Friday, May 31, 2013

Paul Volcker on Charlie Rose

Tesla CEO and SpaceX Founder Elon Musk: The Full D11 Interview (Video)

Thanks to Andrew for passing this along.


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.

Thursday, May 30, 2013

Mark Hanson's latest on housing



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:



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:

AOL is building one as well:

Bullish on Wearable Tech: Mary Meeker’s Annual State of the Internet Presentation

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.

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).

Horizon Kinetics May 2013 Market Commentary

Ken Robinson on Charlie Rose


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.


Bill Gates calls for higher taxes, greater foreign aid - extended version


He was also on the show Q&A: HERE

Tuesday, May 28, 2013

The Japan Syndrome: Rising Rates and Risky Exposures – By Jason Zweig

Hussman Weekly Market Comment: Rock, Paper, Scissors

It will come as no surprise that market conditions remain of great concern here. As always, but particularly now, it’s important to stress that our defensiveness is a reflection of prevailing, observable evidence and the alignment of our investment views with the average outcome of such evidence across similar instances over the course of history. The consistency of negative outcomes also worsens the expected return/risk ratio presently. A defensive stance here does not require any particular forecast about recession, profit margins, bubble/crash dynamics, QE, European banking strains, or any of the numerous risks in the economic and financial backdrop. All of these factors are worthy of discussion in their own right. Still, our approach is always to align our investment stance with the average return/risk profile that is associated with a given set of market conditions, placing heavy weight on valuations, market action (e.g. trend-following factors, market internals, measures of overextension, price/volume behavior), as well as monetary factors, sentiment, economic measures and other considerations. See Aligning Market Exposure with the Expected Return/Risk Profile for a review of this general approach.

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

John Mauldin: The Mother of All Painted-In Corners

I wrote several years ago that Japan is a bug in search of a windshield. And in January I wrote that 2013 is the Year of the Windshield. The recent volatility in Japanese markets is breathtaking but characteristic of what one should come to expect from a country that is on the brink of fiscal and economic disaster. I don't mean to be trite, from a global perspective; Japan is not Greece: Japan is the third-largest economy in the world. Its biggest banks are on a par with those of the US. It is a global power in trade and trade finance. Its currency has reserve status. It has two of the world’s six largest corporations and 71 of the largest 500, surpassed only by the US and comfortably ahead of China, with 46. Even with the rest of Asia's big companies combined with China's, the total barely surpasses Japan's (CNN). In short, when Japan embarks on a very risky fiscal and monetary strategy, it delivers a serious impact on the rest of the world. And doubly so because global growth is now driven by Asia. 

Daniel Dennett: Intuition Pumps and Other Tools for Thinking



Book: Intuition Pumps And Other Tools for Thinking

Cockroaches quickly lose sweet tooth to survive

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


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.

Cash gives the private investor an edge – By Merryn Somerset Webb


Jamie Mai quote

“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.”

How Simplifying Your Investment Process Can Make You a Better Investor

James East of Mercertus Capital on His Investment Approach


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

Meet the Man Who Sold a Month-Old App to Dropbox for $100M

Kyle Bass on CNBC


Jim Grant on CNBC



Found via Market Folly.

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."

TED Talk - Ken Robinson: How to escape education's death valley


Wednesday, May 22, 2013

Crowdfunding for Start-Ups and Small Business


Tim Cook’s improbable victory in Washington – By Felix Salmon

Great summary of how Apple’s tax set-up works.

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.

Monday, May 20, 2013

The New Science of Giving

Thanks to Serge for passing this along.


Richard Fisher on CNBC

Links to videos:

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.”

John Mauldin: All Japan, All the Time

Hussman Weekly Market Comment: Not In Kansas Anymore


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."

New Cash Registers Are Sexy, But What’s Beneath the Counter Matters More

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

GMO 7-Year Asset Class Return Forecasts (as of April 30, 2013)

Picture further comment needed:

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:


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

“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.”

Howard Marks on CNBC

From yesterday. Found via ValueWalk.


David Tepper on CNBC


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

Ben Claremon's 2013 Markel Breakfast Notes

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."

John Mauldin: Skills, Education, and Employment

Bill Gates on 60 Minutes

Also, be sure to watch the extra segment on Bill Gates and Steve Jobs, HERE.


Richard Feynman: Life, the universe and everything


Related link:  The Life of Richard Feynman

Sunday, May 12, 2013

Hussman Weekly Market Comment: Closing Arguments: Nothing Further, Your Honor

I’ve often noted that even a run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance. I doubt that the present instance will be different. Indeed, cyclical bear market declines that occur in the context of secular bear markets average a market loss of about 39%, wiping out about 80% of the prior bull market advance. We presently estimate a nominal total return for the S&P 500 of just 3.2% annually over the coming decade. It is not pessimism, but optimism – and optimism born of a century of evidence – that we expect stocks to provide more favorable opportunities for investment over the completion of this cycle. It is that carefully-studied optimism that leads us to reject the notion that investors are forced to crawl to the ground and “lock in” low prospective long-term returns, while ignoring severe intermediate-term risks to capital.