The Munger Way

Dear reader, this article introduces two perspectives on markets. The first is a classic economical view on a market - the Capital Asset Pricing Model. The second is from a view point of a gambler - the Parimutuel betting. Both models are based on the idea of transactions - the price of an asset (or bet) is defined by the price of the last transaction of that bet. Caprital Asset Pricing Model The fundamental assumption of Capital Asset Pricing Model (CAPM: http://en.wikipedia.org/wiki/Capital_Asset_Pricing_Model) is that all Investors are (1) rational, (2) risk-averse and (3) cannot influence market prices. The result is, that market prices move in unpredictable manner and equals a gauss distribution. This chaotic price movement is only influenced by (4) new information hitting the market, which should be unpredictable. I want to argue against CAPM. Therefore I have to disproof at least one of the assumptions above. (1) Rational investors: Behavioural finance suggests that ...

Dear readers, I am following Microsoft since 2010. It was one of my first companies I looked through the books after I decided to have a new hobby: value investing. I have to admit, I did not understand many of the numbers back then. And 3 years later I know much more about accounting and valuation, but I have many doubts that I  interpret the numbers 100% correctly. As Warren Buffett tells "Accounting is the language of businesses." - its a hard and complex language! I follow the Peter Lynch approach "invest in what you know". And I understand the economics of the software industry. I began coding software at the age of 14. Since then I am interested in the topic "What makes software companies successful". In 2010 I knew that Microsoft would not beat Android and Googles search and advertisement empire. But I know, that in 10 years there will be at least as many workstations as today running MS Windows and Office. And thats the core of my investment...

Dear Reader, I had met my thesis supervising professor today. He is professor for operations research and scientific management and he supervises and helps me with my thesis about inner city routing of fire trucks with real time traffic information. (My childhood dreams come true! Now I am playing with real fire trucks ;-) We talked about the structure of my thesis and the general problem of fast feedback systems (traffic systems, financial markets) versus slow feedback systems (behaviour of tankers and cargo ships). Slow feedback systems could be modelled stochastically. New information is perceived (a boat will cross the route), the probabilities of scenarios will be adjusted (evasion of the boat, no route change, ...) and than the problem is optimized with the optimal solution as output. In fast feedback systems new information arrives faster than the solution of the optimization is calculated. I would say, "Hey, I have money, lets buy some more computers!". Bu I am w...

Dear reader, I watched a seminar of a communication coach today. He said a very impressive thing "If you learn 1% new, teach it". It helps you to discuss your newly gathered information and to internalize the info. Mr Market is for me like a screaming retailer who tries to sell his goods. Since I heard the idea, I do not have any need to look into my portfolio and the numbers are to some degree arbritary. Value investing is hard work and most of the time boring. Now I think of investing in investment gurus rather than managing my own portfolio. On the other hand I learned so much about business models and personal finance because I have gone deep in the matter of value investing and I have a feeling of missing something if I quit value investing. But is value investing the thing I wanna do now? Does is provide more fun than building my own company or developing my software? no. if I am looking into the stock screeners I am not satisfied and thinking how I could improve it....