Interview with Matthew Peterson
Interview with Matthew Peterson on Books
1. We’re Still Here, with Comments!
Some of us are watching companies eagerly. Some of us are so tired of the uncertainty and anxiety in our real economy and our lives that we’re just OVER it. Some of us are dealing directly with health issues, which always takes priority over wealth. Still, just by starting to read this, each one of us has shown up for investing practice. If you feel like it, really take a beat and thank yourself. Not fake thanks or quick thanks, but truly give thanks to yourself for giving yourself space to think in all the craziness, and to feel grateful for that space.
I have SO many resources to send to you today. The fun part of investing practice these days is that there is a lot to learn, and a heck of a lot to be distracted by, if that is something that’s helpful to you. Also, it’s totally ok to practice investing by wandering through companies on your phone or computer while watching the latest terrible reality shows on Netflix. I finished “Too Hot to Handle” the other day. It was everything I wanted in a show to which I barely paid attention and in which the biggest problem was getting publicly outed by a computer for lying about kissing in the bathroom. In other words, it was perfect. I wish there was a Season 2 already.
Big announcement: Now we have a Comments section! Under each issue on The Archive, you can leave comments and talk to each other. Please treat each other as if you were at a dinner party together: politely, with an interest in making friends, and avoiding politics and religion unless delicately brought up. No talk about options or particular prices of companies, which I know some of you will find annoying, but this is not the place to obtain the opinions of strangers on your finances. Let’s make it a happy discussion spot.
2. Filings from Guru Investors
I’ve been looking for an easy way to track the 13-F filings from the big guru Buffett-style investors – and Mr. Buffett himself, of course. The US requires any institutional investment manager who uses US commerce AND manages $100 million or more – so basically, the big guys – to file a form with the securities regulator every quarter. This form must list those companies the manager owned as of the end of that quarter.
They just straight up have to tell us what they own. It’s great. It can be nerve-wracking for them, because their choices and returns are exposed publicly, but it’s great for us. We get to learn from famous investors and obtain new ideas about companies to review four times per year.
Each filing is due within 45 days after the end of the given calendar quarter, which end on March 31, June 30, September 30, and December 31, with some variations for weekends and public holidays. The managers can file before that 45-day deadline, of course, but, almost always, they wait until the last moment. Therefore, the 45-day mark tends to be the big day to find out what companies our investing gurus own.
For the upcoming filings, here is a calendar of filing dates for 2020-2022 straight from the SEC’s frequently asked questions (quite helpful, thank you, SEC people):
The Form 13F filing deadlines for the quarters that end in the calendar years 2020-2022 are:
|Quarter||13-F Filing Deadline|
|1Q 2020 (March)||May 15, 2020 (Friday)|
|2Q 2020 (June)||August 14, 2020 (Friday)|
|3Q 2020 (September)||November 16, 2020 (Monday)|
|4Q 2020 (December)||February 16, 2021 (Tuesday|
|1Q 2021 (March)||May 17, 2021 (Monday)|
|2Q 2021 (June)||August 16, 2021 (Monday)|
|3Q 2021 (September)||November 15, 2021 (Monday)|
|4Q 2021 (December)||February 14, 2022 (Monday)|
|1Q 2022 (March)||May 16, 2022 (Monday)|
|2Q 2022 (June)||August 15, 2022 (Monday)|
|3Q 2022 (September)||November 14, 2022 (Monday)|
|4Q 2022 (December)||February 14, 2023 (Tuesday)|
I’ve put those filing deadlines on my calendar.
The chart tells me that I won’t get any information about what guru managers have done this insane first quarter of 2020 until mid-May. I have to wait another three weeks, which is SUCH a bummer.
In preparation for the upcoming 13-F filing season, a good source of 13-F data would save me a bit of time. Obviously, I can look up the actual filed documents myself on the SEC’s website for free. However, doing so is clunky and time consuming. The only reasons to use a third party are (1) to easily scan a bunch of investors at once, or (2) to be able to see aggregate data over time of a given investor’s ownership. Both sorts of information are extremely useful.
Big caveat here: 13-F filings ONLY cite stock ownership. They do not include any short selling at all. They don’t include any options or derivatives. They only list the companies in which these investors own stock outright. So, just be super aware that the 13-F filing may not show the full picture of what a guru investor is doing with her portfolio, and take it as interesting information with a mountain of salt.
Concurrently with looking for 13-F information, I’ve also been looking for past letters from guru investors to their investors. Just like Buffett writes a letter annually to his shareholders, many fund managers write letters to their investors. These letters are often an extremely educational view into how value investors think. I also always am particularly interested in the language they use – the word choice, phrases, the accepted way to describe an investing philosophy or idea. Language is a thick barrier for many newbies, and certainly was for me, and learning to read and speak the language of value investing goes a long way to feeling comfortable in the world of value investing. Reading letters from respected value investors has been massively helpful to my speaking their language.
3. Treasure Trove of Value Info
So. You guys. There I was, looking for letters from value investors on the same day that I was trolling the internet looking for 13-F filing reports, and I found this website: Mine Safety Disclosures. Its posts haven’t been updated since last year and I’m not endorsing the posts at all, but here is the exciting part: this site offers both letters AND 13-F filings. Good ones. Value investing ones.
The name “Mine Safety Disclosures” itself cracks me up. Under the Dodd-Frank Act, a company must disclose publicly its safety information for its mines (like coal mines, copper mines, etc.) if they or their subsidiaries operate mines. For a few years after the law came out, the form provided by the SEC included the mine safety disclosure section for every company – even those that do not have mines! Those that didn’t would just put “not applicable” and move on, but it was still there, cited on the annual report. Now, they usually just don’t include it if it doesn’t apply, but the name is a nice reference to stupid hoops companies must jump through, and I have to say, this site has been an incredible resource for me to avoid some stupid hoops.
It is value investing focused. It has most-owned companies. It has individual investors. It has many fund manager’s letters. Obviously, I don’t know if the information is reliable or up-to-date; that’s for you to double check as you go through your process. It’s a heck of a good starting point, though. I’ve just started to comb through all the information this site offers – there is SO much. It’s a fantastic resource for us.
Whoever created the site, thank you for creating a trove of information for us. You are very appreciated.
4. Read, But Faster
We have a special guest interview again this week, with investor Matthew Peterson, which I have split into two sections. First, the books. Matthew is a voracious reader and one of the most educated people I know about the intersection of behavioral economics, behavioral psychology, and investing. Whenever he tells me what he’s reading, I go get the books. In this interview, he gave us three books and one mega-tip for reading more, which I tried out.
Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts, by Annie Duke
A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market, by Edward O. Thorp
A Universe from Nothing: Why There Is Something Rather than Nothing, by Lawrence M. Krauss
The mega-tip for reading more:
One of first thoughts when this lockdown situation started was that I would read more. Yeah. No. I don’t know why exactly, but I just don’t have the energy to read much these days. I’d say I’m actually reading LESS than in normal times. Almost everyone I’ve asked about their reading has said the same, actually. It seems like most of us are just kind of exhausted. We’re worn out. We want fluffy entertainment at the end of the day, not deep thoughts. It is what it is.
Therefore, I was excited try out Matthew’s method and hopefully use it to read more books. To read a book far more quickly, he combines listening to the audiobook on high speed with reading the book at the same time.
I’m a quick reader. It’s my one superpower. I’ve never tried to speed-read like those people who flip pages one after another and then have read the whole book in twenty minutes, I’m just a normal quick reader as a result of being an introverted and bored child in a small midwestern town with no cable TV (verboten in our house) and access to a great public library. But, I’d love to read even faster.
I tried out Matthew’s method with A Man for All Markets, which I bought on Audible and Kindle. I started out by listening on 2x speed with Chapter One, and then once I got used to following the voice along with my eyes, increased the speed steadily until I was at the max speed Audible offers, which is 3.5x speed. It was disorienting at first because the voice is almost totally garbled at that speed. Impossible to understand – unless you’re reading along with it. I actually, surprisingly, quickly got used to the strange sounds and connecting them with the words I was reading.
I have to admit, at the max speed, once I got used to it, I still felt like I was reading too slowly. Frustrating! My eyes kept automatically skipping ahead from the audio, and then, because the audio is so hard to understand at that speed, losing the spot the audio was reading, and then my head started to hurt. I wanted this to be an incredible breakthrough in my reading, but for me, it wasn’t. I wonder if the speed could go up to 5x, would it make me read more quickly?
Very curious to hear whether the method works for you guys.
5. Where There’s Mystery, There’s Margin
In the second interview with Matthew, above, he delved into his in-person research process after he finds a company about which he’s curious – often because he doesn’t understand it. You know how I always say Too Boring is a very important box into which we should toss any companies that aren’t interesting to study? The opposite is equally true: feeling curious about a company means keep after it! It’s fascinating to investigate the hidden corners, and that’s where Matthew finds value.
My key takeaways from his example of investigating the Daily Journal were:
- Talking to employees of a company in person can provide completely different information than simply reading about that company.
- Hidden value is not on the balance sheet – it’s found in high-quality management, employees, culture, and other stakeholders.
- If a company has a community that would not function well without the service that company provides, then that’s going to be a much more protected, sustainable company in times of volatility.
These are each such true and useful points that I shall follow the example of the Daily Journal chief, one Mr. Charlie Munger, and say simply that I have nothing more to add.
6. How I Fixed a Mistake (I Hope)
It’s my job as an investor to ruthlessly acknowledge my mistakes. If I don’t consciously call them out and develop a plan to not make that mistake again, I’ll obviously just keep making the same ones over and over and THAT gets me a whole lot of nothing. We all have blind spots. It’s those of us who acknowledge them and address them that make progress.
These mistakes of mine make me so happy. Not initially, of course – initially they torture me, and then I feel ashamed, and embarrassed, and then I get mad at myself. It’s basically the stages of grief. And now, I suppose, I’m somewhere between bargaining and acceptance. It’s a strange emotion to feel happy about a mistake, but it’s so joyful to know exactly what to do better and how to do it better. Progress! I love progress.
The author of the book Risk Intelligence interviewed quite a few gamblers who played probability-based games, and found that, of the ones who actually made money consistently, they admitted their blind spots, they took detailed notes of their losses (a painful process) as well as their winnings (a satisfying process), and they reviewed their strategies regularly to see what worked and what didn’t. They used their own data to get better.
In our interview above, Matthew Peterson mentioned that in Annie Duke’s book Thinking in Bets, she asked business leaders their biggest mistake. Usually people will say an outcome was the mistake, not a process. But actually, the that negative outcome may have just been a low-possibility result of the correct decision, given all knowable information. I like hearing how probability-based gamblers take losses because we investor are often so bad at accepting mistakes and losses. There’s the Buffett admonishment: Don’t Lose Money! So if I DO lose money – then what? If you have 90% chance of something happening, and the 10% happens, then what? That’s where process comes in. it was still probably the right decision.
Following the lead of these gamblers, I’ve used my own data to try to improve my process.
Here are the steps I used for this one:
- Identify what I wish had not happened
- Was it really a mistake?
- If so, what was the problem that caused the mistake?
- What can I change to do it differently (hopefully better) next time?
- Make that change.
Since the very first time I bought Practice Shares (that whole story is in Chapter 9 of Invested), I’ve avoided looking at day-to-day stock prices of companies I want to own. It’s purely a psychological choice: seeing the price anchors me into thinking “oh that company is valuable” or “oh that company must not be doing that well.” That anchoring is a cognitive bias that adversely affects my independent analysis. And the next thing I know, I’m reviewing the company thinking “oh man, I’m never going to be able to buy this, what’s the point?” I hate that attitude. It doesn’t serve me. I have good reasons behind it. So, I try not to look at prices.
Well, in that great tradition of double-edged swords, I got cut by this one. By not following the prices, I missed watching some companies have a realtime price drop in March. Nothing to do with buying or selling. The mistake was that because I avoid seeing prices, I hadn’t prepared a good method of doing the opposite, and I realize now, in hindsight, that I wish I had been watching lots of companies all at once.
1) Identify what I wish had not happened: I wish I had not ignored the prices on certain companies day-to-day in the midst of a market crash.
2) Was it really a mistake? Yes. I still think it’s important not to get anchored to prices, but I’ve got to know when big moves happen.
3) If so, what was the problem that caused the mistake? There were two contributing problems, actually. The first was on a mechanical level. I don’t have a method of tracking prices that I actually like to look at. The second contributing problem was on a personal level. I was dealing with family crisis related to the coronavirus and traveling overseas at the same time, stuck in a hotel as everything shut down around me and I couldn’t get on a flight. There was a lot of noise in my day that kept me from paying better attention to the market.
4) What can I change to do it differently (hopefully better) next time? For the first problem, I want an online watchlist that gives me the data I actually want to see, or is customizable to give me the data I want. I really dislike the little intraday up and down arrows, and red and green colors, indicating whether a stock price is ticking up or down minute by minute. They make me anxious. Mohnish Pabrai famously does not buy or sell when the market is open for the same reason. If I had a watchlist app that gave me some longer-term data (as well as the current stock price), I’d probably use it regularly. For the second problem, add to my crisis checklist certain changes I could have made, even in my travel situation, to watch the market.
5) Make that change: I’ve added to my crisis checklist, and I’ve spent a bit of time looking for a good watchlist online that will give me P/E ratios, long-term price data instead of intraday movements, and sector information, but haven’t found one yet. I’d prefer to use one I don’t have to log into (like I do for my brokerage) because that login process is an extra step that could keep me away from the information. If you have any suggestions for customizable watchlist apps, please leave them in the Comments! Because now we have Comments!
I’m excited to read Thinking in Bets because I hope it will help me refine this process of mistake evaluation.
LET’S GET PRACTICAL
Ellen Carr’s excellent op-ed about companies that should add an extra “C” to their ESG criteria, where the C stands for Creditworthiness. So worth reading. It’s funny because it’s true.
The Economist laid out some hard truths about how we’re going to deal with all the debt.
Charlie Munger gave Jason Zweig an interview a few days ago (WSJ paywall) in which Charlie basically says he’s waiting. No one is calling him to buy their companies – yet.
Headspace is offering free meditations right now, including a three-minute one called “Panicking” which I can report is indeed calming.
Um, what? The UN estimates that the number of people people facing starvation globally will double, from 130 million to 265 million, because of disruption in the food chain due to pandemic shutdowns across the world. As if this virus weren’t enough.
Oil prices crashed. The reasons why are very complicated, and, surprisingly, very interesting. I know almost nothing about oil or oil companies, and they’ve never interested me enough to do the research. All of a sudden, though, oil leapt out of my “Too Boring” box and into my “Curiouser and Curiouser” box, and I read up a bit when I couldn’t sleep the other night. So many speculators have piled into the main US oil ETF that they actually shut down the fund. (WSJ paywall)