Wednesday, January 6, 2016

Links, and a few comments

The Motley Fool interviews Sanjay Bakshi (LINK)

Focusing on the Investment Process (LINK)

Economic Inequality: The Simplified Version - by Paul Graham (LINK)

Nassim Nicholas Taleb on the Real Financial Risks of 2016 (LINK)

Teams of foxes make the best forecasts, but expert hedgehogs can help - by John Kay (LINK)
Related book: Superforecasting
Horizon Kinetics - What's in Your Index? The Beta Game - Part II (LINK)

The Ghosts of Baha Mar: How a $3.5 Billion Paradise Went Bust (LINK)

Book of the day (just released): Deep Work: Rules for Focused Success in a Distracted World


On the topic of forecasts (which seems relevant given a couple of links above)...

I occasionally take pictures of forecasts I see people make online and then use Google's Inbox email service to have those pictures re-sent to me at some point in the future. It serves as a good example to ignore nearly every forecast, especially about the future, and especially if they have anything to do with the price of something over a short period of time. The one that showed up today was from an oil 'expert' whom I like and whose work I respect. In July of last year, he was predicting that "for a variety of fundamental reasons" oil was likely to end 2015 above $75 per barrel. It was a post he made on Twitter which it appears he has since deleted. I won't mention his name here, but just wanted to point out that you need to even be careful when finding useful people to pay attention to because they can selectively craft their prediction record to look better that it actually might be. As hard, or impossible, as it is for people to predict the future, it's also hard to predict who may have been correct in the past because you may not see the entire paper trail (and this is before even taking the extreme role of luck into consideration). I think it was probably a worthless exercise to try and predict something like the price of oil a few months out in the first place. But since he used the word "likely" in his prediction, maybe he was even right, and that the less likely event is what happened. But given that this particular prediction was deleted, probably because it didn't look so good when the end of the year was approaching, the historical narrative when trying to judge his future comments is now distorted, though most who read this blog probably don't pay much attention to such forecasts anyway.

I especially wanted to mention the above because there are a number of companies that have been bought at much higher prices by respected value investors that have been correlated with the price of oil (and other commodities) that have taken another leg down lately. The question now becomes whether or not the current prices provide enough downside protection where the commodity prices are less relevant to making an investment decision because the risk/reward equations have become so favorable. A few names that come to mind that are big enough for me to mention here are things like Subsea 7, TGS Nopec, SEACOR, and Colfax. Many investors don't even consider names like this, and I think that's fair enough. But given that it is an area that has gotten as beaten down as it has, I am reminded of the Howard Marks quote:
Skepticism is usually thought to consist of saying, “no, that’s too good to be true” at the right times. But I realized in 2008—and in retrospect it seems so obvious—that sometimes skepticism requires us to say, “no, that’s too bad to be true.”
If anyone happens to have any on-the-ground type of scuttlebutt on these names (i.e. not just the stuff that can be found in filings or online), I'd love to hear what you might be willing to share. Thanks.