget chain as recently as the early 2010s. The most I have ever paid at Motel 6 was $137, including tax, at Mammoth Lakes in 2017. But times have changed. It is now possible to spend $426, before tax, for a Motel 6 room in Santa Barbara. However, on a hedonically adjusted basis, perhaps the real price is much lower because the room has a retro fridge and is “pretty nice”. If the price had been $420, this story could have been a perfect meme! (WSJ)
Union Pacific: Long Train Runnin’, August 10, 2022. 1 hour, 2 minutes. “Union Pacific is interesting for a number of reasons. Its first tracks were laid in a time of horsepower over 150 years ago. It operates a duopoly in the west of the US with Burlington Northern Santa Fe, a rail owned by Berkshire Hathaway. And despite being capital intensive, it earns higher operating margins than Microsoft. But above all, it is a crucial link in the global supply chain. Moving much of what the US economy’s built on.” (Business Breakdowns)
Quaise Energy: Carlos Araque, August 4, 2022. 44 minutes. This is a discussion about the tapping geothermal energy at massive scale. If the technology is viable, it would be a game-changer. “Growing up in Colombia, Carlos Araque and his father liked to take apart bicycles and motorcycles then put them back together. This love of tinkering led Carlos to study engineering at MIT and eventually launch a career in the oil and gas industry. After 15 years of this work, Carlos realized he was uniquely suited to be a part of the global energy transition away from fossil fuels… Carlos shares how his company plans to drill the deepest holes ever to unlock the nearly limitless potential of geothermal energy. (How I Built This)
The Invisible Cyber-War, August 4, 2022. 58 minutes. Remember when many people were referring to the pandemic as a “black swan” that couldn’t have possibly been foreseen? I have a sinking feeling that we are heading toward a cyber catastrophe that will also be referred to as a “black swan” event even though the risks as well known. “When you hear the word cyber-attack, what comes to mind? Someone hacking into your email, or stealing your Facebook password? As it turns out, our most critical infrastructure can be hacked. Our banks, water treatment facilities, and nuclear power plants can be deactivated and even controlled simply by finding bugs in the software used to operate them. Suddenly, cyber-attack takes on a different meaning.” (Your Undivided Attention)
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