Pieter Slegers — Avoid These 10 Mistakes (#QualityTuesday)
Munger's bias catalogue as an investing checklist — "consistently not stupid, instead of… very intelligent" — closing on an Adobe pitch at a 13.6x forward PE, the cheapest it has ever been.
One-line take: a five-item #QualityTuesday built entirely around behaviour, with one stock at the end. The organising claim is Munger's: "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent" — i.e. the return comes from subtracting errors, not adding insight. Three of the five items are reading: a ten-bias infographic (denial, consistency bias, social proof, incentive bias, authority, liking, deprival super-reaction, gambling, reciprocation, man-with-a-hammer), Morgan Housel's The Psychology of Money, and Munger's The Psychology of Human Misjudgment speech. The stock pitch is Adobe at 13.6x forward earnings — "Its cheapest valuation level ever" — with 94% subscription revenue, 14.3% expected long-term growth and heavy buybacks, conditioned on one thing: "If it doesn't [get disrupted by AI], it could be a great buy at current prices."
1. Stocks & names mentioned
One name in this issue. Adobe is Positive: the pitch is explicitly conditional on the AI-disruption fear proving wrong, but the conclusion offered is "it could be a great buy at current prices." Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|
| ADBE | Adobe Inc. | QT · SA · STK · FA | Positive | #QualityTuesday stock pitch. Photoshop, Premiere Pro, Illustrator and Acrobat, with "almost 94% of its revenue… generated via subscriptions" — "a quality business that benefits from stable revenue and predictable cashflows." Long-term growth expected at 14.3% a year with AI integrated into the software. The valuation is the pitch: "Adobe is trading at a Forward PE of 13.6x. Its cheapest valuation level ever." The cause is named plainly — "Investors are afraid AI will disrupt their business model" — and the conclusion is conditional: "If it doesn't, it could be a great buy at current prices. Especially because Adobe is buying back a lot of its own shares." | read ↗ |
Stance = how the name is framed in this post. Adobe is confirmed a Buy on the 5 February Buy-Hold-Sell sheet two days later, where it tops the forward-PE undervaluation screen (13.6x against a 30.9x five-year average) and carries the highest expected return in the Earnings Growth Model at 20.9%.
2. Talking points
The organising idea: subtract mistakes
- "Most of the smartest people still make dumb decisions when it comes to investing. You can be very successful by making fewer mistakes than others."
- Munger: "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."
The ten biases (published as an infographic)
- Denial — ignoring bad news leads to terrible decisions and slow reactions. Consistency bias — defending a wrong position just to avoid looking foolish. Social proof — copying the crowd in uncertain situations, often blindly.
- Incentive bias — people respond strongly to rewards, sometimes against your interests. Authority bias — unquestioningly following authority figures. Liking bias — believing agreeable people regardless of the facts.
- Deprival super-reaction — losing hurts more, so don't overreact to small losses. Gambling and rewards — random rewards are addictive; "this is investing, not a casino." Reciprocation — feeling compelled to return favours, often exploited by marketers. "Man with a hammer" syndrome — if you only have one tool, every problem looks like a nail.
- The header line is the operating instruction: "If reality hurts, don't lie to yourself. You'll just lose money faster."
The reading: Housel and Munger
- The Psychology of Money (Morgan Housel) — "the best Personal Finance book ever," reduced to three lessons: "Envy is the fastest way to destroy good decisions"; "Don't confuse 'luck' with 'skill'"; "Short-term emotions can create long-term mistakes." A full summary is linked.
- The Psychology of Human Misjudgment — Munger's speech on 24 biases, offered as "a must read for every serious investor" and linked as a transcript. Note the arithmetic: the infographic is a ten-item digest of a twenty-four-item original.
- Item three is the counterweight to the "man with a hammer" bias: "You don't have to figure out everything on your own. Sometimes, the smartest move is to ask an expert."
The Adobe pitch, and where it sits in the run
- The business is described as a subscription utility for creative work — 94% subscription revenue, "stable revenue and predictable cashflows" — with AI presented as embedded in the product rather than as a threat to it.
- 13.6x forward earnings is stated as the all-time low for the stock, which makes the pitch a valuation call sitting directly on top of a behavioural essay about denial and consistency bias.
- The buyback is the second leg: a company retiring shares at its cheapest-ever multiple compounds the effect if the fear is wrong.
- The conditional is left in the open rather than resolved — "If it doesn't [disrupt them]." This is a #QualityTuesday pitch, not a purchase; Adobe was already argued at length in the 8 February software special.
3. In plain English
A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)
ADBE — Adobe Inc. Positive
Adobe sells the tools professional designers, video editors and marketers use every day — Photoshop, Illustrator, Premiere, Acrobat — and almost all of it now arrives as a monthly subscription rather than a boxed purchase. That makes the revenue steady and predictable: people trained on these programs, and files saved in these formats, do not move easily.
The stock trades at 13.6 times next year's expected earnings, which Slegers says is the cheapest it has ever been, purely because investors think AI image and video generators will make Adobe's tools unnecessary. He does not claim to have settled that question — the pitch is explicitly conditional, "if it doesn't [disrupt them], it could be a great buy at current prices." Two things load the odds in the buyer's favour: growth is still expected at 14.3% a year with AI built into the products, and Adobe is buying back a large volume of its own shares while the price is depressed, so each remaining share ends up owning more of the company.
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.