Newsletter - December 4th, 2024

AuditorInvestor
Dec 4, 2024
2 min read

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

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Next Treasury Secretary Interview

Scott Bessent - the next Treasury Secretary of the US - has extensive experience in investing. Notes from a recent interview below:

7:30 Research

Dig deep into an idea. "Do the numbers match the story?" Don't just follow narratives.

20:00/42:30 Position sizing

His former boss George Soros said: “I just need enough information to make a decision”. We present you with the information we would require to make a buy decision.

"Earn the right to take a risk."

Then, build as your conviction increases. Start with a small position and add to it as your thesis strengthens. As Buffett said, you reduce risk by doing more work on the companies.

24:45 Asymmetric bets

Bessent explains how shorting the British Pound in 1992 was an asymmetric bet - the maximum loss was 2.5% due to the government's commitment to keep the Pound within the corridor of the Exchange Rate Mechanism - whilst potential gains were much larger due to weaknesses in the British economy.

In a small-scale manner, we seek stocks with limited downside and relatively larger upside.

28:30 Research

Play to your strengths. Don't listen to others.

Bessent was good at macro strategies. We stick to undervalued stocks.

34:45 Liquid Markets, Private Equity, and Chess

Liquid markets aren’t like chess; more like backgammon. There’s luck involved. And liquidity becomes important.

Private equity is more like chess as all the moves are on the board. You could use strategies used decades ago - like the Rockefellers and Mellons used in previous centuries to build their businesses.

We take the 'private equity' approach to valuing and investing in companies - with no borrowings that could take us out in a bad market.

45:00 Risk Management

Watch out for leverage, illiquidity, and concentration.

Also, when thinking in expected values i.e. probability x severity, if the severity could result in total losses, it's probably best to avoid the situation.

49:00 Reading the paper

Investment opportunities aren't obvious from reading the newspaper. Good and bad news are usually factored into stock prices. Investment requires at least second-order thinking to judge whether the prices are overvalued or undervalued.

54:30 Politics and Investing

Don't let your political beliefs drive investing decisions. It doesn't pay to be a zealot. This is generally true regardless of your investing style.

59:15 Preparation meets Luck

You need to put in the hours of research to position yourself for the 'lucky' breaks.

Newsletter - December 4th, 2024

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

Next Treasury Secretary Interview

Scott Bessent - the next Treasury Secretary of the US - has extensive experience in investing. Notes from a recent interview below:

7:30 Research

Dig deep into an idea. "Do the numbers match the story?" Don't just follow narratives.

20:00/42:30 Position sizing

His former boss George Soros said: “I just need enough information to make a decision”. We present you with the information we would require to make a buy decision.

"Earn the right to take a risk."

Then, build as your conviction increases. Start with a small position and add to it as your thesis strengthens. As Buffett said, you reduce risk by doing more work on the companies.

24:45 Asymmetric bets

Bessent explains how shorting the British Pound in 1992 was an asymmetric bet - the maximum loss was 2.5% due to the government's commitment to keep the Pound within the corridor of the Exchange Rate Mechanism - whilst potential gains were much larger due to weaknesses in the British economy.

In a small-scale manner, we seek stocks with limited downside and relatively larger upside.

28:30 Research

Play to your strengths. Don't listen to others.

Bessent was good at macro strategies. We stick to undervalued stocks.

34:45 Liquid Markets, Private Equity, and Chess

Liquid markets aren’t like chess; more like backgammon. There’s luck involved. And liquidity becomes important.

Private equity is more like chess as all the moves are on the board. You could use strategies used decades ago - like the Rockefellers and Mellons used in previous centuries to build their businesses.

We take the 'private equity' approach to valuing and investing in companies - with no borrowings that could take us out in a bad market.

45:00 Risk Management

Watch out for leverage, illiquidity, and concentration.

Also, when thinking in expected values i.e. probability x severity, if the severity could result in total losses, it's probably best to avoid the situation.

49:00 Reading the paper

Investment opportunities aren't obvious from reading the newspaper. Good and bad news are usually factored into stock prices. Investment requires at least second-order thinking to judge whether the prices are overvalued or undervalued.

54:30 Politics and Investing

Don't let your political beliefs drive investing decisions. It doesn't pay to be a zealot. This is generally true regardless of your investing style.

59:15 Preparation meets Luck

You need to put in the hours of research to position yourself for the 'lucky' breaks.

59:45 Long-term relationships

Enduring relationships provide resilience during challenging times.

For reports on the best investment values in stocks worldwide:

Wish you an excellent week ahead.

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