Money and Finance
- The Characteristics Of Easy And Difficult Turnarounds
In his 1979 letter to shareholders, Warren Buffett wrote: Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased...
- Daniel Kahneman On Confidence
From Don't Blink! The Hazards of Confidence: “The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story...
- The Confidence Game - By James Grant
In disclosing plans to buy a quarter-trillion dollars of bank stock in the name of the American taxpayer, Treasury Secretary Hank Paulson harped on confidence. "Today, there is a lack of confidence in our financial system, a lack of confidence that must...
- A Simple Guide To Selling Stocks
Last weekend, a good friend came to town for a visit. We both started our financial careers on the same day -- and in the same training room, in fact -- but our career paths diverged a few years ago when he went the financial planning route and I went...
- What To Do When A Sell-off Strikes Your Stock
We've all been there. You check your stocks in the morning, take a sip of coffee, only to find -- spppittt! -- one of your stocks is down big, real big. At this point many questions begin to race through your mind -- What happened? Did I miss something?...
Money and Finance
Bill Ackman’s Q3 Letter
Via ValueWalk.
We chose to exit our entire stock and total return swap position in J.C. Penney at the end of August and incurred a loss of approximately 50% of our original investment. We did so because of a disagreement with the board about the timing and necessity for a CEO change at the Company, the valuation implied by the then stock price, and the risk of a successful turnaround.
Turnarounds are inherently risky and require a totally aligned board of directors, a CEO with substantial turnaround experience, and the support and confidence of all stakeholders. Without all of these ingredients, we are bearish on J.C. Penney’s prospects.
I have said before that investing requires the confidence and conviction to believe that one is right even when the whole world, including other smart, high-profile investors, tells you that you are wrong. Buying 25% of General Growth for pennies per share during the financial crisis and shortly before its bankruptcy required detailed analysis, execution, and confidence. Staying short MBIA stock, when Warburg Pincus, with access to inside information, invested a billion dollars of capital into MBIA, and Marty Whitman, a famous distressed investor, invested hundreds of millions in capital, required a similar degree of analysis, confidence and conviction.
But confidence and conviction without humility can be dangerous in the investment business. When one shares an investment thesis publicly, it can be more difficult to change one’s mind because the human mind has a tendency to ignore data that are inconsistent with a firmly held view, and particularly so, when that view is aired publicly. That is likely why Wall Street analysts continued to rate MBIA a buy until it nearly went bankrupt. And, I believe it is why analysts will likely keep their buy ratings until Herbalife is shut down by regulators or the company faces substantial distributor defections.
I have learned that the key to long-term success in investing is to balance confidence with the humility to recognize when the facts are no longer consistent with one’s original investment thesis. It is critically important not to let psychological factors interfere with economic rationality in investment decision making.
- The Characteristics Of Easy And Difficult Turnarounds
In his 1979 letter to shareholders, Warren Buffett wrote: Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased...
- Daniel Kahneman On Confidence
From Don't Blink! The Hazards of Confidence: “The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story...
- The Confidence Game - By James Grant
In disclosing plans to buy a quarter-trillion dollars of bank stock in the name of the American taxpayer, Treasury Secretary Hank Paulson harped on confidence. "Today, there is a lack of confidence in our financial system, a lack of confidence that must...
- A Simple Guide To Selling Stocks
Last weekend, a good friend came to town for a visit. We both started our financial careers on the same day -- and in the same training room, in fact -- but our career paths diverged a few years ago when he went the financial planning route and I went...
- What To Do When A Sell-off Strikes Your Stock
We've all been there. You check your stocks in the morning, take a sip of coffee, only to find -- spppittt! -- one of your stocks is down big, real big. At this point many questions begin to race through your mind -- What happened? Did I miss something?...