Tuesday, April 30, 2013

Howard Marks on CNBC


Margin Debt Hitting Levels Only Seen ONE Other Time in History

Link to a larger image of the chart mentioned below HERE.

Apple: News, Noise and Value - by Aswath Damodaran


The Rise and Decline of Nations and Civilizations

Thanks to James for passing this along. Jared Diamond, Niall Ferguson, and James Robinson are the featured speakers. This also reminds me of the short book Jeremy Grantham recommended in his latest letter, Immoderate Greatness: Why Civilizations Fail


Robert Shiller on CNBC

Shiller was also on Yahoo HERE.


Monday, April 29, 2013

Financier: The Biography of André Meyer

This book was recommended by Steve Romick on the FPA Crescent Fund Conference Call.

Amazon is going to do to enterprise cloud companies exactly what it did to book stores

John Mauldin: The Cashless Society

Hussman Weekly Market Comment: When Rich Valuations Meet Poor Economic Data

The advance estimate for first quarter GDP came in decidedly below expectations at a 2.5% annual rate, but even that rate belies the fact that real final sales slowed to just 1.5% growth, from 1.8% last quarter. The remaining 1% of the first-quarter growth figure – 40% of the total – represented the accumulation of unsold inventory. My view remains that the U.S. is unlikely to avoid joining the rest of the developed world in a global recession that is already underway, and may well be already underway in the U.S. once data revisions are reflected. The year-over-year growth rates of real GDP and real final sales have declined to just 1.80% and 1.87% respectively, which is the first time in this economic cycle that both have simultaneously declined from above 2.0% to below 1.9% - an occurrence that has been a hallmark of every post-war recession, with remarkably few false signals for such a simple measure. The Fed’s ability to kick-the-can in increments of a few months at a time may allow this time to be different, but investors should recognize that they are relying on that proposition.

Investors earn handsome paychecks by handling Buffett's business


Sunday, April 28, 2013

Jim Chanos' Wine Country Conference Presentation (video)

The slides to go with the video were previously posted HERE. John Hussman's (previously posted) and Mish's video presentations from the conference are also available HERE.


Henry David Thoreau quote

“Most of the luxuries, and many of the so-called comforts of life, are not only not indispensable, but positive hindrances to the elevation of mankind.” –Henry David Thoreau, Walden

Friday, April 26, 2013

Jeremy Grantham and Ben Inker's Q1 Letter

Four AIG executives resign to join Berkshire Hathaway

Nassim Taleb quote

“Financial options may be expensive because people know they are options and someone is selling them and charging a price—but most interesting options are free, or at the worst, cheap.

Centrally, we just don’t need to know what’s going on when we buy cheaply—when we have the asymmetry working for us. But this property goes beyond buying cheaply: we do not need to understand things when we have some edge. And the edge from optionality is in the larger payoff when you are right, which makes it unnecessary to be right too often.” –Nassim Taleb, Antifragile

Wednesday, April 24, 2013

Buffett Tells Coke CEO Study Failure, Avoid Complacency


The article above reminded me of this excerpt from Bill Miller’s Q2 2008 letter to investors:
Mason Hawkins said, "Warren, I'm an optimist. I think this whole thing can turn quickly, and surprise people. Are you an optimist?" "I'm a realist, Mason," the sage replied. Warren went on to say he was optimistic long term, and backed that up in a talk the next morning on the remarkable history of growth, innovation, and wealth creation the U.S. had produced over the past 200-plus years. He also offered a sober assessment of the current challenges we face, and said it would take some time to work through them.
My opinion is that the best outlook to take on investing and life is not to be a pessimist or an optimist, but to be a positive realist. I think it is important to be a positive person and to have the long-term optimism that Mr. Buffett discusses, but I also think it is vital to be a realist in the present moment. Though a positive one.

Jim Chanos on CNBC

Links to videos:

Broyhill Asset Management: On Gold & China

We expect China’s slow down (hard landing) to be much more severe than the consensus and given its disproportionate share of the world’s commodity consumption, the impact will be most uncomfortable for the world’s metal exporters.  We continue to believe that the Australian economy is the most vulnerable to crack’s in China’s façade given its concentration of trading partners (China now represents 28% of Australian exports up from 6% a decade ago) and its concentration of exports (as ores and metals make up 72% of goods shipped to the mainland).  But Australia is not alone in its vulnerability.  The CRABS are the commodity rich countries that are riding China’s spending spree.  They are Canada, Russia, Australia, Brazil and South Africa. We think the CRABS will ultimately be a much bigger problem than the PIGS.

Google chairman: 6 predictions for our digital future

Thanks to Will for passing this along.

Steven Romick's Q1 Commentary



Related previous post: Steve Forbes interviews Steve Romick

Tuesday, April 23, 2013

James Grant on CNBC


Market liquidity in a robot-driven world...

The picture below is from Zero Hedge (via Nanex), and was just too interesting not to post. It's amazing (to me, anyway) that something like this can happen so quickly, and in this case be started by what appears to be a hacked Twitter account and a fake Tweet.

Buffett Challenger Kass Prepares For Meeting, Munger Test

Steve Forbes interviews Steve Romick

Found via Mebane Faber.


Berkshire Annual Meeting Event: Yellow BRK'ers

As described by my friend Alex:

If your planning to go to the Berkshire Hathaway Annual Meeting the Yellow BRK'ers Meet and Greet is a great event for a first timer and anyone else:

Berkshire Hathaway shareholders from all online communities are welcome to an unofficial gathering on Friday, May 3th, 2013.

You are invited to join as fellow shareholders unofficially gather on Friday, May 3th, 2013 at the DoubleTree Hotel in Omaha to meet and have fun, starting at 4:00 pm and you can linger until 7:00 pm (or longer). There will be a short program at approximately 5:00 or 5:30.

This is a casual atmosphere, with light snacks available. It's a "happy hour" type of gathering - not a formal dinner or anything of that sort.

The DoubleTree is located on 16th and Dodge. There may be some street parking, otherwise, one can use the parking garage with an entrance from the South at 16th & Dodge street, just east of the First National Bank.

To register for the event: http://yellowbrkers.com/

Monday, April 22, 2013

TEDx Talk - Andres Lozano: Parkinson's, depression and the switch that might turn them off

Thanks to Andrew for passing this along.


Tom Russo’s Presentation at The Ben Graham Centre's 2013 Value Investing Conference

There are also a couple of videos and slides from other talks at the conference available HERE. Santangel's Review also posted some notes HERE.

John Mauldin: Austerity is a Consequence, not a Punishment

Hussman Weekly Market Comment: The Endgame is Forced Liquidation

While the attention of investors is focused on the short-run market outlook in what is already a mature bull market advance, it’s crucial to understand the endgame to this overvalued, overbought, overbullish, overleveraged episode of market history. That endgame will be forced liquidation, as declining prices force leveraged investors to sell – voluntarily or otherwise. I noted back in January that margin debt had surged above 2% of GDP for the fourth time in history (the other three being 2000, 2007, and February 2011 - less severe, but still followed by an 18% market correction). In February, NYSE margin debt (the amount that investors have borrowed to purchase NYSE-traded stocks on margin) reached $366 billion, and there’s a fair chance that given the continuation of that advance in the subsequent weeks, more recent margin debt will have accumulated to a total that eclipses the July 2007 record of $381 billion.

Sunday, April 21, 2013

Nate Silver: Confidence Kills Predictions

Found via Abnormal Returns.

CNBC: The Da Vinci Debate (Full Show)


Nassim Taleb's Stanford Seminar

Found via ValueWalk.


Seneca quote

"It is precisely in times of immunity from care that the soul should toughen itself beforehand for occasions of greater stress, and it is while Fortune is kind that it should fortify itself against her violence."

Saturday, April 20, 2013

Ben Inker on WealthTrack


Graham and Dodd quote (example of the range in estimating intrinsic value)

From Security Analysis, 1940 edition:

“This should indicate how flexible is the concept of intrinsic value as applied to security analysis. Our notion of the intrinsic value may be more or less distinct, depending on the particular case. The degree of indistinctness may be expressed by a very hypothetical “range of approximate value,” which would grow wider as the uncertainty of the picture increased, e.g., $20 to $40 for Wright Aeronautical in 1922 as against $30 to $130 for Case in 1933. It would follow that even a very indefinite idea of the intrinsic value may still justify a conclusion if the current price falls far outside either the maximum or minimum appraisal.”

Friday, April 19, 2013

Most Earthlike planets yet seen bring Kepler closer to its holy grail

John Hussman at the 2013 Wine Country Conference

The rest of the videos will eventually be released as well, HERE.


Jim Chanos' Wine Country Conference Presentation

Found via the The Sinocism China Newsletter. More presentations from the conference are available HERE.

2013 Fairfax Annual Meeting Notes

A big thanks to Ben Claremon for taking and sharing these notes.


Berkshire’s Munger Pledges Record $110 Million to U. Michigan

Thanks to Matt for passing this along.


Thursday, April 18, 2013

Transcript of Jeremy Grantham's Guardian Interview

Link to:

East Coast Asset Management: First Quarter 2013 Update – The Art of Fugue

Via Market Folly. You can also sign up to receive ECAM’s future investor letters via email HERE.

Sliding Yen Could Herald New Asian Currency Crisis: Albert Edwards


Related, historical articles:

NYSSA Events

If you are in New York City, these may be of interest, though there they aren't free. Links to information:

'Living fossil' coelacanth genome sequenced


Hoisington Q1 2013 Letter

“The Federal Reserve is printing money”. No statement could be less truthful. The Federal Reserve (Fed) is not, and has not been, “printing money” as defined as an acceleration in M2 or money supply. Just check the facts. For the first quarter of 2013 the Fed purchased $277.5 billion in securities (net) as their security portfolio expanded from $2.660 trillion to $2.937 trillion. A review of post-war economic history would lead to a logical assumption that the money supply (M2) would respond upward to this massive infusion of reserves into the banking system. The reality is just the opposite. The last week of December, 2012 showed M2 at $10.505 trillion, but at the end of March, 2013 it totaled only $10.450 trillion which was an unexpected decline of $55 billion. Printing money? No.

Horizon Kinetics: Q1 2013 Commentary

Wednesday, April 17, 2013

GMO Emerging Thoughts: Present and Emerging Risks to the Gold Trade - By Amit Bhartia and Matt Seto

Reinhart-Rogoff recrunch the numbers

Why Boston’s Hospitals Were Ready – By Atul Gawande

Nassim Taleb on the modern Stoic sage

“Seen this way, Stoicism is about the domestication, not necessarily the elimination, of emotions. It is not about turning humans into vegetables. My idea of the modern Stoic sage is someone who transforms fear into prudence, pain into information, mistakes into initiation, and desire into undertaking.” –Nassim Taleb, Antifragile

The Story of Electricity


Tuesday, April 16, 2013

Nassim Taleb and barbells

The quotes below are from Antifragile (though they may not be exact, as Kindle Highlights don’t pick up on things like italics).
What do we mean by barbell? The barbell (a bar with weights on both ends that weight lifters use) is meant to illustrate the idea of a combination of extremes kept separate, with avoidance of the middle. In our context it is not necessarily symmetric: it is just composed of two extremes, with nothing in the center. One can also call it, more technically, a bimodal strategy, as it has two distinct modes rather than a single, central one. 
I initially used the image of the barbell to describe a dual attitude of playing it safe in some areas (robust to negative Black Swans) and taking a lot of small risks in others (open to positive Black Swans), hence achieving antifragility. That is extreme risk aversion on one side and extreme risk loving on the other, rather than just the “medium” or the beastly “moderate” risk attitude that in fact is a sucker game (because medium risks can be subjected to huge measurement errors). But the barbell also results, because of its construction, in the reduction of downside risk—the elimination of the risk of ruin. 
Let us use an example from vulgar finance, where it is easiest to explain, but misunderstood the most. If you put 90 percent of your funds in boring cash (assuming you are protected from inflation) or something called a “numeraire repository of value,” and 10 percent in very risky, maximally risky, securities, you cannot possibly lose more than 10 percent, while you are exposed to massive upside. Someone with 100 percent in so-called “medium” risk securities has a risk of total ruin from the miscomputation of risks. This barbell technique remedies the problem that risks of rare events are incomputable and fragile to estimation error; here the financial barbell has a maximum known loss. 
For antifragility is the combination aggressiveness plus paranoia—clip your downside, protect yourself from extreme harm, and let the upside, the positive Black Swans, take care of itself. We saw Seneca’s asymmetry: more upside than downside can come simply from the reduction of extreme downside (emotional harm) rather than improving things in the middle. 
A barbell can be any dual strategy composed of extremes, without the corruption of the middle—somehow they all result in favorable asymmetries. 
So take for now that a barbell strategy with respect to randomness results in achieving antifragility thanks to the mitigation of fragility, the clipping of downside risks of harm—reduced pain from adverse events, while keeping the benefits of potential gains. 
To return to finance, the barbell does not need to be in the form of investment in inflation-protected cash and the rest in speculative securities. Anything that removes the risk of ruin will get us to such a barbell. The legendary investor Ray Dalio has a rule for someone making speculative bets: “Make sure that the probability of the unacceptable (i.e., the risk of ruin) is nil.” Such a rule gets one straight to the barbell. 
[Footnote to the above paragraph]: Domain dependence again. People find insuring their house a necessity, not something to be judged against a financial strategy, but when it comes to their portfolios, because of the way things are framed in the press, they don’t look at them in the same way. They think that my barbell idea is a strategy that needs to be examined for its potential return as an investment. That’s not the point. The barbell is simply an idea of insurance of survival; it is a necessity, not an option.

Monday, April 15, 2013

Gold Prices May Be Falling on Momentum, Grant Says (video)

Why Home Prices Change (or Don’t) – By Robert Shiller

Bloomberg Game Changers: Jeff Bezos Revealed (video)

Found via The Big Picture.

News is bad for you – and giving up reading it will make you happier – By Rolf Dobelli

News is bad for your health. It leads to fear and aggression, and hinders your creativity and ability to think deeply. The solution? Stop consuming it altogether


Related previous posts:

Columbia Class (Greenwald, Santos): Legends Value Investing Spring 2013

Thanks to David for passing this along. The 2012 class videos are also available, HERE.

John Mauldin: Assume a Perfect World

Hussman Weekly Market Comment: Increasingly Immediate Impulses to Buy the Dip (or, How to Blow a Bubble)

This particular excerpt is probably more true this morning: That said, we certainly view the present gold/XAU ratio over 12.5 as indicative of a significant margin for error – looking over a horizon of several years – even in the event of a further decline in the price of physical gold. Gold shares are among the only asset classes for which we can comfortably use the phrase “margin for error.”

For more on gold sentiment, even before the recent sell-off, see Fred Hickey's March "The High-Tech Strategist" newsletter, if it is still available for download HERE.

Mark Twain wrote “Let me make the superstitions of a nation, and I care not who makes its laws.” In recent years, investors have somehow allowed themselves to be convinced that alchemy – exchanging outstanding government debt for zero-interest monetary liabilities despite what are already trillions in excess monetary liabilities – is capable having real, stimulative, and beneficial effects for the economy. Make no mistake – the faith that quantitative easing will produce anything other than temporary and ultimately calamitous financial distortion is superstition.

Compilation of Berkshire Hathaway Letters to Shareholders

The absolute best compilation of Warren Buffett’s letters if you are looking to read them all from start to finish, edited wonderfully by my friend Max Olson. Whether you are an investor, businessman, or just interested in business and investments in any way, I can’t think of anything better to sit down and read from start to finish. They are probably as good an education (or better) as just about any MBA one could get, and the most it’ll cost you is $24.50 to get them all in one place (Amazon may even lower the price when it is released around May 7th).

Graham and Dodd quote

From Security Analysis, 1940 edition:

“The essential point is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish either that the value is adequate—e.g., to protect a bond or to justify a stock purchase—or else that the value is considerably higher or considerably lower than the market price. For such purposes an indefinite and approximate measure of the intrinsic value may be sufficient. To use a homely simile, it is quite possible to decide by inspection that a woman is old enough to vote without knowing her age or that a man is heavier than he should be without knowing his exact weight.”

Bruce Greenwald and Judd Kahn on competitive advantage and Apple (circa 2005)

The book Competition Demystified is one of my must-read investment books (published in 2005). The excerpt below contains both some good information on looking for competitive advantages, but it also shows how quickly things can change—especially in the technology industry—and that it is probably wise to never use definitive phrases such as “is going nowhere” or “no chance of doing so today”.
For all of Steve Jobs’s brilliance and the elegance of Apple’s product design, it seems consigned to always push uphill against the advantages of Microsoft and Intel. In the PC industry, Apple is going nowhere.
In the approach we recommend here, the central question is whether, in the market in which the firm operates or is considering entering, competitive advantages exist. If they are present, what are they and who has them? We have described two tests for their existence: stable market shares and a high return on investment for the dominant incumbent firms. To keep the analysis manageable, our advice is to move one step at a time. Begin with one force—potential entrants/barriers to entry—not five. Start simply and add complexity later. Whenever things become confusing, step back and simplify again. Clarity is essential for strategic analysis. Finally, “think local.” Whatever historical promise existed in Apple’s strategic position lay in the segment of desktop publishing and other graphic-intensive applications. It had virtually no chance in taking on the broad PC industry, and it has no chance of doing so today.

Saturday, April 13, 2013

Seneca quote

“That man is happiest, and is secure in his own possession of himself, who can await the morrow without apprehension. When a man has said: "I have lived!", every morning he arises he receives a bonus.”

David Attenborough - First Life (Season 1, Episodes 1 and 2)



Friday, April 12, 2013

Ben Franklin quote

"I have always thought that one man of tolerable abilities may work great changes, and accomplish great affairs among mankind if he first forms a good plan and, cutting off all amusements or other employments that would divert his attention, makes the execution of that same plan his sole study and business." -Ben Franklin

Thursday, April 11, 2013

Nassim Taleb quote

“Curiosity is antifragile, like an addiction, and is magnified by attempts to satisfy it—books have a secret mission and ability to multiply, as everyone who has wall-to-wall bookshelves knows well.” –Nassim Taleb, Antifragile

Third Point’s First Quarter 2013 Investor Letter

Wednesday, April 10, 2013

TEDx Talk - Dan Ariely: What makes us feel good about our work?


Jamie Dimon's Letter to Shareholders

Cash return on capital…

I wanted to highlight the excerpt below, from the book The Outsiders, because through my experience looking at a lot of small companies, I think a focus on cash return on capital would make a huge difference in a lot of places. I think too many companies feel the need to ‘do something’ and invest money opening new stores, new plants, etc. without properly considering whether or not a good economic profit and cash return is being realized. Sales and profit dollars get the attention, but those numbers don’t mean all that much if the capital invested to achieve those sales and profits isn’t considered in the return equation.

Consider the scenario where two restaurants are opened and both restaurants generate $3 million in sales and $200,000 in EBIT. You can’t tell which is better if you don’t know how much capital went into getting them open. If it took $1.5 million to get the restaurant open, then the return is pretty average. If it took $400,000 to get the restaurant open, then the return is pretty great, even though the EBIT margin was less than 7%.

Now the short excerpt from the book:
When Anders and Mellor began to implement their plan, General Dynamics was overleveraged and had negative cash flow. Over the ensuing three years, the company would generate $5 billion of cash. There were two basic sources of this astonishing influx: a remarkable tightening of operations and the sale of businesses deemed non-core by Anders’s strategic framework. 
More generally, they discovered that plant managers carried far too much inventory and hadn’t been calculating return on investment in their requests for additional capital. This changed quickly under Mellor’s watch, and he and Anders moved decisively to create a culture that relentlessly emphasized returns. Specifically, as longtime executive Ray Lewis says, “Cash return on capital became the key metric within the company and was always on our minds.”

Tuesday, April 9, 2013

Where Bank Regulators Go to Get Rich – By William D. Cohan