Saturday, August 30, 2014

Charlie Munger quote

“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group...then to hell with them."

Friday, August 29, 2014

Links (and a few quotes)

Tim Melvin interviews Toby Carlisle (LINK)
Related book: Deep Value
Morningstar talks with Francis Chou [H/T ValueWalk] (LINK)

A Q&A with Paul McCulley (LINK)

Burton Malkiel: Are Stock Prices Headed for a Fall? (LINK)
A related book is maybe not the one Mr. EMH is best know for, but rather one that was published in 1980 that I remember reading a couple of years ago, Inflation-beater's Investment Guide: Winning Strategies for the 1980's

"In a sense, there is a cycle of investment results attendant on any investment philosophy or market niche due to the relative popularity or lack of popularity of that approach at a particular time." -Seth Klarman

"A hungry people neither listens to reason, nor is appeased by justice, nor is bent by any entreaty." -Seneca

"Think of yourself as dead. You have lived your life. Now take what's left and live it properly." -Marcus Aurelius

Thursday, August 28, 2014


Buffett's Search for Sure Thing Propels 76-Year Junk Food Quest (LINK)

Aswath Damodaran – Investment Philosophies NYU Classes (LINK)
Related book: The Little Book of Valuation
Kyle Bass: ‘Singer is holding poor countries as hostages’ [H/T ValueWalk] (LINK)

10 Years of Google and the Importance of Long Term Thinking (LINK)

Lessons of the Great Depression for the Eurozone [H/T @TimHarford] (LINK)

And in case anyone was following Zicom Group, which my partner at Boyles, Matt Miller, presented as an investment idea earlier this year (HERE), they released their Preliminary Final Report, HERE.

Wednesday, August 27, 2014


1976 Buffett Letter About Geico (LINK)

Generalizing the Kelly Criterion (LINK)

Illusions and the Art of Paying Attention (LINK)

Andrew Smithers: US economy: the persistent myth of deleveraging (LINK)

Dropbox Slashes Its Price As the Cost of a Gigabyte Nears Zero (LINK) [On a related note, if you haven't signed up for Dropbox and would like to, you can expand your free storage limit for both of us if you use THIS link.]

Change Your Microbiome, Change Yourself (LINK)

Scott Adams: Easiest Diet Plan Ever (LINK)
Related book: How to Fail at Almost Everything and Still Win Big
Parasite of the Day: The Emerald Cockroach Wasp (LINK)


In GADCP, there is no emphasis on estimating future flows. Rather it is recognized that growth in common stock prices can come, and frequently does come, from sources other than corporate operations. Growth can come from judicious acquisitions (Capital Southwest Common); creating unrealized, and unrecorded, appreciation in asset values (Forest City Enterprise Common, Hopewell Holdings Ordinary); creating hidden assets in the form of increases in adjusted book value (Carlyle Group); having companies taken over by others at premium prices (Brookfield Asset Management); and possibly participating in corporate restructurings (Nabors Industries).  
In forecasting future flows of revenues, earnings, or cash flows, no exclusivity in making these forecasts is given to the past earnings record under a GADCP analysis. It is recognized under GADCP that the quality of resources in a business and the quantity of resources in a business tend to be equally important, and for some companies are more important than the past record in making reasonably accurate forecasts of future flows. This is simply giving recognition to ROE and ROA as part of the forecasting process with Equity and Assets being balance sheet items. 
In GADCP, though, there is strong recognition given to the fact that most forecasts, no matter what techniques are used to make them, are going to prove to have been inaccurate. It is just too difficult to properly put into forecasts factors such as competitive forces, technological innovations, inexperienced managements, business cycles, access to capital markets and acts of God. Knowing of the inherent unreliability of its forecasts, we restrict our common stock investments to issues that enjoy very high-quality resources where we can acquire its interests at prices that represent a meaningful discount from the estimated quantity of resources that exist in a business.  
GADCP is inherently long-term conscious. Indeed, securities markets tend to be efficient enough that a GADCP investor is unlikely to find issues at attractive prices unless the near-term outlook is poor to clouded.  
Industry outlooks are as important for GADCP as they are for GARP. However, under GADCP, industry outlooks are based on independent analysis rather than conformity with a general consensus.

Tuesday, August 26, 2014


Larry Cunningham: Berkshire’s Distinctive Shareholders and Corporate Longevity (LINK)
Related book: Berkshire Beyond Buffett
Barry Ritholtz interviews Sheila Bair (LINK)
Related book: Bull by the Horns
The Feynman Lectures on Physics, The Most Popular Physics Book Ever Written, Now Completely Online (LINK)

Property bubble is ‘major risk to China’ [H/T Marginal Revolution] (LINK)
Since 2008 land prices have increased fivefold, triggering corresponding asset price rises, but even as prices soared and supply mushroomed, demand for housing and office space pretty much kept up – until this year.
Until 2011, the market mostly saw supply shortages but today total floor space under construction is enough to satisfy well over four years of demand at a national level.
In some of the worst affected provinces, there is enough supply for more than seven years of demand.
More than 90 per cent of households already own at least one home and, for those urban households that own apartments, nearly 76 per cent of their assets are in real estate, according to Gan Li, director of the Survey and Research Center for China Household Finance.
Mr Gan estimates that China’s existing housing stock is already more than sufficient for every household to own their home but developers are still supplying well over 15m new units a year.

Monday, August 25, 2014


Chris Martenson interviews Lacy Hunt [audio] (LINK)

Daphne Koller on EconTalk (LINK)

What The Original Mad Man David Ogilvy Can Teach Investors (LINK)
Related books: Ogilvy on Advertising (which I believe Mohnish Pabrai may also have recommended somewhere); Confessions of an Advertising ManBlood, Brains & BeerDeep Value
Dan Harris's Panic Attack (and Discovery of Meditation) (LINK)
Related book: 10% Happier
Seneca on Wisdom (LINK)

Howard Marks' Crystal Ball Proved Accurate

Link to article: Howard Marks' Crystal Ball Proved Accurate
Ten years ago, veteran investor and writer Howard Marks sent a contrarian -- and prescient -- memo to clients of his firm, Oaktree Capital Management, assessing the state of the hedge fund industry. Last week, Barron's checked in with Marks to get his thoughts on the industry today. 
Though aimed at clients, Marks' missives are widely read on Wall Street and beyond. Marks, 68, earned his stripes as a manager focused on credit, high-yield, and distressed debt, in particular. Marks co-founded Oaktree in 1995 after spending 10 years at TCW. Oaktree oversees $91 billion in assets, specializing in alternative strategies and, again, emphasizing credit. A prolific memo writer, Marks pulled a lot of his thoughts together into a 2011 book titled The Most Important Thing: Uncommon Sense for the Thoughtful Investor
"Hedge Funds: A Case for Caution," dated October 2004, came at a heady time for hedge funds, which were launching at a rapid pace and gathering billions of dollars from investors eager to join the alternative investing trend.

Related book: The Most Important Thing

[H/T ValueWalk]

Joel Greenblatt profiled in Barron's

Link to: Writing a Bigger Book
In 2009, at the behest of investors, their Gotham Asset Management firm put out the welcome mat again, this time with a far more diversified approach. The current strategy is, on the surface, pretty simple. Buy more than 300 high-quality names trading at cheap prices, and short more than 300 stocks on the other end of that spectrum. The stock that ranks first on these attributes gets the largest weighting in the portfolio, while the second-best stock gets the No. 2 weighting, and so on. 
"That's quite a bit different from the six to eight holdings we had once upon a time," says Greenblatt, 56. At the same time the original, highly focused strategy had limited capacity, it also came with extreme volatility. "Rob and I would wake up some days and lose 15% or 20% of our net worth," he adds. "Now it's more like 15 or 20 basis points." (A basis point is 1/100th of a percentage point.)

Related books:

The Little Book That Still Beats the Market

You Can Be a Stock Market Genius

Burger King in Talks to Buy Tim Hortons in Canada Tax Deal

Link to article: Burger King in Talks to Buy Tim Hortons in Canada Tax Deal
Burger King Worldwide Inc.  is in talks to buy Canadian coffee-and-doughnut chain Tim Hortons Inc., a deal that would be structured as a so-called tax inversion and move the hamburger seller's base to Canada. 
The two sides are working on a deal that would create a new company, they said in a statement, confirming a report on the talks by The Wall Street Journal. The takeover would create the third-largest quick-service restaurant provider in the world, they said. 
Inversion deals have been on the rise lately, and are facing stiff opposition in Washington given that they threaten to deplete U.S. government coffers. A move by Burger King to seal one is sure to intensify criticism of them, since it is such a well-known and distinctly American brand. 
In 2010, Brazilian private-equity firm 3G Capital Management bought Burger King and took the chain known for its Whopper burgers private. A few years later, the company structured a complex deal with an investment vehicle co-owned by Mr. Ackman to go public again, while retaining control of the company. 
3G, which has offices in Rio de Janeiro and New York, has become a major player in the U.S. food sector, with a taste for iconic brands. Billionaire co-founder Jorge Paulo Lemann was a big shareholder in brewer InBev and helped engineer its 2008 acquisition of Anheuser-Busch. 3G last year teamed up with Warren Buffett to buy U.S. ketchup maker H.J. Heinz Co. for $23 billion, one of the largest deals of the year. 
A key rationale for the deal is the potential to leverage Burger King's expertise in global development to boost Tim Hortons' international growth, the companies said, adding they plan operate the two as stand-alone brands.

Related book: DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz

Hussman Weekly Market Comment: Broken Links: Fed Policy and the Growing Gap Between Wall Street and Main Street

When the majority of Americans examine the world around them, they see a stock market at record highs and modest apparent improvement in the economy, but they also have the sense that something remains terribly wrong, and they can’t quite put their finger on it. According to a recent survey by the Federal Reserve, 40% of American families report that they are “just getting by,” and 60% of families do not have sufficient savings to cover even 3 months of expenses. Even Fed Chair Janet Yellen seemed puzzled last week by the contrast between a gradually improving unemployment rate and persistently sluggish real wage growth. 
We would suggest that much of this perplexity reflects the application of incorrect models of the world. 
Before the 15th century, people gazed at the sky, and believed that other planets would move around the Earth, stop, move backwards for a bit, and then move forward again. Their model of the world – that the Earth was the center of the universe – was the source of this confusion. 
Similarly, one of the reasons that the economy seems so confusing at present is that our policy makers are dogmatically following models that have very mixed evidence in reality. Worse, when extraordinary measures don’t produce the desired results, the only response is to double the effort without carefully asking whether there is a reliable, measurable cause-and-effect relationship in the first place. When there are broken links in the chain of cause-and-effect, “A causes B” may be true, and “C causes D” may be true, but if B doesn’t cause C, then all the A in the world won’t give you D. 
Let’s review some relationships in the data that are clear, and some that are not so clear at all.

Sunday, August 24, 2014


Book Review: The Education of a Value Investor, by Guy Spier (LINK)
Related book: The Education of a Value Investor
Good to Great: The Stockdale Paradox (LINK)
Related books: Good to Great, The Outsiders
FRMO Corp. - Fiscal 2014 Letter to Shareholders [H/T ValueWalk] (LINK)


I just started the book The Nature of Value, and author Nick Gogerty mentions two other interesting books for the multidisciplinary thinker in the acknowledgements worth checking out, which he said provided him "a useful way of framing the 'why' of adaptive economic complexity as a process of thermodynamic and information flows":

1. Into the Cool: Energy Flow, Thermodynamics, and Life

2. Cosmic Evolution: The Rise of Complexity in Nature

Friday, August 22, 2014

Peter Thiel quote

From Zero to One (in this case, you can basically replace 'Monopolists' with 'Wide-Moat Businesses'):
In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't. In perfect competition, a business is so focused on today's margins that it can't possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits. 

Thursday, August 21, 2014

The annual letters for Blue Chip Stamps from 1978 to 1982, written by Charlie Munger

Max, who also compiled Warren Buffett's shareholder letters as well as the 1995-2001 Baupost letters, has put together another great compilation.

[H/T Will and ValueWalk]

The Complete Up Series

In an interview he did with Tim Ferriss during the release of Think Like a Freak, Steven Dubner mentioned this as his favorite documentary...

Link to: The Complete Up Series
"Give me the child until he is seven and I will give you the man." 
Starting in 1964 with Seven Up, The UP Series has explored this Jesuit maxim. The original concept was to interview 14 children from diverse backgrounds from all over England, asking them about their lives and their dreams for the future. Every seven years, renowned director Michael Apted, a researcher for Seven Up, has been back to talk to them, examining the progression of their lives. 
From cab driver Tony to schoolmates Jackie, Lynn and Susan and the enigmatic Neil, as they turn 56 more life-changing decisions and surprising developments are revealed.


How Fortunes are Made in the Stock Market (LINK)
Related book: 100 to 1 in the stock market (You can also find a few quotes I posted from this book, HERE.)
Acemoglu and Robinson on Piketty (LINK)

Tolstoy’s Letters to Gandhi on Love, Violence, and the Truth of the Human Spirit (LINK)

By-the-wind sailors litter West Coast beaches (LINK)

Wednesday, August 20, 2014

Grant's Interest Rate Observer: Summer Break Issue 2014

Link to: Grant's Interest Rate Observer: Summer Break Issue 2014
This anthology of recent articles, our summertime e-issue, is for you. Please pass it along, with our compliments, to any and all prospective members of the greater Grant’s family.


Robert Shiller article: The Mystery of Lofty Stock Market Elevations (LINK)

Robert Shiller on CNBC (video) (LINK)

Andrew Smithers: Long-term investing (LINK)

Preventing Another Corinthian (LINK)

John Kay: No universal law predicts the outcome of disruptive innovation (LINK)
Related book: The Innovator's Dilemma

After reading the Shiller article, I looked into Irving Fisher's 1930 book The Stock Market Crash — and After. It is interesting that the case he was making at the start of 1930 about the efficiency of the manufacturing sector is the same argument those today are using to justify current record profit margins, although instead of manufacturing like back then, it is technology and service-related companies today. An excerpt mentioning Fisher and his book from another book on the 1929 crash:
Irving Fisher was one of the country’s leading economists who made his fortune by inventing the Rolodex, known then as the Visible Index Card System. He invested a large amount of his money in stock, and even months into the crash, he continued to reassure investors that the market was secure. Unfortunately, he lost most of his fortune and reputation before the market began to recover in 1932. In 1930, he wrote The Stock Market Crash and After, discussing real growth in the manufacturing sector of the country. This may explain his continued investment in stocks and his optimism over the performance of the market. According to one source, what Fisher considered an increase in manufacturing was actually an increase in manufacturing efficiency (how much each worker could produce), due to improvements in technology manufacturing practices.

Tuesday, August 19, 2014

Warren Buffett on temperament...

From a 2011 interview, but brought back to my attention through Farnam Street (emphasis mine):
The ones that have the edge are the ones who really have the temperament to look at a business, look at an industry and not care what the person next to them thinks about it, not care what they read about it in the newspaper, not care what they hear about it on the television, not listen to people who say, “This is going to happen,” or, “That’s going to happen.” 
You have to come to your own conclusions, and you have to do it based on facts that are available. If you don’t have enough facts to reach a conclusion, you forget it. You go on to the next one. You have to also have the willingness to walk away from things that other people think are very simple. 
A lot of people don’t have that. I don’t know why it is. I’ve been asked a lot of times whether that was something that you’re born with or something you learn. I’m not sure I know the answer. Temperament’s important. 
...If you don’t know the answer yourself don’t accept somebody else to tell you. If you don’t know the answer yourself and somebody else says they know the answer, don’t let that fact push you into coming to a conclusion about something that you don’t know enough to come to a conclusion on.

Howard Marks: Investing entails a lot that isn't within one's control...

The choice between offense and defense investing should be based on how much the investor believes is within his or her control. In my view, investing entails a lot that isn't. 
Professional tennis players can be quite sure that if they do A, B, C and D with their feet, body, arms and racquet, the ball will do E just about every time; there are relatively few random variables at work. But investing is full of bad bounces and unanticipated developments, and the dimensions of the court and the height of the net change all the time. The workings of economies and markets are highly imprecise and variable, and the thinking and behavior of the other players constantly alter the environment. Even if you do everything right, other investors can ignore your favorite stock; management can squander the company’s opportunities; government can change the rules; or nature can serve up a catastrophe. 
So much is within the control of professional tennis players that they really should go for winners. And they’d better, since if they serve up easy balls, their opponents will hit winners of their own and take points. In contrast, investment results are only partly within the investors’ control, and investors can make good money—and outlast their opponents—without trying tough shots. 
The bottom line is that even highly skilled investors can be guilty of mis-hits, and the overaggressive shot can easily lose them the match. Thus, defense—significant emphasis on keeping things from going wrong—is an important part of every great investor’s game.

The Myth of the Robber Barons with Burt Folsom

The video below, as well as Folsom's book The Myth of the Robber Barons, may pair well with the book I linked to yesterday, The Robber Barons.

Link to video

Monday, August 18, 2014


Barry Ritholtz interviews Jim Chanos (audio) (LINK)

A Dozen Things Learned from Paul Graham (LINK)

Steve Jobs on Creativity (LINK)

Scott Adams on boosting creativity (LINK)

John Mauldin: Bubbles, Bubbles Everywhere (LINK)

Lunch with the FT: Raghuram Rajan (LINK)

The Pleasure of Being Nasty (LINK)

The Islamic State (documentary) (LINK)

Chris Martenson interviews Mark Sisson (health/nutrition) (LINK)
Related book: The Primal Blueprint 
Related site (my favorite health site): Mark's Daily Apple
Older book to check out: The Robber Barons

Hussman Weekly Market Comment: Dimes on Black and Dynamite on Red

Link to: Dimes on Black and Dynamite on Red
The stock market is presently a roulette wheel with dimes on black and dynamite on red. We continue to have extreme concerns about the extent of potential market losses over the completion of the present market cycle. At the same time, we have very little view with regard to short-term market action. If one reviews market action surrounding major pre-crash peaks such as 1929, 1972, 1987, 2000 and 2007, you’ll observe a sort of “resilience” in the major indices on a day-to-day and week-to-week basis even after market internals had already corroded. In 1987, for example, the break following the August bull market peak was largely recovered over the course of several weeks before failing rapidly in October. In 2000, the market actually experienced a series of 10-12% corrections and recoveries before a final high in September that was followed by a loss of half the market’s value. In 2007, the initial break in mid-summer was fully recovered, with the market registering a fresh nominal high in early October that marked the end of the bull market and the start of a 55% market collapse. 
As economic historian J.K. Galbraith wrote about the advance leading up to the 1929 crash, the market’s gains “had an aspect of great reliability… Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in February and March of 1929 it seemed that the end had come. On various of these occasions the Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But it has long since been forgotten that for many months those who resisted reassurance were similarly, if less permanently, discredited.”

Sunday, August 17, 2014

Charlie Munger quote

This is one of my favorites....and essentially the underlying reason for my practice of Memortation.

"I could see that I was not going to cope as well as I wished with life unless I could acquire a better theory-structure on which to hang my observations and experiences. By then, my craving for more theory had a long history. Partly, I had always loved theory as an aid in puzzle solving and as a means of satisfying my monkey-like-curiosity. And, partly, I had found that theory-structure was a superpower in helping one get what one wanted. As I had early discovered in school wherein I had excelled without labor, guided by theory, while many others, without mastery of theory failed despite monstrous effort. Better theory I thought had always worked for me and, if now available could make me acquire capital and independence faster and better assist everything I loved." -Charlie Munger

Saturday, August 16, 2014

Seneca quote

From Moral letters to Lucilius/Letter 17:
One cannot greet Parthian royalty without bringing a gift; and in your case I cannot say farewell without paying a price. But what of it? I shall borrow from Epicurus: "The acquisition of riches has been for many men, not an end, but a change, of troubles." I do not wonder. For the fault is not in the wealth, but in the mind itself. That which had made poverty a burden to us, has made riches also a burden. Just as it matters little whether you lay a sick man on a wooden or on a golden bed, for whithersoever he be moved he will carry his malady with him; so one need not care whether the diseased mind is bestowed upon riches or upon poverty. His malady goes with the man.

Friday, August 15, 2014

Howard Marks quote

From The Most Important Thing:
There are few fields in which decisions as to strategies and tactics aren't influenced by what we see in the environment. Our pressure on the gas pedal varies depending on whether the road is empty or crowded. The golfer’s choice of club depends on the wind. Our decision regarding outerwear certainly varies with the weather. Shouldn't our investment actions be equally affected by the investing climate? 
Most people strive to adjust their portfolios based on what they think lies ahead. At the same time, however, most people would admit forward visibility just isn't that great. That’s why I make the case for responding to the current realities and their implications, as opposed to expecting the future to be made clear.

Thursday, August 14, 2014

Peter Thiel quote

From Zero to One:
Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make. That fatal temptation is to describe your market extremely narrowly so that you dominate it by definition. 
Suppose you want to start a restaurant that serves British food in Palo Alto. "No one else is doing it," you might reason. "We'll own the entire market." But that's only true if the relevant market is the market for British food specifically. What if the actual market is the Palo Alto restaurant market in general? And what if all the restaurants in nearby towns are part of the relevant market as well. 
...If you lose sight of competitive reality and focus on trivial differentiating factors--maybe you think your naan is superior because of your great-grandmother's recipe--your business is unlikely to survive. 

Wednesday, August 13, 2014

Pershing Square Q2 Letter

Link to: Pershing Square Q2 Letter
Pershing Square – Reflections After Ten Years

We began investing capital January 1st, 2004 in partnership with a subsidiary of Leucadia National Corp. (NYSE:LUK) which invested $50 million in Pershing Square, L.P. at our launch. At the time of Leucadia’s investment, Gotham Partners did not have regulatory closure with respect to the SEC’s and New York Attorney General’s MBIA-related investigations. Leucadia’s investment, and most importantly, its imprimatur were critical to the successful launch of the firm. We will forever be indebted to Ian Cumming and Joe Steinberg, then Chairman and CEO of Leucadia, who backed us when few others would. As a thank you gesture at the time, we offered Leucadia a substantial minority interest in the management company for no additional consideration, but they asked for nothing but good investment results in exchange for their investment, and for that we are very grateful.

Pershing Square – Returns Since Inception

Over the last ten and one-half years, we have generated net returns to our investors of 626.7% or 7.3 times day-one investor capital. Over the same period, the S&P 500, our principal benchmark, as it has historically comprised most of our holdings, has returned 118.8% or about 2.2 times. Expressed as a compounded annual return, the funds have returned 21% net per annum versus 8% for the S&P 500. In a world in which investors are pleased to earn returns that are one or two percentage points per annum above the S&P over 10-year periods, our approximate 13 percentage point annual net margin over the index is notable.

We are proud of our record and how that record has been achieved. While our returns have been strong, our downward volatility (the only kind of volatility investors really care about) has been minimal. We have had two negative years in our history, 2008 when the funds declined 12% to 13%, and 2011, when the funds declined approximately 2%. While the S&P index is by design a fully invested index, we have generated our returns with negative leverage, i.e., cash has averaged 14% of invested capital since inception
Because we are an active, control and influence-oriented investor, we have avoided being fully invested because of the risk of investor redemptions. For example, during 2009, despite a relatively strong 2008 and a 41% net return in 2009, we had to keep a substantial portion of our assets in cash because of the large amount of investor redemptions we received. We will hopefully begin to address this issue with the initial public offering of Pershing Square Holdings, Ltd. (PSH), targeted for later this year, which will increase the amount of our capital that is permanent


Coursera Course: Learning How to Learn: Powerful mental tools to help you master tough subjects [H/T csinvesting] (LINK)
Related book: A Mind For Numbers
Amazon Takes Shopping Offline With a New Mobile Credit Card Reader (LINK)

Larry Robbins Focusing on Companies Deploying Capital (LINK)

Stanford’s Robert Sapolsky Demystifies Depression (LINK)

Here's How Maria Popova of Brain Pickings Writes (LINK)

Jane Goodall Answers the Proust Questionnaire (LINK)

Edward Chancellor quote

Via the book Capital Account:
It is an axiom of capital cycle analysis, however, that future demand is very difficult to project. Partly this is due to the problems that afflict all attempts at forecasting under conditions of uncertainty. But it is exacerbated by the fact that those who supply forecasts of demand are likely to have a vested interest in inflating the figures. 

Tuesday, August 12, 2014

TED Talk - Aubrey de Grey: A roadmap to end aging (2005)

Link to: A roadmap to end aging
Cambridge researcher Aubrey de Grey argues that aging is merely a disease — and a curable one at that. Humans age in seven basic ways, he says, all of which can be averted.

Related book: Ending Aging

Related link: Aubrey de Grey on the Bryan Callen podcast

I haven't gone through Aubrey de Grey's stuff in detail yet, but it reminded me of another book that is also on my list: Does Aging Stop?. Michael Rose is one of the authors of that book, and the same Michael Rose of the 55 Theses.


Berkshire’s Distinctive Shareholders and Corporate Longevity (LINK)
Related book: Berkshire Beyond Buffett: The Enduring Value of Values
Pipeline Giant Reverse-Engineers Itself $12 Billion (LINK)

The Outsiders: Capital Surgeons (LINK)
Related book: The Outsiders
Academic Inertia: The innovator’s dilemma in higher education (LINK)
Related mini-book (PDF): Hire Education: Mastery, Modularization, and the Workforce Revolution  
Related book: Disrupting Class
Farnam Street: Marcus Aurelius: Debts and Lessons (LINK)
Related book: Meditations

Monday, August 11, 2014


Vaclav Smil: Making the Modern World [video] (LINK)
Related book:  Making the Modern World
Mark Buchanan: Arrow-Debreu Derangement Syndrome (LINK)
Related book:  Forecast: What Physics, Meteorology, and the Natural Sciences Can Teach Us About Economics
Paul Jaminet: My Ancestral Health Symposium talk on Weight Loss (LINK)
Related book: Perfect Health Diet

Hussman Weekly Market Comment: Low and Expanding Risk Premiums are the Root of Abrupt Market Losses

Link to: Low and Expanding Risk Premiums are the Root of Abrupt Market Losses
Through the recurrent bubbles and collapses of recent decades, I’ve often discussed what I call the Iron Law of Finance: Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time. 

The past several years of quantitative easing and zero interest rate policy have not bent that Iron Law at all. As prices have advanced, prospective future returns have declined, and the “risk premiums” priced into risky securities have become compressed. Based on the valuation measures most strongly correlated with actual subsequent total returns (and those correlations are near or above 90%), we continue to estimate that the S&P 500 will achieve zero or negative nominal total returns over horizons of 8 years or less, and only about 2% annually over the coming decade. 

Seneca quote

"Believe me, it takes a great man and one who has risen far above human weaknesses not to allow any of his time to be filched from him, and it follows that the life of such a man is very long because he has devoted wholly to himself whatever time he has had. None of it lay neglected and idle; none of it was under the control of another, for, guarding it most grudgingly, he found nothing that was worthy to be taken in exchange for his time. And so that man had time enough, but those who have been robbed of much of their life by the public, have necessarily had too little of it." -Seneca, "On the Shortness of Life"

Edward Chancellor quote

Via the book Capital Account:
The turnaround of General Dynamics [from 1990-1993] and its dramatic share price performance illustrate two key aspects of the capital cycle approach to investment. First, shareholder returns are not necessarily determined by whether a company’s sales are rising or falling, nor whether the market in which it operates is growing or shrinking. Rather, the most important determinant of share price performance is management’s ability to allocate resources efficiently. If a company achieves a higher return on reinvested profits than the market has expected, then its shares will rise, regardless of what happens to turnover. Secondly, during the early 1990s General Dynamics benefited from the decline in competition in the US defence industry, as capital was withdrawn from the sector and businesses consolidated. This illustrates the second axiom of the capital cycle, namely that profitability is determined primarily by the competitive environment or the supply side, rather than by revenue growth trends. It is better to invest in a mature industry where competition is declining than in a growing industry where competition is expanding.

Peter Thiel quote

From Zero to One:
Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don't build an undifferentiated commodity business.

Friday, August 8, 2014


Power Network Draws Rich Families to Chicago Banker Byron Trott [H/T Linc] (LINK)

Hell in the Pacific (2001) Documentary (LINK)
This was mentioned by Dan Carlin of the Hardcore History podcast in his recent interview with Tim Ferriss (warning: there's some fairly gruesome footage in the documentary). On a related note, Hardcore History looks like an remarkably good podcast. I'm looking forward to starting with the first Wrath of the Khans episode.
The game of life is the game of everlasting learning. At least it is if you want to win.
Charlie Munger

Thursday, August 7, 2014


How Dan Ariely Works (LINK)

Wired: The Most Fascinating Profile You’ll Ever Read About a Guy and His Boring Startup (LINK)

The Great Unwatched (LINK)

George Cooper: Are we Darwinian Competitors or Classical Optimizers? (LINK)

Parasite of the Day: Ballocephala sphaerospora (LINK)

Wednesday, August 6, 2014


Some Seth Klarman links from csinvesting (LINK)

Nassim Taleb: Some additional Aphorisms, Rules, and Heuristics (LINK)

Ben Hunt: Fear and Loathing on the Marketing Trail (LINK)

Shoppers Are Fleeing Physical Stores (LINK)

Coal Exporters Not Backing Down Despite Supply Glut (LINK)

Rosetta Reaches At Comet 67-P After 10 Years (LINK)

Book to check out, which I believe I saw Dan Pink recommend on Twitter: Powers of Two: Finding the Essence of Innovation in Creative Pairs (it looks similar to Michael Eisner's Working Together: Why Great Partnerships Succeed, which Amazon is currently selling for less than $5).

An important question to think about if you read the books above is--as Peter Bevelin discussed in my interviews with him--Compared to what? Are there not many people/partnerships that have done the same things and failed? As Peter said in our interview:
What is the evidence? Can I disprove it? Compared to what (including negative cases and non-events)? Randomness content? If I believe this, what would follow? What would I have to check out? What ideas can help me? I wrote more about this in part three of my book.

Capital Allocation: Evidence, Analytical Methods, and Assessment Guidance - by Michael Mauboussin and Dan Callahan

  • Capital allocation is a senior management team’s most fundamental responsibility. The problem is that many CEOs don’t know how to allocate capital effectively. The objective of capital allocation is to build long-term value per share.
  • Capital allocation is always important but is especially pertinent today because return on invested capital is high, growth is modest, and corporate balance sheets in the U.S. have substantial cash. 
  • Internal financing represented almost 90 percent of the source of total capital for U.S. companies from 1980-2013. 
  • M&A, capital expenditures, and R&D are the largest uses of capital for operations, and companies now spend more on buybacks than dividends. 
  • This report discusses each use of capital, shows how to analyze that use, reviews the academic findings, and offers a near-term outlook. 
  • We provide a framework for assessing a company’s capital allocation skills, which includes examining past behaviors, understanding incentives, and considering the five principles of capital allocation. 

Charlie Munger on uncommon sense

From Poor Charlie's Almanack:
Organized common (or uncommon) sense--very basic knowledge--is an enormously powerful tool. There are huge dangers with computers. People calculate too much and think too little.

Part of [having uncommon sense] is being able to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don't clutter yourself.

We read a lot. I don't know anyone who's wise who doesn't read a lot. But that's not enough: You have to have a temperament to grab ideas and do sensible things. Most people don't grab the right ideas or don't know what to do with them. 

The more basic knowledge you have, the less new knowledge you have to get.

Tuesday, August 5, 2014


Don Graham Is Not Slowing Down After Sale of The Washington Post [H/T Will] (LINK)

Bruce Berkowitz's Q2 Letter (LINK)

Buffett Waits on Fat Pitch as Cash Hoard Tops $50 Billion (LINK)

New Drilling Largely Driven By Debt (LINK)

What's Wrong With this Chinese Town? [H/T Will] (LINK)

Malcolm Gladwell: "The Cooked Ladder" (LINK)

Books to check out (mentioned by Nassim Taleb in Fooled by Randomness):
Descartes' Error: Emotion, Reason, and the Human Brain
The Emotional Brain: The Mysterious Underpinnings of Emotional Life

Monday, August 4, 2014

Edge: A Conversation with Jonathan Gottschall

I just linked to his book, The Storytelling Animal, over the weekend after I saw Michael Mauboussin recommend it.

Link to: A Conversation with Jonathan Gottschall
We think of stories as a wildly creative art form but within that creativity and that diversity there is a lot of conformity. Stories are very predictable. No matter where you go in the world, no matter how different people seem, no matter how hard their lives are, people tell stories, universally, and universally the stories are more or less like ours: the same basic human obsessions, and the same basic structure. The structure comes down to: stories have a character, the character has a predicament or a problem—they're always problem-focused—and the character tries to solve the problem. In its most basic terms, that's what a story is—a problem solution narrative. 


SimoleonSense: Political Extremism Is Supported by an Illusion of Understanding (LINK)

Tim Ferriss interviews Dan Carlin, from the Hardcore History podcast (LINK)

Books recommended by Prof. Sanjay Bakshi (LINK)

Some wisdom from Sanjay Bakshi via Twitter (LINK)

2004 Interview With Peter Bernstein (LINK)

Global Stock Market Valuation and Historical Real Returns Image Gallery (LINK)

Russ Roberts speaks with LinkedIn's Reid Hoffman and Ben Casnocha (LINK)
Related book: The Alliance: Managing Talent in the Networked Age
Fairfax Financial Under Investigation for Alleged Insider Trading (LINK)

A Response to Lowenstein’s Searching for Rational Investors In a Perfect Storm - by Seth Klarman

This is from 2005. I saw it several years ago, but it's making it's rounds again, so in case you haven't read it yet, a link is below. Lowenstein's paper is HERE.

[H/T Santangel's Review]

Hussman Weekly Market Comment: A Hint of Advance Warning

Link to: A Hint of Advance Warning 
The key point is this: after an extended and extreme compression of risk premiums, we’re now observing increasing divergences across a variety of market internals and security types (e.g. breadth, leadership, momentum stocks, small caps, junk bonds). We’ve come to avoid pointed warnings in this market, because speculative conditions have extended much longer than in other cycles. Indeed, we’ve had a few deteriorations in recent years that reversed fairly quickly as investors shifted back to risk-seeking, particularly after fresh initiatives or assurances about monetary easing (though further initiatives may not be forthcoming in this instance). So we're open to a favorable shift on these measures, and if that was to occur following a somewhat greater retreat in valuations, it could even open up some amount of constructive opportunity. Meanwhile, despite our view of stocks as severely overvalued, our response is to remain defensive without taking a stance that greatly relies on immediate market weakness. 
An awareness of divergence and uniformity is the bread-and-butter of signal extraction – inferring true information signals from the sea of random noise. We take the present breakdown of market internals seriously. Whatever the crowd wishes to do about it, historically-minded investors should think carefully about whether a strenuously overvalued market with deteriorating market internals is a desirable environment for risk taking. For our part, the answer is a resounding “No.”

Sunday, August 3, 2014

How Do You Get to Carnegie Hall? Talent

Link to article: How Do You Get to Carnegie Hall? Talent
The 8-year-old juggling a soccer ball and the 48-year-old jogging by, with Japanese lessons ringing from her earbuds, have something fundamental in common: At some level, both are wondering whether their investment of time and effort is worth it.

How good can I get? How much time will it take? Is it possible I’m a natural at this (for once)? What’s the percentage in this, exactly?

Scientists have long argued over the relative contributions of practice and native talent to the development of elite performance. This debate swings back and forth every century, it seems, but a paper in the current issue of the journal Psychological Science illustrates where the discussion now stands and hints — more tantalizingly, for people who just want to do their best — at where the research will go next.

The value-of-practice debate has reached a stalemate. In a landmark 1993 study of musicians, a research team led by K. Anders Ericsson, a psychologist now at Florida State University, found that practice time explained almost all the difference (about 80 percent) between elite performers and committed amateurs. The finding rippled quickly through the popular culture, perhaps most visibly as the apparent inspiration for the “10,000-hour rule” in Malcolm Gladwell’s best-selling “Outliers” — a rough average of the amount of practice time required for expert performance.

The new paper, the most comprehensive review of relevant research to date, comes to a different conclusion. Compiling results from 88 studies across a wide range of skills, it estimates that practice time explains about 20 percent to 25 percent of the difference in performance in music, sports and games like chess. In academics, the number is much lower — 4 percent — in part because it’s hard to assess the effect of previous knowledge, the authors wrote.

“We found that, yes, practice is important, and of course it’s absolutely necessary to achieve expertise,” said Zach Hambrick, a psychologist at Michigan State University and a co-author of the paper, with Brooke Macnamara, now at Case Western Reserve University, and Frederick Oswald of Rice University. “But it’s not as important as many people have been saying” compared to inborn gifts.

One of those people, Dr. Ericsson, had by last week already written his critique of the new review. He points out that the paper uses a definition of practice that includes a variety of related activities, including playing music or sports for fun or playing in a group.

But his own studies focused on what he calls deliberate practice: one-on-one lessons in which an instructor pushes a student continually, gives immediate feedback and focuses on weak spots.

“If you throw all these kinds of practice into one big soup, of course you are going to reduce the effect of deliberate practice,” he said in a telephone interview.

Related books:

Outliers: The Story of Success

The Talent Code

Talent is Overrated

The Sports Gene

The Success Equation

Related links:


Dan Coyle and David Epstein on the Bryan Callen show

Related excerpt from the recent Robert Sapolsky interview I posted:
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.

Talks at Google: Erik Brynjolfsson & Andrew McAfee, "The Second Machine Age"

Link to video


Related book: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies


Barry Ritholtz interviews Michael Mauboussin (LINK)
If you haven't watched Mauboussin's Google Talk on his book The Success Equation, I highly recommend it. In the talk, he also recommended the books The Storytelling Animal as well as The Halo Effect.
Daron Acemoglu interviewed on the Bryan Callen podcast (LINK)
Related book: Why Nations Fail
Related previous post:  Nassim Taleb on the book "Why Nations Fail: The Origins of Power, Prosperity, and Poverty"
Creative Destruction and the Future of Media (video) (LINK)

Joel Greenblatt: Small Cap Stocks Priced for A Fall [H/T Will] (LINK)

Hong Kong Buys $2.07 Billion in Week to Defend Currency Peg [H/T Will] (LINK)

David Winters: Coca-Cola's feisty, persistent activist investor is not quitting anytime soon [H/T Will] (LINK)

For Liberty Global, the Next Step Is the Content [H/T Will] (LINK)

What Steve Jobs, Thomas Edison, and Bob Dylan Have In Common (LINK)
Related book: Abundance: The Future Is Better Than You Think

Friday, August 1, 2014

Dhandho Holdings makes acquisition

Mohnish Pabrai's foray into the insurance business...

Link to: Dhandho Holdings To Acquire Louisiana-Based Stonetrust Commercial Mutual Insurance Holding Company And Related Companies
"Stonetrust is a wonderful business with an exceptional management team led by Tim Dietrich. I am excited that Dhandho's first acquisition is Stonetrust," said Mohnish Pabrai, Dhandho's managing partner. Pabrai, a private fund manager with over $850 million in assets under management, has raised over $150 million for the Stonetrust acquisition and the future acquisitions of other companies. Pabrai expects to take Dhandho public within a year.

[H/T Linc]

GR-NEAM Reflections: 07/31/2014 - Leviathans' Debate

Link to: Leviathans' Debate
Even among central bankers, there is sharp divergence of opinion about their responsibility for asset prices. Unfortunately, experience does not seem to be illuminating the discussion.

John Gilbert also recently wrote an article entitled "Flowing into the Cracks" published in the spring issue of Intelligent Insurer magazine, which you can find HERE.