About nothing in particular

A quick note to my small band of loyal readers.

There are often periods of long silence on this blog.

The long periods in between frenetic activity could be understood if you read the start of this post.

I am not inclined to blog about nothing. There are other talented people better able to monetise a philosophy of nothing. See here. I am not quite so gifted.

On average, I get a good investable idea every three months. This could be quite unsatisfactory to people looking for ideas every week, if not every day. Nevertheless, in the context of a portfolio with about 12 to 20 positions, with average holding periods of 3 to 5 years, a good idea every 3 months is plenty enough.

Heck, this may even be too much for Warren Buffett's 20 punch card holes. At my current rate, I only have 5 years before I am stopped out.

But we do what we can, with what we are given, as best as we could.

Uncertainties

I spend quite some time today reflecting on the concept of uncertainty, after reading a quick tweet from Farnam Street.

In investing, uncertainty is distinct from risk. Investors have a difficult time dealing with uncertainties as the nature and magnitude of uncertainties cannot be defined. Ironically, many market participants fail to appreciate that profit making opportunities arise precisely because of the existence of uncertainties.

If you are not convinced, then try to invert the situation, and imagine a world devoid of uncertainties. In this fantasy world, trends in security prices are non-existent, an EMH nirvana. Scientists will know the exact position and momentum of quantum particles. Major religions such as Christianity, Judaism and Islam will not exist. Quite possibly, our brains will evolve in a completely different manner, as we no longer require short-cuts and instinctive reasoning. I can go on, but you get the picture.

Uncertainty is embedded in the nature of all things. This is the principal reason why we must always allow a margin of safety in our investments. Just as a good engineer builds redundancies into critical systems, we must allow for uncertainties inherent in businesses operating in a complex system where humans exercise free will.

By logical inference, we cannot be the master of a universe riddled with uncertainties. This is why Buffett and Munger repeatedly advocates the virtue of humility. Humility enables us to accept that there are things that we cannot know, which is the first step towards acknowledging the limits of our competence.  If we know where our boundaries lie, we can then take the next step of pushing out our boundaries through the accumulation of knowledge and wisdom.

And only thus, shall the meek inherit the Earth.

Investing as simple as ABC

On 2 November 2012, I grabbed a copy of the share tables in the Daily Telegraph and started trawling through the list, aiming to start at A and ending at Z. For several years, I have screened shares using rudimentary software provided by Etrade. I cannot help but feel I am playing a mugs game. Everyone will be screening for shares using popular criteria such as PE, ROE, Book Value, etc.

So I finally overcame my laziness and procrastination and took Buffett's advice.  There is really no other way, given that I am not blessed with talents of imagination and creativity, and that I am basically an introvert without a benefit of a wide network to draw information upon.

It was not as painful as I feared. As at today, I have finished all industrials up to G. At this rate, this exercise will be done and dusted well within a month. True to Buffett's experience, there are many names which I spent very little time on. There are also quite a number of decent companies which I already own or have kept on my watchlist for a good entry price.

As a matter of perspective, there are over 2000 listed entities on the ASX. Only 1/3rd of them are making profits. Let's see whether there are some gems hidden in there.

Like I said, simple as ABC.  I never said it will be easy.