Weekend Reading

Weekend Reading

I thought I’d put up a quick post with a couple articles I’m reading this weekend. But first, I wanted to mention to readers that I’ll be speaking at the MicroCap Conference in Philadelphia on October 24th. It should be a fun event with both investing strategy discussions as well as opportunities to talk with management teams of small companies about their businesses. Check out their site for more details or to register for the event. If anyone is attending and would like to meet up, feel free to contact me.

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Weekend Reading

I often get asked what I read on a regular basis. At some point, I’ll put together a list, but for now, this list covers lots of ground, and overlaps with a good amount of what I read as well. This list was put together by my friend Connor Leonard, who manages the equity portfolio for IMC, a holding company that owns stocks and wholly-owned businesses. Connor also has written a couple excellent guest posts here on BHI. This is an AP-style ranking of Connor’s top reading material:

How A Weakening PE Market Serves As Another Sign Of A Weakening Economy

InvestAmid the turmoil in the public markets and the staggering macroeconomic environment, it should come as no surprise that the private markets are also struggling. In fact, there are some important links between private equity and the current economic environment. A closer look at PE reveals that the industry often serves as a leading indicator Read More


The Economist ranks number 18 on his list, just behind Women’s Wear Daily (which to date remains unranked on my Top 25). I tend to read the Economist on the weekend, as it usually contains a number of articles and news I find interesting, but these articles often get pushed to the back burner during the week.

Here are a few that I thought were worth reading this weekend from the Economist:

Still Ringing Bells–Slowing Growth and Less Innovation Do Not Spell the End of an Era

According to one research shop’s estimates, the global smartphone market will be about a $350 billion market this year. It is maturing, especially in developed countries, which was a primary reason for Apple’s stagnating stock price earlier this year. However, I agree with the author’s main point in this piece. The smartphone generally, and Apple in particular, have a very bright future (despite the saturation level).

My thought that I’ll add is that while innovation and technological shifts will keep occurring, Apple will continue to be a primary conduit from which that technology finds it way to the consumer. Apple sells hardware and software, but it is first and foremost a brand. Regardless of what widget it produces going forward, the brand remains one of the most valuable in the world. (And while other widgets will become popular, the iPhone isn’t going anywhere).

The REIT Stuff–Explaining the Boom in Property-based Investment Trusts

I think the residential housing market in the US is very strong, and with low inventories, low interest rates, still below average new builds, and the largest generation in history (the millenials) still largely preferring to rent (this will change as they get married, get dogs, get kids, get minivans, etc…), there are some tailwinds to that asset class.

I don’t feel as good about some of the commercial property sectors, as capital has been flowing into that asset class at a very high rate over the past few years:

“This year their market capitalisation passed $1 trillion, or 4% of the American total, close to the size of the utilities sector. They have been performing well, beating the market in 2014, 2015 and so far this year, when they have generated a return of 18.1%, and are trading at an average multiple of 23 times earnings, compared with 17 times for the S&P 500 index as a whole. In a mark of their new prominence, this month S&P and MSCI, another index provider, classified real estate as a distinct sector.”

Retail investors love these stocks for their dividends, and the sponsors love to issue those retail investors new shares, as their incentives often are aligned with “assets under management” (the more debt and equity capital they issue, the more they get paid). All REITs shouldn’t be painted with this brush, but the demand for dividend income from mom and pop investors who can’t find comparable interest rates for their savings have driven a large amount of demand for these securities. Those capital flows mean more demand for the underlying real estate, which has driven cap rates (a property’s cash flow divided by its purchase price) toward all-time lows. This, along with the high management fees, should be heavily considered when considering investing in these stocks, which own cyclical assets.

Prison Breakthrough

An interesting piece about the Nash Equilibrium, a theory which is best illustrated by the famous “prisoner’s dilemma” (which is described in the piece). Nash was a mathematical genius whose life was the subject of the movie A Beautiful Mind, and his contributions to mathematics and the subject of game theory won him a Nobel Prize. The Nash Equilibrium has practical implications for the business world:

“From auctions to labour markets, the Nash equilibrium gave the dismal science a way to make real-world predictions based on information about each person’s incentives…

“…Nash’s idea had antecedents. In 1838 August Cournot, a French economist, theorised that in a market with only two competing companies, each would see the disadvantages of pursuing market share by boosting output, in the form of lower prices and thinner profit margins. Unwittingly, Cournot had stumbled across an example of a Nash equilibrium. It made sense for each firm to set production levels based on the strategy of its competitor; consumers, however, would end up with less stuff and higher prices than if full-blooded competition had prevailed.”

Charlie Munger once mentioned how perplexed he was at how one industry (such as cereal makers) would all coexist with sizable profit margins while another industry (such as airlines) relentlessly pursue market share, eroding profitability in the process. It seems that airlines pursue their own interests to the detriment of the entire industry, whereas cereal makers (at least at one time) for some reason found a Nash equilibrium.

A Few Other Articles from Other Publications:

Have a great weekend!

Disclosure: John Huber owns shares of Apple and Saber Capital Management, LLC manages accounts that own shares of Apple.

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John Huber is the author of Base Hit Investing, a blog about value investing concepts and ideas. He also is the founder and portfolio manager at Saber Capital Management, LLC, a Registered Investment Advisor that manages equity portfolios for clients using the value investment principles of Ben Graham, Warren Buffett, Walter Schloss, and Joel Greenblatt.
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