Link to: Paul Volcker on
Charlie Rose
Friday, May 31, 2013
David Karp on Charlie Rose
His story is a great example of parents that let their child
pursue his curiosity, even if it meant not caring about whether or not he went
to school.
Link to: David Karp on Charlie Rose
Thursday, May 30, 2013
Mark Hanson's latest on housing
“Effective negative equity” is central to my “structurally broken housing
market in need of years of de-leveraging before a “durable” bottom can occur”,
theme. I have been pounding the table over “Effective” negative equity for years and finally it’s mainstream. Chances are
this one report will be blown over. But like with ”shadow inventory” — when
this thesis grabs hold — ultimately everybody will be talking about it, it will
raise uncertainty, and economists will have no choice to respect the
“math”. And the math requires housing
sector estimates have to be ratcheted down.
This literally changes everything with respect to housing ‘demand
and ‘supply’ fundamentals.
…..
…..
Bottom line on the Zombie
housing market: Of the 54 million homeowners with mortgages —
the primary repeat buyer cohort and a primary builder demand cohort – over
22 million are dead to the housing market.
Of the 70 million SF homeowners — mortgage’d and free and clear — 33
million are Zombies. Thus, we can’t expect housing to act like it
has in the past. With so many Zombies it
will be impossible for repeat and new
home sales to perform as expected. The past 18 month bounce — especially on
prices — has been on cheap and easy money from investors looking for a dividend
stock and/or Treasury replacement trade. some foreigners following their lead,
and finally the ‘dumb money’ (retail) chasing into this summer.
Google Reader alternative...
So far, I’ve tried Feedly, Netvibes, NewsBlur, and Feed
Wrangler…..and my favorite so far is NewsBlur, which is the one I think I’ll
probably stick with once Google Reader goes away on July 1st. But if
anyone has any other alternative that they like better, send me an email: valueinvestingworld@gmail.com
..........
UPDATE:
I'll try and do a complete and updated post when it gets closer to July 1st, but until then, I'll update this post when new possibilities get passed along to me.
Thanks to Greg for mentioning Digg: http://www.digg.com/reader
AOL is building one as well: http://reader.aol.com/
Why the 10,000-Hours Rule Can’t Make You Warren Buffett
I don’t agree with everything in this article. While I do
agree that the nature part of ‘nature + nurture’ does need some minimum level, I think nurture is much more important than I think this article implies, and
am more in line with most of what Gladwell has said. Gladwell’s definition
of talent, from an interview he gave a few years ago, is: “Talent is the desire
to practice. Right? It is that you love something so much that you are willing
to make an enormous sacrifice and an enormous commitment to that, whatever it
is -- task, game, sport, what have you.” I think achieving expertise is an extremely
difficult thing to do, which is why it is so rare, but it is that love that
leads to the drive to make the sacrifices needed to ‘practice’ deeply to achieve
expertise that is what is important. And, in my opinion, that love and drive is
triggered more by one’s environment, upbringing, and luck than it is by
anything one is originally born and wired with.
New
Yorker writer Malcolm Gladwell didn’t invent
the rule, but he did popularize it through his best-selling book Outliers. The principle actually dates to a 1993 study,
though in that paper the authors called it the 10-year rule.
Warren Buffett's 1973 letter to Katherine Graham
Via Max at Future Blind
(who edited the best compilation of Warren Buffett’s letters you can get, HERE).
Wednesday, May 29, 2013
Warren Buffett on projections...
From Peter Bevelin’s Seeking Wisdom:
From Darwin to Munger:
I have no use whatsoever for projections or forecasts. They create an illusion of apparent precision. The more meticulous they are, the more concerned you should be. We never look at projections, but we care very much about, and look very deeply at, track records. If a company has a lousy track record, but a very bright future, we will miss the opportunity...
I do not understand why any buyer of a business looks at a bunch of projections put together by a seller or his agent. You can almost say that it's naive to think that those projections have any utility whatsoever. We're just not interested.
If we don't have some idea ourselves of what the future is, to sit there and listen to some other guy who's trying to sell us the business or get a commission on it tell us what the future's going to be—like I say, it's very naive.
………………..
Related previous post: Alice
Schroeder on Warren Buffett’s filtering process
Bill Gates calls for higher taxes, greater foreign aid - extended version
Tuesday, May 28, 2013
Monday, May 27, 2013
Nassim Taleb quote
“Trial and error has one overriding value people fail to
understand: it is not really random, rather, thanks to optionality, it requires
some rationality. One needs to be intelligent in recognizing the favorable
outcome and knowing what to discard.
And one needs to be rational in not making trial and error
completely random. If you are looking for your misplaced wallet in your living
room, in a trial and error mode, you exercise rationality by not looking in the
same place twice. In many pursuits, every trial, every failure provides
additional information, each more valuable than the previous one—if you know
what does not work, or where the wallet is not located. With every trial one
gets closer to something, assuming an environment in which one knows exactly
what one is looking for. We can, from the trial that fails to deliver, figure
out progressively where to go.”
-Nassim Taleb, Antifragile
Saturday, May 25, 2013
Neil deGrasse Tyson quote
“The atoms of our bodies are traceable to stars that
manufactured them in their cores and exploded these enriched ingredients across
our galaxy, billions of years ago. For this reason, we are biologically
connected to every other living thing in the world. We are chemically connected
to all molecules on Earth. And we are atomically connected to all atoms in the
universe. We are not figuratively, but literally stardust.” –Neil deGrasse
Tyson
……….
Related previous post: The
Most Astounding Fact About the Universe
Friday, May 24, 2013
Currency speculators....
From Expeditors International of Washington’s latest
8-K (after they had also quoted from Ben Stein’s book How To Really
Ruin Your Financial Life and Portfolio):
Currency speculators seem to be very much like your neighbor who makes frequent trips to Las Vegas. One soon learns that the correct inquiry of your neighbor upon his or her return is not 'How much did you win?' If they won, they tell you about it. If they lose, you might see a “For Sale” sign on the BMW in the driveway…and in extreme cases…a realtor's sign in front of the house, soon to be followed by a large moving van blocking your drive way. As we all know, everyone wins in Las Vegas…and it's the winning most people talk about. Unfortunately (or fortunately if you are a casino owner), everyone who gambles in Las Vegas also loses in Las Vegas…and the existence of all those marvelous edifices in the desert are ample proof that what's lost in Las Vegas stays in Las Vegas….and obviously your neighbor and other visitors lose more than they win. Most gamblers/speculators in either Las Vegas or in the currency markets who win big are more lucky than they are good in most instances. Granted the odds may be better if you are speculating on currencies in some manner…as you have the option to bet on governments to do something stupid…but that said, and to Stein's complexity point, there are enough times when governments do something smart when you are expecting them to do something stupid (or they can even do something less stupid than the other governments impacting the currency markets) that you can really get burned without even lighting the fire yourself. Big financial institutions do a lot of currency speculation. But with them, if they win, like your gambling next door neighbor, they tell everyone about it. If they lose, they don't talk about it…and if they lose a lot, unlike your gambling neighbor who just had to move, their own governments (We the People in other words), who they might well have even bet against, bail them out. Nice work if you can get it…and can still look yourself in the mirror in the morning.
If one were to equate our philosophy on currency exposure to personalities in Las Vegas, we'd be the person who feels a hankering for an after-dinner drink and so throws a couple of coins in a nickel slot and stands around in the casino on the way back to their hotel room just long enough to get a couple of free drinks, the cost of which, had they been paid for, would have been much more than anything put in the slot machine. Better to get a few free drinks while losing a little money…with the possibility of winning a little on occasion, than getting a lot of free drinks that the big wagers get, while losing your spouse's car and maybe your house in the hopes you'll find out that you have become more lucky than good.
Washington Irving quote
Found via Jon Shayne. This
is from Washington Irving’s The Crayon
Papers, and there is a lot of investing wisdom packed into this single paragraph. It is from an introduction to the section he wrote on The Great
Mississippi Bubble.
When a man of business, therefore, hears on every side rumors of fortunes suddenly acquired; when he finds banks liberal, and brokers busy; when he sees adventurers flush of paper capital, and full of scheme and enterprise; when he perceives a greater disposition to buy than to sell; when trade overflows its accustomed channels and deluges the country; when he hears of new regions of commercial adventure; of distant marts and distant mines, swallowing merchandise and disgorging gold; when he finds joint-stock companies of all kinds forming; railroads, canals, and locomotive engines, springing up on every side; when idlers suddenly become men of business, and dash into the game of commerce as they would into the hazards of the faro table; when he beholds the streets glittering with new equipages, palaces conjured up by the magic of speculation; tradesmen flushed with sudden success, and vying with each other in ostentatious expense; in a word, when he hears the whole community joining in the theme of "unexampled prosperity," let him look upon the whole as a "weather-breeder," and prepare for the impending storm.
Jamie Mai quote
From the book Hedge Fund
Market Wizards:
“As a
general observation, markets tend to overdiscount the uncertainty related to
identified risks. Conversely, markets tend to underdiscount risks that have not
yet been expressly identified. Whenever the market is pointing at something and
saying this is a risk to be concerned about, in my experience, most of the
time, the risk ends up being not as bad as the market anticipated.”
Nassim Taleb quote
“Now, as a skeptical empiricist, I do not consider that
resisting new technology is necessarily
irrational: waiting for time to operate its testing might be a valid approach
if one holds that we have an incomplete picture of things. This is what
naturalistic risk management is about. However, it is downright irrational if
one holds on to an old technology that is not naturalistic at all yet visibly
harmful, or when the switch to a new technology (like the wheel on the
suitcase) is obviously free of possible side effects that did not exist with
the previous one. And resisting removal is downright incompetent and criminal
(as I keep saying, removal of something non-natural does not carry long-term
side effects; it is typically iatrogenics-free).” –Nassim Taleb, Antifragile
The Atlas of Public Stocks – A Free Website That Maps All Publicly Listed Companies
This is a pretty cool site, courtesy of my friend Miguel:
Thursday, May 23, 2013
The importance of grit, rules, and discipline
Found via Abnormal
Returns. The Warren Buffett quote that comes to mind: "We don't have
to be smarter than the rest. We have to be more disciplined than the
rest."
Wednesday, May 22, 2013
Jamie Mai quote
This an excerpt from
the book Hedge
Fund Market Wizards. The bold font is Jack Schwager’s remarks and the non-bold
font is Jamie Mai’s comments. This isn’t exactly how it appeared in the book,
as certain paragraph breaks and italics were omitted as I highlighted things in
batches on my Kindle. I thought it was an interesting trade that is probably
still relevant today if one wanted some cheap upside exposure to the market
without having to risk too much capital, though you probably need a significant
amount of capital under management in order to have access to this kind of trade.
…
We have a trade on now that I really like. I don’t know if
you read Jeremy Grantham of GMO. He is a widely respected value investor who
looks across all asset classes and writes commentaries and editorials about
what he is seeing. For some time now, he has been arguing that high-quality,
consumer oriented franchises, particularly those that have great international
brands, are cheap relative to the rest of the S&P based on both dividend
yield and enterprise value to cash flow. In my view, he has laid out a fairly
compelling argument that places relative valuations in the context of a cycle,
wherein the low-quality names tend to outperform early in the cycle, and the
high-quality names tend to outperform toward the end of the cycle. There is an
index called the XLP, which is an index of U.S. consumer staple companies such
as Procter & Gamble, Coca-Cola, and Johnson & Johnson. If Grantham is
right, at some point we should see a revaluation of the stocks in this index.
I assume that in the
current cycle since the 2009 low, the XLP has gone up less than the S&P?
It has gone up a lot less. Initially, we considered buying
options on the XLP, which were relatively inexpensive. But Ben came up with a
much better way to structure the same trade idea based on the XLP’s low beta of
0.5 versus the S&P500.
One observation that we found particularly striking was that
despite the XLP’s low beta, since the start of the index at the end of 1998,
the net percentage changes in the XLP and the S&P over the entire period
were almost identical. The XLP was up less in the bull markets and down less in
the bear markets, but for the period as a whole, the net change was about the
same. Seeing that both indexes had approximately the same net change over a
long period—a period that included both the Internet boom and bust and the
credit boom and bust—makes the notion that the XLP has a beta of 0.5 versus the
S&P seem counterintuitive if applied to longer periods. In addition, we
thought that cash flow and dividend valuations implied the potential for a 25
percent revaluation of the XLP versus the S&P. We went to an exotic option
dealer and asked them to price an outperformance option that would be based on
the performance of the XLP versus the S&P. What is the single measure that
the dealer is going to use to price the odds that the XLP will outperform the
S&P?
The beta.
Right. So with the beta equal to only 0.5, the model price
for an outperformance option was very cheap. Translated into English, those
inputs are saying that the XLP and S&P are likely to move in the same
direction; however, the XLP will move only half as much as the S&P.
But if we had a down
market, then the lower beta would imply a higher probability of
outperforming—namely, it would imply that the XLP would go down less than the
S&P.
That’s a great point, and it is the reason why, to get the
option cheaply, we had to strike the option at the current spot price. So there
was a dual condition for the option to pay off: The XLP had to outperform the
S&P and the S&P had to be unchanged to higher. This was essentially a
conditional long beta position. It was conditional on the XLP outperforming the
S&P, and it was long beta because it could only pay off in an up market.
What made you think
the timing for the trade was right?
We didn’t have any conviction that the market was going
higher. We almost always want to have some long beta exposure, however, and by
making the option conditional on the XLP outperforming the S&P, we were
able to get beta exposure to the market extremely cheaply. When you own options,
you’re always fighting against the time decay. Figuring out how to make the
option premium cheaper is one way of mitigating that decay.
So the basic premise
is that beta is measured based on daily relative price changes, which can be a
very poor indicator of long-term relative price changes.
Right, a fact that is obvious if you look at a long-term
chart comparison of the XLP versus the S&P. Volatility is a terrible proxy
for measuring potential price change over longer intervals of time. For
example, if an asset price changes by a constant percentage each day, its
volatility will be zero. One of our strategies is called cheap sigma and is
predicated on the idea that markets sometimes trend and that volatility will
dramatically understate the potential price move of markets that trend.
Tuesday, May 21, 2013
Monday, May 20, 2013
The New Science of Giving
Thanks to Serge for passing this along.
………………..
Related previous post: The
Manhattan Project to End Fad Diets – By Tim Ferriss
The grass is always greener on the other side….
Quote from Johann Peter Rupert on Compagnie Financière
Richemont’s May 16th Earnings Call, in regards to investing in their
own people and brands versus going out an acquiring new ones:
“A return on investment is so much higher by backing our own
colleagues. I mean, it's multiple than buying another thing. And we have a
saying at home that you only find out when you climb over that the reason why
it's greener is because of all the cow dung that's hidden in the grass. And as
soon as you start stepping in all of this stuff, then you wonder why did I
climb across the fence? So whenever we buy something, we find that, we'd never
thought of this, but it's there. And then it takes the most valuable component
of these 3 guys on the right. It takes their time and you start wasting time on
things that are not going to return -- give you the same returns, as if you
spend more time on Cartier, Van Cleef and Piaget.”
Friday, May 17, 2013
Zeke Ashton’s Value Investing Congress Presentation
Found via Broyhill
Asset Management (the Broyhill post also includes some great comments and Klarman letter excerpts).
Link to: Dumb and Dumber – By Zeke Ashton
Link to: Dumb and Dumber – By Zeke Ashton
Thursday, May 16, 2013
Nassim Taleb quote
From Taleb’s
Facebook page:
"Time for the
education system to realize that slow learners are deeper, more robust, and
unlike fast ones, make small, rather than large mistakes."
Rolf Dobelli quote (survivorship bias)
“Survivorship
bias can become especially pernicious when you become a member of the “winning”
team. Even if your success stems from pure coincidence, you’ll discover
similarities with other winners and be tempted to mark these as “success
factors.” However, if you ever visit the graveyard of failed individuals and
companies, you will realize that its tenants possessed many of the same traits
that characterize your success.” –Rolf Dobelli, The
Art of Thinking Clearly
Graham and Dodd quote (management)
From Security Analysis,
1940 edition:
Our appreciation of the importance of selecting a “good industry” must be tempered by a realization that this is by no means so easy as it sounds. Somewhat the same difficulty is met with in endeavoring to select an unusually capable management. Objective tests of managerial ability are few and far from scientific. In most cases the investor must rely upon a reputation which may or may not be deserved. The most convincing proof of capable management lies in a superior comparative record over a period of time. But this brings us back to the quantitative data.
There is a strong tendency in the stock market to value the management factor twice in its calculations. Stock prices reflect the large earnings which the good management has produced, plus a substantial increment for “good management” considered separately. This amounts to “counting the same trick twice,” and it proves a frequent cause of overvaluation.
Wednesday, May 15, 2013
For Witness to Nagasaki, a Life Focused on Science
Found via RDFRS.
The scientific discovery made by Dr. Shimomura is a reminder of the kind of
happy accident or serendipity that is often the source of major breakthroughs.
William James on Habit
Great post from Farnam Street:
Link to: William James on Habit
………………..
Related book: Daily Rituals: How Artists Work
Link to: William James on Habit
………………..
Related book: Daily Rituals: How Artists Work
Tuesday, May 14, 2013
Office Hours with Warren Buffett (video)
Thanks to David for passing the transcript of the video
along as well.
Ben Graham quote
Found via Broyhill
Asset Management.
“Mathematics
is ordinarily considered as producing precise and dependable results; but in
the stock market the more elaborate and abstruse the mathematics the more uncertain
and speculative are the conclusions we draw there from. Whenever calculus is brought
in, or higher algebra, you could take it as a warning that the operator was
trying to substitute theory for experience, and usually also to give to
speculation the deceptive guise of investment.”
Ben Franklin quote
"Experience
keeps a dear school, but fools will learn in no other and scarce at that; for
it is true, we may give advice, but we cannot give conduct."
Monday, May 13, 2013
Notes From the London Value Investor Conference 2013: Marks, Price, Montier & More
Via Market Folly. This was interesting: "James Montier said that GMO’s 7 year asset allocation model for US stocks is now predicting negative returns. GMO are now 50% in cash."
Richard Feynman: Life, the universe and everything
Sunday, May 12, 2013
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