Insights

Former U.K. star fund manager Neil Woodford built his reputation and track record on three key events: his large investment in beaten-down tobacco stocks in the late 1990s, his avoidance of the dot-com crash, and the financial meltdown in 2008 and 2009. The success clearly went to his head and his Equity Income Fund strayed into illiquid, private companies that were in sectors beyond his circle of competence. The ‘Oracle of Oxford’ had up to two-thirds of his Equity Income Fund in unlisted securities and a big weight in the biotech industry (which rarely pays any sort of a dividend). There is a lesson here for all aspiring stock-pickers: stick to your knitting and remain humble and intellectually honest throughout an investing career

Like in investing, the game of poker represents a balance between skill and luck. The author, a psychologist, approached Erik Seidel, the winner of numerous World Series of Poker bracelets, with the intent of learning the game and more about herself. The book traces her fascinating journey through the poker world and adds many investing insights along the way. Seidel is a better psychologist than mathematician and his teaching leads the author to incredible success in just one year. Konnikova stresses the world has gone overboard with the quantitative and overlooked the value of intuition.

U.K. fund manager Terry Smith has a common-sense, three-step approach to investing: 1) buy good companies, 2) don’t overpay, and 3) do nothing. It appears the approach has worked – as of 9/30/2021, the Fundsmith Equity Fund had returned +18.4% versus +12.5% for its MSCI World Index benchmark since its inception in November 2010. Smith articulates his view, through a collection of fund letters and Financial Times articles, that investing in quality companies is a more advanced version of value investing. Advantaged businesses with reinvestment opportunities should avoid dividends and only repurchase shares when they trade at a discount. The book makes his approach seem simple, though we know, through experience, that nothing in investing is easy.

Pulitzer Prize-winning author Daniel Yergin provides a deep dive into the hydrocarbon realities and the issues facing the major global energy players. Yergin brings to life the birth of horizontal drilling and hydraulic fracturing that led to the United States shale revolution. He then spends considerable time outlining the geopolitical tensions facing the United States, Russia, China, and the Middle East. The final segment of the book does a nice job of highlighting the compelling setup for energy investors over the next three to five years.

Written by an actual descendant, the author chronicles the remarkable rise and subsequent fall of the Vanderbilt family fortune. Cornelius Vanderbilt, the ‘Commodore,’ exemplified a rags-to-riches story as this ‘Staten Island water rat’ reached railroad baron status and, at one time, the designation as the world’s richest person. As unlikely as the Commodore’s rise to prominence (side note: he could barely read yet he gave $1 MM to found Vanderbilt University and prove he valued education), so was the family’s relatively quick descent from the ranks of the wealthy. There was not a millionaire left among the 120 descendants within one hundred years of his death in 1877. Perhaps it was a sign of the times as the birth of the family fortune coincided with the Gilded Age and many of the family’s country estates still stand today (e.g. Marble House, the Breakers, Biltmore, Florham). Or perhaps it was the slow and steady family detachment from the Commodore’s magic formula – like the owner/operators we seek out for our investments – he epitomized that ‘passion bordering on obsession’ that legendary institutional investor David Swenson seeks out for his chosen managers.

The author, a noted geopolitical strategist, makes a convincing case that the world has reached a tipping point. The emergence of the world’s first ‘Global Order’ began with the conclusion of the second World War, as the U.S. offered total protection and economic growth for any nation willing to join its fight against the Communist Soviet Union. The fall of the Soviet Union in the late 1980s brought with it the end of this Order and, in its place, an underwhelming foreign policy that had the U.S. bouncing from crisis to crisis while either abusing, ignoring, or insulting its Allies. Countries around the world, including the U.S. and the United Kingdom, have shifted their focus inward as competition takes the place of cooperation. After presenting his thesis, the author then outlines the strengths and weaknesses of the leading nations around the world and we learn why France will become the most powerful country in Europe, Saudi Arabia will be a larger threat than Iran, and China is more likely to collapse than North Korea. Certainly a provocative book, but also an enjoyable read and an excellent resource for international investors.

In April 2000, General Electric’s (GE) market cap reached $682 B under the leadership of Jack Welch, making it the largest company in the US. By May 2020, GE’s market cap was less than $50 B. This book tells the story of how America’s most valuable company became a shadow of itself. It reveals a troubled culture, bad incentives, and poor capital allocation. GE was very adept at increasing EPS, but eventually, the lack of cash flow made it impossible to hide the issues within the company.

The book does a nice job of explaining the importance of a wired connection for our wireless future. We run into the famous physicist Claude Shannon again in this book about the United States’ sluggish embrace of fiber and the 5G future. According to the author, the only technology capable of bursting through the ‘Shannon limit’ – the physical limit of information-carrying radio wave capacity – is fiber. We are skeptical. The book outlines those countries with advanced fiber networks (e.g. South Korea, Japan, Hong Kong, China, etc.), and their ability to offer gig access for $30 to $50 per month. We think the book is overly critical of  U.S. cable companies, which offer similarly priced plans at gig speeds (with talk of 10 gigs in the near future), and their hybrid-fiber coaxial cable lines as a potential solution to future 5G limitations.