Where to Fish

“The first rule of fishing is fish where the fish are.”- Charlie Munger

I think before thinking of a geographic region, a sector might be more fundamental. Terry Smith's ideas of fishing in the 3 sectors of consumer products, healthcare and technology is due to the enduring ROIC of those three. The enduring ROIC of those three is from its moat(s) that provide it with a competitive advantage and pricing power. My fondness for tangible wealth is silly at times and leads me to energy, material and cable companies. Those three sectors require a tremendous amount of capital expenditure and its pricing power is almost non-existent due to commodity cycles. Even cable as it works against the wheels of technology when access gets cheaper over time. This is compared to sectors I should look at with light-asset companies that have pricing power due to its structure. I need to get the structure right from the foundation of the building. It is hard to change habits though as evidenced by my infatuation in my portfolio with energy and increasingly material. It is difficult to know something about technology and medicine, but I can start learning from consumer products as I am a consumer. Medicine will need to be worked on and maybe I can see patterns from the two in technology one day.

Change

It seems like living in the past is dangerous even if they say history rhymes. It's fascinating how things change, but it seems that change itself is changing. The dominant companies are now even more dominant and have gotten there in only since the 2010's.

Three Types of Value Creating Companies vs. Value Destructing Companies

1. Can redeploy capital and grow it in early stages of building out such as Wal-mart or Amazon in the past. 2. Can redeploy some of the capital, but return the rest of it such as Lowe's. 3. Capital light and returns all of the capital such as tobacco companies or See's Candy. 1. Cannot reploy capital efficiently and needs more of it such as Berkshire's early mills. 2. A slowly melting ice cube such as cable stations in face of NFLX. 3. Does not have a satisfactory return on capital and has little or no prosect of future growth such as newspapers or B&N.

All One Long Game

It is all one long game. Calendar year performances are silly and I always think about the legendary Bill Miller streak and the arbitrary divisions of a calendar year. Miller quickly dismisses the significance of the streak: "Our so-called 'streak' is a fortunate accident of the calendar ... If your expectation is that we will outperform the market each year, you can expect to be disappointed."