Weekend Reading – 10/19/14

Here are some articles that caught my attention over the last couple of weeks. Topics include: How to spend $208 billion, why equity investors deserve a higher return, why you should have a beer tonight, and more

 Facebook is now bigger than IBM



Facebook is now worth over $208 billion, more than IBM, more than Coca-Cola, more than AT&T and more than Disney!


As an investors, I think you have to seriously question if spending $208 billion on facebook is a worthwhile investment.


(Also see our post last month – https://www.begintoinvest.com/chart-week-buy-200-billion/ “What would you buy with $200 billion?”) – Some charts from that article are here below:

market_caprevenue cash_from_operating_activities2 net_income



 Why Stock Investors Get Paid



This was put out on one of the more exciting days in the market since the 2009 crisis came and went. The S&P 500 opened around 1875 and got as low as 1820 mid-day before bouncing back. Financial media had a field day, investors’ sentiment immediately changed direction and no doubt panicky investors made decisions they will regret.

But, as Mr. Brown points out, this is precisely why equity investors have historically earned more than fixed income investors. Bond investors rarely have to weather exciting days like equity investors saw multiple times last week.

In Brown’s words: “This is why stock investors get paid.”



A Fireside Chat With Charlie Munger – WSJ



A short and sweet interview with two of the best investing minds today. Anything with Jason Zweig or Charlie Munger’s name on it is a must read – this interview is no exception.


One question that seems most relevent to me in today’s market is Munger’s response to a question on his and Buffett’s idea on investing within their “Circle of competence”


On what he and Mr. Buffett call “the circle of your competence”:

Confucius said that real knowledge is knowing the extent of one’s ignorance. Aristotle and Socrates said the same thing. Is it a skill that can be taught or learned? It probably can, if you have enough of a stake riding on the outcome. Some people are extraordinarily good at knowing the limits of their knowledge, because they have to be. Think of somebody who’s been a professional tightrope walker for 20 years – and has survived. He couldn’t survive as a tightrope walker for 20 years unless he knows exactly what he knows and what he doesn’t know.  He’s worked so hard at it, because he knows if he gets it wrong he won’t survive. The survivors know.

Knowing what you don’t know is more useful than being brilliant.”


In today’s market you may be tempted to rush into investments in electric cars, social media, pharmaceuticals or Chinese retail companies. But what do you really know about those businesses?


Take it from Munger and Buffett. Being able to admit what you don’t know is immensely more important for a successful investing career than anything else.

Buffett and Munger have gladly given up opportunities to invest in nearly all new technology stocks because it is outside of their “circle”.



What Book has the Most Page-for-Page Wisdom?




After asking his following of 27,000+ what book offers the best page-for-page wisdom, here are the most frequently cited books.




 History of the Standard & Poor’s 500



For any other financial history buffs out there, this should be a worth-while read.

The purpose and structure of the S&P 500 has changed tremendously in the last 50 years. So what does it mean when citing historical returns of the S&P 500? We frequently see statements about average returns for the index (and I am very guilty of this), but is it still relative when decades ago the index was so much different? In 1976 the index was required to contain 400 Industrial, 40 Utility, 40 Financial and 20 Transportation stocks. Today that requirement no longer exists. Are the returns of 1976 comparable at all to the returns today, of an index made up primarily of financials and technology?




The pendulum is swinging heavily toward passive, index approached investing. This is not necessarily a bad thing, but the big question for indexers is “What index are you going to follow?” Just because a fund is passive and follows an index doesn’t mean it’s a golden ticket to investing riches. You have to have a purpose for investing in that index.


This history on the S&P 500 helps understand what the S&P 500 index represents. From there you can decide if it is a correct benchmark for your investment performance.




Off Topic: The Truth We Won’t Admit: Drinking Is Healthy




If you need an excuse to have an extra glass of wine or beer after this exciting week in the markets, don’t feel guilty about it – it may actually be good for you!


“So the more you drink—up to two drinks a day for woman, and four for men—the less likely you are to die. You may have heard that before, and you may have heard it doubted. But the consensus of the science is overwhelming: It is true.”



That’s all for this weekend!

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