Sunday, June 30, 2013

Google Reader...

UPDATE: There's a great comparison of all of the new reader options HERE.


As most avid Google Reader users are aware, Google Reader goes away tomorrow. I believe you might have an extra week to save your feeds, but just in case, you may want to do so today. To do that, log into Google Reader and click on the settings tab (top right), and go to Reader Settings, Import/Export, and then click on 'Download your data through Takeout'. It should then save your feeds in a zip file, which will contain a 'subscriptions' file that will have your feeds.

Many of the alternatives will also allow you to log into their service with your Google account and will import all of your feeds for you automatically. Here is a summary and links to the main alternatives:

The Old Reader
Feed Wrangler

I'm been experimenting with several of these, which is what I also suggest you try if you are still undecided. I think they will all evolve over the next few months as they get feedback, so I'm waiting to see exactly how that process goes before making a final decision. I really like NewsBlur and my experience with it on a PC, my iPhone, and an iPad. Digg seems like it is trying to get close to the Google Reader experience, but it still needs a bit of work, though I think they'll move fast on getting it in shape. I wasn't the biggest fan of Feedly when I tried it a couple of months ago, but after trying the iPad app last night, I really liked it and may give it another try, as well as at least a couple of the others, if not all of them. If you have any thoughts on your experiences, feel free to send me and email and let me know.

And if you work at any of these companies, please make it easier to move feeds up and down to reorganize them. Google Reader made it very easy to just drag and move feeds up and down to prioritize the sites I wanted to read first, but this quality has been lacking in my experience so far from the time I've spent on the other readers (though maybe once I spend more time on it I could figure it out).

Nassim Taleb quote (collaboration)

“Collaboration has explosive upside, what is mathematically called a superadditive function, i.e., one plus one equals more than two, and one plus one plus one equals much, much more than three. That is pure nonlinearity with explosive benefits—we will get into details on how it benefits from the philosopher’s stone. Crucially, this is an argument for unpredictability and Black Swan effects: since you cannot forecast collaborations and cannot direct them, you cannot see where the world is going. All you can do is create an environment that facilitates these collaborations, and lay the foundation for prosperity.” –Nassim Taleb, Antifragile

The Intelligent Investor: Saving Investors From Themselves - By Jason Zweig

Friday, June 28, 2013

Nassim Taleb quote

“The sociologist of science Steve Shapin, who spent time in California observing venture capitalists, reports that investors tend to back entrepreneurs, not ideas. Decisions are largely a matter of opinion strengthened with “who you know” and “who said what,” as, to use the venture capitalist’s lingo, you bet on the jockey, not the horse. Why? Because innovations drift, and one needs flâneur-like abilities to keep capturing the opportunities that arise, not stay locked up in a bureaucratic mold. The significant venture capital decisions, Shapin showed, were made without real business plans. So if there was any “analysis,” it had to be of a backup, confirmatory nature. I myself spent some time with venture capitalists in California, with an eye on investing myself, and sure enough, that was the mold.

Visibly the money should go to the tinkerers, the aggressive tinkerers who you trust will milk the option.”

–Nassim Taleb, Antifragile

James Grant on CNBC


Albert Edwards: The Economic 'Ice Age' Isn't Over

Neil deGrasse Tyson on the cosmic perspective


Thursday, June 27, 2013

Bill Gross – July 2013 Investment Outlook: The Tipping Point

Whitman, Diz quotes

From the book Modern Security Analysis: Understanding Wall Street Fundamentals (which you can also view, though not download for free, HERE):
The analyst relying on earnings to evaluate a business or a common stock will be helped if he has some appreciation of the difference between the role of earnings in a static equilibrium approach and the role of earnings in a dynamic disequilibrium approach. It has been our experience that many analysts fail to distinguish between static equilibrium and dynamic disequilibrium. 
The generation of reported net income and the creation of wealth are related: the creation of reported net income is just one method of creating wealth. There are many other ways of creating wealth that are separate and distinct from the generation of net income from operations, which we group under resource conversion activities. Where businessmen not involved with OPMI [outside passive minority investor] stock markets have choices, the generation of reported earnings from operations tends to be the least desirable method for creating wealth, simply because reported earnings from operations are less tax sheltered than are other methods of wealth creation. This is one of the reasons why resource conversion activities and financing activities by corporations seem to have grown in importance at the expense of ordinary going concern operations. Publicly held corporations, however, frequently attempt to report the best earnings possible, not because businessmen think that current earnings per se are so all-important, but, rather, because the ability to report favorable current earnings may have the most favorable impact on stock prices and access to capital markets, which in turn may provide the greatest potential for wealth creation. Although difficult to generalize, in buoyant markets the main influence on the common stocks of companies that are strict going concerns seem to be the following: reported earnings, reported estimates of future earnings, sponsorship, and industry identification. These factors are used by conventional analyses to price common stock relative to others with the same characteristics (static equilibrium) or relative to forecasts of future earnings (dynamic disequilibrium). Given the varied economic definitions of earnings, it may be wise to distinguish between earnings and earning power.

Wednesday, June 26, 2013

Tomorrow’s Retail World – speech by Matt Atkinson, Chief Marketing Officer, Tesco

Nassim Taleb: 'The Black Swan' author in praise of the risk-takers

Ned Goodman’s Letter to Shareholders

Found via csinvesting.

Leucadia 2012 Letter to Shareholders

Carl Sagan - Pale Blue Dot



Here's the story to the video above (Source):

On October 13, 1994, the famous astronomer Carl Sagan was delivering a public lecture at his own university of Cornell. During that lecture, he presented this photo:

The photo above was taken by Voyager 1 in 1990 as it sailed away from Earth, more than 4 billion miles in the distance. Having completed its primary mission, Voyager at that time was on its way out of the Solar System, on a trajectory of approximately 32 degrees above the plane of the Solar System. Ground Control issued a command that directed the distant space craft to turn around and, looking back, take photos of each of the planets it had visited. From Voyager's vast distance, the Earth was captured as a infinitesimal point of light (between the two white tick marks in the image above), actually smaller than a single pixel of the photo. The image was taken with a narrow angle camera lens, with the Sun quite close to the field of view. Quite by accident, the Earth was captured in one of the scattered light rays caused by taking the image at an angle so close to the Sun. Dr. Sagan was quite moved by this image of our tiny world. Here is an enlargement of the area around our Pale Blue Dot and an excerpt from the late Dr. Sagan's talk:

"We succeeded in taking that picture [from deep space], and, if you look at it, you see a dot. That's here. That's home. That's us. On it, everyone you ever heard of, every human being who ever lived, lived out their lives. The aggregate of all our joys and sufferings, thousands of confident religions, ideologies and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilizations, every king and peasant, every young couple in love, every hopeful child, every mother and father, every inventor and explorer, every teacher of morals, every corrupt politician, every superstar, every supreme leader, every saint and sinner in the history of our species, lived there on a mote of dust, suspended in a sunbeam. 

The earth is a very small stage in a vast cosmic arena. Think of the rivers of blood spilled by all those generals and emperors so that in glory and in triumph they could become the momentary masters of a fraction of a dot. Think of the endless cruelties visited by the inhabitants of one corner of the dot on scarcely distinguishable inhabitants of some other corner of the dot. How frequent their misunderstandings, how eager they are to kill one another, how fervent their hatreds. Our posturings, our imagined self-importance, the delusion that we have some privileged position in the universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity -- in all this vastness -- there is no hint that help will come from elsewhere to save us from ourselves. It is up to us. It's been said that astronomy is a humbling, and I might add, a character-building experience. To my mind, there is perhaps no better demonstration of the folly of human conceits than this distant image of our tiny world. To me, it underscores our responsibility to deal more kindly and compassionately with one another and to preserve and cherish that pale blue dot, the only home we've ever known."

Tuesday, June 25, 2013

The Manual of Ideas: Interview with Brian Bares, Chief Investment Officer, Bares Capital

I had posted an excerpt of this interview earlier (HERE), but the entire interview is well worth watching. If you don't have time for the entire 53:09, then I suggest at least making time to watch the first 16:48. A big thanks to Brian Bares for the great answers, and to John and the team at The Manual of Ideas for asking great questions.


TED Talk - Peter Attia: What if we’re wrong about diabetes?


On the Difference between Binary Prediction and True Exposure, with Implications for Forecasting Tournaments and Prediction Markets – By Nassim Nicholas Taleb and Philip E. Tetlock

Graham and Dodd quote (adjusting assets in calculating book value)

From Security Analysis, 1940 edition:
A company’s balance sheet does not convey exact information as to its value in liquidation, but it does supply clues or hints which may prove useful. The first rule in calculating liquidating value is that the liabilities are real but the value of the assets must be questioned. This means that all true liabilities shown on the books must be deducted at their face amount. The value to be ascribed to the assets, however, will vary according to their character. The following schedule indicates fairly well the relative dependability of various types of assets in liquidation.

Monday, June 24, 2013

Collected Commentaries and Conundrums Regarding Value Investing: Essays of Murray Stahl - Volume 1: Books I, II & III

Book III, “The Worst Investments in History”, looks especially interesting.

Clayton Christensen: Still disruptive

Thanks to Will for passing this along. Christensen’s answer the question excerpted below is especially interesting, and echoes what John Templeton wrote in 2005: “Most of the methods of universities and other schools, which require residence, have become hopelessly obsolete. Probably, over half of the universities in the world will disappear as quickly in the next 30 years.”

Zombies roam the animal kingdom — and some of them may be after us

Found via the RDFRS:

AOL Launches Its Own News Reader

Another one to consider as a Google Reader replacement.


Related previous post: Google Reader alternative...

The Intelligent Investor: Going Dutch — Could Fee Hurdles Come Down Everywhere? - By Jason Zweig

Sunday, June 23, 2013

Seneca quote

Posted earlier on Twitter (HERE)...

 "...isn't it the height of folly to learn inessential things when time's so desperately short!" -Seneca

Start me up: Helping youngsters to sell stakes in their future

Thanks to Will for passing this along.

Buffett Deputies Join Heinz Board as Lynnn Swann Departs

Thanks to Will for passing this along.

The Federal Reserve’s Framers Would Be Shocked - By Roger Lowenstein

Marcus Aurelius quote

“Be not perturbed, for all things are according to the nature of the universal; and in a little time thou wilt be nobody and nowhere, like Hadrian and Augustus. In the next place having fixed thy eyes steadily on thy business look at it, and at the same time remembering that it is thy duty to be a good man, and what man's nature demands, do that without turning aside; and speak as it seems to thee most just, only let it be with a good disposition and with modesty and without hypocrisy.” –Marcus Aurelius, The Meditations

Bono, Founder, ONE Campaign on Charlie Rose

I'm a bit late getting to this, but it was pretty interesting, and includes some good business, investing, and political process tidbits here and there.

Hussman Weekly Market Comment: Market Internals Suggest a Shift to Risk-Aversion

Market internals deteriorated sharply last week, following an extended period of overvalued, overbought, overbullish conditions where interest-sensitive sectors have been under considerable pressure. At present, the line of least resistance appears downward. That will change. It may change quickly, and while we haven’t seen a material retreat in valuations, a firming of market internals even here might support a somewhat more constructive outlook. Still, investors should also recognize that the sequence of conditions we’ve observed – strenuous overvalued, overbought, overbullish conditions, followed by distinct weakness of interest-sensitive sectors (Treasury bonds, corporates, utilities), broadening internal dispersion and reversals in leadership (new highs/lows) and breadth (advances/declines) on both longer-term and high-frequency measures (e.g. another Hindenburg on Wednesday) – these are conditions that have historically preceded panics and crashes. They are indicative of a shift from risk-seeking to risk-aversion.

Make no mistake, last week’s decline was not because of a hawkish Federal Reserve, but in spite of a dovish one. On Wednesday, Ben Bernanke essentially promised that the Fed would continue to expand the size of a balance sheet that is already leveraged nearly 60-to-1 against its capital, regardless of market distortions. Though the Fed might possibly reduce the rate at which it expands that position, Bernanke indicated that the Fed will not stop adding to it until at least 2014 (stopping only on the basis of economic improvement that we view as implausible). Anyone who understands the relationship between short-term interest rates and the amount of monetary base per dollar of nominal GDP also understands that Bernanke has promised that short-term interest rates will be repressed as far as the eye can see. There was no talk of risks. Not a whisper about diminishing benefits. No – Bernanke came in full-metal dove. Perhaps shaken by the market reaction on Wednesday afternoon and Thursday, Bernanke evidently dispatched the Wall Street Journal’s Jon Hilsenrath to suggest that the markets were ignoring all those dovish signals from the Fed.

John Mauldin: Austerity is a Four-Letter French Word

Saturday, June 22, 2013

Robert Greene quote

"The need for certainty is the greatest disease the mind faces." -Robert Greene, Mastery

Marcel Proust's answer to a question on what to do if the world were ending...

I heard the story pasted below from listening to the book How Proust Can Change Your Life.

In August, 1922, the Parisian newspaper L'Intransigeant posed a question to a group of celebrities:
An American scientist announces the end of the world, or at the very least the destruction of such a large land mass, and in such a sudden fashion, that death would be the certain for hundreds of millions of people. If this prediction were to become a certainty, how do you think that people would behave between the time when they acquired this news and the moment of apocalypse? And what would you do before the final hour?
Marcel Proust responded:
Life would suddenly seem wonderful to us if we were threatened to die as you say. Just think of how many projects, travels, love affairs, studies, it--our life--hides from us, made invisible by our laziness which, certain of a future, delays them incessantly.
But let all this threaten to become impossible for ever, how beautiful it would become again! Ah! if only the cataclysm doesn't happen this time, we won't miss visiting the new galleries of the Louvre, throwing ourselves at the feet of Miss X, making a trip to India. 
The cataclysm doesn't happen; we don't do any of it, because we find ourselves back in the heart of normal life, where negligence deadens desire. And yet we shouldn't have needed the cataclysm to love life today. It would have been enough to think that we are human and that death may come this evening.

Friday, June 21, 2013

Nassim Taleb quote

“Knowledge formation, even when theoretical, takes time, some boredom, and the freedom that comes from having another occupation, therefore allowing one to escape the journalistic-style pressure of modern publish-and-perish academia to produce cosmetic knowledge, much like the counterfeit watches one buys in Chinatown in New York City, the type that you know is counterfeit although it looks like the real thing. There were two main sources of technical knowledge and innovation in the nineteenth and early twentieth centuries: the hobbyist and the English rector, both of whom were generally in barbell situations.” –Nassim Taleb, Antifragile

Fund Star from Crisis Looks to Raise Money Again

Thursday, June 20, 2013

Video Interview with Dr. Peter Pronovost on Checklists & Patient Safety



Related book: Safe Patients, Smart Hospitals: How One Doctor's Checklist Can Help Us Change Health Care from the Inside Out

The first central banker...

“I think that we should all agree that the first central banker in history was probably Christopher Columbus. Because when he left he didn’t know where he was going; when he arrived he didn’t know where he was; and he did that with somebody else’s money.”

Excerpts from Seth Klarman’s latest letter to investors...

Found via Whitney Tilson (who got from Zero Hedge). I guess these are from Klarman's Q1 letter:
Most U.S. investors today have a clear opinion about what everyone else has no choice but to do. Which is to say, with bonds yielding next to nothing, the only way investors have a chance of earning a return is to buy stocks. Everyone knows this, and is counting on it to remain the case. While economist David Rosenberg at Gluskin Sheff believes government actions could be directly or indirectly responsible for as many as 500 points in the S&P 500, or 30% of its current valuation, traders have confidence in Ben Bemanke because betting that his policies will drive equities higher bas been a profitable wager. Bernanke, likewise, is undoubtedly pleased with these speculators for abetting his goal of asset price inflation, though we all know that he will not call them first when he decides to reverse direction on QE. Then, the rush for the exits will be madness, as today' s "clarity" will have dissolved, leaving only great uncertainty and probably significant losses. 
Investing, when it looks the easiest, is at its hardest. When just about everyone heavily invested is doing well, it is hard for others to resist jumping in. But a market relentlessly rising in the face of challenging fundamentals--recession in Europe and Japan, slowdown in China, fiscal stalemate and high unemployment in the U.S.—is the riskiest environment of all. 
… [O]nly a small number of investors maintain the fortitude and client confidence to pursue long-term investment success even at the price of short-term underperformance. Most investors feel the hefty weight of short-term performance expectations, forcing them to take up marginal or highly speculative investments that we shun. When markets are rising, such investments may perform well, which means that our unwavering patience and discipline sometimes impairs our results and makes us appear overly cautious. The payoff from a risk-averse, long-term orientation is--just that--long term. It is measurable only over the span of many years, over one or more market cycles. 
Our willingness to invest amidst failing markets is the best way we know to build positions at great prices, but this strategy, too, can cause short-term underperformance. Buying as prices are falling can look stupid until sellers are exhausted and buyers who held back cannot effectively deploy capital except at much higher prices. Our resolve in holding cash balances--sometimes very large ones--absent compelling opportunity is another potential performance drag. 
But we know that in a world in which being anti-fragile is good, what doesn't kill you can make you stronger. Short-term underperformance doesn't trouble us; indeed, because it is the price that must sometimes be paid for longer-term outperformance, it doesn't even enter into our list of concerns. 
Patience and discipline can make you look foolishly out of touch until they make you look prudent and even prescient. Holding significant, low or even zero-yielding cash can seem ridiculous until you are one of the few with buying power amidst a sudden downdraft. Avoiding leverage may seem overly conservative until it becomes the only sane course. Concentrating your portfolio in the most compelling opportunities and avoiding over diversification for its own sake may sometimes lead to short-term underperformance, but eventually it pays off in outperformance. 
…Is it possible that the average citizen understands our country's fiscal situation better than many of our politicians or prominent economists? 
Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one. They are wary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions. 
They regard with skepticism those who don't accept that we have a debt problem, or insist that inflation will remain under control. (Indeed, they know inflation is not well under control, for they know how far the purchasing power of a dollar has dropped when they go to the supermarket or service station.) 
They are pretty sure they are not getting reasonable value from the taxes they pay.When an economist tells them that growing the nation's debt over the past 12 years from $6 trillion to $16 trillion is not a problem, and that doubling it again will still not be a problem, this simply does not compute. They know the trajectory we are on. 
When politicians claim that this tax increase or that spending cut will generate trillions over the next decade, they are properly skeptical over whether anyone can truly know what will happen next year, let alone a decade or more from now. 
They are wary of grand bargains that kick in years down the road, knowing that the failure to make hard decisions is how we got into today's mess. They remember that one of the basic principles of economics is scarcity, which is a powerful force in their own lives. 
They know that a society's wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing. 
They also know that the only reason paper money, backed not by anything tangible but only a promise, has any value at all is because it is scarce. With all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question. 
And when you tell the populace that we can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future, they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the policymakers—does either.

Wilbur Ross on Bloomberg (video)

Niall Ferguson on Charlie Rose

Nassim Taleb quote

“Aside from the non-narrative view of things, another lesson. People with too much smoke and complicated tricks and methods in their brains start missing elementary, very elementary things. Persons in the real world can’t afford to miss these things; otherwise they crash the plane. Unlike researchers, they were selected for survival, not complications. So I saw the less is more in action: the more studies, the less obvious elementary but fundamental things become; activity, on the other hand, strips things to their simplest possible model.” –Nassim Taleb, Antifragile

Wednesday, June 19, 2013

Richard Nikoley: 6-Years of Self Experimenting: My Fully Integrated Approach To Paleo / Primal Eating, Real Food and Vibrant Health

His book, also recommended by Nassim Taleb, is Free The Animal.

Whitman, Diz quote

"Loans made at interest rates greater than the risk-free rate of money are substantively equivalent to credit insurance and put options. The extra interest rate is equal to insurance premiums paid to the lender for taking credit risks. The extra interest can also be viewed as having the lender sell a put option. The lender collects a premium for the right to put to the borrower, or require the borrower to buy, certain assets in certain events."

Kyle Bass Presentation and Interview from SIC 2013

Found via Zero Hedge. Links to other SIC 2013 videos are available HERE.


Tuesday, June 18, 2013

How Quincy, Florida Became a Town of Secret Coca-Cola Millionaires

"Cash combined with courage in a time of crisis is priceless." -Warren Buffett

Chris Mayer: Investing with Owner-Operators

Letters from Warren Buffett on Walter Schloss

Found via Mungerisms.

TED Talk - Didier Sornette: How we can predict the next financial crisis

Nassim Taleb wrote this review (5 stars) for Sornette's book Why Stock Markets Crash
The author aside from the problem of crashes presents an insightful exposition of tipping points. I don't know why his approach makes it clearer and deeper than those of Watts and Barabasi --is it due to his using financial markets as a base? or his being an expert at fat-tailed dynamics? His work builds on the "abyssus abyssum invocat" (panic begets panics) and the dynamics of compounding disequilibria. In addition the notion of "CRITICAL POINT" is made very clear. Honestly I don't care for the idea of crashes; the same concepts can apply to sudden and unexpected euphorias. I learned more from this book than any other on disequilibrium.


THE RELATION OF SCIENCE AND RELIGION: Some fresh observations on an old problem – by RICHARD P. FEYNMAN


Related video: Richard Feynman - The Pleasure Of Finding Things Out

Monday, June 17, 2013

Analysis and rules...

Analysis is simply that: analysis. It doesn't tell you what to do, or when to do it.

In order to translate your analysis into something more than mere commentary, you need to define what constitutes an opportunity for you. That's what rules do; they implement your analysis. Rules are hard-and-fast. Tools (i.e., methods of analysis) have some flexibility in how they are used. Fools have neither rules nor tools. You must develop parameters that will define opportunities and determine how and when you will act. How? By doing homework (i.e., research, testing, trial-and-error), and defining the parameters with rules. Your homework determines what parameters or conditions define an opportunity, and your rules are the "if ... , then ..." statements which implement your analysis. This means entry and exit points are derived after you have done your analysis.

If the opportunity-defining criteria aren't met, you don't act. This doesn't mean a particular trade or investment which you pass up won't turn out to be profitable. It might have been an acceptable and profitable trade based on someone else's rules. Remember, participating in the markets is about making decisions, and as Drucker reminds us, "There is no perfect decision. One always has to pay a price which might mean passing up an opportunity." You have to accept the fact that profitable situations will occur that you won't participate in. Don't worry about the ones you miss; they were someone else's. Your rules will only enable you to participate in some of the millions of possible opportunities, not all of them.

Speculating and planning...

“Speculation is forethought. And thought before action implies reasoning before a decision is made about what, whether and when to buy or sell. That means the speculator develops several possible scenarios of future events and determines what his actions will be under each scenario. He thinks before he acts. The sequence of thinking before acting is the exact definition of the word plan. Therefore, speculating and planning are the same thing. A plan allows you to speculate with a long time horizon (as an investor), a short time horizon (as a trader) or on a spread relationship (as a basis trader or hedger).”

THE GIFT OF DOUBT: Albert O. Hirschman and the power of failure. – By Malcolm Gladwell

Charlie Munger on high quality businesses and management

This is from Munger's speech "A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business". A couple of things that stood out to me reading it this time around, that maybe I didn't pay enough attention to before, were "...if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result." and "Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't....These people do come along—and in many cases, they're not all that hard to identify. If they've got a reasonable hand—with the fanaticism and intelligence and so on that these people generally bring to the party—then management can matter much....very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business." The latter excerpt reminded me of a quote (HERE) from Bill Gates on about how the world's best companies are built by fanatics.
We've really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high quality businesses. 
Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result. 
So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects. 
How do you get into these great companies? One method is what I'd call the method of finding them small get 'em when they're little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it. 
But it doesn't work for Berkshire Hathaway anymore because we've got too much money. We can't find anything that fits our size parameter that way. Besides, we're set in our ways. But I regard finding them small as a perfectly intelligent approach for somebody to try with discipline. It's just not something that I've done. 
Finding 'em big obviously is very hard because of the competition. So far, Berkshire's managed to do it. But can we continue to do it? What's the next Coca-Cola investment for us? Well, the answer to that is I don't know. I think it gets harder for us all the time.... 
And ideally and we've done a lot of this—you get into a great business which also has a great manager because management matters. For example, it's made a great difference to General Electric that Jack Welch came in instead of the guy who took over Westinghouse—a very great difference. So management matters, too. 
And some of it is predictable. I do not think it takes a genius to understand that Jack Welch was a more insightful person and a better manager than his peers in other companies. Nor do I think it took tremendous genius to understand that Disney had basic momentums in place which are very powerful and that Eisner and Wells were very unusual managers. 
So you do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And, of course, that's hog heaven day. If you don't load up when you get those opportunities, it's a big mistake. 
Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks—who was second generation in Marks & Spencer of England—was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man. 
These people do come along—and in many cases, they're not all that hard to identify. If they've got a reasonable hand—with the fanaticism and intelligence and so on that these people generally bring to the party—then management can matter much. 
However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager. 
But, very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business.

Bill Gates: Three Things I’ve Learned From Warren Buffett

Stan Druckenmiller on China

Found via ValueWalk.

Stan Druckenmiller: The growth in credit at a time when GDP growth is slowing is a problem for China. And I think this is the 2009-11 stimulus coming back to bite. I understand that it had to be done to fund entrepreneurs and the private sector, but it’s easier said than done if you’re channelling funds through local government investment vehicles. I’m a believer in markets. A few men sitting around a table and deciding how to allocate capital goes against everything I’ve ever believed. Not only are they not great at capital allocation, such an exercise also needs to deal with a lack of property rights and corruption. In essence, the frantic stimulus China put together at the end of 2008 sowed the seeds of slower growth in the future by crowding out more productive investments. And now, the system’s building enough leverage and misallocation of resources to warrant risks of a financial crisis, but the timing of that is still uncertain in my mind. What we’ve seen in China since 2009 is similar to what happened in the US in 2005, in terms of credit growth outpacing economic growth.

Leithner Letter No. 163-166

Whitman, Diz quote

"How one views businesses has a profound effect on how one analyzes businesses."

“This bird thinks!”

A BIG thanks to Peter for passing this story/excerpt along. From the book Fear of Physics by Lawrence Krauss:
No two physicists could have been more different than Dirac and Feynman. As much as Feynman was an extrovert, so much was Dirac and introvert. The middle child of a Swiss teacher of French, in Bristol, England, young Paul was made to follow his father’s rule to address him only in French, in order that the boy learn that language. Since Paul could not express himself well in French, he chose to remain silent, an inclination that would remain with him the rest of his life. It is said (and may be true) that Niels Bohr, the most famous physicist of his day, and Director of the institute in Copenhagen where Dirac went to work after receiving his Ph.D. at Cambridge, went to visit Lord Rutherford, the British physicist, some time after Dirac’s arrival. He complained about his new young researcher, who had not said anything since his arrival. Rutherford countered by telling Bohr a story along the following lines: A man walks into a store wanting to buy a parrot. The clerk shows him three birds. The first is a splendid yellow and white, and has a vocabulary of 300 words. When asked the price the clerk replies, $5,000. The second bird was even more colorful than the first, and spoke well in four languages! Again the man asked the price, and was told that this bird could be purchased for $25,000. The man then spied the third bird, which was somewhat ragged, sitting in his cage. He asked the clerk how many foreign languages the bird could speak, “none.” Feeling budget conscious, the man expectantly asked how much this bird was. “$100,000” was the response. Incredulous the man said, “What? This bird is nowhere near as colorful as the first, and nowhere near as conversant as the second. How on earth can you see fit to charge so much?” Whereupon the clerk smiled politely and replied, “This bird thinks!”

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Friday, June 14, 2013

Which way for bonds? Mapping a path forward - By Bill Gross

Gross: In 1980, the Federal Reserve, led by Paul Volcker, tightened the quantitative noose to tame double-digit inflation, fueling an unprecedented tailwind for bond prices. Thirty years later we find ourselves at the other extreme, as central banks print money in the trillions of dollars to stimulate economic growth, and inflation is abnormally low. While we are not likely to see a repeat of that type of bull market any time soon, we also do not believe we are at the beginning of a bear market for bonds. Rather, what we’re seeing is the continuation – and acceleration, in some respects – of the de-levering process, a key distinction that may be getting lost in some of the noise over the past few weeks. The Fed, the Bank of England, and now the Bank of Japan have all committed to holding their easing stance until growth targets are hit. We don’t see the Fed raising rates in a meaningful way for at least the next few years.