Andrew Cantos

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Useful ideas that cross my mind

9 great investing books

Here’s some great investing books:

Starters

Valu.able by Roger Montgomery
The little book that builds wealth – Pat Dorsey
The Essential Buffett – Robert Hagstorm
One up on wall street – Peter Lynch

Advanced

The Intelligent Investor – Benjamin Graham
Common Stocks, Uncommon Profits – Philip Fisher
The Essays of Warren Buffett – Warren Buffett

More advanced

How to become a stockmarket genius – Joel Greenblatt (this book is brilliant, but more sophisticated).
Security Analysis – Benjamin Graham (many consider this the ‘bible’ of investing)

To summarise what I have gleaned, into 2 pieces of strategic advice:
1. learn to understand businesses. Try to uncover lasting competitive advantages — companies that possess this are rare.
2. learn to value businesses, in isolation of  share-price charts, and buy when a margin of safety exists between your valuation and the share-price.

This second part is absolutely critical.

This second part is what makes successful investing both simple and difficult. You’ll need to develop a great deal of patience to adhere to this rule.

Finally, the best way to get more knowledge is to act. When you have some skin in the game — and when you are sticking to investing in a business-like — you are likely to improve over time. However, bear in mind the proverbial 10,000 hours — approximately 10 years — required to become an expert.

If you haven’t started, start now.

One last note: Seek professional advice. Choose your advisors carefully, always ensure they operate along the lines of the principles in these books. One question that will flummox most is “How do you value a business, and what margin of safety do you demand? Can you give me an example?”

Hope that helps.

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Consume less, produce more

When thinking about New Years resolutions two things spring to my mind. Firstly, the new year seems an arbitrary time to be setting goals. Secondly, I view most New Years resolutions with scepticism, especially my own! In spite of this sentiment I still see a lot of value in setting goals annually and the holiday season seems as good a time as any.

I usually try to put the ideas down in an email or blog. Getting ideas out of our thoughts into the world invokes some kind of subconscious planning robot. Try it. Write down your goals somewhere, anywhere. Furthermore, studies have shown that sharing your plans with others increases your chance of success.

My 2013 goal

This year my goal is simply consume less (twitter, Facebook, TV, movies, food, coffee, magazines, space, bandwidth, money, other people’s time), produce more (products, completed tasks, family bonds, friendships, savings and investments).

I see the world efficiently turning us into consumers, muting our creativity, relationships and productivity in the process. Technology is often portrayed as a mechanism for driving efficiency, purging waste from the system. The reality is that we are becoming addicted to connectedness with technology based channels and gadgets.

There are certain natural human tendencies that we need to deliberately weed out in order to become exceptional. Give alcohol to an isolated tribe, they will become alcoholics. Give loans out without asking for documentation, they will go bankrupt. Give them a casino, they will gamble. We naturally fall into habits related to generic human weakness areas unless we become conscious of them and push away from the path of least resistance. I believe that consumerism is one of the great hidden vices of our age. We need to stop consuming all the time, it is a path of least resistance. Producing is the opposite of consuming, it’s hard work, a narrower, more challenging and quieter path.

It is staggering how much time is wasted on Facebook, Twitter and the web in general. Successful social Internet businesses are successful based on their ability to create extreme levels of engagement. This translates to sapping users of their time and leveraging them for the content they produce. Do I sound cynical? Time is precious, anything that steals it should be viewed with a great deal of scepticism.

Ask yourself “What could I achieve if I used all this ‘down’ time working on something creative, something that has real value?”. Those who achieve great things are often ordinary people, with razor sharp focus.

So how should we respond? I see two key factors that will enhance our productivity 1) we need to increase our sophistication in managing our time and 2) the breadth of our ambitions needs to be narrowed, if we are to become truly effective.

In order to consume less (and make the most of our time) there are a few good time monitoring tools out there that can help visualise how much time you are spending consuming interweb junk. On the producer side there are a squillion tools available to help keep us on track. My friend wrote an interesting piece Focus, Or Else, and in it he describes a couple of useful time tracking tools. I have started using RescueTime also now and it works, thanks for the tip Art 🙂

In addition to the above, I continue to try and simplify things to decongest my life. I think there are numerous activities that most of us engage in, that provide little value, and can be easily truncated. Producing good work is time consuming and requires focus. There needs to be a few big focus areas, the rest needs to be culled.

Some ideas for simplifying: kill half finished projects, kill email subscriptions, kill dud investments that you hold onto due to hope alone, kill the social media habit, kill double-mindedness in every form.

Some ideas for focussing: focus on a few high-value spots that you are passionate about, double down your effort in these spots, aim for a high degree of expertise and polish, measure yourself against experts, learn, learn more, don’t settle for mediocrity.

Boiling it all down: consume less, produce more, focus on a few areas, become excellent in these areas.

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4 principles to win a game of squash

I have been a keen Squash player for years. Squash has a lot in common with most of my other hobbies and passions.

a. It’s a solo sport and fiercely competitive.
b. Strategy is more important than physical strength.
c. Strategy alone isn’t enough, tactical execution is equally important.

The above aspects of Squash also apply to Chess, another game that I thoroughly enjoy. I managed to play both Squash and Chess to a fairly strong club standard. I wanted to share a simple set of rules that helped me keep my Squash game on track that I thought may help others trying to master this gruelling sport. I have a similar set of rules that I apply for Chess, but I’ll leave that for another time.

I developed these 4 rules to be simple enough to follow when I am completely exhausted and enable me to play stronger instantly within a game.  I didn’t want to just start playing the long game as a safety thing, this is too easy to predict and makes live easy for your opponent. We want to make the opponent suffer.

The first point to make here is that the following rules are designed to be followed in order. E.g. if you can only follow one rule, let it be Rule 1. If you can follow another rule, let it be Rule 2, and so on. But the key is that whenever you want your game to improve, stick to these rules and stick to the order. When all is failing and you are against the wall, goto Rule 1.

Rule 1: Aggressively get back to the ‘T’ (the center of the court) when it is your opponents turn to play their shot.

In fact you want to stand about 1 ft behind the T. This rule is critical, and is often taught to people learning the game. It prepares you to be able to respond to any shot, in a balanced maner. The common mistake most people make is to hang too far back on the court, leaving you exposed to a drop-shot or boast. Also, importantly, you don’t want to be flat-footed, stay light on your toes. You need to be completely prepared to lunge sideways, forwards or backwards, without any bias in any direction.

Rule 2: Watch your opponent striking the ball (using peripheral vision only), try to anticipate where the ball will go.

The key point here is to slightly twist yourself to be aware of your opponents movements so that you can become better at predicting their shot. In many cases you can predict their shot by observing their body positioning and swing etc. It is important to wait, and watch, them playing their shot rather than guessing before hand which isn’t useful.

Rule 3: Aggressively move to play your shot.

The more rapidly you can get in position to play your next shot, the more options you will have. Importantly, you will play a more powerful and/or tighter shot. Another benefit is that you are more likely to play your shot early, giving your opponent less time to react.

I want to make a couple of points at this stage regarding the overall pace of the game. In my experience, I was able to lift the overall level of my game dramatically by following two principles that are not often spoken about.

Firstly I have intentionally learnt how to strike the ball much harder than normal. We all know shot selection and accuracy is vital, but many underestimate the usefulness of hitting the ball really hard. Not only does it take more reflexes to respond to a faster ball, the trajectory of the ball does weird things when travelling faster, especially when it intersects walls, corners etc.

Secondly, getting to the ball faster and hitting it much harder increases overall tempo of the game, this can be very unsettling for your opponent and makes them work harder.

All of the above should not be considered as more important than selecting good shots and playing them tightly, but I think that playing as fast and as forceful a game as possible is an important component of playing good squash. Play as fast as you can to still play reasonably tight shots. If the ball is wizzing past and you can play a reasonable volley drive or drop instantly, this is much better than waiting for the ball to go to the back and taking your time. Learn how to play really solid volley drives and drops, they are potent shots from the perspective of upping the tempo.

Rule 4: Play your shot aggressively (e.g. quickly) choosing the most awkward and difficult part of the court for your opponent to reach.

There is a lot said and written about which shot should be played in which situation. Just like in the early days of Chess strategy, there were a number of basic rules formulated. Everyone always says, hit the ball long most of the time, or lob from the front if you are being stretched, drop a loose cross-court drive, boast a loose straight drive.

These rules are useful and certainly, they often work. However Squash is more subtle and complex than that, and in my view the best approach is to think really hard about what is going to make your opponent work harder.

If you are adhering to rule’s 1-3 you will develop a sense for your opponent’s momentum/direction. You will also start to get a sense for their strengths and weaknesses. Some players are terrible at moving forward, some have an incredibly sharp favorite shot that they overuse, some players don’t like a fast game etc.

In general, the bedrock of solid squash shot-selection is keeping the ball as far away from where your opponent is as possible. Or more precisely, make them work harder.

One of the most insidious shots for an opponent to respond to might be following their drop with another drop, or playing a cross-court drive straight back to where they played their last drive shot. In other instances, just sticking to a very tight drive is best and may be the shot you are best positioned to play. It’s a balancing act and requires split-second judgement (like every sport). Remember, to achieve this rule effectively, you must follow the first 3 rules.

Bonus rule: Buy a pear of protective eye wear. In my opinion, paying $30 bucks beats losing your eyesight for life. Also, this will improve your game, because you can follow rule 2 better, this worked for me.

Recap

1. Aggressively get to the T

2. Watch and anticipate the next shot (using peripheral vision)

3. Aggressively move to play your shot

4. Choose the shot that causes your opponent work harder.

Bonus: wear protective eyewear (it will improve your game, because you will follow rule 2 better)

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Javascript libraries and frameworks

Recently I have spent a fair amount of time looking into the modern JavaScript frameworks. Here’s a summary.

Web app development:

Graphics / visualisation:

 

 

If you know any others that are pushing the limits, please comment.

For more details, take a look at these comparisons (they don’t necessarily reflect my opinion)…

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LinkedIn Labs – InMaps

I recently took a look around LinkedIn’s labs, and found this interesting visualisation of my network. I love colourful visualisations, nice work. Try it out.

Andrew Cantos LinkedIn network graph

My LinkedIn Network

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CocoaHeads Talk – Natives and Newcomers: Web vs Native, APIs

I recently spoke at Melbourne CocoaHeads.

My topic was about the recently released SEEK iPhone App we released in April. I focused in on 2 key areas of learning for our team; choosing between Web vs Native, how we designed our APIs and thoughts about the strategic importance of platforms.

The slides are pretty sparse, since I put more of my thoughts into the spoken word.

CocoaHeads-NativesAndNewcomers

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Companies I like: Starpharma

Disclaimer: All the information provided here is not financial advice. The information presented is my opinion and may be completely inaccurate.

Starpharma Holdings Limited (SPL) is engaged in the development of dendrimer technology.

From wikipedia:

Dendrimers are repeatedly branched, roughly spherical large molecules. The name comes from the Greek word “δένδρον” (pronounced dendron), which translates to “tree”. Synonymous terms for dendrimer include arborols and cascade molecules. However, dendrimer is currently the internationally accepted term. A dendrimer is typically symmetric around the core, and often adopts a spherical three-dimensional morphology. The word dendron is also encountered frequently. A dendron usually contains a single chemically addressable group called the focal point. The difference between dendrons and dendrimers is illustrated in figure one, but the terms are typically encountered interchangeably.

Dendrimer structure

Dendrimer structure

Read more about dendrimers on wikipedia.

Key financial ratios: This company is not currently comparable to other companies I have commented on from a financial ratio perspective. I.e. Starpharma does not currently exhibit strong ROE, low DER and the like.

Qualities that attract me:

  • Very significant patent ownership. Probably (at the time of writing) the largest share of dendrimer related patents. This was achieved by acquiring DNT. Notably these achievements stemmed from the work of Donald Tomalia and work he did at Dow chemical.
  • Dow chemical still has a decent stake in Starpharma, via the DNT acquisition.
  • Platform technology is potentially applicable to many different products, this lowers risk.
  • Applications of the platform are developed in conjunction with experienced and well funded partner organisations (e.g. pharmaceutical companies), again, this lowers risk.
  • Business model should be moderately resilient to a downturn, since healthcare products tend to be needed regardless of what’s happening in the economy. Caveat: deals may be much harder to come by and interest in niche technologies might wane if there is a serious meltdown, this is pure speculation on my part.

Things that concern me:

  • Dendrimer patent applications are likely to continue rising. Starpharma needs to continue innovating. Other companies, with deep pockets, may push harder into this space and substitute Starpharma’s technology. This bit is completely unknowable, an inherent risk when investing in cutting-edge technology firms.
  • The company needs to increase cash flow, the business model, in my mind, is therefore still not completely proven.

Filed under: investing, shares, technology

More on non-linear dynamical systems

I took a quick peek at dynamical systems theory on wikipedia today, following on from my last post about global warming and the CO2 hoax. Jokes aside, I think it’s a really important concept to come out of mathematics that we are only scratching the surface.

From wikipedia:

This branch of mathematics deals with the long-term qualitative behavior of dynamical systems. Here, the focus is not on finding precise solutions to the equations defining the dynamical system (which is often hopeless), but rather to answer questions like “Will the system settle down to a steady state in the long term, and if so, what are the possible attractors?” or “Does the long-term behavior of the system depend on its initial condition?”

And further down…

Chaos theory has been so surprising because chaos can be found within almost trivial systems.

The thing I love about chaos theorists is that they openly admit that we know very little. This humble standpoint is missing in large swathes of the scientific community where a humanistic behaviour seems to prevail. I think it is eminently scientific to, initially, stand in awe of what we don’t know (and what don’t know we don’t know). The study of chaos and related fields (think turbulence) are beautiful for this reason alone.

Read more about non-linear dynamical systems at wikipedia.

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Companies I like: Wotif.com

Disclaimer: All the information provided here is not financial advice. The information presented is my opinion and may be completely inaccurate.

Wotif.com Holdings Limited is an Australia-based company, engaged in the provision of online travel booking services. Its services provide a range of choice for accommodation, flights, car rental, cruises, insurance, travel packages and tours.

Key financial ratios:

  • Return on equity (2010): greater than 60%
  • Debt to equity (2010): less than 1%
  • Payout ratio: approximately 86%

Qualities that attract me:

  • Internet companies have very low operating costs
  • Zero debt (practically)
  • Founder has large shareholding
  • Strong market share
  • Business model should be moderately resilient to a downturn, since accommodation providers will look channels like Wotif to get rooms booked.

Things that concern me:

  • Lack of a competitive moat, market share isn’t as high as other online businesses (like SEEK.com)
  • Strong Aussie dollar makes travelling in Australia expensive for OS travellers, also Aussies can travel more cheaply OS.

 

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Apple – change function catalyst

It only takes one company to crash through a barrier, then other companies can benefit from the increased user adoption of a better product. Take iPhone for example, for years countless enourmous companies tried to get mobile right, and largely they failed to deliver on the mobile promise. E.g. ubiquity of a good hardware platform, and an app delivery mechanism for developers.

Sure, we can talk about what we don’t like about AppStore and the like, but in the process I think we tend to forget what our expectations of a mobile experience (think Blackberry) were before iPhone. Put simply, iPhone transformed the mobile industry, and to think anything else might be selective memory. The silver lining of this is that Android (and maybe Windows 7) customers can also enjoy a great mobile experience, competition in the market is always good. Taking this a step further, competition will spur continued innovation, also good for us Borgs.

The new macbook, is another transformation towards solid state drives, by default and at reasonable prices, in laptops. As I write, competitors will be developing their takes on this great idea, but again, Apple is leading the charge. Apple seems to innovate *constantly* and is often the market leading innovator. Contrary to what the naysayers think this is useful to me as a user of Apple products. For the record, I also really love Linux and Windows 7, they are both developing into really great platforms.

We don’t all have to use Apple to benefit from their innovation.

This is the key idea that inspired this short blog entry. The Change Function by Pip Coburn makes this point brilliantly. Great ideas don’t always succeed, there is often a key catalyst, a particular execution, that teaches the marketplace the value of a great idea. Until that point, the change function, a subconcious weighing of percieved benefit vs cost of switching, prevents us from changing over.

Apple is one almighty influence on people’s change function.

I will be interested to observe how long it takes for solid state (flash) drives to become a mainstream water-cooler conversation topic. This until now hasn’t been perceived as important by anyone other than tech mavens.

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