Thursday, July 31, 2014

Warren Buffett surprises teen cancer patient on CNBC



Some advice from Mr. Buffett:
Buffett's main piece of advice for Tre as he prepares to enroll in community college this fall: learn accounting so you can read financial statements. "Accounting is the language of business and there's nothing like getting it early and getting it into your system." 
Pointing out that accounting is a "language all of its own," Buffett said, "Getting comfortable in a foreign language takes a little experience, a little study, early on but it pays off big later on."

And for a few accounting-related books (I need to add more, I know), go HERE.


Bill Gross' latest Investment Outlook: Goodnight Vietnam​ (LINK)

Robert Shiller on CNBC (LINK)

John Hempton on CNBC (LINK)
Hempton also recently re-recommended the book Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide
Losing my Amazon Religion (LINK)

Michael Covel interviews William Poundstone [H/T Derek] (audio) (LINK)
Related book: Fortune's Formula
Related previous post: Generalizing the Kelly Criterion
BBC: How much does an understanding of evolutionary biology influence policy-makers at the sharp end of government? (LINK)

Quantum Computing 101 (LINK)

Her Family Stopped Eating Sugar for A Year, and This is What Happened [H/T @farnamstreet] (LINK)
Related previous post: 60 Minutes: Is sugar toxic?
A deep-sea octopus is observed guarding the same clutch of eggs for nearly 4.5 years (LINK)

Wednesday, July 30, 2014

East Coast Asset Management Q2 2014 Investment Letter - Horse in Motion

Link to: Horse in Motion
In our second quarter letter you will find our portfolio update and general market observations. Each quarter we highlight one component of our investment process. This quarter, in the section titled Horse in Motion, I will discuss the value of an ownership mindset and how it plays an integral part in a compounding triumvirate with a good business and an effective operator. 

If it's not simple, then I'm not interested...

I was recently reminded of this story, as told by Peter Bevelin in one of my interviews with him (HERE):
As Munger says: “All I want to know is where I’m going to die so I’ll never go there.” When I hear them at the annual meeting, I am thinking about Einstein’s reply to a student. The student had challenged Einstein’s statement that the laws of physics should be simple by asking: “What if they aren’t simple?” Einstein replied, “Then I would not be interested in them.”  
They have a unique ability to distinguish masses of trivia from what is really important – to filter out situations, and find what’s at their core.
The “All I want to know is where I’m going to die so I’ll never go there” was also quoted in the book 100 to 1 in the stock market (see THIS post), and it also reminds me of Taleb's Fourth Quadrant.

Talks at Google: Mohnish Pabrai: "Dhandho. Heads I win; Tails I don't lose much"

Link to video


Related book: The Dhandho Investor: The Low-Risk Value Method to High Returns

[H/T ValueWalk]

Ray Dalio & Larry Summers: An Examination of How the Economic Machine Works

Link to video


Related previous post: How The Economic Machine Works In 30 Minutes - by Ray Dalio

[H/T ValueWalk]

Stan Druckenmiller's Full Delivering Alpha Presentation

Link to video

[H/T ValueWalk]

Peter Thiel quote

From Zero to One:
But while I have noticed many patterns, and I relate them here, this book offers no formula for success. The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas. 

Tuesday, July 29, 2014

Charlie Munger and the Disliking/Hating Tendency

A short excerpt from Charlie's Munger's speech "The Psychology of Human Misjudgment" in Poor Charlie's Almanack that seems relevant given what's going on with Israel and Palestine today:
Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to: (1) ignore virtues in the object of dislike, (2) dislike people, products, and actions merely associated with the object of his dislike, and (3) distort other facts to facilitate hatred. 
Distortion of that kind is often so extreme that miscognition is shockingly large. When the World Trade Center was destroyed, many Pakistanis immediately concluded that the Hindus did it, while many Muslims concluded that the Jews did it. Such factual distortions often make mediation between opponents locked in hatred either difficult or impossible. Mediations between Israelis and Palestinians are difficult because facts in one side's history overlap very little with facts from the other side's.


John Burbank on the Source of the Biggest Mispricings (LINK)

How Money and Banking Work On a Gold Standard (LINK)

Andrew Smithers: The problem of the equity risk premium (LINK)

Jim Grant: Buy Hated These Hated Stocks (LINK)

Mark Hanson: Lack of Defaults/Foreclosures/Short Sales; A Serious Housing & Spending Headwind (LINK)

Ebola Requires a Team Africa (LINK)

Stratfor: Gaming Israel and Palestine (LINK)

Unlearning From Peter Bernstein (LINK)
Q [Jason Zweig]. Over the course of your career, what are the most important things you’d say you had to unlearn? 
A [Peter Bernstein]. That I knew what the future held, I guess. That you can figure this thing out. I mean, I’ve become increasingly humble about it over time and comfortable with that. You have to understand that being wrong is part of the process. And I try to shut up at cocktail parties. You have to keep learning that you don’t know, because you find models that work, ways to make money, and then they blow sky-high. There’s always somebody around who looks smart. I’ve learned that the ones who are the most smart aren’t going to make it. I don’t know anybody who left investing to become an engineer, but I know a lot of engineers who left engineering to become investors. It’s just so infinitely challenging.

Innosight 2012 Briefing: Creative Destruction Whips through Corporate America

Link to: Creative Destruction Whips through Corporate America
Lifespans of top companies are shrinking, according to an Innosight study of the S&P 500 Index:
  • 61-year tenure for average firm in 1958 narrowed to 25 years in 1980—to 18 years now.
  • A warning to execs: At current churn rate, 75% of the S&P 500 will be replaced by 2027.
  • To survive and thrive, leaders must "create, operate and trade" their business units without losing control of their company.


Related books:

Creative Destruction: Why Companies That Are Built to Last Underperform the Market--And How to Successfully Transform Them

And all of Clayton Christensen's books, which you can find HERE.

Monday, July 28, 2014

Sam Altman on EconTalk

Link to: Sam Altman on Start-ups, Venture Capital, and the Y Combinator
Sam Altman, president of startup accelerating firm Y Combinator, talks to EconTalk host Russ Roberts about Y Combinator's innovative strategy for discovering, funding, and coaching groundbreaking startups, what the company looks for in a potential startup, and Silicon Valley's attitude toward entrenched firms. The two also discuss Altman's thoughts on sectors of the economy that are ripe for innovation and how new firms are revolutionizing operations in these industries. 

Related books (venture capital, start-ups):

Zero to One: Notes on Startups, or How to Build the Future

Venture Deals

The Hard Thing About Hard Things


California Powerhouse: Munger Tolles & Olson (LINK)

Burger King Is Run by Children (LINK)

Aswath Damodaran: Investment Advice from the Federal Reserve: Unusual, unwise and unseemly! (LINK)

Barry Ritholtz interviews Arthur Levitt (LINK)

Fruits and Vegetables Are Trying to Kill You (LINK)

2012 Solar Storm Could Have Cost $20 Trillion (LINK)

Nicholas Kristof's coolest places on Earth (LINK....and a few more suggestions HERE)

The Disruption Debate - What's Missing? (LINK)
Related books: Clayton Christensen's books, which you can find HERE.

Robert Sapolsky interview with Nautilus

Link to interview: Ingenious: Robert Sapolsky
What I’ve been thinking might actually be going on is that adolescence is something unavoidable that emerges not because it’s so cool and adaptive, but because the adaptive thing is wait a long, long time before you have fully wired up your frontal cortex. Why might that be the case? Alright, so we’re born with our genome, the combination of your mother and father’s genes, that wind up in that first fertilized egg and that’s it. That’s your genetic legacy. Every cell in your body is destined to have that exact same genome. That turns out not to be true in all sorts of interesting ways, but what that also means is that when you’re thinking about what genes have to do with the brain behavior, by definition critically, if the frontal cortex is the last part of the brain to develop it’s the part of the brain least shaped by genes, and most sculpted by the environment and experience. And I think basically the only way you can have a species that is as complex and socially resilient and socially context dependent and all those amazing things we do, the only way you can pull that off is to have a frontal cortex whose development just bears the imprint of everything you experienced along the way—in effect, that’s been freed from whatever extent the genes are deterministic, which is not very. I think ironically what the evolution of the frontal cortex has been about is genetic evolution to free it as much as possible from the straight jacket of genes. 
What’s the purpose of breaking free of our genes? 
Well, when you look at the sociology of humans, of primate species, when you look at evolution, when you look at anthropology, cross-cultural differences, etcetera—being smart is a useful thing evolutionarily. Primates definitely have an advantage over stickleback fish in terms of the size of their nervous systems. Having a good memory is good, learning a lot, motoric coordination. When you look at the really fancy stuff about social behavior and what determines “success” in sort of the broadest sense of the term, what it’s got to do is appropriate social behavior. You know in the human realm that’s that whole world of your social intelligence is a better predictor of how you’re going to do by all sorts of measures in life than your IQ. You look at a baboon and you ask, “Okay, a male baboon. What determines whether or not you wind up being the alpha in your troop?” Mostly, your muscle mass, how sharp your canines are, how aggressive of a son of a bitch you are. Okay, that’s got tons to do with whether you attain alpha-ship.  What’s the predictor of who maintains it for a long time? It’s all social intelligence. It’s who you can intimidate without actually getting into a fight.  It’s which coalitions you form and which ones you don’t go anywhere near. It’s which provocations you walk away from. It’s all about impulse control. And when you look at the really complex primates, success is really not about remembering that, “Oh four valleys over there’s a tree that’s going to be fruiting at this time of year; let’s go there this morning.” It’s the social intelligence stuff and what that’s all about is the frontal cortex. If you don’t have a frontal cortex that has been shaped by the subtleties and the idiosyncrasies of your immediate social world, you’re not going to be anywhere near successful of a primate. And I think that’s why it’s got to be the part of the brain that’s the last to develop. It’s got to be shaped by all that contextual stuff.

Related books:

A Primate's Memoir: A Neuroscientist's Unconventional Life Among the Baboons

Why Zebras Don't Get Ulcers

The Trouble With Testosterone: And Other Essays On The Biology Of The Human Predicament

Monkeyluv: And Other Essays on Our Lives as Animals

Related previous posts:

Richard Duncan: How Capitalism Died & Where That Leaves Us


Related book: The New Depression

Related previous post: Richard Duncan interview

Hussman Weekly Market Comment: Yes, This Is An Equity Bubble

Now, as we observed in periods like 1973-74, 1987, and 2000-2002, severe equity market losses do not necessarily produce credit crises in themselves. The holder of the security takes the loss, and that’s about it. There may be some economic effects from reduced spending and investment, but there is no need for systemic consequences. In contrast, the 2007-2009 episode turned into a profound credit crisis because the owners of the vulnerable securities – banks and Wall Street institutions – had highly leveraged exposure to them, so losing even a moderate percentage of their total assets was enough to wipe out their capital and make those institutions insolvent or nearly-so. 
At present, the major risk to economic stability is not that the stock market is strenuously overvalued, but that so much low-quality debt has been issued, and so many of the assets that support that debt are based on either equities, or corporate profits that rely on record profit margins to be sustained permanently. In short, equity losses are just losses, even if prices fall in half. But credit strains can produce a chain of bankruptcies when the holders are each highly leveraged. That risk has not been removed from the economy by recent Fed policies. If anything, it is being amplified by the day as the volume of low quality credit issuance has again spun out of control.

Saturday, July 26, 2014


Greenlight Capital Q2 Letter (LINK)

Steve Romick's Q2 Letter (LINK)

Jim Chanos on Charlie Rose (LINK)

Lawrence Cunningham on whether or not Berkshire, post Buffett, should go private [H/T Linc] (LINK)
Related book: Berkshire Beyond Buffett: The Enduring Value of Values
Billion-Dollar Billy Beane (LINK)
Related book: Moneyball

Enjoy the present hour, be mindful of the past; And neither fear nor wish the approaches of the last. 
Ben Franklin

Friday, July 25, 2014

The secretive billionaire who built Silicon Valley

Link to article: The secretive billionaire who built Silicon Valley
How John Arrillaga Sr. transformed California fruit orchards into high-priced office space for the likes of Google, Apple, Hewlett-Packard, and Cisco.

I knew Charlie Munger had mentioned Arrillaga somewhere. It appears it was at the 2006 Wesco Meeting (the excerpt below is from page 36 of THIS compilation...and it's in the context of Munger  warning that at that time in 2006, "...every asset class I see is priced on a fairly rich basis."):
Let me give you a different example, a different construct. I know a man, John Arrillaga, who was a star athlete at Stanford in a different generation. He got out of Stanford and started building little buildings around Stanford. He kept doing it and was good at it and of course there was no better market. In due time, he and his family had 15 million square feet, and the rents had gone up and up and up.

The interesting thing was that instead of doing the normal thing real estate developers do, which is borrow, borrow, borrow, so that money earned goes up and up and up, John gradually paid off 100% of the debt on his buildings so that when the great Silicon Valley crash hit and three million square feet of his buildings went vacant, it was a total non-event – and, in fact, he could start buying buildings from others [who were distressed]. He now likes to build buildings for Stanford – and doesn’t take any compensation for it; he takes a loss. This has been a wonderful thing.

Here’s a man who deliberately took some risk out of his life. He has no regrets in his life. He was damn glad. I think there’s a lot to be said when the world is going a little crazy around you, to at least put yourself in a position that if something really unpleasant happens, that it might be unpleasant but will be a non-event in terms of changing your life. We all might consider imitating John Arrillaga as things get crazier and crazier.


Paul Craven TEDx Talk: "The Mind, Markets and Magic" [H/T ValueWalk] (LINK)

US railways: Back on track [H/T Will] (LINK)

Is T.J. Maxx the best retail store in the land? (LINK)

Andrew Smithers: The fallacy of the Fed model (LINK)

Google's New Moonshot Project: the Human Body [H/T Andrew] (LINK)

Why Are We Ignoring a New Ebola Outbreak? (LINK)

Another Bill Gates book recommendation: The Sixth Extinction: An Unnatural History (LINK)

Wednesday, July 23, 2014

Generalizing the Kelly Criterion

Below is a link to a 3-page excerpt from the Boyles Q2 2014 letter relating to the Kelly Criterion, a topic I’ve mentioned before, but not quite given as full of a discussion as there is here.


Frank Martin's Q2 Letter (LINK)

Malcolm Gladwell's latest, "Trust No One" (LINK)

Evan Osnos profiles Joe Biden (LINK)

William Poundstone's latest book: Rock Breaks Scissors: A Practical Guide to Outguessing and Outwitting Almost Everybody (LINK....or in MP3 CD for $10.79)

Darwin’s Daily Routine (LINK)
Related books: 
Daily Rituals: How Artists Work 
The Autobiography of Charles Darwin

Tuesday, July 22, 2014

Talks at Google: Michael Mauboussin, "The Success Equation: Untangling Skill and Luck"

Link to video


Related book: The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

Related previous post: AIC 2014 Keynote: The Success Equation - Untangling Skill and Luck (Michael Mauboussin)

[H/T ValueWalk]

Malcolm Gladwell videos

A couple I don't think I've watched yet...

[Gladwell]: I was recently asked to give a public lecture at the University of Pennsylvania on the subject of “proof.” My question is: How much proof do we need about the harmfulness of something before we act? I began with the strange history of how long it took for society to grasp the seriousness of black-lung disease, and then moved into an argument about the black-lung diseases of today.

Link to video


Malcolm Gladwell in Conversation with Eleanor Wachtel

Link to video


Michael Lewis Talks With Conan [H/T ValueWalk] (LINK)

A (slightly) more nuanced Bill Gates offers vision of higher education (LINK)

The New Yorker Web Site is Entirely Free This Summer (Until It Goes Behind a Paywall This Fall) (LINK)

Clair Patterson, one of the greatest scientists few have ever heard of (LINK)
That Cosmos episode also discussed the marketing tactics of those involved in the lead industry, which may have been even more egregious than those used by the cigarette industry decades later. For a few more interesting ad campaigns from history, see THIS.

Monday, July 21, 2014


Barry Ritholtz Interviews Rob Arnott (LINK)

Nick Kristof: Who’s Right and Wrong in the Middle East? (LINK)

Charles Darwin's Beagle library (LINK)

New book that looks interesting: The Nature of Value: How to Invest in the Adaptive Economy (LINK)

Knowing What You Don’t Know

From Howard Marks via The Most Important Thing:
We have two classes of forecasters: Those who don’t know— and those who don’t know they don’t know.
It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.
There are two kinds of people who lose money: those who know nothing and those who know everything.
I’ve chosen three quotes with which to lead off this chapter, and I have a million more where those came from. Awareness of the limited extent of our foreknowledge is an essential component of my approach to investing. 
I’m firmly convinced that (a) it’s hard to know what the macro future holds and (b) few people possess superior knowledge of these matters that can regularly be turned into an investing advantage. There are two caveats, however: 
• The more we concentrate on smaller-picture things, the more it’s possible to gain a knowledge advantage. With hard work and skill, we can consistently know more than the next person about individual companies and securities, but that’s much less likely with regard to markets and economies. Thus, I suggest people try to “know the knowable.” 
• An exception comes in the form of my suggestion, on which I elaborate in the next chapter, that investors should make an effort to figure out where they stand at a moment in time in terms of cycles and pendulums. That won’t render the future twists and turns knowable, but it can help one prepare for likely developments.

Marcus Aurelius quote

From Meditations:
Remember that our efforts are subject to circumstances; you weren’t aiming to do the impossible. 
—Aiming to do what, then? 
To try. And you succeeded. What you set out to do is accomplished.

Sunday, July 20, 2014

Ron Johnson: Trust in Your Imagination and Instinct

Everyone thinks they innovate, but most of the time it's just improvement, shared Former Apple Senior Vice President of Retail Operations Ron Johnson at his View From the Top Talk at Stanford GSB. "To win in business, you have to let the imagination run." During his conversation with GSB student Amanda Facelle (MBA '14), Johnson also shared the biggest life lesson he learned from Steve Jobs: "You have to be willing to start again."

Link to video

[H/T @mungerisms]

Hussman Weekly Market Comment: Optimism vs. Arithmetic

Link to: Optimism vs. Arithmetic
Current market conditions provide an ideal moment to highlight the distinction between investment and speculation. Sound investment is a) the purchase of an expected stream of future cash flows that will be delivered to the investor over time, where b) the price paid today will result in an acceptable long-term return if those expected cash flows are delivered, and c) the expectations are set using assumptions that allow a reasonable margin of safety. As Benjamin Graham observed long ago, “Operations for profit should not be based on optimism but on arithmetic.” 

Speculation, by contrast, is the purchase of a security in the expectation that its price will increase. Speculation relies much less on calculation than on psychology, particularly of two forms: a) expected changes in sponsorship, and b) expected changes in risk aversion.

Saturday, July 19, 2014

Kindle Unlimited

Amazon launched it's Kindle Unlimited service ($10 per month, but you get a 30-day free trial to start. You can have up to 10 books at a time.). I still have more to go through, but I've been looking for things where if you read for free via the Kindle Unlimited free trial, you also get the audiobook for free or cheap. It looks like if you return the Kindle format book or cancel your service, it will also delete the audiobooks that were free from your account (though you could download to iTunes or somewhere else to keep them probably...UPDATE: it does not appear this is the case. The free ones are not available to download.). I'm guessing you get to keep the ones you buy (UPDATE: This is correct.), even though you purchased them at a discounted price. Here are a few of note:

Free audiobooks with free download of the Kindle book:

Happy Accidents: Serendipity in Major Medical Breakthroughs in the Twentieth Century by Morton Meyers MD (a Nassim Taleb book recommendation)

Life on the Mississippi by Mark Twain

The Adventures of Huckleberry Finn Tom Sawyer's Comrade by Mark Twain

The Man Who Mistook His Wife For A Hat: And Other Clinical Tales by Oliver Sacks

The Autobiography of Benjamin Franklin

Capital in the Twenty-First Century by Thomas Piketty (I was reluctant to list this given that there seems to be errors and some data mining in this remarkably popular book, but in case you were considering reading and/or listening to it, free isn't a bad price to pay for it.)

The God Delusion by Richard Dawkins

The Rough Riders by Theodore Roosevelt

Discounted audiobooks with free download of the Kindle book:

How Children Succeed: Grit, Curiosity, and the Hidden Power of Character by Paul Tough ($3.99)

Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts by Caroll Tavris and Elliot Aronson ($3.99)

The New New Thing: A Silicon Valley Story by Michael Lewis ($4.49)

Home Game: An Accidental Guide to Fatherhood by Michael Lewis($3.99)

Onward: How Starbucks Fought for Its Life without Losing Its Soul by Howard Schultz and Joanne Gordon ($4.99)

The Theory of Relativity: and Other Essays by Albert Einstein ($3.49)

The World As I See It by Albert Einstein ($2.99)

Essays in Science by Albert Einstein ($3.99)

Seneca quote

"So it is—the life we receive is not short, but we make it so, nor do we have any lack of it, but are wasteful of it. Just as great and princely wealth is scattered in a moment when it comes into the hands of a bad owner, while wealth however limited, if it is entrusted to a good guardian, increases by use, so our life is amply long for him who orders it properly." -Seneca, "On the Shortness of Life"


The book format also makes for a great gift option to family, friends, etc.: On the Shortness of Life

Friday, July 18, 2014

GMO Q2 2014 Letter

Link to: Free Lunches and the Food Truck Revolution and Summer Essays, Volume 2
GMO's 2Q 2014 Letter includes Ben Inker's "Free Lunches and the Food Truck Revolution," a discussion of today's investing environment and possible opportunities along with a collection of four essays by Jeremy Grantham that include further thoughts on bubbles, Malthus and the Keystone Pipeline, as well as Chapter 2 of Investment Lessons Learned. 

The 5 Greatest Investment Books You’ve Never Heard Of - by Chris Mayer

Link to: The 5 Greatest Investment Books You’ve Never Heard Of 


Mayer's picks:

Humble on Wall Street

Silent Investor, Silent Loser

Sense and Nonsense in Corporate Finance

Modern Security Analysis

100 to 1 in the stock market


A couple I'll add that may be worth checking out (though like some of the ones above, finding a decently priced copy of the first one below is the difficult part):

Asia's Investment Prophets

Capital Account: A Fund Manager Reports on a Turbulent Decade, 1993-2002

Horizon Kinetics: Q2 2014 Commentary

Link to: Horizon Kinetics: Q2 2014 Commentary
Understanding the basic presumptions of asset allocation can hardly be more critical, since we all invest based on these foundational assumptions. This quarter, we examine the historical returns from investing in private equity, revisit the topic of slowing revenue expansion at the largest companies, identify some common attributes of companies that do not appear to be suffering from a lack of growth opportunities, and discuss the potential diversification and inflation hedge benefits of land.

Seneca quote

You need not wonder at any genius of mine; for as yet I am lavish only with other men's property. – But why did I say "other men"? Whatever is well said by anyone is mine. This also is a saying of Epicurus: "If you live according to nature, you will never be poor; if you live according to opinion, you will never be rich." Nature's wants are slight; the demands of opinion are boundless. Suppose that the property of many millionaires is heaped up in your possession. Assume that fortune carries you far beyond the limits of a private income, decks you with gold, clothes you in purple, and brings you to such a degree of luxury and wealth that you can bury the earth under your marble floors; that you may not only possess, but tread upon, riches. Add statues, paintings, and whatever any art has devised for the luxury; you will only learn from such things to crave still greater. 
Natural desires are limited; but those which spring from false opinion can have no stopping-point. The false has no limits. When you are travelling on a road, there must be an end; but when astray, your wanderings are limitless. Recall your steps, therefore, from idle things, and when you would know whether that which you seek is based upon a natural or upon a misleading desire, consider whether it can stop at any definite point. If you find, after having travelled far, that there is a more distant goal always in view, you may be sure that this condition is contrary to nature.

Thursday, July 17, 2014


Buffett's Achilles' heel: Retail investing (LINK)
Related recent post: Berkshire and Diversified Retailing
Amazon is testing “Kindle Unlimited,” an ebook subscription service for $9.99/month (LINK)

Tim Ferriss: How to Learn Any Language Fast and Never Forget It (LINK)

Two books I've pre-ordered:

Zero to One: Notes on Startups, or How to Build the Future (if you do pre-order it, you can then go HERE and likely get it early, assuming copies are still left...H/T Max.)

The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment - by Guy Spier (I'm not sure how to get this early, but I'm really looking forward to reading Guy's book when it is released.)

Graham and Dodd on private owner valuation

The other application of the principle of investing in undervalued common stocks is directed at individual issues, which upon analysis appear to be worth substantially more than they are selling for. It is rare that a common stock will appear satisfactory from every qualitative angle and at the same time will be found to be selling at a low price by such quantitative standards as earnings, dividends, and assets. Issues of this type would undoubtedly be eligible for a group purchase that would fulfill our supplementary criterion of “investment” given in Chap. 4. (“An investment operation is one that can be justified on both qualitative and quantitative grounds.”) 
Of more practical importance is the question whether or not investment can be successfully carried on in common stocks that appear cheap from the quantitative angle and that—upon study—seem to have average prospects for the future. Securities of this type can be found in reasonable abundance, as a result of the stock market’s obsession with companies considered to have unusually good prospects of growth. Because of this emphasis on the growth factor, quite a number of enterprises that are long established, well financed, important in their industries and presumably destined to stay in business and make profits indefinitely in the future, but that have no speculative or growth appeal, tend to be discriminated against by the stock market—especially in years of subnormal profits—and to sell for considerably less than the business would be worth to a private owner
We incline strongly to the belief that this last criterion—a price far less than value to a private owner—will constitute a sound touchstone for the discovery of true investment opportunities in common stocks. This view runs counter to the convictions and practice of most people seeking to invest in equities, including practically all the investment trusts. Their emphasis is mainly on long-term growth, prospects for the next year, or the indicated trend of the stock market itself. Undoubtedly any of these three viewpoints may be followed successfully by those especially well equipped by experience and native ability to exploit them. But we are not so sure that any of these approaches can be developed into a system or technique that can be confidently followed by everyone of sound intelligence who has studied it with care. Hence we must raise our solitary voice against the use of the term investment to characterize these methods of operating in common stocks, however profitable they may be to the truly skillful. Trading in the market, forecasting next year’s results for various businesses, selecting the best media for long-term expansion—all these have a useful place in Wall Street. But we think that the interests of investors and of Wall Street as an institution would be better served if operations based primarily on these factors were called by some other name than investment.

Wednesday, July 16, 2014

Druckenmiller: Fed policy 'fraught with unappreciated risk'

Link to: Druckenmiller: Fed policy 'fraught with unappreciated risk'
Stan Druckenmiller, the retired founder of hedge fund firm Duquesne Capital Management, says the Federal Reserve is putting the economy at risk by continuing its aggressive market intervention. 
"I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy," Druckenmiller said Wednesday at the Delivering Alpha conference presented by CNBC and Institutional Investor.

There are several other videos of Druckenmiller's appearance today that can be found by sifting through the list HERE.

QE and the economic risks of underfunding - by Andrew Smithers

In the past governments have funded their deficits – for example, they have borrowed in the bond market rather than through treasury bills. This is despite the fact that, for the past 80 years, the rate of interest on bonds has been greater than that on Treasury bills; that is, we have had an upward sloping yield curve. 
I suggested in a recent blog that this was because governments correctly perceived that there were considerable economic risks in not funding, and that it was worth paying the additional cost to avoid these risks. Quantitative easing, which is a form of underfunding, must therefore have increased these risks. Defenders of QE need either to argue that these risks have not risen or that the benefits we have received from QE outweigh the rise in risks. To be consistent, those who hold that no additional risks have been incurred must now hold that governments should not have funded in the past and must now stop. But their silence is deafening, and such views are implausible, being held, I think, in the hope of dissuading discussion rather than from any conviction that they would survive much debate. 
The standard defence of QE is that it has benefited the economy more than it has increased the risks to it. Others doubt this. For example, in a recent speech Masaaki Shirakawa, the previous governor of the Bank of Japan, said: “The emerging consensus seems to be that, even though unconventional monetary policy affects prices of financial assets, its effect on real economic activity and hence the output gap is rather limited and uncertain.” But this view is not held by either the Bank of England or the US Federal Reserve. We are therefore in disputed territory, and there is always a risk that anxiety to defend past actions will prevent sufficient attention being given to mitigating the consequent risks. Whether or not QE has been a good thing or a bad thing, it is a risky thing; and policy should now be seeking to reduce the dangers that it has increased. 
QE or any other failure to fund is often referred to by its critics as printing money, and this is not an unreasonable description. When governments sell bonds, those who buy them have less money; and, when they don’t, they have more. The money from the sales of bonds to the Fed has been deposited with banks, and they have in turn increased their deposits with the Fed. The direct increase in the supply of money that has resulted from QE has been small. But it has greatly increased the power of US banks to expand money supply in the future. There is clearly a risk that this opportunity will at some stage be taken, and it is vital that this is prevented.
When the Fed buys bonds, its assets and liabilities rise; and, for the most part, the liabilities consist of the deposits of commercial banks and are reflected in the rise in the monetary base. Chart one shows that the ratio of the monetary base to M2 was between seven and 12 to one until recently, and has now fallen to under three. For the ratio to return to its average of nine, without a decline in the monetary base, money supply would need to triple. 
The relationship between money supply and inflation can, to put it mildly, be hotly disputed. My own view is that money matters and that too much will produce inflation, but that the relationship is complex and unstable, as I illustrate in chart two. This vague assessment is probably in line with that of most economists, though the matter is too contentious for it to be safely described as the consensus view.


2014 Omaha Value Investor Conference Presentations (I especially recommend the Mistakes of Omission presentation) (LINK)

Hoisington Investment Management - Quarterly Review and Outlook, Second Quarter 2014 (LINK)

Brain Pickings recommends Barbara Walters' 1970 book How to Talk With Practically Anybody About Practically Anything (LINK)

Bill Nye and company discuss Europa—the moon of Jupiter that probably has more liquid water than all the Earth’s oceans combined (LINK)

How To Blow $9 Billion: The Fallen Stroh Family

Link to article: How To Blow $9 Billion: The Fallen Stroh Family
AS WITH MANY OF AMERICA’S GREAT FORTUNES, the Stroh family’s story starts with an immigrant: Bernhard Stroh, who arrived in Detroit from Germany in 1850 with $150 and a coveted family recipe for beer. He sold his brews door-to-door in a wheelbarrow. By 1890 his sons, Julius and Bernhard Jr., were shipping beer around the Great Lakes. Julius got the family through Prohibition by switching the brewery to ice cream and malt syrup production. And in the 1980s Stroh’s surged, emerging as one of America’s fastest-growing companies and the country’s third-largest brewing empire, behind only public behemoths Anheuser-Busch and Miller. The Stroh family owned it all, a fortune that FORBES then calculated was worth at least $700 million. Just by matching the S&P 500, the family would currently be worth about $9 billion. 
Yet today the Strohs, as a family business or even a collective financial entity, have essentially ceased to exist. The company has been sold for parts. The trust funds have doled out their last pennies to shareholders. The last remaining family entity owns a half-empty office building in Detroit. While there was enough cash flowing for enough years that the fifth generation Strohs still seem pretty comfortable, the family looks destined to go shirtsleeves-to-shirtsleeves in six.

[H/T Remmelt]

Tuesday, July 15, 2014

Latest book purchases...

Like some others that probably follow this blog, I tend to be in the habit of buying more books than I can read. Shane over at Farnam Street had a great post on reading where he discussed some of his habits as well, which I recommend reading, HERE.

So for those who are interested, here are my latest purchases, which I've yet to read but hope to at some point in the not too distant future (the one exception is Greenblatt's book which I read in paperback several years ago, and just wanted to add the Kindle format to my library for the latest re-reading):

Business Adventures: Twelve Classic Tales from the World of Wall Street

The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s

Money, Blood and Revolution

You Can Be a Stock Market Genius

Probability: A Very Short Introduction

The Essential Guide to Telecommunications (4th Edition) (used copies go for $0.01)

The Origin of Wealth: The Radical Remaking of Economics and What it Means for Business and Society

Howard Marks on disbelief

…the process of investing requires a strong dose of disbelief. . . . Inadequate skepticism contributes to investment losses. Time and time again, the postmortems of financial debacles include two classic phrases: “It was too good to be true” and “What were they thinking?”

The Advanced Metrics of Attraction - by John Allen Paulos

Link to: The Advanced Metrics of Attraction
The essayist Alain de Botton has been writing a great deal lately about crushes, those sudden infatuations aroused by the merest of stimuli — the way she subtly rolls her eyes at a blowhard’s pronouncements, her intentional dropping of a glass to attract a waiter’s attention, the way he casually uses his iPhone as a bookmark. In beautiful prose laden with examples, Mr. de Botton describes how attraction can cascade into exultation but, alas, gradually dissolve into disillusionment and a slow vanishing of the mirage. 
A crush is undeniable, he writes, but barely explicable. That assertion appealed to my own sometimes reductionist mind-set, and I realized that the bare bones of the thesis could be expressed in statistical terms.

[H/T @Sanjay__Bakshi....who also recommended Paulos' book Innumeracy.]

Monday, July 14, 2014

Steven Leuthold on WealthTrack

Link to video


This also reminded me that I need to read his 1980 book that is sitting on my bookshelf, The Myths of Inflation and Investing.

[H/T ValueWalk]


A Dozen Things Learned from Peter Thiel (LINK)
Related book: Zero to One: Notes on Startups, or How to Build the Future
Barry Ritholtz Interviews Jeff Gundlach (MP3) (LINK)

What central banks should do to deal with bubbles (LINK)

Religion, Heuristics, and Intergenerational Risk Management (Nassim Taleb is a co-author) (LINK)
Related video: Nassim Nicholas Taleb: About Role of Religion
Slightly related article, which Daniel Kahneman mentioned in Thinking, Fast and Slowand that may also be of interest: Is God an Accident?

Hussman Weekly Market Comment: Ockham's Razor and the Market Cycle

Link to: Ockham's Razor and the Market Cycle
We increasingly see investors believing that history is no longer informative, and that the Federal Reserve has finally discovered how to produce perpetually rising markets and can intervene without consequence to support the markets and the economy indefinitely. Maybe it’s no longer true that valuations are related to subsequent returns. Maybe, contrary to all historical experience, reliable measures of valuation that have had a 90% correlation with actual subsequent market returns can now remain at double their historical norms forever, thereby allowing capital gains to be unhindered by any future retreat in valuation multiples as fundamentals grow over time. It’s just that one must also rely on valuations never retreating, because even if earnings grow at 6% annually indefinitely, and the CAPE simply touches a historically-normal level of 16 even 20 years from today, the total return on stocks, including dividends, would still be expected to average only 5% annually over that horizon. That’s just arithmetic.  
Investors should also note the following. At present, the most historically reliable valuation measures average more than 110% above their pre-bubble historical norms. Secular bear market lows don’t occur very often, but when they do, valuations typically average about 50% of pre-bubble norms. Here’s some arithmetic. Assuming constant 6% annual growth in nominal fundamentals, if the stock market was to experience a secular bear market low 25 years from now, the S&P 500 Index would be unchanged from present levels. Checking those numbers is good practice [1.06 * (0.5/2.1)^(1/25) = 1.00]. Market valuations leave no margin for error, even over the long-term.  
Meanwhile, nothing even in recent market cycles provides any support to the assumption of permanently elevated valuations. The only support for it is the desire of investors to avoid contemplating outcomes the same as the market suffered the last two times around. “This time is different” requires a lot of counterfactual assumptions. Ockham’s razor would suggest a nice shave. 

Saturday, July 12, 2014

Bill Gates's (and Warren Buffett's) Favorite Business Book

The book is Business Adventures: Twelve Classic Tales from the World of Wall Street.

Link to article: Bill Gates's Favorite Business Book 
Not long after I first met Warren Buffett back in 1991, I asked him to recommend his favorite book about business. He didn't miss a beat: "It's 'Business Adventures,' by John Brooks, " he said. "I'll send you my copy." I was intrigued: I had never heard of "Business Adventures" or John Brooks.

Today, more than two decades after Warren lent it to me—and more than four decades after it was first published—"Business Adventures" remains the best business book I've ever read. John Brooks is still my favorite business writer. (And Warren, if you're reading this, I still have your copy.)


Related book: The Go-Go Years: The Drama and Crashing Finale of Wall Street's Bullish 60s

[H/T @jasonzweigwsj]

Friday, July 11, 2014

Berkshire and Diversified Retailing

Some good lessons on investing and the difficultly of competitive businesses, via the excerpt below from Alice Schroeder in The Snowball:

On January 30, 1966, Buffett, Munger, and Gottesman formed a holding company, Diversified Retailing Company, Inc., to “acquire diversified businesses, especially in the retail field.” Buffett owned eighty percent of DRC. Gottesman and Munger each took ten percent. Buffett and Munger then went to the Maryland National Bank and asked for a loan to make the purchase. The lending officer looked at them goggle-eyed and exclaimed, “Six million dollars for little old Hochschild-Kohn?”  Even after hearing this, Buffett and Munger—characteristically—did not question their own judgment and run screaming out the door.

“We thought we were buying a second-class department store at a third-class price” is how Buffett describes little old Hochschild-Kohn.

He had never borrowed any significant money to buy a company. But they figured the margin of safety reduced their risk, and interest rates were cheap at the time. Profits in department stores were thin, but as those profits grew over the years, the interest on the debt would stay the same and any increase in the profits would flow to themselves. If the profits grew over the years.

“Buying Hochschild-Kohn was like the story of a man who buys a yacht,” says Munger. “The two happy days are the day he buys it and the day he sells it.”

Louis Kohn and Sandy Gottesman flew out to Laguna Beach, where the Buffetts were renting a house, and holed up in a nearby motel. Buffett strategized with Kohn and Gottesman. He was already becoming fond of Louis Kohn. “He was as high-grade a guy that you could ever imagine, had an IQ way up there, very decent guy, and he came into the partnership when we bought Hochschild-Kohn. I loved the guy.” The Kohns were another couple for him and Susie to socialize with—meaning that he and Kohn could talk business while Susie entertained Kohn’s wife. The Buffetts’ social life by now included a significant number of people who lived outside of Omaha, people they usually saw on one of Warren’s business trips or, as now, when friends visited the Buffetts in California.

But Buffett began to grow concerned on his next trip to Baltimore, when Kohn showed him a plan the company had been developing for some time to build two new stores, one in York, Pennsylvania, the other in Maryland. The idea was to capitalize on the exodus from city to suburb that was sending people to suburban shopping malls.

“They’d been planning those two stores for a couple of years. The guy that had the men’s furnishings department had his section laid out. He knew exactly how he was going to decorate it. The woman who ran the high-priced dress department had hers all planned too.” Buffett didn’t like confrontation and dreaded disappointing people, but he and Charlie agreed that neither of these locations made sense. He spiked the York store and the Hochschild-Kohn employees and management resisted. Lacking the stomach for a fight, Warren gave in. But he drew the line at the Columbia, Maryland, store. “I ended up killing that. And everybody died. They just died.”

Then more signs of trouble arrived in the form of numbers coming from Baltimore, revealing that every time one of the four department stores downtown put in an elevator, the other three had to do the same. Every time one store upgraded its window displays or bought new cash-register systems, the others had to follow suit. Buffett and Munger came to call this “standing on tiptoe at a parade.” Once anybody did it, everybody had to do it.

Still, for the first time, Buffett and Munger had found something they could partner on. Through Diversified Retailing, they and Gottesman had, in effect, created a separate company specifically to own retailers. But Hochschild-Kohn was the beginning of a pattern that would recur more than once in frothy markets: Buffett had lowered his standards to justify an investment. That he had done it at a time when he was having more and more trouble finding what he considered to be good investments in the stock market was no coincidence.

In this case, “We were enough influenced by the Graham ethos,” says Munger, “that we thought if you just got enough assets for your dollars, somehow you could make it work out. And we didn’t weigh heavily enough the intense competition between four different department stores in Baltimore at a time when department stores no longer had an automatic edge.”

Within the first couple of years at Hochschild-Kohn, Buffett had figured out that the essential skill in retailing was merchandising, not finance. He and his partners also had learned enough about retailing to understand that it was a lot like the restaurant business: a wearying marathon in which, every mile, fresh, aggressive competition could leap in and race ahead of you.

Alain de Botton on the Stoics

Link to article: The Great Philosophers 2: The Stoics
‘Stoicism’ was a philosophy that flourished for some 400 years in Ancient Greece and Rome, gaining widespread support among all classes of society. It had one overwhelming and highly practical ambition: to teach people how to be calm and brave in the face of overwhelming anxiety and pain. 
We still honour this school whenever we call someone ‘stoic’ or plain ‘philosophical’ when fate turns against them: when they lose their keys, are humiliated at work, rejected in love or disgraced in society. Of all philosophies, Stoicism remains perhaps the most immediately relevant and useful for our uncertain and panicky times. 
Many hundreds of philosophers practiced Stoicism but two figures stand out as our best guides to it: the Roman politician, writer and tutor to Nero, Seneca [AD 4-65]; and the kind and magnanimous Roman Emperor (who philosophised in his spare time while fighting the Germanic hordes on the edges of the Empire), Marcus Aurelius [AD 121 to 180]. Their works remain highly readable and deeply consoling, ideal for sleepless nights, those breeding grounds for runaway terrors and paranoia.

Related previous post: Stoicism quotes, thoughts, and readings

Related books (Stoicism-related):

William Irvine: A Guide to the Good Life: The Ancient Art of Stoic Joy (or Kindle format

Epictetus: Enchiridion (or Kindle format)

Marcus Aurelius: Meditations (or Kindle format)

Musonius Rufus: Lectures and Sayings (or Kindle format)

Arthur Schopenhauer: Essays and Aphorisms (or Kindle format)

Viktor Frankl: Man's Search for Meaning (or Kindle format)

On the fiction side of things, Tom Wolfe’s A Man in Full (or Kindle format)

Break the Immigration Impasse - by Sheldon Adelson, Warren Buffett and Bill Gates

Link to article: Break the Immigration Impasse
AMERICAN citizens are paying 535 people to take care of the legislative needs of the country. We are getting shortchanged. Here’s an example: On June 10, an incumbent congressman in Virginia lost a primary election in which his opponent garnered only 36,105 votes. Immediately, many Washington legislators threw up their hands and declared that this one event would produce paralysis in the United States Congress for at least five months. In particular, they are telling us that immigration reform — long overdue — is now hopeless. 
Americans deserve better than this.

Thursday, July 10, 2014


Hummingbird Value's Investment Strategy (LINK)

Catmull's Mental Models (LINK)
Related previous post: Ed Catmull: Creativity, Inc.
Related book: Creativity, Inc.
An interview with Michael Hudson (LINK)

Reverse Repos: The Federal Reserve’s Secret Piggy Bank (LINK)

Wilbur Ross on CNBC

Link to article and video: I'm selling 6 times more than buying: Wilbur Ross
"On balance we've been a seller. We've sold six times as much as we've bought so far this year … everywhere," the investor in distressed assets told "Squawk Box" on Thursday. 
Ross said stock valuations in the U.S. are high, and "with markets [near] at all-time highs, it shouldn't be surprising that there are more things that are attractive to sell than to buy."

River Out of Eden and A Universe from Nothing

In a recent reddit Q&A for the movie The Unbelievers, Richard Dawkins and Lawrence Krauss mentioned their favorite books by the other:

Lawrence Krauss:
My favorite book of Richard's is River Out of Eden. It is the most beautifully concise description of evolution I've ever read, I liked it so much I sent Richard a fan letter when it appeared.
Richard Dawkins (his pick was also a Charlie Munger pick):
Universe from Nothing is my favourite book by Lawrence. Beautiful example of my maxim "If you could do physics by common sense, we wouldn't need physicists"

Dawkins' other prominent books on evolution are listed, HERE.

Marcus Aurelius quote

From Meditations:
Ambition means tying your well-being to what other people say or do. 
Self-indulgence means tying it to the things that happen to you. 
Sanity means tying it to your own actions.

Wednesday, July 9, 2014

Leading@Google: Tony Hsieh (July 2010)

Tony Hsieh visits Google in Mountain View to talk about his new book - Delivering Happiness: A Path to Profits, Passion, and Purpose. 

The visionary CEO of Zappos explains how an emphasis on corporate culture can lead to unprecedented success.



Related book: Delivering Happiness: A Path to Profits, Passion, and Purpose

Tuesday, July 8, 2014

Comments from Felix Zulauf, James Montier and David Iben

James, we have slow growth, no inflation, low interest rates and easy monetary policy as far as the eye can see. Are we living in the best of all worlds for investors? 
James Montier: How I wish that that were true. The problem with the policy of raising asset prices is that you borrow returns from the future. You can think of it as the front loading of return. So what you’re really doing is pushing down future returns. So it doesn’t really help anybody a great deal in the longer term. Of course, in the short term the effect is positive as you get some sort of balance sheet repair through rising asset prices. At least that’s what central banks hope. But when you look at today’s opportunity set, you’re left with a set of assets where nothing looks attractive from a valuation point of view. 
Even if interest rates stay low for a long time? 
Montier: Even if we factor in low interest rates for the next twenty years, we’re still not seeing great opportunities. We can find stuff that may be fair value in that scenario, but it’s far from obvious. This is a very difficult time – in contrast to 2007, when risk assets were expensive but cash and bonds were priced to deliver reasonable returns, which is not the case today. It’s much harder to find anywhere to hide. So far from being the best of all possible worlds, this is almost the worst of all possible worlds. 
Do your clients still believe in the much-cited low return environment? The further markets move up, the more you might have a credibility issue. 
Montier: No doubt. We haven’t yet reached the kind of loathing that was displayed towards us in 1999 where we were just told we were complete idiots and several clients banned us from their buildings. I think there is a broader acceptance of the power of valuation, but the longer the rally goes on, the shorter people’s memory gets. Galbraith used to talk about the extreme brevity of financial memory and I fear that’s kind of what we’re experiencing now. People are looking at last year and say look, it can go up 30%, why on earth are you saying future returns are going to be dismal. 
But markets have been expensive for quite some time. How opportunistic should a value investor be? 
Montier: There are two possible states of the world: either they keep rates low for a very long period of time or they don’t. Anyone who says they know which one is going to happen is either a liar or a fool or possibly a linear combination with unknown weights. The reality is, nobody knows the future, particularly when it comes to policy rates. By second guessing we’re playing some sort of ridiculous beauty contest. Therefore we should try to build portfolios which are robust and can survive different outcomes. 
How do these portfolios look like?
Montier: That’s a challenge because the portfolios you want to hold in those two different worlds are almost diametrically opposed. If financial repression continues, you want to own the least bad thing out there, which is equities. In the other world, the only asset which does not hurt you when rates move to normal, is cash. So you end up with this bizarre portfolio where you own some equities where they are cheap. And you want to own some dry powder assets which protect you against inflation, provide liquidity and real return. 
Does cash do the job? 
Montier: Cash historically has done all three of those things very well, but in a world where rates are kept very low, cash does not do at least two of those things very well. So in addition to cash, you have to include some long-short strategies, TIPS and bonds which offer at least some yield. The really unsatisfying thing is that no matter what is going to happen in the future, you won’t hold the best portfolio. But at least, this portfolio allows you to survive.

[H/T Zero Hedge]