Lincoln's 2nd Inaugural Address; Investing Philosophies and Tribalism

Inspired by Abe Lincoln's succinct delivery, I'm going to publish more short form thoughts from the "ugly first draft" files with the goal of sparking some ideas for you to think about

Abe Lincoln’s 2nd Inaugural Address was apparently just 705 words (with a majority of those words just one syllable and only 100 of the words more than two syllables. I don’t hear people talking about Lincoln’s content value per syllable ratio, but it must have been off the charts.

This tweet inspired me a bit. If Honest Abe could deliver important speeches in less than 700 words (his Gettysburg Address was under 300), I’d like to think I can convey an investing thought within this alotted space.

Today’s post is the first attempt at what I might call “Lincoln posts”. The rules for Lincoln posts should be:

• Around 700 words

• No longer than 2-3 minutes to read

• Goal is to convey one main point generally; provide food for thought

These might be short thoughts on a company or an investment topic, often taking directly from my Base Rate journal. I often write these types of comments as emails to friends or as entries in the investment journal. These aren’t comprehensive posts; these are more like Ugly First Drafts (far less refined than Lincoln’s speeches). Goal here is not perfection but to provide food for thought; a starting point for readers to build on if it’s a topic that interests them.

The reason for turning these thoughts into short posts is because I noticed that my Ugly First Draft folder is growing at a much faster rate than the published posts are. Most of my writing is designed for my own internal use: mostly ideas for further thinking. But I decided that instead of letting all of these drafts sit in Ugly First Draft form forever, I’ll start to post some of them here for readers. If this becomes useful for you, I’ll keep doing them.

I once heard that the difference between the great photographers and the average ones are that the great ones take average photos just like everyone else, they just never show those ones to the public, whereas the average photographer shows everything. Perhaps in the art world, it is better to be exclusive and strive for perfection, but in the world of idea generation, which is really what investing is about at its core, I think it’s more productive to put more volume out there than less. “This is a game of tonnage” - Jerry Seinfeld

I’ve always noticed a direct correlation between idea generation and volume of writing. This may not be true for all investors, but it has been true for me. The more I write, the more I think, which leads me to read and review more reports, write still more, etc… This describes the basic framework of my idea generation assembly line. Most of my writing stays internal in my journal, but thanks to the Base Rate statistics, I can track the volume of writing and compare to decisions made, ideas generated, etc… I think putting a little bit more of this on the blog probably aids this overall idea manufacturing process.

For today’s Lincoln post, it’s a comment from a Substack Note that I replied to…

Six Bravo (a current favorite blog) posted a thoughtful comment about how one investor he respects shifted from special situations to compounders. Interestingly, I’m noticing the opposite with my own portfolio. The latter crop of stocks were a part of the Saber portfolio a decade ago when we started and for years after, but today I view them mostly as fully (if not overly) valued.

Meanwhile, bargains, smaller obscure stocks and special situations are in some cases very cheap. The fun thing about investing is there is more than one way to win. The important thing is not boxing yourself in to an overly rigid approach.

My comment:

I think you hit the nail on the head. I’ve had this same conversation with other friends regarding the dogma that exists in the investing world. Lots of investors (intentionally or subconsciously) put themselves into a rigid style box. And then try to force investments that have to check certain criteria to fit into the box, rather than using intuitive common sense and conviction. I think there is a big difference between having a disciplined investment philosophy and being dogmatic about your style. Latter isn’t productive imo. All of the greats I’ve studied had their style but none were dogmatic. They used common sense. Buffett likes long term compounders but also buys silver, oil companies, arbitrage, preferred stocks, etc… Munger likes Costco but also buys bargains, even poorly managed ones (Belridge oil). Peter Lynch was famous for 10 baggers but had a lot of special situations, cyclicals, etc… Schloss liked deep value but also owned Starbucks… etc etc

The original comment in the link above sparked a discussion on investment philosophy and style boxes. I’ve thought a lot about this recently.

Like so many other areas of life, investors (like most other humans) tend to find solace in groups. We are a tribal species, so this is understandable. It’s in our DNA.

The problem is that our tribal tendencies don’t lend themselves to quality investing. Most investors understand that seeking the comfort of the crowd isn’t typically what drives investing success, but many investors perform a modified version of this crowd behavior by adopting a rigid set of criteria that checks certain boxes, even if these criteria are often somewhat vague (quality companies, good management, bright future, etc…). The prerequisites they demand for certain investments comes at sometimes a very steep price. And this price might lead to comfort in the near term, but I’m not sure it’s the optimal way to allocate capital. And Warren Buffett himself, who we all try in some ways to model our approach after, never behaved this way. He didn’t try to check any boxes. He simply invested in what made the most sense to him. Which stocks were clearly undervalued? Sometimes this was a growth stock like Geico in 1951 or Coke in 1987, other times it was an oil and gas royalty, an energy E&P merger, or even a timber litigation deal.

As Alice Schroeder, Snowball author, once said: “If you handed Buffett a dollar bill in exchange for 50 cents, he’d take the deal every time.” He wouldn’t disregard the offer on account that the dollar bill is a commodity product without any moat.

Buffett was a common sense investor. He bought what he understood, and what he felt like had a good chance of making him money with low risk.

There was no style box. He has tried to simplify his approach in an effort to explain his methods to the large number of followers he has, but one unintended byproduct of that simplification effort is the creation of a new style box modeled after a very small subset of investments. What’s interesting to me is that I find it exceedingly unlikely that Buffett would be buying the stocks he currently owns if he was running smaller sums of money. But that’s really irrelevant to this discussion.

My view is investors should do what they understand to be the best way to grow their capital; not the method that fits most neatly into a rigid, pre-defined set of principles. The former may not guarantee success, but I think it offers a much better chance than the latter.

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John Huber is the founder of Saber Capital Management, LLC. Saber is the general partner and manager of an investment fund modeled after the original Buffett partnerships.

John can be reached at john@sabercapitalmgt.com.

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