Charlie Munger on Stock Picking

[via Abhay Bhagat] A speech by Charlie Munger:

I’m going to play a minor trick on you today because the subject of my talk is the art of stock picking as a subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom a much broader topic that interests me because I think all too little of it is delivered by modern educational systems, at least in an effective way.

And therefore, the talk is sort of along the lines that some behaviorist psychologists call Grandma’s rule after the wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.

The carrot part of this talk is about the general subject of worldly wisdom which is a pretty good way to start. After all, the theory of modern education is that you need a general education before you specialize. And I think to some extent, before you’re going to be a great stock picker, you need some general education.

So, emphasizing what I sometimes waggishly call remedial worldly wisdom, I’m going to start by waltzing you through a few basic notions.

What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.

You’ve got to have models in your head. And you’ve got to array your experience both vicarious and direct on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.

The Real Open Source Revolution

SandHill.com has an article by Shirish Netke, who says: “As open source gains momentum, it becomes clear that the revolution is in the business model, not the pricing.”

While the proliferation of Linux is used as a benchmark for open source adoption, the real opportunity in open source is in infrastructure components such as databases, application servers and portal which form the “plumbing” of an enterprise software application. Implementing an optimal combination of software components requires a sophisticated understanding of infrastructure technologies and product engineering skills. Intellectual service providers with product building skills are well suited to create built-to-order plumbing for applications.

This availability of built-to-order open source infrastructure presents a unique opportunity for application software vendors, especially start ups. A typical start up spends a significant amount of time and effort in building the plumbing of their application before it focuses on the value-added, domain specific aspects of their solution. This time and effort can be minimized to bring the product to customers faster and potentially cheaper than before. Large software vendors who have built their products more than a few years ago also benefit from migrating proprietary components of their software to open source. The resulting saving in licensing fees can be passed on directly to their enterprise customers making them more competitive.

The proliferation of open source has also led to new business models for infrastructure software players. JBOSS (www.jboss.com) forgoes licensing fees on its product but has a revenue stream based on subscription, maintenance and support. Jaspersoft (www.jaspersoft.com) takes advantage of JasperReports, a popular open source reporting solution to provide a commercial solution which includes support and services.

The new economics of open-source software are similar to the economics of free Internet search, TV, radio, or checking accounts the money is not in the product; it’s in the services and value delivered around the product. In a sense, the new breed of intellectual service providers are the modern day version of inn keepers and blue jeans suppliers of the open source ecosystem.

Mobiles and Newspapers

The Editors Weblog writes about a speech by Jim Chisholm, strategy advisor for the World Association of Newspapers:

[He] described how newspapers can profit from mobile technology, declaring that “Mobile will accelerate the newspapers renaissance.” Chisholm pointed out that, in fact, newspapers and mobile companies face a similar dilemma in that newspapers are trying to attract younger readers while mobile operators are having trouble signing up older generations. Working together could be very profitable for both media. He said that technology is changing the economics of consumerism in a manner that news organizations can no longer rely on being a single-media company and that newsrooms will have to learn how to better accommodate local news. Here are some of the ways showing how mobile technology provides the perfect medium for newspapers to expand their reach and increase revenue:

– Mobiles build single copy sales by creating a ubiquitous fountain through which newspapers can distribute their content.

– Portable devices add value to subscriptions through tools such as SMS announcements

– Newspapers can add video to their content through mobiles

– Mobiles increase advertising sales, especially classifieds through tools such as MMS where consumers can see photos of products

– Advertiser response improves through mobile use as newspapers can beam their advertisements to consumers while they shop

– Newspapers can build communities through mobile by, for example, alerting commuters to traffic problems

– Research is facilitated by mobile as readers can report in real time through polls and surveys

– Mobile helps newspapers create the news by relating more closely to the reader who are then encouraged to send in stories

– Newspapers can improve their operational efficiency with SIM card technology which allow them to update and track events as they are happening, as well as send photos immediately back to the newsdesk

– Mobiles attract new readers, especially younger generations who carry mobile devices with them everywhere

New Models Emerging

[via Sadagopan] Gerd Leonhard identifies the transformation we are seeing around us:

The Great Transition:

  • Music Industry (top down) to Peer to Peer (bottom-up)
  • Scheduled Television to Tivo
  • Media Publishing to Weblogs
  • Client-server applications to Web services
  • Circuit-switched telephony to VOIP
  • Licensed cellular to Unlicensed wireless

    The Key Megatrends related to the digital entertainment industry:
    1. The on-demand media lifestyle is here
    2. The end of customer sacrifices is near (music !!)
    3. Everybody is short of time, and must make choices
    4. The end of browsing is near (see Google morph)(This may be controversial though)
    5. In media, the traditional scarcity principle of valuation morphs into the ubiquity paradigm
    6. Radio is finally unbound (by spectrum or schedule)
    7. Consumers are starting to generate their own content
    8. A mass of niche markets evolves (lowest common denominator concerns becomes irrelevant)
    9. Time-shifting and space-shifting and device shifting become standard
    10. Long-tail opportunities are everywhere.

  • Structured Blogging Overview

    By Second p0st.

    “Structured blogging” is what people are calling the ongoing effort to make weblog content along specific lines machine readable and aggregable.

    “Aggregation” in its current form means bringing a bunch of posts together from different places and showing them in a convenient way – usually either on one page (“Dave Winer” style), with three panes (like an e-mail client – many desktop aggregators do this) or two panes (“Bloglines” style).

    Structured blogging is about letting the aggregator understand what you are talking about, and present things more intelligently. For example if you blog an event notification – maybe you’re talking about a concert next week – it might be shown on a calendar along with everyone else’s events. Or if you review something, it can be shown in context. I run a coffee review site, and you might be able to aggregate my reviews with some other local ones. Or perhaps my site could aggregate your reviews, from your blog, and you could see everyone’s coffee reviews in one place.

    TECH TALK: Shift-Ctrl: USA (Part 2)

    So, what has changed? What has dampened my enthusiasm for US trips? (And I am saying this having visited the US twice in 2004.) The simple answer would be the very thought of going through all the security checks and opening bags at every airport. Because I tend to have one-way tickets (I buy a round-the-world ticket) during my US visits, I am subjected to all the special checks. And I dont particularly enjoy those. Bags are opened and then have to be repacked. But at best, this is a minor irritant. This cannot be the real reason.

    As I thought deeper about this question, a few other factors came up.

    For one, blogs have definitely reduced my desire to visit to the US. Earlier, I used to feel quite isolated at an intellectual level. Visiting the US was like getting a fix for my brain. It was incredibly stimulating listening to people talk about the new ideas and innovations. Now, blogs do pretty much the same thing. Yes, I do miss meeting the people, but I can now get a daily dose of the best brains sitting right here in Mumbai.

    Second, during my last few visits to the US (and meeting people from the US in India), I thought I found people in somewhat of a holding pattern waiting and watching. Each week seemed to be a cut-and-paste of the previous week. The zeal for entrepreneurship, for taking risks seemed to have diminished. And with it the flow of new ideas. This could simply have been a result of lack of venture capital than anything else. Or it could be a portent of something deeper. Perhaps, a lingering uncertainty of the future. After all, the US is at war. Whatever be the case, that infectious enthusiasm which so charged me on my earlier US visits seemed missing.

    Third, and perhaps most important, I have begun to look inward at India and the opportunities within. The last couple of years have seen rapid growth in India. 2004 saw India at the centre of attention due to the outsourcing phenomenon catching the eye of the US politicians. Malls are sprouting all over. New residential and office construction of ever improving quality abounds. There are signs of improvements albeit small ones everywhere. Be it the airports where we admittedly started off from a very low level or the roads in Mumbai being widened or the connectivity options available or the exploding TV channels it almost feels that if you blink you will lose out on something new that just happened.

    Finally, in the areas of my interests broadband, mobility, tomorrows world I found that the real action was happening not in the US, but in Asia. Japan, South Korea, China were the models to reflect on and emulate. Especially in mobility, the new innovations were coming from the East, rather than the West. The Control was Shifting.

    And so it was that when I wanted to understand the state-of-the-art in communications, I chose CommunicAsia in Singapore rather than SuperComm in Chicago.

    Tomorrow: Singapore

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