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Circle Of Competence Issue #13


Phil Fisher's 15 Point Checklist

Phil Fisher's investment checklist which undoubtedly has served many investors well for over six decades. Definitely worth a read. And then reread.

The Great Moat Debate of 2018

For those of you who follow Buffett's every move and interview (like this nerd does), you will recognize this argument between Warren Buffett and Elon Musk as a classical misunderstanding of what the word 'MOAT' means. Buffett means a competitive advantage that allows one company to achieve superior profitability on invested capital over their competitors. Musk cares only about doing cool things with new tech, regardless of how much cash he burns. While he believes innovation is the only moat that matters, Buffett has been investing longer than Musk has been alive, and I wouldn't discount the ability of Buffett to adapt to new forms of moats - highly innovative companies being one of them (look at his investment in Apple)!

These Earnings Aren't Real - Just Accounting Gimmicks

Interesting article on the difference between GAAP earnings in 2017/2018 and the actual cash flows (economic earnings) of the biggest 1,000 companies. This is a case in point as to why investors need to do their due diligence and get under the hood of companies' filings instead of taking reported GAAP numbers at face value.

Rising Bond Yields Are Being Felt From Housing To Stocks

Mortgage rates are rising, commercial rates are rising, and benchmark 10 year rates are rising. At the basics of valuation math are the numerator (cash flows) and the denominator (the discount rate). As rates (the denominator of said function) rise, valuations fall. It has been said that debt market lead equity markets - so what are bond markets saying at the moment? I make no predictions, nor do I care where rates go. But, Buffett always said the most important rate to know is the 10 year treasury because it gives a good idea of what types of returns can be had for little to no risk - and to value securities in light of this.

When Private Equity