Monday, March 31, 2014

Hussman Weekly Market Comment: Shifting Policy at the Fed: Good for Long-Term Growth, Bad for Cyclical Bubbles

With regard to the debt markets, leveraged loan issuance (loans to already highly indebted borrowers) reached $1.08 trillion in 2013, eclipsing the 2007 peak of $899 billion. The Financial Times reports that two-thirds of new leveraged loans are now covenant lite (lacking the normal protections that protect investors against a total loss in the event of default), compared with 29% at the 2007 peak. European covenant lite loan issuance has also increased above the 2007 bubble peak. This is an important area for regulatory oversight. 
Meanwhile, almost as if to put a time-stamp on the euphoria of the equity markets, IPO investors placed a $6 billion value on a video game app last week. Granted, IPO speculation is nowhere near what it was in the dot-com bubble, when one could issue an IPO worth more than the GDP of a small country even without any assets or operating history, as long as you called the company an “incubator.” Still, three-quarters of recent IPOs are companies with zero or negative earnings (the highest ratio since the 2000 bubble peak), and investors have long forgotten that neither positive earnings, rapid recent growth, or a seemingly “reasonable” price/earnings ratio are enough to properly value a long-lived security. As I warned at the 2000 and 2007 peaks, P/E multiples – taken at face value –implicitly assume that current earnings are representative of a very long-term stream of future cash flows. One can only imagine that recording artist Carl Douglas wishes he could have issued an IPO based his 1974 earnings from the song Kung Fu Fighting, or one-hit-wonder Lipps Inc. based on Q2 1980 revenues from their double-platinum release Funkytown
The same representativeness problem is evident in the equity market generally, where investors are (as in 2000 and 2007) valuing equities based on record earnings at cyclically extreme profit margins, without considering the likely long-term stream of more representative cash flows. There’s certainly a narrow group of stable blue-chip companies whose P/E ratios can be taken at face value. But that’s because they generate predictable, diversified, long-term revenue growth, and also experience low variation in profit margins across the economic cycle. Warren Buffett pays a great deal of attention to such companies. But looking at major stock indices like the S&P 500, Nasdaq and Russell 2000 as a whole, margin variation destroys the predictive usefulness of P/E ratios that fail to take these variations into account. Similarly, the “equity risk premium” models often cited by Chair Yellen and others perform terribly because they fail to capture broader variation in profit margins over the economic cycle. Even measures such as market capitalization / national income and Tobin’s Q have dramatically stronger correlations with actual subsequent market returns (particularly over 7-10 year horizons), and have been effective for a century, including recent decades. 
The FOMC would do well to increase its oversight of areas where exposure leveraged loans, equity leverage, and credit default swaps could exert sizeable disruption. From a monetary policy standpoint, the effort to shift from a highly discretionary policy to a more rules-based regime is a welcome development… except for speculators banking on an endless supply of candy.

EconTalk: Cochrane on Education and MOOCs

John Cochrane of the University of Chicago talks to EconTalk host Russ Roberts about the experience of teaching a massive open online course (MOOC)--a class delivered over the internet available to anyone around the world. Cochrane contrasts the mechanics of preparing the class, his perception of the advantages and disadvantages of a MOOC relative to a standard in-person classroom, and the potential for MOOCs to disrupt traditional education. 

David Winters on WealthTrack

Link to Video

Coca-Cola responds to David Winters

"Of course, both option grants and repurchases may make sense — but if that’s the case, it’s not because the two activities are logically related. Rationally, a company’s decision to repurchase shares or to issue them should stand on its own feet. Just because stock has been issued to satisfy options — or for any other reason — does not mean that stock should be repurchased at a price above intrinsic value. Correspondingly, a stock that sells well below intrinsic value should be repurchased whether or not stock has previously been issued (or may be because of outstanding options)." -Warren Buffett (1999 Letter to Shareholders)

Coca-Cola’s response to David Winters, WHAT LEMONADE STANDS CAN TEACH US ABOUT OWNERSHIP, is fairly ridiculous on a couple of levels, and its contradiction with what Warren Buffett has taught the public over the years about share repurchases and when they add or subtract from value (see THIS) I think makes it more likely that Mr. Buffett will respond in more detail than he maybe previously would have. If you aren’t familiar with Winters’ issues with Coke’s compensation plans, see THIS post.

The Rational Walk blog has a great post on Coke’s response, and why the rationale behind it is off track:

Elon Musk on 60 Minutes

So many children dream of fast cars and rocket ships, but few actually grow up to build them -- and change the world in the process

Michael Lewis on 60 Minutes

This segment relates to Michael Lewis’ new book, which is out today, Flash Boys: A Wall Street Revolt.

Steve Kroft reports on a new book from Michael Lewis that reveals how some high-speed traders work the stock market to their advantage

Friday, March 28, 2014

The WSJ interview with Robert Shiller

Q: One theme that runs through your work is that people tend to make mistakes over and over again. That's quite different than what I learned in college economics—that people are rational. How did you start thinking about people's mistakes?
A: When you went to college, the economics profession had reached an unnatural state. Mathematical models of rational behavior became the rage. It was just an abnormal time. I was reading more widely and wanting to come back to reality. 
Q: Was there something you saw in reality that led you to this?
A: Well, bubbles. The story about bubbles was that the markets appear random, but that's only because markets respond to new information and new information is always unpredictable. It seemed to be almost like a mythology to me. The idea that people are so optimizing, so calculating and so ready to update their information, that's true of maybe a tiny fraction of 1 percent of people. It's not going to explain the whole market. 
Q: Are bubbles always a bad thing, or do they have some good effects? 
A: First of all, it's a free world and people can do what they want. I'm not proposing we put the straightjacket on these things. The other thing is that human nature needs stimulation and people have to have some sense of opportunity and excitement. I think profits are an important motivator. In the long run, it's hard to say that bubbles are really bad.  
Take the Internet bubble in the 1990s. What that did was generate a lot of start-ups, some of them foolish, some of them failed, but others survived, so is it a bad thing? I find it hard to think what the alternative would be. We could have had a Federal Reserve that tried to lean against that. Ultimately, our policies in economics are somewhat intuitive and our models are not accurate enough to tell us what the right policy is, so I'm thinking we might have been better off if we tamed these bubbles, but there is no way to be sure.

"I have no sunk costs."

Edge asked a group of people to respond to a question about how Danny Kahneman has influenced their work. Below is Jason Zweig's answer, which I think shows an especially important lesson: 
While I worked with Danny on a project, many things amazed me about this man whom I had believed I already knew well: his inexhaustible mental energy, his complete comfort in saying "I don't know," his ability to wield a softly spoken "Why?" like the swipe of a giant halberd that could cleave overconfidence with a single blow. 
But nothing amazed me more about Danny than his ability to detonate what we had just done. 
Anyone who has ever collaborated with him tells a version of this story: You go to sleep feeling that Danny and you had done important and incontestably good work that day. You wake up at a normal human hour, grab breakfast, and open your email. To your consternation, you see a string of emails from Danny, beginning around 2:30 a.m. The subject lines commence in worry, turn darker, and end around 5 a.m. expressing complete doubt about the previous day's work.
You send an email asking when he can talk; you assume Danny must be asleep after staying up all night trashing the chapter. Your cellphone rings a few seconds later. "I think I figured out the problem," says Danny, sounding remarkably chipper. "What do you think of this approach instead?" 
The next thing you know, he sends a version so utterly transformed that it is unrecognizable: It begins differently, it ends differently, it incorporates anecdotes and evidence you never would have thought of, it draws on research that you've never heard of. If the earlier version was close to gold, this one is hewn out of something like diamond: The raw materials have all changed, but the same ideas are somehow illuminated with a sharper shift of brilliance. 
The first time this happened, I was thunderstruck. How did he do that? How could anybody do that? When I asked Danny how he could start again as if we had never written an earlier draft, he said the words I've never forgotten: "I have no sunk costs." 
To most people, rewriting is an act of cosmetology: You nip, you tuck, you slather on lipstick. To Danny, rewriting is an act of war: If something needs to be rewritten then it needs to be destroyed. The enemy in that war is yourself. 
After decades of trying, I still hadn't learned how to be a writer until I worked with Danny. 
I no longer try to fix what I've just written if it doesn't work. I try to destroy it instead— and start all over as if I had never written a word. 
Danny taught me that you can never create something worth reading unless you are committed to the total destruction of everything that isn't. He taught me to have no sunk costs.

An Evening with Mohnish Pabrai: Getting customers, scaling and building brand

Thursday, March 27, 2014

David Winters On His Vehement Opposition To KO’s Comp Plan

It would be nice if both Warren and Howard Buffett would comment on this. The summary of Winters' case is that Coke's latest compensation plan is transferring 14.2% of the company, equivalent to about $24 billion (yes, billion, with a 'b') to management over the next 4 years. As my friend James mentioned to me today, Howard Buffett is not only on Coca-Cola's board, but he's also the man that was given the duty of carrying on the Berkshire Hathaway culture once Warren Buffett is no longer there one day. James is submitting his question on this topic to try and get the journalists to ask it at the Berkshire Hathaway Annual Meeting, but if a few more of us submit it as well, maybe it'll have a higher chance of getting asked.

Link to videos and letters, via ValueWalk:

David Winters Sends Buffett, Coke BOD Letters Over Exec Compensation

David Winters On His Vehement Opposition To KO’s Comp Plan


Related videos:

Warren Buffett on Absurd CEO Salaries

Warren Buffett - How Should a CEO Be Compensated?

Human evolution: The Neanderthal in the family

Thirty years after the study of ancient DNA began, it promises to upend our view of the past.
Before ancient DNA exposed the sexual proclivities of Neanderthals or the ancestry of the first Americans, there was the quagga.
An equine oddity with the head of a zebra and the rump of a donkey, the last quagga (Equus quagga quagga) died in 1883. A century later, researchers published1 around 200 nucleotides sequenced from a 140-year-old piece of quagga muscle. Those scraps of DNA — the first genetic secrets pulled from a long-dead organism — revealed that the quagga was distinct from the mountain zebra (Equus zebra).
More significantly, the research showed that from then on, examining fossils would no longer be the only way to probe extinct life. “If the long-term survival of DNA proves to be a general phenomenon,” geneticists Russell Higuchi and Allan Wilson of the University of California, Berkeley, and their colleagues noted in their quagga paper, “several fields including palaeontology, evolutionary biology, archaeology and forensic science may benefit.”
At first, progress was fitful. Concerns over the authenticity of ancient-DNA research fuelled schisms in the field and deep scepticism outside it. But this has faded, thanks to laboratory rigour that borders on paranoia and sequencing techniques that help researchers to identify and exclude contaminating modern DNA.
These advances have fostered an ancient-genomics boom. In the past year, researchers have unveiled the two oldest genomes on record: those of a horse that had been buried in Canadian permafrost for around 700,000 years, and of a roughly 400,000-year-old human relative from a Spanish cavern. A Neanderthal sequence every bit as complete and accurate as a contemporary human genome has been released, as has the genome of a Siberian child connecting Native Americans to Europeans.
Enabling this rush are technological improvements in isolating, sequencing and interpreting the time-ravaged DNA strands in ancient remains such as bones, teeth and hair. Pioneers are obtaining DNA from ever older and more degraded remains, and gleaning insight about long-dead humans and other creatures. And now ancient DNA is set to move from the clean-rooms of specialists to the labs of archaeologists, population geneticists and others. Thirty years after the quagga led the way, Nature looks to the field's future.

The roundabout path to profits: Mark Spitznagel on the Dao of Capital

FM: A lot of people saw the 2000 crash coming as the market appeared overbought throughout the late 1990s but lost money by being wrong on the timing. Is your strategy a fix for that problem? 
MS: Absolutely. You can’t short markets that are running like that. You are going to blow yourself up. It goes back to Everett. That’s the reason I approach market this way: the idea of taking a one tick loss. If you want to trade that market with S&Ps you would short it, but when you are wrong you will have a tight stop. And throughout the ’90s you would have taken a lot of losses. Eventually you would have been right, whether you would make up all your losses, I can’t say. 
What I do with options is nothing more than a fancier way to do that. Right now I would say the market is massively distorted, we are going to see a huge sell-off but I would never advise someone to be short this market. You would blow yourself up. The market will balance itself; as it has in all the other bull moves caused by distortions in the last 100 years. It managed to right itself but the path there is difficult and there is no telling how far it can go. 
In the late ’90s clearly [Fed Chair Alan] Greenspan was the driver of that boom. There was a nice believable theme behind it that we were in a new economy. The market went further than it ever had in recorded history. Here we are again on the cusp. If the market rallies much from here, now we are back in this territory like 1999. It is possible the market could double from here or triple from here. I happen to think it is not the likely path.

Related articles:

[H/T Jim]

TED Talk - Ed Yong: Suicidal crickets, zombie roaches and other parasite tales

We humans set a premium on our own free will and independence ... and yet there's a shadowy influence we might not be considering. As science writer Ed Yong explains in this fascinating, hilarious and disturbing talk, parasites have perfected the art of manipulation to an incredible degree. So are they influencing us? It's more than likely.

Related blog: Parasite of the Day

Related previous posts:

Wednesday, March 26, 2014

Cosmos: A Spacetime Odyssey: When Knowledge Conquered Fear (Episode 3)


Isaac Newton was prominently featured in this episode. The only book I’ve read on Newton is Isaac Newton by James Gleick. There is a much longer biography on him that I haven’t read yet called Never at Rest: A Biography of Isaac Newton by Richard S. Westfall. This episode also made me want to learn more about Edmond Halley, as it seems the comet he’s known for is a but a tiny piece of the things worth knowing about him. The go-to biography on Halley seems to be Edmond Halley: Charting the Heavens and the Seas by Alan Cook.

Tuesday, March 25, 2014

Jim Grant lecture: Hazlitt, My Hero

The Henry Hazlitt Memorial Lecture, sponsored by James Rodney. Recorded at the 2014 Austrian Economics Research Conference in Auburn, Alabama, on 20 March 2014. Includes an introduction my Joseph T. Salerno.


[H/T Mises]


Related book: Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics

And one of my favorite things from Hazlitt: The Wisdom of the Stoics

Jeremy Grantham: The Fed is killing the recovery

And an excerpt from the interview that I think illustrates how to stay disciplined to one's process about as well as I've seen:
Okay, but then I guess that means you think stocks are going higher? I thought I had read your prediction that the market would disappoint investors.
We do think the market is going to go higher because the Fed hasn't ended its game, and it won't stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market's mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.
So are you putting your client's money into the market?
No. You asked me where the market is headed from here. But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money.
We invest our clients' money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.

Analysis (BBC Radio): Why Minsky Matters

Link to podcast: Why Minsky Matters
American economist Hyman Minsky died in 1996, but his theories offer one of the most compelling explanations of the 2008 financial crisis. His key idea is simple enough to be a t-shirt slogan: "Stability is destabilising". But TUC senior economist Duncan Weldon argues it's a radical challenge to mainstream economic theory. While the mainstream view has been that markets tend towards equilibrium and the role of banks and finance can largely be ignored, Minsky argued that in the good times the seeds of the next crisis are sown as the financial sector engages in riskier and riskier lending in pursuit of profit. In the aftermath of the financial crisis, this might seem obvious - so why did Minsky die an outsider? What do his ideas say about the response to the 2008 crisis and current policies like Help to Buy? And has mainstream economics done enough to respond to its own failure to predict the crisis and the challenge posed by Minsky's ideas?

Monday, March 24, 2014


Below is an investment letter I wrote in February of last year. The essence of what I was trying to get at is essentially what Sanjay Bakshi was saying (though more clearly and elegantly than I did) in his recent interview with Vishal Khandelwal in this excerpt:
So, to summarize, if you are going to invest like Ben Graham, then your sources of margin of safety are different than if you invest like Warren Buffett. You just have to be aware of those sources and also of their limitations. 
I also strongly feel that when it comes to moats, it makes sense to think in terms of expected returns and not fuzzy intrinsic value
What will not work is to apply the same methodology to every business. 
For example, in my view there is a way to invest conservatively in businesses which are likely to experience a great deal of uncertainty. But you simply can’t use that approach when dealing with enduring moats. And vice versa. 
You need to have multiple models to deal with different situations to avoid the “to-a-man-with-a-hammer-everything-looks-like-a-nail” trap.
The key is that the quality of a business and the sustainability of its competitive advantages makes an enormous difference in how it should be valued. A P/E ratio of 10 or 20 or 30 or whatever number means little unless you have some insight into the quality of the business and the sustainability of that quality going forward. In the letter below, I separated investments into four categories, but that is just one way of viewing things. Reality is probably more of a continuum instead of set categories and one that can change quickly when innovative competition comes along.

Filters - by Joe Koster (February 21, 2013)

“We really can say no in 10 seconds or so to 90%+ of all the things that come along simply because we have these filters.”  –Warren Buffett (as quoted in Seeking Wisdom: From Darwin to Munger)

Besides running screens and paying attention to stocks on our watch list, when looking for new places to invest, we also read other people's write-ups and hear other people's ideas all the time. This can be a useful thing because a lot of these ideas are great, the people are usually smart, and it is another tool to search for potential things in which capital could be put to work. But the human mind is made to fall for stories and miscalculate the odds when a good narrative is in place, as has been usefully described by the work of Nassim Taleb and Daniel Kahneman, among others.

Filters are an important—though certainly not guaranteed—way to help limit mistakes, whether from the narrative fallacy or from other potential errors. By not even thinking about things that don't pass certain filters, you'll probably miss plenty of good ideas, but you'll also avoid plenty of good stories that turn out to be bad investments. And as it takes a 100% gain to make up a 50% loss, for example, it is probably much more important to avoid the losing investments than it is to try and pick every winner. Or as Howard Marks often says, if you avoid the losers the winners will take care of themselves.

So whether potential investment ideas are your own or those of others, I think the most important thing isn't necessarily the number of things you look at, but rather knowing when you should stop looking at that idea and move on to something else before your own psychology makes you see things that may not really be there. In an interview with my friend Miguel Barbosa last year, Alice Schroeder mentioned this in regards to Warren Buffett’s filtering process:

Typically, and this is not well understood, his way of thinking is that there are disqualifying features to an investment. So he rifles through and as soon as you hit one of those it’s done. Doesn’t like the CEO, forget it. Too much tail risk, forget it. Low-margin business, forget it. Many people would try to see whether a balance of other factors made up for these things. He doesn’t analyze from A to Z; it’s a time-waster.
And to elaborate on this point, let’s return to one of my four favorite books, Peter Bevelin’s Seeking Wisdom: From Darwin to Munger. In Seeking Wisdom, Bevelin mentions a comment that Buffett made in 2001 where he described his thought process:

At a press conference in 2001, when Warren Buffett was asked how he evaluated new business ideas, he said he used 4 criteria as filters.
- Can I understand it? If it passes this filter,
- Does it look like it has some kind of sustainable competitive advantage? If it passes this filter,
- Is the management composed of able and honest people? If it passes this filter,
- Is the price right? If it passes this filter, then we write a check
I think filters are some of the most important things to spend time developing well in order to become a great investor. If your filters are good enough, you can save a lot of time and, hopefully, avoid a lot of mistakes.

I discussed some of the things we seek when looking for investments in “The 4 Gs of Investing” and by and large, they are very similar to Mr. Buffett’s. In one area, though, our philosophy is closer to the way Buffett managed money when his capital base was much smaller, rather than the way he manages Berkshire’s much larger base of capital today. That area occurs at the intersection of quality and price.

Though our preference is for companies with sustainable competitive advantages, we are willing to consider other businesses, at the right price. When looking for investment ideas, I’m looking for stocks that fall into one of three different categories, with some consideration given to a fourth category.

1) Competitively-advantaged, great business at an attractive absolute and relative free cash flow yield

With these investments, we take a 7-10 year investment outlook when considering the investment, which is equivalent to the time it usually takes for market valuations to revert to the mean. The thought here is that with a great, competitively-advantaged business, free cash flow (FCF) is more predictable and that the most important action in determining the right price at which to buy shares is figuring out the FCF the business is currently throwing off, and the prospects for that FCF to grow in the future.

If the FCF multiple the market places on the stock doesn't change, we expect our return to be the free cash flow yield plus the growth rate in that free cash flow (after all capital expenditures, since we are considering growth in the equation). Though we have to remember that we may not get rewarded by the market for the FCF not paid in dividends, so the return might just be (and is maybe even more likely to be) FCF growth per share plus the dividends we receive, assuming the multiple stays the same. As great and advantaged businesses should trade at a premium to the market and to the market’s historical average multiple, by buying into these businesses at a minimum absolute FCF yield (say, 7 or 8%) and a good yield relative to the market’s expected return over the next 7-10 years, we should have any change in the multiple going in our favor and not against us, if we are right in our analysis.

2) Good business close to or below tangible book value (after adjustments)

With these investments, we are looking to find a good—though maybe not competitively-advantaged—business in which think the stock can double over a 3-5 year period, and has downside protection. We still want to buy into these businesses at good absolute FCF yields and also at a significant discount to private market values. But if a business doesn’t have significant and sustainable competitive advantages, earnings predictability is usually lower and the odds of an unexpected and unpleasant surprise increase, so we also want to buy our shares fairly close to tangible book value (or maybe just book value, depending on the nature of the intangibles), and adjust that book value by, for example, putting a big discount on fixed assets, especially if they are tied to the price of a commodity. 

3) Below liquidation without giving much (or any) weight to fixed assets, especially if they are tied to commodities

These are businesses that aren’t great or good businesses, but that are still FCF positive and trading at a significant discount to liquidation value, after giving most of the weight to current assets and assigning little value to fixed assets. We prefer to enter a position in this category at around two-thirds of our adjusted liquidation value, and take an investing timeframe of 2 years or less. As such, we also want to identify a catalyst that we believe will occur within that 2 year period.

4) Good business, seemingly good price, run by people that seem to understand capital allocation, but where the sustainability of a competitive advantage is hard to determine and there is no downside protection in the asset values

This is the category that, philosophically, gives me some trouble. It is easy for me to pass on bad businesses at bad prices, businesses where I don’t like the management team, businesses that don’t fit into any of the first three categories above, or things that don’t meet other ownership, management, circle of competence or balance sheet filters. But when I see a good business, that may have at least some kind of competitive advantage (though maybe not a very large or sustainable one), trading at when seems like a good price, temptation enters. I think the most important thing about these is to really make sure to go the extra mile when trying to figure out if the future economics of the business could be considerably unlike the past economics, because if you are wrong about the earning power of the business and the profit margins of the business erode, you could be setting yourself up for a significant and permanent impairment to capital.

Though we haven’t been able to find much in the market at the current time that fits the first three categories, there are some businesses in this fourth category that are getting close to consideration. Coach (NYSE:COH) and Strayer Education (NasdaqGS:STRA) are a couple of examples in which we haven’t purchased any shares yet, but that fit this category. They have historically been good, high return on capital businesses and the companies have opportunistically repurchased shares at attractive prices. Our focus is on the first three categories, but if we can develop any unique insights on those or other businesses in the fourth category, they could find their way into portfolios, though we will be careful to limit the percent of portfolios actually invested in that category.

Though these are some of the rules and filters that guide our process today, it is also important to remember that things change and flexibility of the mind is an important trait to have in order to succeed over a long period of time. Or as Seth Klarman, in one of my favorite investing quotes, said: “To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough. Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale behind the rules in order to appreciate why they work when they do and don't when they don't.”

Sacred and Profane: How not to negotiate with believers - by Malcolm Gladwell

An Insider Reflects on the Waco Standoff

Link to article: Sacred and Profane

Lessons From The Founder Of The Discovery Channel

If John S. Hendricks’ biography helped drive Miguel to restart Simoleon Sense, then it’s worth everyone checking out (HERE).  Miguel also posted some great excerpts, via the link below.

James Montier: Equity markets are overvalued

James, are you able to find anything in today’s financial markets that still has an attractive valuation?
Nothing at all. When we look at the world today, what we see is a hideous opportunity set. And that’s a reflection of the central bank policies around the world. They drive the returns on all assets down to zero, pushing everybody out on the risk curve. So today, nothing is cheap anymore in absolute terms. There are pockets of relative attractiveness, but nothing is cheap or even at fair value. Everything is expensive. As an investor, you have to stick with the best of a bad bunch. 
Do you see outright bubbles anywhere? 
By some measures, you can say we are in a bubble, for example in U.S. equities. But it doesn’t feel like a mania yet. Today we experience something like a near-rational bubble, based on overconfidence and myopia by investors. It’s a policy-driven, cynical kind of bubble. Not a mania. 
You coined the term foie gras rally, where the Fed just shoves liquidity down investor’s throats. How will it all end? 
Probably not well. The exit from these policies is going to be extraordinarily difficult to handle. Today’s situation shows parallels with 1994. Then, the Fed had thought that they had done a great job in communicating their policy going forward. But it turned out the markets were not prepared at all, given the fact that it resulted in the Tequila crisis in Mexico. Couple that with expensive markets, and you have a good reason to want to own a reasonable amount of dry powder. You don’t want to be fully invested in this world. 
Since the tapering started in December 2013, markets take it rather calmly. 
Yes, the ones that suffered were the emerging markets. The S&P-500 just keeps drifting upwards. But I think emerging markets are the canary in the coalmine, the first signal. They had been the beneficiaries of these incredible capital inflows. So the fact that they are the first ones to suffer makes sense. It’s not a huge surprise that stock markets in the U.S. have not reacted, because the bond market has not reacted. The bond market seems to think the tapering will turn out fine. Maybe they’re right. But there is no margin of safety in asset pricing these days. That’s no comfortable position to begin a tightening cycle. 
What if there won’t be any exit? 
That’s a possibility. The Fed might decide that growth is still too weak and that inflation is not an issue. Then they could keep their policy in place for longer. The history of financial repression shows that it lasts a very long time. The average length of periods of financial repression in history is 22 years. We’ve only had five years so far. That creates a huge dilemma for asset allocators today: How do you build a portfolio with such a binary situation? Either they exit QE, or they don’t. And the assets you want to own in these two scenarios are pretty much inverse. So you either bet on either one of these scenarios, with is kind of uncomfortable for a value-based investor, or you say because we don’t know, the best we can do is build a robust portfolio. A portfolio that is able to survive in all kinds of scenarios. 
And what does such a portfolio look like? 
If you have continued financial repression, you want a much higher share of equities, because they are the highest performing asset, compared to bonds and cash. If you think financial repression will go on for another 20 years, you need to have equities. For the scenario that the central banks will exit their policies, you will want to own cash, because that’s the only asset that does not get impaired when interest rates rise. So you have two extreme portfolios: One almost fully in equities, the other almost fully in cash. So that’s what we do: We have about 50% in equities, and 50% in dry powder-like assets. That means some cash, some TIPS, and some long/short equity spread trades. But as said, we are reducing the equity part over the course of the year, to build up dry powder.

[H/T ValueWalk]

TED: Larry Page: Where’s Google going next?

Onstage at TED2014, Charlie Rose interviews Google CEO Larry Page about his far-off vision for the company. It includes aerial bikeways and internet balloons … and then it gets even more interesting, as Page talks through the company’s recent acquisition of Deep Mind, an AI that is learning some surprising things.

Hussman Weekly Market Comment: Fed-Induced Speculation Does Not Create Wealth

Fed-induced speculation does not create wealth. It only changes the profile of returns over time. It redistributes wealth away from investors who are enticed to buy at rich valuations and hold the bag, and redistributes wealth toward the handful of investors both fortunate and wise enough to sell at rich valuations and wait for better opportunities. There won’t be many, because rising prices also encourage overconfidence in a permanent ascent. Few investors are capable of enduring the discomfort of being on the sidelines for very long if a speculative market proceeds further without them. 
Only those who sell at extreme valuations have the potential to capture any benefit from them, and that benefit only comes by saddling some other investor with poor returns going forward. This is redistribution, not creation of wealth. For those that fail to exit, speculation only changes the profile of returns over time. Excessive reward for short-run risk tolerance goes hand-in-hand with punishment for maintaining that risk tolerance over the longer-run. Over the next few years, the contrast between these short-run rewards and their long-run punishment is likely to be epic. The median stock is more overvalued than at any point in history. Broad market valuations on the most historically reliable measures we identify now exceed the 2007 extreme, and are on parity with 1929. Only the 2000 peak went further.

Will Stock Buybacks Bite Back? - by Jason Zweig

As the bull market soars ever higher, investors face big competition for buying the shares of companies—and it comes from the companies themselves. 
Last year, the corporations in the Russell 3000, a broad U.S. stock index, repurchased $567.6 billion worth of their own shares—a 21% increase over 2012, calculates Rob Leiphart, an analyst at Birinyi Associates, a research firm in Westport, Conn. That brings total buybacks since the beginning of 2005 to $4.21 trillion—or nearly one-fifth of the total value of all U.S. stocks today. 
There has been a lot of talk in the past few years about how index funds, which buy and hold stocks regardless of whether they are cheap or expensive, might be contributing to an overvaluation of the U.S. stock market. But the companies that make up the U.S. stock market might be contributing even more. And, if you wanted a signal of when to get in and out of the market, doing the opposite of whatever companies themselves are doing would serve you pretty well.

Friday, March 21, 2014

Waiting for the Right Pitch

From Seth Klarman via Margin of Safety:
Waiting for the Right Pitch
Warren Buffett uses a baseball analogy to articulate the discipline of value investors. A long-term-oriented value investor is a batter in a game where no balls or strikes are called, allowing dozens, even hundreds, of pitches to go by, including many at which other batters would swing. Value investors are students of the game; they learn from every pitch, those at which they swing and those they let pass by. They are not influenced by the way others are performing; they are motivated only by their own results. They have infinite patience and are willing to wait until they are thrown a pitch they can handle – an undervalued investment opportunity.
Value investors will not invest in businesses that they cannot readily understand or ones they find excessively risky. Hence few value investors will own the shares of technology companies. Many also shun commercial banks, which they consider to have unanalyzable assets, as well as property and casualty insurance companies, which have both unanalyzable assets and liabilities.
Most institutional investors, unlike value investors, feel compelled to be fully invested at all times. They act as if an umpire were calling balls and strikes – mostly strikes – thereby forcing them to swing at almost every pitch and forego batting selectivity for frequency. Many individual investors, like amateur ballplayers, simply can’t distinguish a good pitch from a wild one. Both undiscriminating individuals and constrained institutional investors can take solace from knowing that most market participants feel compelled to swing just as frequently as they do.
For a value investor a pitch must not only be in the strike zone, it must be in his “sweet spot”. Results will be best when the investor is not pressured to invest prematurely. There may be times when the investor does not lift the bat from his shoulder; the cheapest security in an overvalued market may still be overvalued. You wouldn’t want to settle for an investment offering a safe 10% return if you thought it very likely that another offering an equally safe 15% return would soon materialize.
An investment must be purchased at a discount from underlying worth. This makes it a good absolute value. Being a good absolute value alone, however, is not sufficient for investors must choose only the best absolute values among those that are currently available. A stock trading at one-half of its underlying value may be attractive, but another trading at one-fourth of its worth is the better bargain. This dual discipline compounds the difficulty of the investment task for value investors compared with most others.
Value investors continually compare potential new investments with their current holdings in order to ensure that they own only the most undervalued opportunities available. Investors should never be afraid to reexamine current holdings as new opportunities appear, even if that means realizing losses on the sale of current holdings. In other words, no investment should be considered sacred when a better one comes along.
Sometimes dozens of good pitches are thrown consecutively to a value investor. In panicky markets, for example, the number of undervalued securities increases and the degree of undervaluation also grows. In buoyant markets, by contrast, both the number of undervalued securities and their degree of undervaluation declines. When attractive opportunities are plentiful. value investors are able to sift carefully through all the bargains for the ones they find most attractive. When attractive opportunities are scarce, however, investors must exhibit great self-discipline in order to maintain the integrity of the valuation process and limit the price paid. Above all. investors must always avoid swinging at bad pitches.

Thursday, March 20, 2014

Robert Greene quote

From the book Mastery:
It is never wise to purposefully do without the benefits of having a mentor in your life. You will waste valuable time in finding and shaping what you need to know. But sometimes you have no choice. There is simply no one around who can fill the role, and you are left to your own devices. In such a case, you must make a virtue of necessity. That was the path taken by perhaps the greatest historical figure to ever attain mastery alone—Thomas Alva Edison (1847–1931).

I also just noticed that the interviews Robert Greene did with the 'nine contemporary masters' are available for free on the Kindle HERE
More than 20,000 hours of research and thought went into Robert Greene's stunning book, Mastery. In a departure from his previous works, Robert Greene interviewed nine contemporary masters, including tech guru Paul Graham, animal rights advocate Temple Grandin, and boxing trainer Freddie Roach, to get their perspective on their paths to greatness. Those interviews are now available to readers for the first time. Interviews with the Masters presents more than 700 pages of revealing insight directly from these contemporary Masters; from how they learn and think, to how they put it all together and create. 

Gravitational Waves from Big Bang Detected

Link to article: Gravitational Waves from Big Bang Detected
Physicists have found a long-predicted twist in light from the big bang that represents the first image of ripples in the universe called gravitational waves, researchers announced today. The finding is direct proof of the theory of inflation, the idea that the universe expanded extremely quickly in the first fraction of a nanosecond after it was born. What’s more, the signal is coming through much more strongly than expected, ruling out a large class of inflation models and potentially pointing the way toward new theories of physics, experts say.

Safal Niveshak: Value Investing, the Sanjay Bakshi Way 2.0 – Part 2

For Part 1, which was a great overview on MOAT investing, go HERE. A big thanks to Vishal Khandelwal for doing these brilliant interviews.


As a disciple of Ben Graham, when working on any business and not necessarily moats, I developed my own ways of thinking about valuation.

Graham used to talk about protection vs prediction. He used to say that investors should seek protection in the form of margin of safety either through conservatively calculated intrinsic value (usually based on asset value) over market price or superior rate of sustainable earnings on price paid for a business vs a passive rate of return on that money.

That approach works well in many businesses as even though their future fundamental performance is largely unpredictable because one is, in effect, underwriting insurance.

Graham’s methods helped investors deal with the unpredictability problem in security analysis. For example, when you bought the stock of a company selling below net cash and the operating business was not losing money, then you were effectively getting the business for free. Even if the business may have been mediocre, it was free. And the typical Graham-and-Dodd investor absolutely loves freebies.

That kind of approach enabled you to justify a purchase because value was more than price even though one did not know by how much. Poor management quality was dealt with through insistence on an even lower price in relation to value.

For Graham, there were no good or bad businesses, only good or bad investments. And that approach can work if you practice wide diversification and buy out-of-favor businesses which are perhaps not doing very well right now but eventually might.

So there was an inherent belief in the idea of mean reversion i.e., poorly performing businesses would improve their performance over time.

In case of predictable businesses with stable cash flows, I used to talk about “debt-capacity bargains” and still teach that concept to my students. That’s because I think the idea of “debt capacity” is a very powerful mental construct in valuation.

The basic idea here was that the value of a debt-free business has to be more than its debt capacity. I discussed it in detail in one of my more popular lectures titled “Vantage Point” so I won’t get into the details here.

Similarly, buying into businesses where pre-tax earnings yield was in excess of twice of AAA bond yield, and the business had a strong balance sheet was one of the key methods of Graham for identifying a bargain security.

If you had a reasonable degree of confidence that average past earning power will return soon and the business had staying power (that’s why the insistence on a strong balance sheet), then sooner or later the market will recognize that the stock had been beaten down too much and there would be a more than satisfactory appreciation in its market value.

And even if you go wrong on a few of these positions, because you had so many, things would work out well eventually.

But as you move towards enduring moats, you move towards predictability and higher quality. In such situations, the need for protection in the form of high asset value or high average past earnings in relation to the asking price goes away.

Of course, that does not mean that you don’t need a margin of safety any more. Far from it. It’s just that the source of that margin of safety now resides in the quality of the business you’re buying into, its long-term competitive advantages, its ability to grow its earnings while delivering high returns on incremental capital without need for issuance or new shares or significant debt.

It also comes from the superior ability of the management to create a moat and to do all things necessary which will widen it over time.

Finally, the safety margin comes from buying the business at a valuation that would, in time, prove to be a bargain, even though today it may appear to be expensive to many investors.

It’s obvious that the art of making even reasonable estimates of future earning power of businesses a decade or more from now cannot possibly be extended to most businesses.

But I think — and I’ve learnt this over the years by studying investors like Charlie Munger and Warren Buffett — you can do that for a handful of businesses. And as Mr. Munger and Mr. Buffett like to say you don’t need very many.

Then, if that’s true, and I think it is true, you can reach out reduce the problem to just a handful of variables that will help you come with a range of potential future earnings and market values and from that you can derive a range of long-term expected returns. And I tried to explain that in my final Relaxo Lecture.

So, to summarize, if you are going to invest like Ben Graham, then your sources of margin of safety are different than if you invest like Warren Buffett. You just have to be aware of those sources and also of their limitations.

I also strongly feel that when it comes to moats, it makes sense to think in terms of expected returns and not fuzzy intrinsic value.

What will not work is to apply the same methodology to every business.

For example, in my view there is a way to invest conservatively in businesses which are likely to experience a great deal of uncertainty. But you simply can’t use that approach when dealing with enduring moats. And vice versa.

You need to have multiple models to deal with different situations to avoid the “to-a-man-with-a-hammer-everything-looks-like-a-nail” trap.

Wednesday, March 19, 2014

Love Mental Models? Study Threshold Concepts! - by Miguel Barbosa

Your must-read of the day: 

Link to: Love Mental Models? Study Threshold Concepts!
I think that understanding how to learn about mental models remains (unexplored and unpopular). In other words, the journey that every aspiring renaissance thinker must undertake in order to become “worldly” isn’t as talked about or referenced. Here are some questions around this area: 
How can we facilitate the discovery, learning, & comprehension of mental models? 
What are the stages/phases in the learning of new mental models? 
How does our perception/understanding change as we learn new concepts?
Recently, I came across a new area in pedagogy that changed my thinking about acquiring worldly wisdom. Specifically, I stumbled across a paper titled, “Threshold Concepts & Troubling Knowledge Linkages to Learning & Practice ” by Meyer and Land. This paper identifies the challenges and phases of learning new concepts (mental models). Furthermore, according to the authors, on our journey towards learning there are “threshold concepts” i.e. levels/gateways that we need to cross before mastering a subject.

Paul Lountzis’ 2013 Annual Letter

Our 2013 year-end review is longer than usual because we felt it was important to discuss Berkshire Hathaway at length when Warren E. Buffett is no longer leading the company followed by our thoughts on several topics raised by our clients and we close by discussing our portfolio of holdings. We feel it is important for our clients to better understand our thinking and we try to include the information that we would want if our roles were reversed. Our letter consists of several parts.
First, while we have shared our views on Berkshire Hathaway many times over the years, we have never gone into detail about Berkshire Hathaway’s future when Warren E. Buffett is no longer leading the company. Given that Berkshire Hathaway is our largest holding, we feel it is appropriate to share our views in some detail. 
Second, we discuss some of our concerns regarding the stock market including segments on: overall stock market valuation levels, valuation levels for smaller companies, corporate profit margins, margin debt levels and the commoditization of businesses. 
Third, is our discussion of several positive factors that bode well for long-term investors in stocks, despite current elevated market levels. These segments include: fewer companies listed on U.S. exchanges, pension funds, and the overall stock allocation of endowments. 
Fourth, we discuss our views on several issues raised by our clients including the domestic energy revolution, housing, inflation/deflation and income and wealth inequality. 
Finally, we discuss our portfolio activity including sections on preferred stocks, municipal bonds and stocks.

[H/T Beyond Proxy]

Focusing on expected returns instead of intrinsic value…

Just tying a few related comments together from some recent things…

I think it’s important for investors to think in terms of expected returns instead of fuzzy concepts like intrinsic value even though they may be functionally equivalent. 
There are, in my view, significant advantages of thinking in terms of “How much money am I going to make in this business over time?” over “What’s the discount to intrinsic business value?” The answer to the first question is what really matters isn’t it? Then why try to answer it indirectly? 
And the beauty about investing in moats is that you think about expected returns after the business passes your business and management quality checks. That means that if you have no idea what the earnings of a business would look like a decade from now and whether or not those earnings will still be growing or not even after ten years, you should not invest in that business. 
So the business quality checklist will eliminate a huge number of possible businesses to evaluate. This is what I believe Mr. Buffett meant when he talked about “circle of competence.” 
Next, the management quality checklist would eliminate many more businesses from consideration. That would leave a handful of businesses which you would like and know pretty well and about which you’d have the ability to estimate a range of expected returns over a decade or more. 
Now imagine you had done that exercise and come up with expected returns for about 20 stocks over the next decade. Which ones would be rational to include in your portfolio? And which ones should you not include in your portfolio regardless of how much you like the business and management?
But they're [Nestle] trading at a 3.3-3.4% dividend. Their growth, because they are in high-growth areas -- if you read their financials, it looks like the growth is slower because historically it's been in Swiss francs and the Swiss franc has been appreciated -- strongly relative to the currencies in which they sell, but their growth is probably, especially in earnings because they have operating leverage, maybe 6%, which is a little above the 4.5% nominal world GDP growth, or even 4% nominal world GDP growth. 
You had a 6% earnings growth, a 3.3% dividend, and probably some buybacks on top of it because they really don't need all that much capital, so you're looking at a 10% return on a stock. That is extraordinarily safe. 
You look at what happened to them after 2003, where their input prices when through the roof, and there was no general inflation, and their margins go up steadily. You look at them in the crisis and they're barely affected by it in '08-'09. 
It's sort of recession-proof and inflation-proof, and it's a 10% return. Maybe as low as 8, but in a world -- even where 30-year Treasuries, which have all the inflation risk, are 3% -- that is not an expensive stock, and there a fair number of opportunities.
When growth has value, what you're trying to do is take a cash flow number and multiply it by the appropriate multiple for a growing stream. Costs of capital these days are probably 8%. Growth rates for anybody with a franchise... and growth has no value if you don't have barriers to entry, because your return on capital is driven by the cost of capital, so you invest $100 million in growth, you earn 8%, you have to pay 8% to the people who provided it. 
In the stocks where growth matters, you've got, say, an 8% cost of capital and, because you've got operating leverage, probably a 5% growth in earnings. That's 1/3%, which is 33 times, which is a crazy multiple. 
If you're off by just 1%, you could have 100 times. If, for example, the cost of capital was 7 and the growth was not 5, it was 6, which is 1/1%, or if the cost of capital was 9 and the growth rate is 5, you're 25 times, and even lower. 
You make small mistakes in those numbers, you get massive mistakes in valuation, so when you've got a growing stream, it's almost impossible to put a value on it. If the growth doesn't matter, you can get an earnings-powered value. It ought to be supported by assets because there are no barriers to entry, and you'll get a very good valuation. 
You can get a valuation metric in terms of price/earnings ratios, price to tangible book, ultimately price to replacement cost, and price to sustainable earnings. 
In the non-growth stocks, which are the non-franchised stocks, it's always been the case that traditional valuation metrics apply, and they continue to apply. In the growth stocks, on the other hand, I think we now have learned, to our cost -- and by the way, not just in this crisis but in the sell-off for the tech bust in '99-2000 -- that you cannot put a sensible value on things. 
If you can't put a sensible value on things, the question is how do you decide if they're worth buying? The answer is, you can put a sensible return on things. 
In those cases, notice what I did. I said, "OK, here's the cash return." It's the dividends plus the buybacks, probably -- expected level of buybacks, which is like 4.4% -- the growth is what it is, and the growth in earnings may be slightly higher than the growth in sales, but the growth in sales is forecastable. 
It's going to be either slightly above or slightly below the level of GDP growth, depending on how successfully they allocate capital to grab market share or whether they're in a category that's growing faster, like pet food, than GDP or much slower, like newspapers or automobiles, than GDP. 
You can assess those numbers and notice that now it's not 1/R-G. It's just linearly related to the return. What I did for you is I basically calculated a total return for Nestle, and that has always been the sensible way to look at growth stocks. 
You notice you can compare that directly to returns on Treasuries, to returns on junk debt, to returns on regular debt, because they're all in returns space so you've got a much better idea of what you're buying. 
That's the good news about what we've learned. I think it's not just been from the crisis. I think, as I say, it goes back to the tech bust where people put unrealistic and crazy valuations on things. 
It's what, really, people like Warren Buffett, who have pioneered the process of investing in these franchise businesses -- and it's only the franchise businesses where growth has value, because that's where you earn above the cost of capital. 
I mean, if a market grows with no barriers to entry, you just get a lot of entry. It drives prices down and it eliminates the profitability, so you have to have the barriers to entry. 
What they always said is, you can make a sensible buy decision. It is incredibly difficult to make a sensible sell decision. That's because you have to pick a price at which to sell. I get a price from the market today and I can calculate, just as I did for Nestle and other things, a return at that price. 
But when I decide to sell Nestle, I've got to pick a price to sell it at. That, of course, gets into all the problems of at what point it's overvalued or not. There, I think what you have to do is not hold on too long. That's the temptation. 
That's what kills Buffett when he won't sell Coca-Cola at $80 a share. It's what kills him when he holds onto the Washington Post for too long. 
It's a very difficult decision to make, but I think the evidence is that you've got to be pretty conservative about it so that if the dividend return for Nestle, for example, plus the buyback return, goes down to 3.5, even though the overall return may be reasonable relative to returns on fixed income, you're still going to have to sell at that point. 
But I think what we've learned in, as I say, as much the tech bust as the current crisis, is you cannot effectively put numerical values on stocks, or have price-related multiples on stocks, that are growth stocks. 
If you'll let me, I'll do just one more example that shows you. 
People got really excited about newspapers when they got down to like 8 times earnings. Eight times earnings is an earnings return of about 12.5%. They were distributing 80% of that, so it was a 10% cash return, either buybacks or dividends. 
In spite of what investments they were doing, those businesses were shrinking at at least 5% a year in terms of their earnings power, and they had no good alternative investments. They tried and failed, and the basic businesses were shrinking. You had all the loss in operating leverage, because you had this big fixed cost infrastructure to fill and sell newspapers and a shrinking revenue base against it. 
… But let's say it was 7% a year, which means it takes 14 years for it to fall in half. You start with 10 and subtract 7, that's a 3% return, which is a substandard return in a very high-risk investment. 
When people are excited by the multiple, which has never been as low as 8, if they do the return calculation, they'll understand that the multiple is almost completely uninformative, that you have to look at the implied returns. That's what I think people have learned to in these franchise stocks.
His idea of a fair price, by the way, is a price that gets him a return going forward on that investment without any improvement in the multiple of somewhere between 13 and 15%. By normal standards, when the average market return is 7-8%, that’s a really good price, he’s looking for a very good price. They call it a fair price because the multiple may be fairly rich, it may be 13, 14 times earnings. But the value of the growth may bring his return up to 13-15%. So when he says a fair price he’s talking in terms of normal value metrics, and there the reason that you prefer that to a poor company at a really good price is that because the good company can grow through reinvestment and things like same-store sales growth, your return will come in the form of capital [gain], not distributive income, and that, after tax, is much more valuable.
At Giverny Capital, we do not evaluate the quality of an investment by the short-term fluctuations in its stock price. Our wiring is such that we consider ourselves owners of the companies in which we invest. Consequently, we study the growth in earnings of our companies and their long-term outlook. 
Since 1996, we have presented a chart depicting the growth in the intrinsic value of our companies using a measurement developed by Warren Buffett: “owner’s earnings”. We arrive at our estimate of the increase in intrinsic value of our companies by adding the growth in earnings per share (EPS) and the average dividend yield of the portfolio. This analysis is not exactly precise but, we believe, approximately correct. In the non-scientific world of the stock market, and as Keynes would have said: “It is better to be roughly right than precisely wrong.”

Richard Dawkins on long-lasting memes...

From Chapter 11 of The Selfish Gene: 30th Anniversary Edition (it also looks like an MP3 CD of the book will be released in a few weeks which can be pre-ordered for just $8.99, HERE):
I have been a bit negative about memes, but they have their cheerful side as well. When we die there are two things we can leave behind us: genes and memes. We were built as gene machines, created to pass on our genes. But that aspect of us will be forgotten in three generations. Your child, even your grandchild, may bear a resemblance to you, perhaps in facial features, in a talent for music, in the colour of her hair. But as each generation passes, the contribution of your genes is halved. It does not take long to reach negligible proportions. Our genes may be immortal but the collection of genes that is any one of us is bound to crumble away. Elizabeth II is a direct descendant of William the Conqueror. Yet it is quite probable that she bears not a single one of the old king’s genes. We should not seek immortality in reproduction.
But if you contribute to the world’s culture, if you have a good idea, compose a tune, invent a sparking plug, write a poem, it may live on, intact, long after your genes have dissolved in the common pool. Socrates may or may not have a gene or two alive in the world today, as G. C. Williams has remarked, but who cares? The meme-complexes of Socrates, Leonardo, Copernicus and Marconi are still going strong.