🌎 Cathie Wood; the biology of business with Charlie Munger; Buffett says to read about dinosaurs

May 21, 2021

👋 CMQ Investors,

I hope you are well. New York City is coming back to life. I’ve been busy running my business, but have quietly been building-up a content library to share with you. There’s a lot to look forward to…

📢  Important Announcements

🔐 Paid Subscription: The official announcement will arrive in your inbox next week. It’ll explain all the benefits. You can upgrade now if you’d like.

🎧 Currently Creating: A podcast episode about Cathie Wood, ARK Invest, and the myth of the star stock-picker.

📈 Compound Money Quietly: Our podcast is on-pace to break our one month record for streams. Thank you for listening!

The Myth of Cathie Wood

Active management was going out of style, but in 2020, Cathie Wood and ARK Invest made history. I will have much more to say about this in the upcoming episode of Compound Money Quietly.

Wood’s ARK Invest reminds some seasoned investors of the Dot-com Bubble.

Many of the comments I came across online mentioned Janus. I was a kid in the 90s so I had to read-up:

There's one King Kong in the mutual fund jungle with greater reason to thump his chest these days. The $37 billion-asset Janus Twenty Fund, managed by Scott Schoelzel, provided a robust 54.33 percent return over the past 12 months. Among the 10 biggest stock mutual funds in asset size, it was the top performer thanks to keeping almost 60 percent of its portfolio in technology stocks.

Janus Funds even used a similar strategy as ARK i.e. aggressive, concentrated bets in high-flying growth stocks.

Throughout the bull market of the 1990's, the mutual fund group was closely identified with an aggressive growth style -- outsized bets on fast-growing companies with little regard to price. It delivered spectacular returns.

But then it all came tumbling down.

📚 Reading: Once Bold, Janus Shows Its Conservative Side (NYTimes)

💬 Wisdom from Legendary Investors

Thematic investing is what ARK does. I am always learning, but as of right now, I don’t believe in the premise. More on that later…

"The experts do not have dependable ways of selecting and concentrating on the most promising companies in the most promising industries."
—Benjamin Graham

“Avoid the popular. When any method for selecting stocks becomes popular, then switch to unpopular methods. Too many investors can spoil any methods for buying shares.”
—John Templeton

Charlie Munger & The Biology of Business

Charlie Munger in a 2020 conversation:

“Over the long-term, the companies of America behave more like biology than they do anything else. In biology all the individuals die and so do all the species. It's just a question of time.”

Charlie Munger at the 2021 Daily Journal meeting:

Business success long term is a lot like biology, and in biology what happens is
the individuals all die and eventually so do all the species. And capitalism is almost as brutal as that.”

👉 Did You Know: 99% of all Earth’s species are extinct.

Carol Loomis pictured with Warren Buffett

Warren Buffet: Study the dinosaurs

At the 1993 Berkshire Hathaway shareholder meeting, Warren Buffett recommended this article about dinosaurs by Carol Loomis. It tells the story of how three of the most “fearsome companies” went into a decline.

🔑 Key Takeaway: Failure to adapt to profound change was the root cause.

👉 Loomis’ Advice: Don't be over-impressed by your market position; your moats; your wealth; or yourselves.

Where will these companies be in 20 years?

👉 Did You Know: The avg. life-span of companies listed in the S&P 500 is 18 years. 18 years? 18 years!

📚 Reading: Why you will probably live longer than most big companies

CMQ Investing

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