Alex here with this week’s Macro Musings.
Articles I’m reading —
Take 20 minutes and read Michael Mauboussin’s latest paper on how to better compare things — in this case, stocks — in order to more effectively derive their relative values. The paper is titled How Well Do You Compare.
Michael first talks about how we are wired to use analogies to try and understand things and arrive at conclusions. This is very useful but it’s also full of cognitive pitfalls when analyzing complex subjects where the most available analogy may not be the most useful.
He then lays out a number of frameworks available to do comparative analysis; along with their strengths and weaknesses. Here’s the three methods he suggest using.
The main point of the paper is to be more critical in what you choose to compare things to. Heuristics are readily available but often ill-suited for the task. Thinking deeper about the “similarity” between the comparative entities leads to better results.
Also, here’s an older but still great post from Meb Faber in which he shares his notes on an “investing checklist” from a class that was taught by the Tiger Cub John Griffin (who was a talented fund manager that just recently closed shop).
Video I’m watching —
My favorite of the Berkshire duo, Charlie Munger, recently gave a talk at the Michigan Ross School of Business. Munger is the Yoda of markets… the guy is a fountain of wisdom as well as a great storyteller. I try and listen to any talk he gives because I learn something new every time. This chat was no different. It’s filled with great stories on what it was like growing up during the depression, and getting started in markets, as well as valuable Mungerisms on how to set yourself up for success with better mental models and daily habits.
It’s just under an hour long and definitely worth the watch. Here’s the link. Also, go read Poor Charlie’s Almanack if you haven’t already. It’s one of my all-time favorites.
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