Investor Education: Capital expenditure (CapEx)
Capital expenditure (CapEx) is capital that a company or organization invests in long-term assets. The company spends money for these assets to generate future revenue, reduce costs, and/or improve efficiency within the business.
Read more about Capital expenditure here!
The Near Miss
The Nasdaq ended its 8-week winning streak last week, and the S&P 500 snapped a 5-week winning streak. Both indices fell about 1.4% on the week. For the year, the Nasdaq is up over 36% and the S&P 500 is up over 14%.
In an appearance on EconTalk last month, author Luca Dellanna discussed near-misses with podcast host Russ Roberts:
In manufacturing risk management, there is this principle called the pyramid of risk, which is an idea that comes from the 1930s from a German engineer who realized that, in general, for each deadly accident, there are a few accidents in which injury was provoked. And for each injury accident, there are a few incidents in which no injury was caused. And for each accident with no injury, there are a few near-misses, where something falls but no one is injured.
And they create this pyramid shape, where you have the deadly incident at the top, very narrow, and a lot of near-misses at the bottom.
And the principle is: You do not evaluate whether your behavior is safe based on the injuries on the top of the pyramid. But, you look at the bottom of the pyramid. If, when you cross your street, you have some near-misses—for example, a car that honks at you—that’s a signal that you should treat as if you were hit by that car to adjust your behavior. And of course there are some limitations, but it’s more useful than not, this framework.
In investing, it’s easy to pay attention to mistakes of commission—the errors we make that lose us money.
And we often lament over mistakes of omission—the investments we should have made, but didn’t, that went on to perform spectacularly well.
But we often don’t pay enough attention to the near miss—the things that almost happened that would have cost us money had we done them.
We often treat near misses as proof of our wisdom—or our good luck—and don’t put in a process to make those near misses less likely going forward. For example, maybe a part-time investor almost sold all of his or her stocks in a market downturn because the emotion of seeing steep losses was almost too much to handle. Will that investor be able to handle an even bigger downturn? Or should he or she hire a full-time investment professional to handle the ups and downs going forward?
Sometimes, near-misses give you the education you need to make minor changes or improvements to your process going forward. Sometimes, they signal that a major overhaul needs to take place. In either case, near-misses are worth analyzing in investing and other aspects of life.
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The Markets, BRK Annual Meeting, AI Mania etc.
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Mohnish Pabrai’s Q&A session with the Finance Club of IIT Patna on May 10, 2023 (video)
The World According to Boyar Podcast: Patrick Doyle
Stansberry Investor Hour Podcast: How Constraints Drive Success in Value Investing
The Meb Faber Show Podcast: Ben Inker & Tom Hancock, GMO – The Value and Quality Opportunity
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