Season 2, Episode 7

  The Shoe Salesman

​Steven Mabb is our guest on the show today. He’s a recent QAV Club sub­scriber but has been a full time investor for the last cou­ple of years, since exit­ing a very suc­cess­ful footwear business.He and Tony com­pare notes about invest­ing in Inter­na­tion­al ETFs, why buy­ing stock #201 is a good strat­e­gy, neobanks, share­hold­er asso­ci­a­tions, and cheap bro­ker­age ver­sus using a full ser­vice bro­ker.

In our Club edi­tion, our stock of the week is BPT (again). And we answer a ques­tion from Ange about what qual­i­fies as a ‘recent pos­i­tive upturn’. We also talk again about the decline of our port­fo­lio in recent weeks due to the COVID-19 pan­ic. Tony reminds us about War­ren Buf­fet­t’s sto­ry about “Mr Mar­ket” in his 1987 let­ter to Berk­shire Hath­away share­hold­ers:

Ben Gra­ham, my friend and teacher, long ago described the men­tal atti­tude toward mar­ket fluc­tu­a­tions that I believe to be most con­ducive to invest­ment suc­cess. He said that you should imag­ine mar­ket quo­ta­tions as com­ing from a remark­ably accom­mo­dat­ing fel­low named Mr. Mar­ket who is your part­ner in a pri­vate busi­ness. With­out fail, Mr. Mar­ket appears dai­ly and names a price at which he will either buy your inter­est or sell you his.

Even though the busi­ness that the two of you own may have eco­nom­ic char­ac­ter­is­tics that are sta­ble, Mr. Market’s quo­ta­tions will be any­thing but. For, sad to say, the poor fel­low has incur­able emo­tion­al prob­lems. At times he feels euphor­ic and can see only the favor­able fac­tors affect­ing the busi­ness. When in that mood, he names a very high buy-sell price because he fears that you will snap up his inter­est and rob him of immi­nent gains. At oth­er times he is depressed and can see noth­ing but trou­ble ahead for both the busi­ness and the world. On these occa­sions, he will name a very low price, since he is ter­ri­fied that you will unload your inter­est on him.

Mr. Mar­ket has anoth­er endear­ing char­ac­ter­is­tic: He doesn’t mind being ignored. If his quo­ta­tion is unin­ter­est­ing to you today, he will be back with a new one tomor­row. Trans­ac­tions are strict­ly at your option. Under these con­di­tions, the more man­ic-depres­sive his behav­ior, the bet­ter for you.

But, like Cin­derel­la at the ball, you must heed one warn­ing or every­thing will turn into pump­kins and mice: Mr. Mar­ket is there to serve you, not to guide you. It is his pock­et­book, not his wis­dom, that you will find use­ful. If he shows up some day in a par­tic­u­lar­ly fool­ish mood, you are free to either ignore him or to take advan­tage of him, but it will be dis­as­trous if you fall under his influ­ence. Indeed, if you aren’t cer­tain that you under­stand and can val­ue your busi­ness far bet­ter than Mr. Mar­ket, you don’t belong in the game. As they say in pok­er, “If you’ve been in the game 30 min­utes and you don’t know who the pat­sy is, you’re the pat­sy.”

Ben’s Mr. Mar­ket alle­go­ry may seem out-of-date in today’s invest­ment world, in which most pro­fes­sion­als and aca­d­e­mi­cians talk of effi­cient mar­kets, dynam­ic hedg­ing and betas. Their inter­est in such mat­ters is under­stand­able, since tech­niques shroud­ed in mys­tery clear­ly have val­ue to the pur­vey­or of invest­ment advice. After all, what witch doc­tor has ever achieved fame and for­tune by sim­ply advis­ing “Take two aspirins”?

The val­ue of mar­ket eso­ter­i­ca to the con­sumer of invest­ment advice is a dif­fer­ent sto­ry. In my opin­ion, invest­ment suc­cess will not be pro­duced by arcane for­mu­lae, com­put­er pro­grams or sig­nals flashed by the price behav­ior of stocks and mar­kets. Rather an investor will suc­ceed by cou­pling good busi­ness judg­ment with an abil­i­ty to insu­late his thoughts and behav­ior from the super-con­ta­gious emo­tions that swirl about the mar­ket­place. In my own efforts to stay insu­lat­ed, I have found it high­ly use­ful to keep Ben’s Mr. Mar­ket con­cept firm­ly in mind.

Fol­low­ing Ben’s teach­ings, Char­lie and I let our mar­ketable equi­ties tell us by their oper­at­ing results – not by their dai­ly, or even year­ly, price quo­ta­tions – whether our invest­ments are suc­cess­ful. The mar­ket may ignore busi­ness suc­cess for a while, but even­tu­al­ly will con­firm it. As Ben said: “In the short run, the mar­ket is a vot­ing machine but in the long run it is a weigh­ing machine.” The speed at which a business’s suc­cess is rec­og­nized, fur­ther­more, is not that impor­tant as long as the company’s intrin­sic val­ue is increas­ing at a sat­is­fac­to­ry rate. In fact, delayed recog­ni­tion can be an advan­tage: It may give us the chance to buy more of a good thing at a bar­gain price.

Tony (and War­ren) has con­vinced me that one of the secrets of being a suc­cess­ful long-term val­ue investor is to cou­ple good busi­ness judg­ment togeth­er with insu­lat­ing our­selves from the “incur­able emo­tion­al prob­lems” of Mr Mar­ket.

PLEASE NOTE:

IF YOU WANT TO GET THE MOST OUT OF THE SHOW & LISTEN TO A MULTI-MILLIONAIRE INVESTOR TALK TO YOU ABOUT HOW HE THINKS ABOUT STOCKS FOR A FULL HOUR EVERY WEEK.…