Tuesday 7th Feb 2023

The RBA upped interest rates another 0.25% today to a new cash rate of 3.35%. It’s their 9th continuous interest rate rise. 

The majority of people with debt and fixed cash flow will will start feeling a pinch sooner than later. 

Where will interest rates go from here? My guess is a few more rate rises for Australia. We started later than the US and didn’t push them up as aggressively. Plus if the US up their interest rates, our bank will have to increase theirs, irrespective of what the RBA decisions. But, it’s important to remember I have no real idea, so my guess is as good as yours.   

 

Friday 10th Feb 2023

One of the guys I train with just sold his house last week. I’ve got to know it a little bit, so asked if he's excited to move on from that place. 

He said he was. He feels he’s timed it well and mentioned Warren Buffett saying we only have to make three good investment decisions throughout our lives. 

He said his first good decision was buying a commercial property and later selling it for a 20% return and feels that this is his second. 

Buffett has a great analogy of a baseball batter standing at the plate. The pitcher is pitching balls at the batter. In baseball it’s three strikes and you’re out. But in real life we can be more selective and we certainly don’t have to swing at every pitch that comes our way. 

It’s worth understanding and a great reminder for me. 

 

Thursday 16th Feb 2023

This quote from Noel Whittaker’s newsletter is fantastic: 

I’ve mentioned in several previous newsletters quotes from Keith Fitzgerald, who has a unique gift of putting things in simple language.

The quote that follows is from his latest newsletter. It’s brilliant. It follows a bad night in the US markets:

"The doomsayers are out in full force this morning on fears of a recession. Frankly, the headlines make my head spin. We’ve seen this playbook so many times that it’d be laughable if it weren’t so predictable. Wall Street’s sole purpose is to separate you from your money. The big trading houses want you unsettled, uncertain, and emotionally charged because they know it’ll make their job easier. Keep your head screwed on straight.

More than 70 S&P 500 companies have reported Q4 earnings, and 65% of them have posted stronger-than-expected results. Stay calm."

Personally this is an important reminder I’ll have to regularly remind myself of. 

 

Friday 24th February 2023:

Australia’s biggest bank CBA announced solid profits, a $1 billion dollar share buyback and a bumper 20% increase in its interim dividend of $2.10 fully franked. 

From time to time I wish I knew about investing in and being a part owner of the bank instead of ‘saving’ my money in the bank when I was younger. That said, It’s more important that hindsight bias doesn’t live rent free in my head. Thankfully I’ve got no problem letting go of the past.      

 

Saturday 25th February 2023

Warren Buffett released his latest annual letter to BRK shareholders today. I find his annual letters fascinating and value the insights from someone who’s been investing for 80 years now.  

Last year BRK returned 4% while the index (S&P500) returned -18.1%. 

Warren and his investing partner Charlie Munger have a lot of wisdom to pass on. Yes they're not always right, but neither am I or anyone else. 

I’ll share what I consider to be powerful points from the 2022 letter.  

Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favourable economic characteristics and trustworthy managers. Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers

Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favours long-term investors such as Berkshire. Let’s take a peek behind the curtain.

In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.

American Express is much the same story. Berkshire’s purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. Those checks, too, seem highly likely to increase.

These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices. At year end, our Coke investment was valued at $25 billion while Amex was recorded at $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago.

Finally, an important warning: Even the operating earnings figure that we favour can easily be manipulated by managers who wish to do so. Such tampering is often thought of as sophisticated by CEOs, directors and their advisors. Reporters and analysts embrace its existence as well. Beating “expectations” is heralded as a managerial triumph. That activity is disgusting. It requires no talent to manipulate numbers: Only a deep desire to deceive is required. “Bold imaginative accounting,” as a CEO once described his deception to me, has become one of the shames of capitalism.

During the decade ending in 2021, the United States Treasury received about $32.3 trillion in taxes while it spent $43.9 trillion. Though economists, politicians and many of the public have opinions about the consequences of that huge imbalance, Charlie and I plead ignorance and firmly believe that near-term economic and market forecasts are worse than useless. Our job is to manage Berkshire’s operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company’s unmatched staying power when financial panics or severe worldwide recessions occur. Berkshire also offers some modest protection from runaway inflation, but this attribute is far from perfect. Huge and entrenched fiscal deficits have consequences.

I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.

On Charlie Munger: 

Here are a few of his thoughts, many lifted from a very recent podcast: 

The world is full of foolish gamblers, and they will not do as well as the patient investor. 

If you don’t see the world the way it is, it’s like judging something through a distorted lens.

All I want to know is where I’m going to die, so I’ll never go there. And a related thought: Early on, write your desired obituary – and then behave accordingly. 

If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results. 

Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage. 

You can learn a lot from dead people. Read of the deceased you admire and detest. 

Don’t bail away in a sinking boat if you can swim to one that is seaworthy.

A great company keeps working after you are not; a mediocre company won’t do that.

Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time. 

Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying. 

There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. 

You have to keep learning if you want to become a great investor. When the world changes, you must change. 

Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognise the change, but better late than never. 

Finally, I will add two short sentences by Charlie that have been his decision-clinchers for decades: “Warren, think more about it. You’re smart and I’m right.”

There’s more but I’ve probably raved on too much already.