As I’m sure most you are aware, that’s what the market has done the past week. Just today the market opened down 1,000 points only to regain almost all of those losses by mid-day and then crash back down in the afternoon. I knew the panic was real when multiple people (who have very little interest in the stock market) reached out to me asking what’s going on. I think one of my friends thought I was out of a job by 10:00 am 🙂
Continue reading “Embrace Volatility!”
“Perhaps the most important rule in management is ‘Get the incentives right.’”
— Charlie Munger
If you don’t know, Charlie Munger is Warren Buffett’s long-time partner and Vice-Chairman of Berkshire Hathaway. And if you haven’t read his book, Poor Charlie’s Almanack, I cannot recommend it enough. It’s more about psychology and general life advice than it is investing, but it nonetheless had a major positive effect on my investing career. Mr. Munger ends his book with a discussion of 25 psychological tendencies he feels are the most common sources of human misjudgment. The first one on his list, because he feels it’s the most underestimated, is what he calls “reward and punishment superresponse tendency.” In more normal speak, “incentives are extremely powerful.”
On a regular basis I am shocked at how many investors will write about a company and not mention management pay. It is one of the first things I look at and is, in my opinion, one of the most important (and overlooked) parts of an investment thesis. It is human nature to be selfish and act in one’s own interest and many CEOs are incentivized not to act in the best interest of shareholders.
Continue reading “Compensation Matters”
Travis Wiedower 