Supported by Greenhaven Road Capital, finding value off the beaten path.
Kenneth Jeffrey Marshall spoke with Jake Taylor about his book, Good Stocks Cheap and what it means to be a value investor. We’ll also pull a few quotes from a 2017 Financial Sense Newshour interview.
Part of the reason Marshall wrote the was to help investor use the right language. “Language really drives behavior so if you want the right behavior you really want the right language.” This echoes what Sonkin and Johnson said about good investing conversations. Misleading terms can sneak in “before you know it, and hijack our behavior.”
Marshall said Peter Lynch‘s “got misconstrued to ‘buy stock in companies whose products you are familiar with.'”
Lynch noted our ‘knowing’:
“When people buy a refrigerator they get Consumer Reports. When they get a microwave oven they do that. They ask people what’s the best range, what kind of car to buy. They do research on apartments. When they go on a trip to Wyoming they get a mobile travel guide. When they go to Europe they get the Michelin travel guide. People hear a tip on a bus about some stock they put half their life savings in it before sunset and they wonder why they lose money in the stock market.”
Marshall lays out his six parameters and then waits for a sale. “The probability something is cheap when you’re doing all this analysis is pretty slight, so what you wind up calculating is at what price it would become cheap.” And cheap matters. Margins of safety aren’t in predictions, they’re in price. “If you could somehow buy a stock for zero, your risk would be zero because there’d be nothing to lose.”
Marshall says he doesn’t care how he did last quarter, or last year and Taylor jokes that he must not be managing money. It’s a passing point but Marshall jumps on it. “This is what’s tough about running outside money as a real value investor. You have to deal with these folks that, understandably, respond to the only data they have and how you did recently.”
Good organizations align their Stakeholders so they can seize opportunities. Bruce Greenwald said, “For psychological and institutional reasons, ugly in the stock market is your friend.”
Be like Seth Klarman, said Marshall, “Klarman talks about this very eloquently. He says, ‘You want the kinds of investors that when prices go down say, ‘Can I commit more capital?'”
Taylor closes the interview asking what’s great about investing and Marshall says it’s the curious nature of the business. “If you’re a long-term value investor, I think you have a sort of requirement to continually put yourself in these very dark rooms and try to turn the light on, to try to figure it out.” And, “I like nothing better than to be the least informed person in the room.”
Time and again we hear from investors that investing is a great job because it (can) pay well, requires curiosity, and has no age-mandated retirement.
Taylor asks for an off the beaten path book suggestion and Marshall offers Factfullness by Hans Rosling. I agree.
Marshall doesn’t suggest it, but he likes Porter’s Five Forces too.
And about Thinking Fast and Slow “(Kahneman’s) and his collaborator, Amos Tversky made folks aware that the assumption of rationality was probably wrong and probably not the right way to view human economic decision making.”
Thanks for reading.