Thursday, August 25, 2016


Superman and Stocks: It's not the Cape (CAPE), it's the Kryptonite (Cash flow)! - by Aswath Damodaran (LINK)

FRMO August 2016 Letter [H/T @BrattleStCap] (LINK)

WD-40: A Case Study of the Bubble in “Safe” Stocks (LINK)

Big Oil Companies Binge on Debt [H/T @jasonzweigwsj] (LINK)
Some of the world’s largest energy companies are saddled with their highest debt levels ever as they struggle with low crude prices, raising worries about their ability to pay dividends and find new barrels. 
Exxon Mobil Corp., Royal Dutch Shell PLC, BP PLC and Chevron Corp. hold a combined net debt of $184 billion—more than double their debt levels in 2014, when oil prices began a steep descent that eventually bottomed out at $27 a barrel earlier this year. Crude prices have rebounded since, but still hover near $50 a barrel. 
The soaring debt levels are a fresh reminder of the toll the two-year price slump has taken on the oil industry. Just a decade ago, these four companies were hauled before Congress to explain “windfall profits” but now can’t cover expenses with normal cash flow.
Why 4 a.m. Is the Most Productive Hour (LINK)

TED Talk - Don Tapscott: How the blockchain is changing money and business (LINK)

Venomous Snakes Ride Ocean Currents Around the World (LINK)

Tiniest grazing mammal was a pig at the front, horse at the back (LINK)

Book of the day: The Age of Uncertainty  - by John Kenneth Galbraith

Wednesday, August 24, 2016


Bill Gates on personalized learning (LINK)

Why primary research is overrated [H/T @StaleyRdCap] (LINK)
Related previous posts: 1) Quotes on doing what matters...; 2) Continuous reorganization, activity...
Grant's Summer 2016 Vacation Issue (LINK)

An exclusive inside look at how artificial intelligence and machine learning work at Apple [H/T Techmeme] (LINK)

Everyone Wants Emerging-Market Bonds, But There Aren’t Enough to Go Around [H/T @jasonzweigwsj] (LINK)
As the hunt for yield stretches into emerging-market bonds, investors are finding there isn’t a lot of game to shoot. Such crowded terrain spells danger. 
The gusher of money into emerging-market bonds has hit extraordinary levels of late. In July, over $18 billion flooded in, and as of last week, $5 billion had entered emerging-market bond funds this month, according to data provider EPFR. As a comparison, July’s inflows are almost the same amount that were sucked out of emerging markets during the so-called taper tantrum three years ago. If anything, the balance of flows are looking a lot like the 2009 post-financial crisis world. 
And like 2009, bond supply is scarce. So even as some investors are driven by negative rates into higher yielding emerging-market bonds, they are meeting a dearth of product.  
...This supply-demand mismatch has had an obvious effect on yields. It is with high-quality emerging-market bonds where the spreads seem to have become the most extreme. Emerging-market debt tends to trade alongside U.S. junk bonds, given the level of currency and political risk. 
However now, emerging-market sovereigns are trading in line with investment grade global corporates, according to Moody’s indexes that track spreads on such debt. Meanwhile, lower-rated sovereign issuers are trading at about 1 percentage point tighter compared to Treasurys than similarly rated corporate issuers. They usually trade around the same levels.
Five Books: Massimo Pigliucci recommends the best books on Stoicism [H/T The Browser] (LINK)
The books: 1) The Discourses of Epictetus; 2) A Guide to the Good Life; 3) Meditations; 4) Letters on Ethics; 5) A New Stoicism 
Related previous posts: 1) Stoicism quotes, thoughts, and readings; 2) Stoicism audiobooks; 3) Presentation by Massimo Pigliucci: Stoicism 101

Sporadic/Intermittent Reinforcement

John Huber has an excellent post on the 1977 WSJ article on Warren Buffett I linked to a couple of days ago. I wanted to highlight a couple of paragraphs here about his mention of value traps because it ties in with a mental model from psychology (Sporadic/Intermittent Reinforcement) that I've seen in a couple of places. From John's post:
Whenever I review my own investment mistakes, they almost always come from situations where I was attracted much more to the valuation than to the business. These are the so-called value-traps—catnip to most value investors, but very often poor choices as investment candidates. I’ve learned to steer clear. 
The problem for many investors is that sometimes these so-called value traps work out. You’re able to buy them and sell them for a 50% gain. But a year or two later they are often trading at or below (often well below) your original purchase price. The investment looked smart based on the realized gain, but was it really being smart, or just fortunate timing?
The key thing I want to highlight above is John's mention of the problem being "that sometimes these so-called value traps work out." This is similar to a point made by Mark Yusko in the Morgan Creek Q2 Letter in a discussion about Seth Klarman and his thoughts on why the average mutual fund investor vastly underperforms the average mutual fund. The average investor in mutual funds changes funds too often, chases what is hot, etc. And the problem here, again, is that sometimes it works, at least for a while. As Yusko wrote: 
Klarman's response to this phenomenon is, "while no one wishes to incur losses, you couldn't prove it from an examination of the behavior of most investors. The speculative urge that lies within most of us is strong; the prospect of a free lunch can be compelling, especially when others have already seemingly partaken." That speculative urge is a psychological characteristic in all of us that we must fight in order to reach our full potential as great investors. B.F. Skinner did a great deal of work on trying to discern why human beings seemed hard-wired to want to speculate (gamble), and found that the behavior was linked to a concept called "sporadic reinforcement." In essence, by winning only occasionally, the desire to participate in that activity actually increases.
And to tie this idea back to some source material from B.F. Skinner himself, here are a couple of paragraphs from his book About Behaviorism:
All gambling systems are based on variable-ratio schedules, although their effects are usually attributed to feelings. It is frequently said, for example, that people gamble because of the excitement, but the excitement is clearly a collateral product. It is also sometimes said that people gamble "to satisfy their sense of mastery, to dominate, to win" — in spite of the fact that gamblers almost always eventually lose. The inconsistency is explained by calling the gambler who ruins himself and his family "compulsive" or "pathological," his "irrational" behavior thus being attributed to an illness. His behavior is "abnormal" in the sense that not everyone responds with similar dedication to the prevailing contingencies, but the fact is simply that not everyone has been exposed to a program through which a highly unfavorable ratio is made effective. The same variable ratio schedule affects those who explore, prospect, invent, conduct scientific research, and compose works of art, music, or literature, and in these fields a high level of activity is usually attributed to dedication rather than compulsion or irrationality.  
It is characteristic of intermittent reinforcement that behavior may be sustained over long periods of time with very little return. This has been explained by saying "Human beings are creatures of hope and are not genetically designed to resign themselves," but there is nothing essentially human about the effects, and it is not hope or resignation but the contingencies which are the conspicuous and accessible cause.

Clayton Christensen and Charlie Munger on theory

In his recent Talk at Google, Clayton Christensen said the following near the beginning of his presentation: 
"The word theories gets a bum rap with managers because the word theory is associated with the word theoretical which connotes impractical. But a theory is a statement of causality. It's a statement of what causes what and why. And when you think about it in those terms, you as technologists or managers are voracious consumers of theory. Because every time you take an action it's predicated upon a belief that if you do this, you'll get the result that you want. And every time you put a plan into place it's predicated upon a set of theories which tells you that if you do these things, you'll be successful. But most of the people aren't even aware of the theories they use. And many times the theories that you use are destructive rather than productive."
That mention of theory reminded me of the below quote from Charlie Munger, which I mentioned a couple of years ago as essentially being the underlying reason for my practice of Memortation
"I could see that I was not going to cope as well as I wished with life unless I could acquire a better theory-structure on which to hang my observations and experiences. By then, my craving for more theory had a long history. Partly, I had always loved theory as an aid in puzzle solving and as a means of satisfying my monkey-like-curiosity. And, partly, I had found that theory-structure was a superpower in helping one get what one wanted. As I had early discovered in school wherein I had excelled without labor, guided by theory, while many others, without mastery of theory failed despite monstrous effort. Better theory I thought had always worked for me and, if now available could make me acquire capital and independence faster and better assist everything I loved."

Tuesday, August 23, 2016


Howard Marks on What Politics Means for Investors (video) [H/T ValueWalk] (LINK)
Related previous post: Howard Marks Memo: Political Reality
Howard Marks: Oaktree Has 'Amped Up' Caution, Selectivity (video) (LINK)

It’s Getting Scarily Quiet in the Stock Market [H/T @jasonzweigwsj] (LINK)
Calm has descended on the U.S. stock market. 
The past 30 days have been the least volatile of any 30-day period in more than two decades. Only five days during the most recent stretch saw the S&P 500 move by more than 0.5% in either direction, the lowest since the fall of 1995. 
Back then, the Federal Reserve was paused between rate cuts. This time around, a combination of the summer lull in trading and super-easy global monetary policy has helped drive volatility to levels seen only a dozen times in the past half-century. 
...Faith in how far central banks will protect against losses comes and goes, though. In market-speak, the Yellen put is less out of the money if a smaller price fall pushes the Fed to act. At the moment, investors seem to think the put is barely out of the money at all. 
The danger, then, is not so much complacency about markets, but complacency about central banks. The lesson of the past seven years is that policy makers will step in every time disaster strikes. But investors tempted to rely on the central banks should note that disasters did still strike, and markets had big falls before help arrived. The time to buy insurance is when it is cheap, and for the U.S. stock market, that is now.
Temperament is a skill - by Seth Godin (LINK)

Farnam Street: The Fundamental Attribution Error, or Why Predicting Behavior is So Hard (LINK)
Related book (also recommended highly by Nassim Taleb): Explaining Social Behavior
Investing quote of the day (which I've posted before, but am thinking about again today): 
“…what I have observed about the really great investors is the simple decisions that they end up having to make by virtue of focusing on what’s important and what’s unknowable.” -Tom Russo

Monday, August 22, 2016


1977 WSJ article on Warren Buffett – "Investor Who Piled Up $100 Million in the ‘60’s Piles Up Firms Today" [H/T @iancassel] (LINK)

25iq: A Dozen Things Learned from Naval Ravikant about Investing, Business and Startups (LINK)

Jeff Gramm talks with  Barry Ritholtz on the Masters in Business podcast (LINK)
Related book: Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
The Brooklyn Investor blog: 13F Fun (LINK)

Latticework of Mental Models: The Zero Price Effect (LINK)

FASB Proposed Modifications to Hedge Accounting: Good Thing, Bad Thing, or Just a Thing? (LINK)

Seller’s Paradise: Companies Build Bonds for European Central Bank to Buy [H/T @jasonzweigwsj] (LINK)
The European Central Bank’s corporate-bond-buying program has stirred so much action in credit markets that some investment banks and companies are creating new debt especially for the central bank to buy. 
In two instances, the ECB has bought bonds directly from European companies through so-called private placements, in which debt is sold to a tight circle of buyers without the formality of a wider auction.
Pensions Play With Puts for Protection (LINK)
Some pension funds are seeking to profit from others’ fear. 
Pension funds in Hawaii and South Carolina are plying an arcane options strategy called cash-secured put writing. In a typical trade, the investor sells a contract, known as a put, to someone who owns stocks and is willing to pay up for protection in case they decline. If, within a certain time, the shares fall below a given price, the investor buys the stocks at that price, or covers their lost value.
The Spectrum Auction: How Economists Saved the Day (LINK)

The Bonfire of Venture Capital: The Good, Bad and Ugly Side of Cash Burn! - by Aswath Damodaran (LINK)

Uber’s CEO doesn’t think self-driving cars will cost jobs, and he might be right (LINK)

E-commerce is still really hard — even after Jet and Dollar Shave Club fetched $4 billion (LINK)

Ed Catmull on the This Week In Startups podcast (video) (Part 1, Part 2) [H/T Mike Dariano, who posted some great notes from Part 1 HERE.]
Related book: Creativity, Inc.
Trends in — and the Future of — Infrastructure (video) (LINK)
“Infrastructure is dead”, some say, thanks to cloud computing — and a couple large incumbents sucking out all the profits in this space. Er… not really. We’re actually entering a renaissance of sorts — a “golden era of infrastructure” — and it’s one that is biased towards startups. They’re the ones who have the unfair advantage, argues a16z general partner (and former Nicira co-founder/CTO) Martin Casado in this talk.
a16z Podcast: Pricing Free (LINK)

Email is Most Useful When Improving a Process that Existed Before Email (LINK)
Related book: Deep Work: Rules for Focused Success in a Distracted World
The Power of Writing About the Things You Read [H/T Abnormal Returns] (LINK)

Greek Buddha - by Massimo Pigliucci (Part 1, Part 2)
Related book: Greek Buddha: Pyrrho's Encounter with Early Buddhism in Central Asia
Epictetus: 254 Selected Quotes - by Massimo Pigliucci (LINK)
This is my personal collection of favorite quotes from Epictetus, covering all four extant volumes of the Discourses, the Enchiridion, and the known Fragments. Use them for inspiration and meditation. The pdf is searchable so that you can look for specific keywords, and if you’d like you can come up with your own selection of preferred citations, arranged by topics.
Entropy Explained, With Sheep [H/T @TimHarford] (LINK)

Book of the day: Beyond the Box: B.F. Skinner's Technology of Behaviour from Laboratory to Life, 1950s-1970s

Friday, August 19, 2016

Seth Klarman quote

"[Ben] Graham's wonderful sentence is, an investor needs only two things: Cash and Courage. Having only one of them is not enough. Courage is a function of process." -Seth Klarman

[H/T @MarkYusko, via his excellent commentary on Klarman in the Morgan Creek Q2 Letter]


The quote from Klarman also brought to mind: Charlie Munger on the balance between competency and gumption...

Michel de Montaigne quote

From A Calendar of Wisdom (via Brain Pickings):
A sage is not afraid of lack of knowledge: he is not afraid of hesitations, or hard work, but he is afraid of only one thing — to pretend to know the things which he does not know. 
You should study more to understand that you know little.

Thursday, August 18, 2016


Made in China: The World’s Most Expensive Market [H/T @jasonzweigwsj] (LINK)

Deutsche Bank whistleblower spurns share of $16.5m SEC award [H/T Matt] (LINK)
Ben-Artzi, who exposed false accounting, declines share of payout after executives go unpunished
Eleven Reasons To Be Excited About The Future of Technology (LINK)

The Bandwidth Bottleneck That Is Throttling the Internet (LINK)
Related books: 1) Tubes: A Journey to the Center of the Internet; 2) Computer Networks
Seafloor Miners Poised to Cut into an Invisible Frontier (LINK)

Episode 10 of Malcolm Gladwell's Revisionist History podcast (LINK) [This is the last episode of Season 01. Overall, the first season was a mixed bag for me, but my favorite episode was probably Episode 07, “Hallelujah”.]

Wednesday, August 17, 2016

Howard Marks Memo: Political Reality

Link to: Political Reality
My last memo, in May, was on the subject of “Economic Reality.”  Its goal was to describe the realities imposed by economics and point out the many ways in which governments and, especially, candidates for elected office ignore and promise to override them.  Since then I have been struck by the way developments have moved economic reality to center stage.  Of course, foremost among them has been the affirmative vote of June 23 on Brexit: whether the United Kingdom should leave the European Union. 
I have no interest in writing a memo about Brexit itself.  There’s a huge number of moving parts, too little past experience, too many varying opinions, and zero clarity on how the departure will be handled.  There are many pundits out there telling us what the consequences of Brexit will be.  The only thing I’m sure of is that most of them are wrong, and if I were to join their ranks, I’d probably be wrong, too.