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  • Writer's pictureJoe Cardello

Value Investing

May 2, 2023

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

-Charlie Munger (Warren Buffett’s business partner)

Love of Investing and Value Investing:

I love the honesty of the financial market. People can try to control it, they can push their views, and the prices of companies, away from their inherent worth for a time, but ultimately reality will be reflected and laid bare. Usually not on a timeframe we would like, but because people are influenced by short term results, it presents opportunity.

Thank you to all our clients of August Wealth for trusting us to find those opportunities for you.

Life and Investing are intertwined:

One of the books I read this month was: Richer, Wiser Happier, by William Green. I thought the author did an excellent job of interviewing successful value investors. Although each has their own style, I thought there were some common traits among most:

  • Their own personal growth and betterment of self was interwoven into their quest to become better fund managers. Life and markets are not separate.

  • Financial wealth was not their motivation (it may have been at one point). They all acknowledge the comforts money affords them, but they also recognize:

    1. Money is not a source of their happiness.

    2. Their relationships were a source of their happiness.

This all resonates with me as many of you know by now.

I was struck by Warren Buffett speaking about the character of his partner (since the 1960’s) Charlie Munger. He mentioned something to the effect that Charlie always gives the other guy the better end of the deal. What a pleasure it is to deal with people that you know are smart, that you know will get a good deal for themselves, and that if they are doing business with you that you are getting a good deal too!

Often people mistake generosity and meekness for weakness. That is a naïve view because people with self-awareness and self-assuredness, know that these characteristics are the greatest source of inner strength. Someone like Charlie Munger can act with conviction quickly and easily because he works hard at practicing self-reflection. If you underestimate people like him, you are making a mistake. You should want to emulate or align with people like him and avoid people with the opposite traits.

Some may not be familiar with Charlie Munger, and I thought it was worth highlighting some of the impressions William Green took away from his time spent with him and others: As Green describes in his book:

  • Strive to consistently reduce capacity for “foolish thinking”, “idiotic behavior”, “unoriginal error”, and “standard stupidities”.

  • A mental trick to safeguard against stupidity is to imagine the worst outcome and work backward by asking what misguided actions might lead you to a terrible fate and then avoid self-destructive behavior.

  • Actively collect examples of other people’s foolish behavior is an invaluable antidote to idiocy. Traits such as: ingratitude, poor moral judgement, self-sabotaging, unrealistic, uncompromising, envious, resentful, unreliable, and egotistical.

  • Acknowledge things that ruin people and exhibit dangerous downside asymmetry; drugs, liquor, leverage, extramarital affairs, cheating on taxes or expenses. Regardless of one’s moral views they are foolish bets.

  • The ability to self-analyze and admit when you yourself act like an idiot.

  • Munger quotes Benjamin Franklin: “If you would persuade, appeal to interest and not to reason”. He goes on to say: “a simple precaution in life: Never, ever think about something else when you should be thinking about the power of incentives.” Understand people’s motivations.

  • Be mindful that: The human mind tends toward avoidance of pain, and a tendency to cling to our existing convictions. Overestimating our own talent, distorting reality, and overoptimism. In short, our brains can be our own worst enemy without considerable self-reflection.

  • Write down what emotions, actions, and beliefs that have caused you to make mistakes in the past.

  • Always try to disprove your hypothesis. Ask: why might I be wrong?

  • Science shows that hunger, anger, loneliness, tiredness, pain, and stress are common preconditions for poor decisions. And the four things that are known to improve brain function are: Meditation, exercise, sleep and nutrition.

Buffett says of Munger: “In 41 years, I have never seen Charlie try to take advantage of anyone…. He has knowingly let me and others have the better end of a deal, and he has also always shouldered more than his share of the blame when things go wrong and accepted less than his share of credit when the reverse has been true. He is generous in the deepest sense.

Clearly this is a person to emulate. And to take a note out of Munger’s playbook: People that act in opposite fashion by taking advantage of others should be disassociated with (for their benefit and yours).

When Munger was asked how to lead a happy life, he talks about the quality of their relationships, and the joy of partnering with decent, trustworthy people.

A Constant Challenge:

I try hard to detach from hurt feelings, the selfishly motivated, and my own mistakes in life and investments. It requires work every day. My progress is reflected in:

  • Being able to move through pain. This allows me to experience all of life’s amazing pleasures in a deeper and more meaningful way.

  • Being able to distance myself quickly from people that are “takers”. This efficiently reduces distraction, doesn’t enable bad actors, and it allows me to build constructive relationships with others.

  • Being able to learn from my own mistakes, poor investment decisions, and move forward makes me a better investor. The pain of losing money is important; it’s certainly not fun, but when I reflect on the past, it is my mistakes that have helped me the most.

I thought a quote at the end of Greens book was outstanding. It was in relation to a question asked by a Jewish survivor of the Nazis. This man survived because a seventeen-year-old girl from Amsterdam risked her own life to save him when he was a young boy. He couldn’t comprehend how a complete stranger would do this for him. His psychiatrist said: “It’s simple. If your life is more important than your principles, you sacrifice your principles. If your principles are more important than your life, you sacrifice your life.”

Life will end, but what we do for others lives on.

Focusing on Value Shares:

You may have noticed several individual companies added to the portfolio recently. This reflects the following:

  • We remain somewhat defensive on overall market direction as we have discussed in previous notes.

  • We generally invest in a diversified group of companies that have the following characteristics:

    1. Profitable

    2. Producing lots of cash flow after debt obligations

    3. Growth in an attractive industry

    4. Attractive valuations

    5. Small to Medium in size (not in most of the larger passive indexes)

Essentially, we are finding conditions to be attractive for value based on our research. A crude and simple way to reflect this is the chart below. The purple line represents the Year-to-Date percentage performance of the S+P 500 ETF, and the orange and blue line represent proxies for Value shares in the small and mid-size companies in the USA.

It is important to point out that patience is required when buying value at attractive prices because the companies are usually out of favor with the masses. That means that prices can remain depressed for some time. However, if these companies continue to earn, they become more valuable inherently, and eventually we anticipate that value will be recognized by the market through higher prices.

If you have any questions on this, please feel free to email me. I would love to hear from you.


Joseph Cardello, Principal

August Wealth Advisors, LLC

51 Riverside Avenue, First Floor

Westport, CT 06880

Direct (916) 461-9451 toll free (800) 985-9477

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