Thursday, October 31, 2013

Li Lu on understanding a business…

You can’t truly understand everything about a business in 1 week. It took me 10 years and I am still learning new things about BYD. It is a continuous learning process. You could spend a lifetime studying a business or industry, but in a few seconds I can tell you whether or not I like it. You want to build [knowledge and continually learn]. There is not set preparation.

His comment "but in a few seconds I can tell you whether or not I like it" reminded me of these posts:

Warren Buffett quote on filters

Alice Schroeder on Buffett’s filtering process

FiveBooks Interviews: John Kay on Economics in the Real World

Stanley Druckenmiller at TEDx Wall Street

Found via ValueWalk.


Wednesday, October 30, 2013

Who is to blame for (Hint: The Initials are RPV) - by Ben Wanamaker and Devin Bean

The Financial Sense Newshour interviews Kyle Bass

Found via Zero Hedge.

Kyle: When you think about what Reinhart and Rogoff’s book says, it kind of gets to an answer but it’s not the right way to look at things; there are many more variables to analyze the situation with. One is, of course, debt to central government tax revenues—that ratio. Another one is what percentage of your central government tax revenues do you spend on interest alone? Those barometers are much more impactful than just using a debt-to-GDP barometer. And then when you think about Reinhart and Rogoff’s work, if you’ve read all the white papers that they’ve written prior to writing the book, one of the other conclusions that they draw is when debt gets to be about 100% GDP it becomes problematic. Well, what that means is, typically—and, again, painting the world with a broad brush—central government tax revenues are roughly 20% of GDP. So what they’re telling you is when debt gets to be 5 times your revenue, that’s when you start to have a problem. Historically, the analysis that’s been done empirically by academics has focused on the countries that have fallen into a restructuring or a default as a result of this ratio that you and I are discussing. Historically, those have been emerging market economies that have higher borrowing costs. So, it actually makes complete sense that that number is too low when you’re talking about a developed market economy versus an emerging economy because, in theory, a developed economy can borrow at lower rates than an emerging economy can. That being said, in Japan, when the debts are 24 times their central government tax revenue, they are already completely insolvent—it’s just a question of when does it blow up.

Notes from Chicago Invest For Kids Conference 2013

Via Market Folly:

Tuesday, October 29, 2013

Steve Romick's Q3 Commentary

Martin Whitman on WealthTrack



 Related book: Modern Security Analysis: Understanding Wall Street Fundamentals

Monday, October 28, 2013

Gillian Tett interviews Alan Greenspan

John Mauldin: A Code Red World

Hussman Weekly Market Comment: The Grand Superstition

Leithner Letter No. 167-170

Sunday, October 27, 2013

Scott Adams: How to Fail at Almost Everything and Still Win Big

A couple of things on Scott Adams (the creator of "Dilbert") and his new book.

WSJ: Scott Adams' Secret of Success: Failure

HBR: Scott Adams on Whether Management Really Matters

Book: How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life

Related previous post: How to Get a Real Education - By Scott Adams

Jain feeds Buffett’s hunger

I'm a bit late getting to this, but thanks to those who passed the link along.

Friday, October 25, 2013

The Stiglitz Syndrome...

From Nassim Taleb in Antifragile:
There is something more severe than the problem with Thomas Friedman, which can be generalized to represent someone causing action while being completely unaccountable for his words. 
The phenomenon I will call the Stiglitz syndrome, after an academic economist of the so-called “intelligent” variety called Joseph Stiglitz, is as follows. 
Remember the fragility detection in Chapter 19 and my obsession with Fannie Mae. Luckily, I had some skin in the game for my opinions, be it through exposure to a smear campaign. And, in 2008, no surprise, Fannie Mae went bust, I repeat, costing the U.S. taxpayer hundreds of billions (and counting)—generally, the financial system, with similar risks, exploded. The entire banking system had similar exposures. 
But around the same period, Joseph Stiglitz, with two colleagues, the Orszag brothers (Peter and Jonathan), looked at the very same Fannie Mae. They assessed, in a report, that “on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero.” Supposedly, they ran simulations—but didn’t see the obvious. They also said that the probability of a default was found to be “so small that it is difficult to detect.” It is statements like these and, to me, only statements like these (intellectual hubris and the illusion of understanding of rare events) that caused the buildup of these exposures to rare events in the economy. This is the Black Swan problem that I was fighting. This is Fukushima. 
Now the culmination is that Stiglitz writes in 2010 in his I-told-you-so book that he claims to have “predicted” the crisis that started in 2007–2008. 
Look at this aberrant case of antifragility provided to Stiglitz and his colleagues by society. It turns out that Stiglitz was not just a nonpredictor (by my standards) but was also part of the problem that caused the events, these accumulations of exposures to small probabilities. But he did not notice it! An academic is not designed to remember his opinions because he doesn’t have anything at risk from them. 
At the core, people are dangerous when they have that strange skill that allows their papers to be published in journals but decreases their understanding of risk. So the very same economist who caused the problem then postdicted the crisis, and then became a theorist on what happened. No wonder we will have larger crises. 
The central point: had Stiglitz been a businessman with his own money on the line, he would have blown up, terminated. Or had he been in nature, his genes would have been made extinct—so people with such misunderstanding of probability would eventually disappear from our DNA. What I found nauseating was the government hiring one of his coauthors. 
I am reluctantly calling the syndrome by Stiglitz’s name because I find him the smartest of economists, one with the most developed intellect for things on paper—except that he has no clue about the fragility of systems. And Stiglitz symbolizes harmful misunderstanding of small probabilities by the economics establishment. It is a severe disease, one that explains why economists will blow us up again. 
The Stiglitz syndrome corresponds to a form of cherry-picking, the nastiest variety because the perpetrator is not aware of what he is doing. It is a situation in which someone doesn’t just fail to detect a hazard but contributes to its cause while ending up convincing himself—and sometimes others—of the opposite, namely, that he predicted it and warned against it. It corresponds to a combination of remarkable analytical skills, blindness to fragility, selective memory, and absence of skin in the game. 
Stiglitz Syndrome = fragilista (with good intentions) + ex post cherry-picking 
There are other lessons here, related to the absence of penalty. This is an illustration of the academics-who-write-papers-and-talk syndrome in its greatest severity (unless, as we will see, they have their soul in it). So many academics propose something in one paper, then the opposite in another paper, without penalty to themselves from having been wrong in the first paper since there is a need only for consistency within a single paper, not across one’s career. This would be fine, as someone may evolve and contradict earlier beliefs, but then the earlier “result” should be withdrawn from circulation and superseded with a new one—with books, the new edition supersedes the preceding one. This absence of penalty makes them antifragile at the expense of the society that accepts the “rigor” of their results. Further, I am not doubting Stiglitz’s sincerity, or some weak form of sincerity: I believe he genuinely thinks he predicted the financial crisis, so let me rephrase the problem: the problem with people who do not incur harm is that they can cherry-pick from statements they’ve made in the past, many of them contradictory, and end up convincing themselves of their intellectual lucidity on the way to the World Economic Forum at Davos. 
There is the iatrogenics of the medical charlatan and snake oil salesperson causing harm, but he sort of knows it and lies low after he is caught. And there is a far more vicious form of iatrogenics by experts who use their more acceptable status to claim later that they warned of harm. As these did not know they were causing iatrogenics, they cure iatrogenics with iatrogenics. Then things explode. 
Finally, the cure to many ethical problems maps to the exact cure for the Stiglitz effect, which I state now. 
Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have—or don’t have—in their portfolio.

Hoisington Q3 2013 Letter

Thursday, October 24, 2013

Charlie Munger on future inflation

I re-watched the talk with Charlie Munger at Harvard-Westlake (from January 2010) last night on DVD and thought Munger's inflation comment was worth mentioning. After talking about how he knew the derivative and mortgage mess was going to very badly, but that he didn't know when, he then answered the part of the question about inflation using a similar framework. Here's the quote from the Santangel's Review Transcript which captured the essence of it:
"I knew we’d have a hell of a mess eventually. I just didn’t know when it was coming. I think I know eventually we will have a hell of an inflation mess, but I can’t tell you when it is coming. It could be way in the future. But I think eventually you’ll have it."

The Buffetts on Charlie Rose

Found via ValueWalk.


Mark Spitznagel on CNBC

Thanks to Jim for passing this along.


Monday, October 21, 2013

Warren Buffett on American Express in 2009...

I posted this on Twitter over the weekend, but it may be worth sharing here as well:
Note to self, when Buffett says this on TV, listen (CNBC in 2009): "But that doesn't mean American Express isn't a hell of a buy at $10."
The quote came from THIS transcript.

Federal Reserve Policy Failures Are Mounting - By Lacy Hunt

Found via Zero Hedge.

Martin Wolf Presentation: Has the financial crisis changed the world?

I haven't gotten a chance to watch this yet, but I've seen it pop up and be recommended in a few different places.


Hussman Weekly Market Comment: Did Monetary Policy Cause the Recovery?

Saturday, October 19, 2013

Friday, October 18, 2013

Nassim Taleb quote

From Antifragile:
Subtraction of a substance not seasoned by our evolutionary history reduces the possibility of Black Swans while leaving one open to improvements. Should the improvements occur, we can be pretty comfortable that they are as free of unseen side effects as one can get.

So there are many hidden jewels in via negativa applied to medicine. For instance, telling people not to smoke seems to be the greatest medical contribution of the last sixty years. Druin Burch, in Taking the Medicine, writes: “The harmful effects of smoking are roughly equivalent to the combined good ones of every medical intervention developed since the war.… Getting rid of smoking provides more benefit than being able to cure people of every possible type of cancer.
Likewise, happiness is best dealt with as a negative concept; the same nonlinearity applies. Modern happiness researchers (who usually look quite unhappy), often psychologists turned economists (or vice versa), do not use nonlinearities and convexity effects when they lecture us about happiness as if we knew what it was and whether that’s what we should be after. Instead, they should be lecturing us about unhappiness (I speculate that just as those who lecture on happiness look unhappy, those who lecture on unhappiness would look happy); the “pursuit of happiness” is not equivalent to the “avoidance of unhappiness.” Each of us certainly knows not only what makes us unhappy (for instance, copy editors, commuting, bad odors, pain, the sight of a certain magazine in a waiting room, etc.), but what to do about it.

James Grant Presentation: The Monetary Revolution and the Visible Hand


Thursday, October 17, 2013

Horizon Kinetics: Q3 2013 Commentary

Thanks to James for passing this along.

Khan Academy: A Conversation with Elon Musk (April 2013)

Found via The Big Picture.


Different takes on oil prices in 2008

It’s interesting that the fundamental investor and the economist attribute the 2008 rise in oil to supply and demand while the traders attribute it to speculation. In hindsight, I guess Paul Tudor Jones was probably the most correct in his balance of the two. But I think there’s a lesson in psychology in here somewhere. To the man with only a hammer…

Government Take Force report:
The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this same period, activity on the crude oil futures market – as measured by the number of contracts outstanding, trading activity, and the number of traders – has increased significantly. While these increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.
Warren Buffett on CNBC in June 2008:
“It's not speculation, it is supply and demand. … We don't have excess capacity in the world anymore, and that's what you're seeing in oil prices.”
Ben Bernanke in July 2008:
"If financial speculation were pushing all prices above the level consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But, in fact, available data on oil inventories shows notable declines over the past year."
George Soros in an interview with the Telegraph in May 2008:
“Speculation… is increasingly affecting the price,” he said. “The price has this parabolic shape which is characteristic of bubbles,” he said.
Paul Tudor Jones in a June 2008 interview with Alpha magazine:
“It’s a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments — principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn’t highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it’s going to end badly. We’ve seen it play out hundreds of times over the centuries, and this is no different. It’s just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.”

Warren Buffett CNBC Interview Transcripts Collection

Wednesday, October 16, 2013

Warren Buffett at the 2013 Fortune Most Powerful Women Summit

Found via ValueWalk.


James Grant on Bloomberg (video)

Tracy Britt Cool on Management Lessons From Warren Buffett

Thanks to Matt for passing this along.

California Housing Bubble 2.0 in Pictures - By Mark Hanson

Finding the Next Steve Jobs


The Power of Human Energy: Angela Ahrendts at TEDxHollywood

Thanks to Alex for passing this along. As announced yesterday (I think), Ms. Ahrendts is leaving Burberry to join Apple.


Paul Singer: Fed Should Say 'We've Done Enough'

Thanks to Kent for passing this along.

Warren Buffett on CNBC

Links to videos:

Buffett on JC Penney's future "Coming from behind in retailing is just plain tough."

'Health care is the tapeworm' of the US economy: Buffett “We’re so rich we can get away with doing things wrong for a while….We can’t get away doing them indefinitely.”

'Philanthropy is tougher than business': Buffett

'Stocks are not selling at bubble levels': Buffett

Buffett's advice to Republican

The science interview: Jared Diamond

Found via The Big Picture.

Tuesday, October 15, 2013

David Tepper on CNBC

Links to videos:

Tepper: Fed won't taper for 'a long time'

This is not the time to miss a debt payment: Tepper

Tepper: Looking for normal stock multiples

Greenlight Capital Q3 2013 Letter

Via Market Folly:

Stewart Cowley, the Bond-Fund Manager Who Can't Stand Bonds

Thanks to Matt for passing this along.

Robert Shiller on CNBC

Robert Shiller, Yale University economics professor, shares how he found out he won the Nobel Prize. Shiller also explains the difference between his "irrational" market theory and fellow Nobel Prize winner Eugene Fama's "efficient market" theory.


Monday, October 14, 2013

What Happens When You Don’t Buy Quality? And What Happens When You Do? – By Sanjay Bakshi

Thanks to David for passing this along.

CEOs to Face Berkshire-Loyalty Test

Bruce Greenwald Interview

Found via ValueWalk.



The Secrets of Bezos: How Amazon Became the Everything Store


Hussman Weekly Market Comment: Short Horizon, Long Horizon

John Mauldin: Sometimes They Ring a Bell

Taleb’s fragile world


Links to videos:

Friday, October 11, 2013

America’s default on its debt is inevitable - By James Grant

Nassim Taleb and company optionality…

Via ValueWalk:

America’s Greatest Inventor – By Bill Gates


The Story Of Thomas Alva Edison


Wednesday, October 9, 2013

Claire Barnes' Q3 letter: Overcomplexity to dysfunctionality


Pricing and Market Share...

From the latest Expeditors 8-K, but something which I think applies to many other industries as well:
This is a market where you need to be very careful not to “take” market share at rates that are unsustainable. The funny thing about focusing on one dimensional goals, like market share gains, is that you will get two dimensional results, one of which you've decided doesn't warrant any prospective consideration (i.e. market share gains without regard to sustainable profitability). Ours is a business where you need to have two dimensional success. As we've noted before, in a service business like logistics, gaining market share isn't nearly as important as gaining profitable market share. To us, this is the difference between “taking market share” and having market share “take you.” We'd prefer not to be “taken.” We think our shareholders would agree. Giving the shareholders' money to potential customers to induce them to move freight through our Expeditors network seems somewhat counter-productive…let alone a breach of our fiduciary responsibility and moral obligation to make money for those same shareholders.

Kyle Bass on CNBC

Link to videos:

Niall Ferguson: Krugtron the Invincible, Part 1

This also reminded me of something Charlie Munger said at the Daily Journal Annual Meeting this year when asked about QE and government involvement in the economy: 
“Well, you just asked one of the most complicated and interesting questions and one of the most important questions in the whole world. Of course, nobody knows the answer -- just when too much is too much. We know you can't just start printing money to run the whole economy and stopping taxation. At some point on that road, you get a backlash, which causes anguish you don't want to get to. But how far you can go in having these Keynesian benefits and get by with it without risking that backlash, nobody knows for sure.If you're like me, I believe in giving big trouble a wide berth, so I would try and stop a little short on this. Solving my problems by printing money.

Somebody like Paul Krugman, who's overdosed on mathematics, and uses the king's English better than practically anybody alive, so he's very dangerous. He just thinks there's no limit to the amount of -- he wouldn't say that, but he thinks the limit is so faraway you don't need to worry about it at all. That is not my view. But nobody knows the answer to that.”