Tuesday, May 31, 2016


Jim Collins Interviews Jorge Paulo Lemann (video) [H/T George] (LINK)
A good comment from Jim Collins around the 13:45 mark: "Most of us come at life as a series of 'What' questions. What am I going to do? What career? What company? It's about what...What? What? What? And I think what Jorge Paulo shifted to early in his life was that the first questions are always 'Who?'. Who are you going to allow to mentor you? Who do you want to spend your time with? You can be doing a lot of 'Whats' with your life, but if you're not doing it with people you love doing it with, it's really hard to have a great life." [Lemann follows up with some comments about this and Warren Buffett at the 16:30 mark.] 
And another good Collins quote around the 36-minute mark: "Luck favors the consistent. You're going to have good hands and bad hands in life. And you might get a bad hand early. You might go broke at 26. You might have come from a difficult place. If you see life as coming down from a single hand, then it's very easy to lose. Because what if that's a bad hand? But if you look at it as 'Life is a series of hands', and the key is to play every hand to the best of your ability; sometimes you get good hands, and sometimes you get bad hands. But you've got to stay at the table. You've got to stay in the game and keep playing."
Related book: DREAM BIG
How the Internet works: Submarine fibre, brains in jars, and coaxial cables [H/T Techmeme] (LINK) [This reminded me of the book Tubes: A Journey to the Center of the Internet.]

a16z Podcast: Startups and Pendulum Swings Through Ideas, Time, Fame, and Money (LINK)

Sir Karl Popper's "Science as Falsification" (audio) [H/T @SpaceWeather101] (LINK)
Related book: Conjectures and Refutations

Monday, May 30, 2016


Oaktree’s Howard Marks touches on oil investments and social-media stocks at the London Value Investor Conference (LINK)
Howard Marks, co-chairman of Los Angeles–based Oaktree Capital Group , who appeared at the conference by video link, said he has taken the plunge and invested in oil-related assets. He also suggested that shares of social-media companies are too rich for the value crowd. 
Marks, addressing about 450 attendees at London’s Queen Elizabeth II Conference Centre, blamed lower interest rates for distorting valuations. “Lower base interest rates have made all assets relatively more attractive than they otherwise would have been,” he said. 
The manager said he doesn’t consider oil a value investment because it is impossible to calculate its intrinsic value. But he said he has made “oil-related investments,” which he wouldn’t specify, since January, when West Texas Intermediate, the U.S. benchmark crude, slipped below $30 a barrel. 
There was plenty of talk about emerging markets. James Montier, on the asset-allocation team at GMO, says they are genuinely cheap versus developed markets, especially after resources and financial stocks are stripped out. Jean-Marie Eveillard, formerly a portfolio manager at First Eagle Investment Management and now a board trustee, sees potential in India. “I am much more positive in the long term about India than I am about China,” he said. 
Investing By Design - by Chris Pavese (LINK)

The Afterlife of Polaroid [H/T @chriswmayer] (LINK)

Marc Andreessen on the Tim Ferriss podcast (LINK)

a16z Podcast: Trade, Commerce, Manufacturing, Immigration, & Cuba — with Penny Pritzker (LINK)

Farnam Street: 12 Things Lee Kuan Yew Taught Me About the World (LINK)

The Selfish Gene turns 40 (LINK)
Related book: The Selfish Gene
Book of the day [H/T Scott Adams]: Impossible to Ignore

Sunday, May 29, 2016

Kristian Siem on investment and valuation

Siem Industries made numerous successful investments since it became a publicly traded company in 1987, growing its shareholders’ equity from $5.3 million in June 1987 to over $2.01 billion at the end of 2014, growing at a compound rate of 25 percent. Siem has been instrumental to the success for many of the company’s investments, being named as chairman of the investee company in almost every instance for the purpose of enacting the strategies he outlined. It is a testament to his hands on, industrial investment philosophy. 
Siem on Valuation 
Siem’s success in the oil and gas drilling and shipping industries points to an unconventional facility for identifying and valuing investment opportunities there. How does he find those opportunities, and what does he look for when presented with an investment? He has worked his entire career in oil and gas drilling and shipping, with a particular focus on offshore drilling and other services. His first investments were made in individual assets, and he was fully concentrated in each of those deals, investing all of his capital into a single asset. Siem argues that such a huge concentration of capital was warranted because he had done his homework. The downside risk, from his perspective, was relatively small because he knew the industry so well. He also notes that he was young and “didn’t have the experience to see all the potential pitfalls that come with age, and the problem when you have old people deciding is that you get the benefit of their experience, but also they may lack the courage at times.” He says that, though he didn’t have a lot of experience at the time that he acquired the Haakon Magnus, his first investment, he had spent all of his working life in the oil and gas offshore drilling industry, and knew it well: 
I knew all 118 submersible rigs in the world by name, where they were, and their contracts. I came young into a young industry, so I had a very good grip and understanding of all the dynamics in this industry, and therefore the quality of my judgment was high. I saw it as a fantastic opportunity to put all my wealth and energy into it. 
His view is that the best way to get the valuation right is to have industry knowledge that can only come from experience. This knowledge gives him context to understand how each asset develops, its earning capability, and the state of the market for the asset’s services. This leads to an instinctive valuation. He knows the market value and cost to replace all the vessels, rigs, and other hardware that he depends on as operating assets. He also knows the earning capability as a yield on each of those assets. Siem’s favorite metric for calculating that yield is the earnings before interest, taxes, amortization, and depreciation (EBITDA) in proportion to the investment or capital expenditures (CapEx): 
It’s a simple calculation. It’s basically EBITDA in relation to the CapEx. And it’s amazing what that simple calculation can do. I always do it myself when I sit in boards, whether it’s Transocean or Subsea or smaller companies. Management often present reams of calculations, internal rates of return, and so forth. And I have been surprised at some fellow directors who say, “Yeah, the internal rate of return looks fine, and it’s better than our weighted average cost of capital, so let’s go for it.” But you need to examine the model’s assumptions. How is the internal rate of return defined? What is the residual value that you put into that calculation, for instance? That makes all the difference. 
With an idea of the cost to replace each asset, its market value, and its likely EBITDA yield after backing out operating CapEx, Siem calculates the asset’s earnings power. He looks at what it is currently yielding, and what he thinks it is likely to earn in the future based on how he, and management, see the market for its services developing. He says that some of the best asset plays he has done have been based on no income at all. If he can find an asset that has been laid off—not operating—it will have negative EBITDA because the owners have to pay the layoff costs. Those assets can often be acquired very cheaply. His first, the Haakon Magnus, was such a deal. 
Siem says that having a permanent source of capital provided by the public company has allowed him the requisite time to complete many projects. A problem for many investors in terms of expressing their own investment philosophy is that they don’t have this access to permanent capital. A source of permanent capital, whether his own money or that of Siem Industries, is dedicated for the long term and allows him to invest for the long term. He can think differently about an investment than another investor, like the more typical fund manager, who has two tasks: (1) to produce returns and (2) keep the investor base happy. Siem believes that his long time horizon has been central to his success: 
Industry, by nature, is long term, and the fund management business, by nature, is short term. Financial investors come in and out: They can push a button any day and get out. The principal industrial investors don’t have that luxury. They have to think for the long term. I believe indeed the success of industry is that you always think long term, so even if incidents like mergers or takeovers cause you to be out in the shorter term, you take the long-term decision as if you were to be the owner forever, that is healthy for the industry, and therefore also for its shareholders. I think that has been the success of our operation.

Friday, May 27, 2016


Latticework of Mental Models: Bayes Theorem (LINK)
Related book: The Theory That Would Not Die: How Bayes' Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant from Two Centuries of Controversy
Q&A: Wilbur Ross On China, Yuan, Debt & Trump [H/T @williamgreen72] (LINK)

Interview with Tom Jacobs Regarding the Complete Works of Maurece Schiller (LINK)

Exponent Podcast: Episode 080 — Multiple Full Circles (LINK)

Jim Clark on Productivity: Don’t Spend Your Day on Social Media, Instead Spend Your Day Building the Next Big Thing (LINK)

Sean Carroll: "The Big Picture" | Talks at Google (LINK)
Related book: The Big Picture: On the Origins of Life, Meaning, and the Universe Itself 
Sheryl Sandberg Commencement Speech, University of California at Berkeley, May 2016 (Transcript) (LINK) [The video is available HERE.]

Howard Marks Memo: Economic Reality

Link to Memo: Economic Reality
In 1977, responding to the difficult energy outlook brought on by the Arab Oil Embargo, President Jimmy Carter created the position of Secretary of Energy and chose James Schlesinger as America’s first “energy czar.”  Previously Schlesinger had served as Chairman of the Atomic Energy Commission, Director of Central Intelligence, and Secretary of Defense, and in his early days he taught economics at the University of Virginia.  I was tickled by a story – undoubtedly apocryphal – about his days in academia that made the rounds when Schlesinger was in his new energy post.  
As the story went, Schlesinger was such a convincing evangelist for capitalism that two students in his economics class decided to go into business after graduation.  Their plan was to borrow money from a bank, buy a truck, and use it to pick up firewood purchased in the Virginia countryside, which they would then sell to the grandees in Georgetown.  Schlesinger wholeheartedly endorsed their entrepreneurial leanings, and they proceeded with great enthusiasm.  From the start of their venture, the former students could barely keep up with the demand. 
Thus it came as quite a shock when their banker called to tell them the balance in their account had reached zero and the truck was about to be repossessed.  They contacted Schlesinger, and he listened attentively as they recounted their experience: they had, in fact, been able to acquire vast amounts of wood for $50 a cord, and they’d been able to sell all they had for $40 a cord.  How could they be broke?  Where had they gone wrong?  Schlesinger puffed on his ever-present pipe and said: “The answer’s obvious: you need a bigger truck.”

Thursday, May 26, 2016


Newspapers haven't 'cracked code,' Buffett says (LINK)

Sugar Is So Scarce in Venezuela That Coca-Cola Will Stop Production (video plays) [H/T @rationalwalk] (LINK)

Insurers Seek Big Premium Boosts: Large health plans in some states are seeking to raise rates by 20% or more (LINK)

SEC to Alibaba: “Open (your books) Sesame!” (LINK)

Peter Thiel, Comic Book Hero - by Ben Thompson (LINK)

Video clip of 1967 Reagan-RFK debate (10 mins.) [H/T @BeschlossDC] (LINK)

Meerkats Mysteriously Know to Outgrow Rivals (LINK)

A Shocking Find In a Neanderthal Cave In France (LINK)

Book of the day [H/T @iancassel]: Shoe Dog: A Memoir by the Creator of Nike

Wednesday, May 25, 2016


As a reminder, tomorrow (the 26th) is the last day for the Audible $4.95 Sale.

A Unique Behind-the-Scenes Look into Warren Buffett's Investment Process [H/T @Wexboy_Value] (LINK)

What is the Future of Insights: Caddies, Librarians, Explorers Or Consultants? [video webinar put on by one of Boyles' newest investment positions] (LINK)

The Price of Regret (LINK)

Tuesday, May 24, 2016


Jamie Dimon on the Recode Decode podcast (LINK)

How Warren Buffett’s Son Would Feed the World (LINK)

The Ideal Investment: Companies That Don’t Invest [H/T @jasonzweigwsj] (LINK)
Related book: Capital Returns
Hedge-Fund Star Kyle Bass Slips on Oil [H/T Will] (LINK)

Jim Grant: No rate hike this year (video) [H/T ValueWalk] (LINK)

a16z Podcast: Automation, Jobs, & the Future of Work (and Income) (LINK)

The Curse of Culture - by Ben Thompson (LINK)
The implications of this definition are profound: culture is not something that begets success, rather, it is a product of it. All companies start with the espoused beliefs and values of their founder(s), but until those beliefs and values are proven correct and successful they are open to debate and change. If, though, they lead to real sustained success, then those values and beliefs slip from the conscious to the unconscious, and it is this transformation that allows companies to maintain the “secret sauce” that drove their initial success even as they scale. The founder no longer needs to espouse his or her beliefs and values to the 10,000th employee; every single person already in the company will do just that, in every decision they make big or small. 
As with most such things, culture is one of a company’s most powerful assets right until it isn’t: the same underlying assumptions that permit an organization to scale massively constrain the ability of that same organization to change direction. More distressingly, culture prevents organizations from even knowing they need to do so. 
Related book: Organizational Culture and Leadership
Malcolm Gladwell at TIBCO NOW 2014: The Right Attitude (video) [H/T David] (LINK) -- [I don't think I'd seen this before. As usual, Gladwell tells his story featuring a real person, in this case Malcolm McLean. To hear more about McLean from someone who knew him, see the 4th question in the video Five Good Questions for Gene Hoots.]

The Deliberate Creative (LINK)

Monkeys can run up vertical cliffs on just their hind legs (video) (LINK)

Jeff Bezos quote

"There [are] a couple of things that seem to be a pattern match for people who are right a lot. One is that people who are right a lot listen a lot. Another one is that people who are right a lot change their mind a lot.... People say that you should change your mind when the data changes; but I change my mind even when the data doesn't change, because I reanalyze the situation every day and sometimes I just come to a better analysis. And I think actually what I said yesterday I don't believe anymore.... You should not change your mind on your principles or your ideals or your vision. You should be stubborn on those things. But most of what we do every day is very tactical...and you should be very, very focused on the details and on changing your mind very frequently. And then finally--and this is the one that humans are the worst at--is [that] you have to have deep convictions, but then always work to disconfirm them. And you won't usually. Most of your convictions are going to be right for long periods of time, but you should always be saying 'Here's something I really, really believe is true, and then am I wrong about this? Am I wrong about this?'. And then look for ways to disconfirm. The natural human behavior is confirmation bias." -Jeff Bezos

[Source: From the video embedded HERE, starting around the 20:38 mark. The question and answer that discusses failure, starting around the 41:08 mark, is also exceptionally good.]

Warren Buffett on buying wonderful companies

An excerpt from the 1989 Berkshire letter that I like to review when I start getting tempted to spend too much time on non-wonderful businesses with stock prices that look tempting. Even if they aren't necessarily "cigar butts" I've found that it is often an area most prone to having competitive forces, many of which might not be knowable ahead of time, turn what appeared to originally be a cheap stock into a fair or even overvalued one. The wisdom from Mr. Buffett:
If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the “cigar butt” approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the “bargain purchase” will make that puff all profit. 
Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original “bargain” price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces—never is there just one cockroach in the kitchen. Second, any initial advantage you secure will be quickly eroded by the low return that the business earns. For example, if you buy a business for $8 million that can be sold or liquidated for $10 million and promptly take either course, you can realize a high return. But the investment will disappoint if the business is sold for $10 million in ten years and in the interim has annually earned and distributed only a few percent on cost. Time is the friend of the wonderful business, the enemy of the mediocre.  
You might think this principle is obvious, but I had to learn it the hard way—in fact, I had to learn it several times over. Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras—unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o—three years later I was lucky to sell the business for about what I had paid. After ending our corporate marriage to Hochschild Kohn, I had memories like those of the husband in the country song, “My Wife Ran Away With My Best Friend and I Still Miss Him a Lot.”  
I could give you other personal examples of “bargain-purchase” folly but I’m sure you get the picture: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements.