Tuesday, September 30, 2014

James Altucher interviews Scott Adams

I enjoyed listening to the audiobook of How to Fail at Almost Everything and Still Win Big, which Amazon appears to be currently selling for just $3.84, HERE.

Link to: Ep. 47 – Scott Adams, creator of Dilbert: How Failing is the Secret to Success
Scott Adams, creator of the comic strip Dilbert and author of How to Fail at Almost Everything and Still Win Big is my guest this week on The James Altucher Show.

Scott’s story is an inspiration for anyone that feels that they are stuck in their job and don’t know the next step to take. Scott worked in a corporate job for over 25 years before he was able to become a cartoonist full time. Flash forward 10 years and Adam’s cartoon, Dilbert, is syndicated in over 2000 newspapers.

Before Scott was able to succeed, he failed at hundreds of different “good” ideas. But those failures are exactly what led him to his major success.


Shane Parrish highly recommends you take the time to read this interview with Ed Hess (LINK)
Related book: Learn or Die: Using Science to Build a Leading-Edge Learning Organization
John Huber on the Importance of ROIC (Part 4) (LINK)

Paul McCulley's latest: Escape Fandango (LINK)
When I entered the Fed-watching business over three decades ago, a clichéd phrase of advice from graybeards was: “Watch what they do, not what they say.” Thinking back, there was not actually much Fed rhetoric to either watch or hear.
SFI's 2014 Ulam Lectures: Jerry Sabloff on archaeology's lessons for the future (LINK)

And a Nassim Taleb quote from a while back worth re-visiting (he later added "religion without tolerance" to the list):
Muscles without strength, friendship without trust, opinion without risk, change without aesthetics, age without values, food without nourishment, power without fairness, facts without rigor, degrees without erudition, militarism without fortitude, progress without civilization, complication without depth, fluency without content; these are the sins to remember.

Monday, September 29, 2014

Richard Duncan: Why The Fed Will Launch Another Round Of Quantitative Easing

As I've mentioned before, I think Richard Duncan's book The New Depression is one of the few macro-related things worth reading. THIS video interview he did earlier this year also does a great job of going over some of his ideas, for those who want a shorter version. 

And as further prelude to the macro-related article below, here's what I had previously written in another post about Duncan's book:
Richard Duncan's book, The New Depression, is one of the best things I've read when it comes to taking a complex topic and simplifying it down to its key variables. His explanation of the role credit plays in our economic world today is the best I've seen so far. And like most people who follow Warren Buffett and Charlie Munger closely, I remain skeptical about the ability to forecast the macro economy with any consistency. Richard has been pretty good so far in his predictions, but I pay attention to him more to help me understand what's going on in the present and how things work than I do to act on any forecasts about the future.


And for an example of the way I think he's helped me understand some things that may or may not be directly useful to buying cheap stocks, consider the 3 slides below, which are from some of his Macro Watch videos.

The first slide pasted below is a slide where Duncan talked about how the Fed, in the 2004-2006 timeframe, raised interest rates but couldn't get the market rates to rise by nearly as much as they had wanted. Alan Greenspan called it a "conundrum" at the time.

The second slide pasted below essentially explains the reason for the "conundrum," at least according to Duncan. The current account deficit had grown increasingly large from 1996-2008, and exceeded the budget deficit by quite a bit. Foreign central banks (especially China) generally purchased U.S. assets with the U.S. dollars they received from running trade surpluses with the U.S. so that they could keep the value of their currencies down. When there weren't enough new U.S. treasuries being issued because the budget deficit was lower than the current account deficit in the U.S., those foreign central banks had to purchase other things, which in general were previously issued  U.S. government debt or those of Fannie, Freddie and private issuers of asset backed securities, as can be seen in the third slide below.


In Poor Charlie's Almanack, one of his checklist items is to "Always beware of inflation and interest rate exposures." What Duncan's work has helped me realize is just how complex and how many moving parts there really are that can affect inflation, interest rates and other macro outcomes, and that even those at the top of the world's central banks can have a hard time figuring out what their actions will lead to. 

And getting back to QE, if you look at the second slide above, you see that the budget deficit exploded above the current account deficit when the Great Financial Crisis hit. That is where QE came in and without it, interest rates likely would have moved much higher as there wouldn't have been enough demand for the onslaught of supply of U.S. government bonds without Fed purchases.

One more point that is useful for me is that I try to be as objective and humble as possible when looking at all of this stuff. It is interesting to learn, but also important not to form too strong an opinion on whether certain past actions were right or wrong, and especially important not to use what one learns to forecast what one thinks will happen in an unpredictable future. I think the key is to use knowledge gained to try and think about and identify risk, not forecast. In short, be a risk-identifier, not a forecaster.


60 Minutes: Segments with President Obama and Jack Ma (LINK)

Michael Lewis thinks the secret recordings of conversations between the Fed and Goldman are a big deal (LINK)

Jason Zweig: Should Investors Chase After Bill Gross Again? (LINK)

Cook & Bynum Q2 Letter (LINK)

Hussman Weekly Market Comment: The Ingredients of a Market Crash (LINK)
The most hostile subset of market conditions we identify couples overvalued, overbought, overbullish extremes with a breakdown in market action: deterioration of breadth, leadership and other market internals, along with a shift toward greater dispersion and weakening price cointegration across individual stocks, sectors and security types (what we sometimes call “trend uniformity”). The outcomes are particularly negative, on average, when that shift is joined by a widening of credit spreads. That’s a shift we observed in October 2000. It’s a shift we observed in July 2007. It’s a shift that we observe today. 

Present market conditions comprise an environment where risk-premiums are thin and are being pressed higher... The current shift does not ensure that the market will decline over the short-term, nor that it will crash in this instance. It’s also worth noting that we don’t rely on a crash, and that we can certainly allow for the possibility that valuations and market internals will improve in a way that reduces or relieves our concerns without severe market losses. 

Still, what we are concerned about here and now is the steeply negative average behavior of the market in historical periods that match present conditions, as well as the decided skew of that probability distribution, which features extreme negative observations far more often than would be expected under a “normal” bell-shaped distribution. Interestingly, the 3-day average implied skew embedded in S&P 500 index option prices surged last week to the highest level on record. The potential for a “fat-tail” event should be taken seriously here.
Brain Pickings: Sam Harris on the Paradox of Meditation and How to Stretch Our Capacity for Everyday Self-Transcendence (LINK)
Related book: Waking Up
The Stoicism Today blog has put a book together, which looks like a collection of past articles: Stoicism Today: Selected Writings 

Friday, September 26, 2014

More notes from the Daily Journal Annual Meeting (four parts)

Link to: Part 1 - Charlie Munger And The 2014 Daily Journal Annual Meeting: A Fan's Notes

Link to: Part 2 - Charlie Munger And The 2014 Daily Journal Annual Meeting: A Fan's Notes

Link to: Part 3 - Charlie Munger And The 2014 Daily Journal Annual Meeting: A Fan's Notes

Link to: Part 4 - Charlie Munger And The 2014 Daily Journal Annual Meeting: A Fan's Notes


Related previous posts:

Shane Parrish's 2014 Daily Journal Meeting Notes

Charlie Munger on the balance between competency and gumption...

[H/T Will]

Howard Marks quote

From The Most Important Thing:
In the short run, a great deal of investment success can result from just being in the right place at the right time. I always say the keys to profit are aggressiveness, timing and skill, and someone who has enough aggressiveness at the right time doesn't need much skill. 
At a given time in the markets, the most profitable traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists—because of the nature of randomness. 
The easy way to see this is that in boom times, the highest returns often go to those who take the most risk. That doesn't say anything about their being the best investors.

Thursday, September 25, 2014


Michael Lewis: Occupational Hazards of Working on Wall Street (LINK)
Anyone who works in finance will sense, at least at first, the pressure to pretend to know more than he does. 
It’s not just that people who pick stocks, or predict the future price of oil and gold, or select targets for corporate acquisitions, or persuade happy, well-run private companies to go public don’t know what they are talking about: what they pretend to know is unknowable. Much of what Wall Street sells is less like engineering than like a forecasting service for a coin-flipping contest -- except that no one mistakes a coin-flipping contest for a game of skill. To succeed in this environment you must believe, or at least pretend to believe, that you are an expert in matters where no expertise is possible. I’m not sure it’s any easier to be a total fraud on Wall Street than in any other occupation, but on Wall Street you will be paid a lot more to forget your uneasy feelings.
Bank of Japan emerging as big Japanese stock buyer [H/T Will] (LINK)
The BOJ tends to make 10 billion yen to 20 billion yen worth of purchases when stock prices fall in the morning. The bank has not made any purchases so far in September because the market has been rallying.
Irrational Exuberance Down Under [H/T Will] (LINK)
Related book: Australia: Boom to Bust: The Great Australian Credit & Property Bubble 
Demystifying Venture Capital Economics [H/T @trengriffin] (Part 1, Part 2)
Related book: The Lean Startup
Anthony Bourdain Has Become The Future Of Cable News, And He Couldn't Care Less [H/T @trengriffin] (LINK)

Mark Buchanan: Is the Internet messing up our economies? (LINK)
I just published a short essay reviewing the amazing book Who Owns the Future? by Jaron Lanier. It is published as part of a new business collection over at Medium.com, where I'll be writing with a number of other business and finance writers. First two paragraphs below. I really encourage everyone to buy and read this book. It's changed my entire perspective on the Internet and how it is affecting our economic lives:

Wednesday, September 24, 2014

James Altucher interviews Nassim Taleb

Link to: Ep. 45 Nassim Taleb: Why You Should Embrace Uncertainty
This week, Nassim Taleb, author of Antifragile: Things That Gain from Disorder, joins The James Altucher Show to talk about technology and how different systems handle disorder. 
Just as humans evolve, technology is constantly being upgraded and replaced with new concepts and ideas. 
Today, we use technology in almost every aspect of your lives. But do we really understand the advantages and disadvantages to constantly being computerized? 
In Nassim's book, The Black Swan, he highlighted for readers the unusual and unpredictable events that underlie almost everything about our world. Now with his book, Antifragile, readers are presented with why we should embrace these uncertainties.


The Manual of Ideas' interview with Arnold Van Den Berg (LINK)

Joel Greenblatt on CNBC (LINK)

Kyle Bass on CNBC (Euro (1:45), Housing, Japan)

Andrew Smithers: ‘True’ and published profits: part two (LINK)

The Winner's Curse: Hyundai pays $10.19 billion for trophy property [H/T @jasonzweigwsj] (LINK)

Dan Ariely: My attempts to reduce email overload (LINK)

Book to check out, which was recommended by Mohnish Pabrai in the past and also mentioned by Guy Spier in his book: Power vs. Force - by David Hawkins

Dan Gilbert interviews Warren Buffett

Link to video - Part 1


Link to video - Part 2

Tuesday, September 23, 2014


Peter Thiel on Charlie Rose (at about the 15-minute mark) [David Feherty is always an interesting interview as well if you're interested in golf.] (LINK)
Related book: Zero to One
Frank Martin's latest letter (LINK)

From the archive: Warren Buffett on Wells Fargo on March 26, 2009 [H/T Matt] (LINK)

Dangers Aside, Railways Reshape Crude Market [H/T Will] (LINK)

The Invention of Professor Dr. Anthony Nobles (LINK)

The Yahoo Negative Stub, and Are There Other Stubs in Asia? (LINK)

Chart of the Day via Chris Pavese (LINK)

Yellowstone Supervolcano Blast Simulation (LINK)

Asness, Bogle on Investment Strategy, Pension Funds

Link to video: Asness, Bogle on Investment Strategy, Pension Funds
Sept. 22 (Bloomberg) -- Clifford Asness, managing and founding principal of AQR Capital Management, and John C. Bogle, founder of Vanguard Group Inc., talk about investment strategy, fund management and the outlook for pension funds. Bloomberg's Tom Keene moderates the discussion at the Bloomberg Markets Most Influential Summit in New York.

Related books:

The Little Book of Common Sense Investing

The Clash of the Cultures: Investment vs. Speculation

Common Sense on Mutual Funds

Enough: True Measures of Money, Business, and Life

Monday, September 22, 2014

Guy Spier: The Education of a Value Investor - Authors@Google

Link to video


Related book: The Education of a Value Investor

Leon Cooperman, Howard Marks on Investment Strategy

Link to video: Leon Cooperman, Howard Marks on Investment Strategy
Sept. 22 (Bloomberg) -- Leon Cooperman, chairman and chief executive officer Omega Advisors Inc., and Howard Marks, chairman and co-founder of Oaktree Capital Management, talk about investment strategy and the outlook for financial markets. Bloomberg's Stephanie Ruhle moderates the discussion at the Bloomberg Markets Most Influential Summit in New York.

Related Howard Marks quote from his most recent memo:
It's the job of investors to strike a proper balance between offense and defense, and between worrying about losing money and worrying about missing opportunity.Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain. For the last three years Oaktree's mantra has been "move forward, but with caution." At this time, in reiterating that mantra, I would increase the emphasis on those last three words: "but with caution." 
Economic and company fundamentals in the U.S. are fine today, and asset prices – while full – don't seem to be at bubble levels. But when undemanding capital markets and a low level of risk aversion combine to encourage investors to engage in risky practices, something usually goes wrong eventually. Although I have no idea what could make the day of reckoning come sooner rather than later, I don't think it's too early to take today's carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium. We have to behave accordingly.

Persuasion guru Robert Cialdini’s advice for time-pressed executives

Link to article: Persuasion guru Robert Cialdini’s advice for time-pressed executives
Robert Cialdini has a modest proposal. He would like businesses to carve out a new role of chief persuasion officer – or CPO for short. 
There is self-interest at play here. After all, Professor Cialdini is a persuasion expert and exponent of “persuasion science”. Thirty years ago, the psychologist established his credentials when he published the best-seller Influence: The Psychology of Persuasion and became known as the “godfather of influence”. As well as his academic work – today Prof Cialdini is Regents’ Professor Emeritus of Psychology and Marketing at Arizona State University – he has sold his expertise to the likes of Google, Merrill Lynch and Nato. 
He says “persuasion science” – which draws on psychology, neuroscience and behavioural economics – should be deployed in a systematic way. Too often its use is higgledy-piggledy and rarely based on “properly controlled, soundly conducted research” . Which is why Prof Cialdini believes that rather than leave decisions on influencing customers and employees to marketers or human resource executives, they should collaborate with expert chief persuasion officers. 
Now, with co-authors Steve Martin and Noah Goldstein, Prof Cialdini has published another book, The Small Big: small changes that spark big influence. As the name suggests it is about the little things business, policy makers and individuals can do to make a difference.

Related books: 

Related previous post: The mistake of consistency


Broyhill on valuation, market cycles, and more (LINK)

Supply and Demand: Untangling the Market’s Greatest Mystery (LINK)

Jason Zweig: The Rise of Ultracheap Financial Advisers (LINK)

Bloomberg, Dalio Discuss Business Strategies (video) [H/T ValueWalk] (LINK)
Sept. 22 (Bloomberg) -- Michael Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies, and Ray Dalio, founder of Bridgewater Associates LP, talk about their business strategies and careers. Bloomberg's Stephanie Ruhle moderates the discussion at the Bloomberg Markets Most Influential Summit in New York. Bloomberg is also majority owner of Bloomberg LP, the parent company of Bloomberg News, and former mayor of New York City.
Puerto Rico Pours On Tax Incentives For Investors [This is an older article, but Mohnish Pabrai mentioned at his annual meeting this weekend that he's setting up his insurance acquisition and investment vehicle, Dhandho Holdings, in Puerto Rico, largely because it will only have to pay 4% tax on investment income, so I thought it might be worth looking into.] (LINK)

Thomas Pritzker: multifaceted Hyatt chairman (LINK)

A Dozen Things Learned from Henry Ellenbogen (LINK)

Tim Harford: Crushing the competition – at any price (LINK)
Related book: The Everything Store: Jeff Bezos and the Age of Amazon
Tim Harford: How to see into the future (LINK)
Related book: The Undercover Economist Strikes Back
60 Minutes started its new season last night (LINK)
Scott Pelley reports from the front lines in the fight against ISIS in northern Iraq, and con artists have been filing bogus tax returns and collecting millions. Steve Kroft finds out how far the scam has gone and why the IRS hasn't been able to stop it.
Robert Sapolsky: Dude, Where’s My Frontal Cortex? (LINK)
Related previous post: Robert Sapolsky interview with Nautilus
The Brain That Changes Itself (LINK)
Related book: The Brain That Changes Itself
Hussman Weekly Market Comment: The Ponzi Economy (LINK)
The central point is this. The U.S. economy has shifted course from one of productive capital accumulation to a reliance on continuous expansion of debt in excess of the economic ability to repay it. Call this the Ponzi Economy. 
The U.S. Ponzi Economy is one where domestic workers are underemployed and consume beyond their means; household and government debt make up the shortfall; corporate profits expand to a record share of GDP as revenues are sustained by household and government deficits; local employment is replaced by outsourced goods and labor; companies refrain from productive investment, accumulate the debt of other companies and issue new debt of their own, primarily to repurchase their own shares at escalating valuations; our trading partners (particularly China and Japan) become our largest creditors and accumulate trillions of dollars of claims that can effectively be traded for U.S. property and future output; Fed policy encourages the yield-seeking diversion of scarce savings toward speculation in risky securities; and as with every Ponzi scheme, everyone is happy as long as nobody seeks to be repaid.

Saturday, September 20, 2014

Marcus Aurelius quote

From Meditations:
Discard your misperceptions.
Stop being jerked like a puppet.
Limit yourself to the present.
Understand what happens—to you, to others.
Analyze what exists, break it all down: material and cause.
Anticipate your final hours.
Other people’s mistakes? Leave them to their makers.

Friday, September 19, 2014


Revisiting Berkshire Hathaway’s Valuation (LINK)

This Man's Job: Make Bill Gates Richer (LINK)

Mohnish Pabrai - Pan IIT Canada June 2014 (video) [H/T ValueWalk] (LINK)

Want to Learn Charlie Munger’s Way of Thinking? (LINK)
Related link: Creative Whack Pack
Andrew Smithers: “True” profits and published profits (LINK)

E.O. Wilson: Ants Are Cool but Teach Us Nothing (LINK)

Buffett, Blankfein, Bloomberg, Snyder: Small Businesses

Link to video: Buffett, Blankfein, Bloomberg, Snyder: Small Businesses
Sept. 18 (Bloomberg) – Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., Michael Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies, and Michigan Governor Rick Snyder talk about efforts to bolster small businesses, the future of Detroit, the U.S. economy and the financial industry. They speak with Erik Schatzker on Bloomberg Television's "In the Loop." Bloomberg is also majority owner of Bloomberg LP, the parent company of Bloomberg News, and former mayor of New York City.

Thursday, September 18, 2014

Howard Marks quote

From The Most Important Thing:
The investment world is not an orderly and logical place where the future can be predicted and specific actions always produce specific results. The truth is, much in investing is ruled by luck. Some may prefer to call it chance or randomness, and those words do sound more sophisticated than luck. But it comes down to the same thing: a great deal of the success of everything we do as investors will be heavily influenced by the roll of the dice. 
To fully explore the notion of luck, in this chapter I want to advance some ideas expressed by Nassim Nicholas Taleb in his book Fooled by Randomness. Some of the concepts I explore here occurred to me before I read it, but Taleb’s book put it all together for me and added more. I consider it one of the most important books an investor can read.

Related book: Fooled by Randomness

Wednesday, September 17, 2014

The wrath of Warren Buffett: How Benjamin Moore almost broke his promise

Link to: The wrath of Warren Buffett: How Benjamin Moore almost broke his promise
Turmoil roiled Benjamin Moore, a paint company owned by Berkshire Hathaway, after it decided to break a pledge Warren Buffett made to Moore’s dealers. How did it happen—and how did the Oracle of Omaha respond? A case study in pluses (and occasional minuses) of being owned by Berkshire.

The part of the article reminded me a lot of what some of the luxury-type brands have done by opening outlet stores (emphasis mine):
Buffett offers a historical analogy: “If you go back to the mid-1930s, Packard was an aspirational auto brand. It was above Cadillac. Around 1936 they came out with a considerably lower-priced model. It did wonders for them immediately, but they destroyed the brand over time. If you’re a high-end brand, you can always pick up a lot of sales by dropping down. I’m not saying that’s what Valspar does; they probably have a bunch of different brands that are doing that. But it would be a big mistake for Benjamin Moore to try and take the Benjamin Moore name downscale and have a cheaper paint.”

[H/T Matt]

Shane Parrish's 2014 Daily Journal Meeting Notes

Shane Parrish has finished his extensive notes from the 2014 Daily Journal Meeting. Shane is charging $32 Canadian (about $30 U.S.) for them. And while there are free notes from the meeting out there, these will be the best by a long shot.

And it’s also a way to show your appreciation for the work Shane has done, not just on the notes, but also on Farnam Street. It’s always nice when someone leaves me a tip in the TIP JAR showing their appreciation for this blog, or uses the Amazon link on my site to make an Amazon purchase (which doesn’t cost the buyer anything extra), and here’s a way to both learn a little extra from Charlie Munger as well as show Shane appreciation for all of his work. I’ve already ordered my copy.


Part 2 of Charlie Rose's interview with Tim Cook [Part 1 is HERE] (LINK)

Aswath Damodaran on Alibaba's Corporate Governance (LINK)

Jason Zweig: If You Buy Alibaba, Be Ready for a Rough Ride (LINK)

James Altucher interviews Peter Thiel (LINK)
Related book: Zero to One
Tobias Carlisle: 3 takeover targets for risk-seeking investors (LINK)
Related book: Deep Value
Audio: An Overview of Stoic Ethics by John Sellars (LINK)
Related previous post: Stoicism quotes, thoughts, and readings

Tuesday, September 16, 2014


Tim Ferriss interviews Brendan Moynihan, co-author of What I Learned Losing a Million Dollars (LINK)

Oaktree Is Said to Seek $10 Billion for Distressed Fund (LINK)
“Credit standards have dropped and non-investment grade debt issuances reached record levels,” John Frank, Oaktree’s managing principal, said July 31 on a conference call with investors and analysts. “Aggressive extensions of credit of the sort we’re seeing today have always been a precursor to a substantial distressed-debt opportunity.”
Century bond surge defies rate fears [H/T Will] (LINK)
Investors are seizing the chance to lend money to US companies and municipalities for up to 100 years in exchange for a chance to capture higher yields for longer. 
Sales of the so-called ultra long bonds, those maturing in 50 years or longer, have exploded this year despite expectations of higher US bond yields, which may hit long-dated corporate and municipal debt. 
Cleveland Clinic, the Ohio-based medical and research centre giant, became on Thursday the first not-for-profit healthcare company to sell 100-year bonds....Cleveland Clinic completed the sale of $400m in securities maturing in 2114, with yields of about 4.85 per cent, compared with 3.27 per cent for the US 30-year note, according to people familiar with the sale.
Venture Capitalist Sounds Alarm on Silicon Valley Risk (LINK)

What Shane Parrish learned from Peter Thiel's Zero to One (LINK)
I also posted these quotes from Thiel's book on Twitter earlier this morning that may be of interest:
  • "You should focus relentlessly on something you're good at doing, but before that you must think hard about whether it will be valuable in the future."
  • "...you can't trust a world that denies the power law to accurately frame your decisions for you, so what's important is rarely obvious."
And if you follow this blog in an RSS reader, you may have missed the Ben Franklin stuff I added later in the day to yesterday's links, which you may want to check out.

Monday, September 15, 2014


Jim Grant's Three Part Interview With The Epoch Times (LINK)

Peter Thiel Op-Ed: Competition Is for Losers (LINK)
Related book: Zero to One
Woman of 24 found to have no cerebellum in her brain [H/T James] (LINK)

An important book worth checking out, which I believe is mentioned somewhere in Poor Charlie's Almanack and also by Robert Shiller in his (also important) article I linked to the other day: The Moral Consequences of Economic Growth - by Benjamin M. Friedman

Learning From Benjamin Franklin (LINK)
Related books: A Benjamin Franklin Reader, Benjamin Franklin, Benjamin Franklin: An American LifePoor Richard's AlmanackThe Way to Wealth: to which is added: The Whistle & The Advantages of Drunkenness
Related previous posts: Ben Franklin - 3 Essays - The Ephemera; The Whistle; Franklin and the GoutBen Franklin and the JuntoBen Franklin on Humility (and some crafty advice on persuasion)Ben Franklin's 13 Virtues
"I have always thought that one man of tolerable abilities may work great changes, and accomplish great affairs among mankind if he first forms a good plan and, cutting off all amusements or other employments that would divert his attention, makes the execution of that same plan his sole study and business." -Ben Franklin

Hussman Weekly Market Comment: A Warning from Graham and Dodd

“During the latter stage of the bull market culminating in 1929, the public acquired a completely different attitude towards the investment merits of common stocks… Why did the investing public turn its attention from dividends, from asset values, and from average earnings to transfer it almost exclusively to the earnings trend, i.e. to the changes in earnings expected in the future? The answer was, first, that the records of the past were proving an undependable guide to investment; and, second, that the rewards offered by the future had become irresistibly alluring. 
“Along with this idea as to what constituted the basis for common-stock selection emerged a companion theory that common stocks represented the most profitable and therefore the most desirable media for long-term investment. This gospel was based on a certain amount of research, showing that diversified lists of common stocks had regularly increased in value over stated intervals of time for many years past. 
“These statements sound innocent and plausible. Yet they concealed two theoretical weaknesses that could and did result in untold mischief. The first of these defects was that they abolished the fundamental distinctions between investment and speculation. The second was that they ignored the price of a stock in determining whether or not it was a desirable purchase. 
“The notion that the desirability of a common stock was entirely independent of its price seems incredibly absurd. Yet the new-era theory led directly to this thesis… An alluring corollary of this principle was that making money in the stock market was now the easiest thing in the world. It was only necessary to buy ‘good’ stocks, regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic.” 
Benjamin Graham & David L. Dodd, Security Analysis, 1934

Sunday, September 14, 2014


Charlie Rose interviews Tim Cook (LINK)

How lunch with Warren Buffett changed Guy Spier's life (LINK)
Related book: The Education of a Value Investor
Horizon Kinetics: September 2014 Commentary (LINK)

Audit Interview: Carol J. Loomis [H/T The Big Picture] (LINK)

How the WordPress Machine Works [H/T The Big Picture] (LINK)

From White Knight to Thief (LINK)

Book worth checking out: Broca's Brain: Reflections on the Romance of Science by Carl Sagan

Friday, September 12, 2014

Charlie Munger on the balance between competency and gumption...

A quote from Jason Zweig's article, "A Fireside Chat With Charlie Munger," worth a post of its own:
You have to strike the right balance between competency or knowledge on the one hand and gumption on the other. Too much competency and no gumption is no good. And if you don’t know your circle of competence, then too much gumption will get you killed. But the more you know the limits to your knowledge, the more valuable gumption is.

Jason Zweig also put it this way in his other article on the meeting, "The Secrets of Berkshire’s Success: An Interview with Charlie Munger":
Successful investing, Mr. Munger told me, requires “this crazy combination of gumption and patience, and then being ready to pounce when the opportunity presents itself, because in this world opportunities just don’t last very long.”

Jason Zweig: A Fireside Chat With Charlie Munger

Link to: A Fireside Chat With Charlie Munger
I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to Warren — who discovered him at such a young age and then went to work for him — Ben Graham’s insights changed his whole life, and he spent much of his early years worshiping the master at close range. But I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.

I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks [companies with limited potential growth selling at a fraction of what they would be worth in a takeover or liquidation] was a snare and a delusion, and it would never work with the kinds of sums of money we have. You can’t do it with billions of dollars or even many millions of dollars. But he was a very good writer and a very good teacher and a brilliant man, one of the only intellectuals – probably the only intellectual — in the investing business at the time.


Confucius said that real knowledge is knowing the extent of one’s ignorance. Aristotle and Socrates said the same thing. Is it a skill that can be taught or learned? It probably can, if you have enough of a stake riding on the outcome. Some people are extraordinarily good at knowing the limits of their knowledge, because they have to be. Think of somebody who’s been a professional tightrope walker for 20 years – and has survived. He couldn’t survive as a tightrope walker for 20 years unless he knows exactly what he knows and what he doesn’t know. He’s worked so hard at it, because he knows if he gets it wrong he won’t survive. The survivors know.

Knowing what you don’t know is more useful than being brilliant.


On how innovative Berkshire Hathaway has been:

There isn’t one novel thought in all of how Berkshire is run. It’s all about what [Mr. Munger’s friend] Peter [Kaufman] calls ‘exploiting unrecognized simplicities.’ We [Messrs. Buffett and Munger, their shareholders and the companies they have acquired] have selected one another. It’s a community of like-minded people, and that makes most decisions into no-brainers. Warren and I aren’t prodigies. We can’t play chess blindfolded or be concert pianists. But the results are prodigious, because we have a temperamental advantage that more than compensates for a lack of IQ points.

Nobody has a zero incidence of bad news coming to them too late, but that’s really low at Berkshire. Warren likes to say, ‘Just tell us the bad news, the good news can wait.’ So people trust us in that, and that helps prevent mistakes from escalating into disasters. When you’re not managing for quarterly earnings and you’re managing only for the long pull, you don’t give a damn what the next quarter’s earnings look like.


Jason Zweig - The Secrets of Berkshire’s Success: An Interview with Charlie Munger (LINK)

Some more notes from the Daily Journal Meeting (LINK)

TED Talk - Hans and Ola Rosling: How not to be ignorant about the world (LINK)

Robert Shiller: Parallels to 1937 (LINK)

Deutsche Bank Just Released A 104-Page Report On What May Be The World's Last Mega-Bubble [I'd love to see the report if anyone happens to have it and be able to pass it along to me.] (LINK)

Third Avenue Funds 3Q 2014 Shareholder Letters [H/T ValueWalk] (LINK)

Excerpt from the Baupost 2004 letter that is just as relevant and wise today (LINK)

George Cooper: Monetary Reform – Be Careful what you aim for (LINK)
Related books: Money, Blood and Revolution, The Origin of Financial Crises

Shortening product lives...

From Capital Account (this excerpt was written in September of 1994):
..shortening product lives are rarely caught by reported earnings. Indeed, the appearance of rising profits from a new product may be more than offset by a reduced product life. Technology investors in the early 1980s paid dearly to learn this lesson.

Thursday, September 11, 2014


Jason Zweig on Charlie Munger's comments at the Daily Journal Annual Meeting (LINK)

Bloomberg on Charlie Munger's comments at the Daily Journal Annual Meeting (LINK)

Guy Spier on Bloomberg TV discussing his book The Education of a Value Investor (H/T ValueWalk) (LINK)

Christopher Begg On Mispricing, Finding Superior Business (LINK)

George Soros: Britain needs greater unity not a messy break-up (LINK)

Sal Khan - The Learning Myth: Why I'll Never Tell My Son He's Smart (LINK)

How Do They Get Caffeine Out of Coffee Beans? (LINK)

Fossils push back origins of modern mammals (LINK)

Wednesday, September 10, 2014

Seth Klarman Q2 letter excerpts

Via ValueWalk:
Our team is continually improving at knowing where to look  for opportunity. Our analysts are doing some really creative work thinking about structural changes in some companies and industries, which has led to several new public equity investments. Pulling threads  on existing stock investments has led to a few others...I view it as a substantial positive that our  team has the background, talent, and drive to source opportunity in new areas of the markets, generally  with very favorable results. I am also pleased that this old dog (your Portfolio Manager) is still open (I’m always cautious but open) to learning a few new tricks. 
With investment bankers and hedge fund executives canvassing Europe today to bet on recovery, you have the increasingly common circumstance of proliferating “opportunity funds,” absent only the investment opportunity. Some clients of hedge funds today are, in a sense, disintermediating themselves, funding new entities to bid higher for the same sort of assets their other, more disciplined managers are already bidding more judiciously for. The discipline problem in this case is not that of the legacy managers; it may just be that of the clients.


For the next week, there are some good non-fiction books available for sale on Audible.com for $4.95 [In the Plex, The Emperor of All Maladies, The Selfish Gene, The Talent Code, Mistakes Were Made (But Not By Me), A. Lincoln, and a couple of others that look good as well.]   (LINK)

Tim Ferriss interviews Peter Thiel (LINK)
Related book: Zero to One 
Thiel also recommends a book by René Girard, the author that has had the biggest influence on him, Things Hidden Since the Foundation of the World.
The Apple Watch Is Steve Jobs’ iPod Launch All Over Again (LINK)

Value Investing Congress 2014: Presentations, Speeches (LINK)

Understand Accounting Fraud in Asia: The Cost Accounting Whale Curve (LINK)

Andrew Smithers: What will bring down US equity prices? (LINK)

Ben Graham quote, and some charts

From The Intelligent Investor:
The investor’s portfolio of common stocks will represent a small cross-section of that immense and formidable institution known as the stock market. Prudence suggests that he have an adequate idea of stock-market history, in terms particularly of the major fluctuations in its price level and of the varying relationships between stock prices as a whole and their earnings and dividends. With this background he may be in a position to form some worthwhile judgment of the attractiveness or dangers of the level of the market as it presents itself at different times.
And some charts showing today's valuations (via Doug Short):

"The Buffett Valuation Indicator"

From last month, but the current numbers would be even slightly higher.

And related to the above, here are a couple of Howard Marks remarks on the market from 2012 and then in his recent memo:

Howard Marks, September 2012:
The outlook certainly isn't so propitious (and assets aren't so cheap) as to call for investing aggressively.  But at the same time, market conditions tell me this isn't a time for hiding under the bed.  'Move forward, but with caution' -- that's my mantra today. The environment is uncertain, but we shouldn't find that paralyzing.
Howard Marks, September 2014:
It's the job of investors to strike a proper balance between offense and defense, and between worrying about losing money and worrying about missing opportunity. Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain. For the last three years Oaktree's mantra has been "move forward, but with caution." At this time, in reiterating that mantra, I would increase the emphasis on those last three words: "but with caution." 
Economic and company fundamentals in the U.S. are fine today, and asset prices – while full – don't seem to be at bubble levels. But when undemanding capital markets and a low level of risk aversion combine to encourage investors to engage in risky practices, something usually goes wrong eventually. Although I have no idea what could make the day of reckoning come sooner rather than later, I don't think it's too early to take today's carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium. We have to behave accordingly.

Guy Spier quote

From The Education of a Value Investor:
The entire pursuit of value investing requires you to see where the crowd is wrong so that you can profit from their misperceptions.

Tuesday, September 9, 2014


The Sunday posts apparently didn't go out to all of those who subscribe by email. If you missed it, I had one slightly longer post about fundamentals, which you can find HERE.

Shane Parrish reviews Guy Spier's The Education of a Value Investor, which was officially released today (LINK)

Chris Mayer: How “Focus Investing” Can Save Your Portfolio (LINK)

Aswath Damodaran revisits his Alibaba valuation (LINK)

a16z Podcast: Everything You Need to Know About Amazon (LINK)

Monday, September 8, 2014


A mental model education (LINK)

Sanjay Bakshi: Why I Still Don’t Like MCX (LINK)

The Jack Ma Way (LINK)

In case you haven't bought your copy yet, Guy Spier's book officially comes out tomorrow (LINK)

Market Cap to GDP: The Buffett Valuation Indicator Update (LINK)

Chris Pavese on the Wall Street talking heads  (LINK)

John Mauldin: Europe Takes the QE Baton (LINK)

Hussman Weekly Market Comment: The Two Pillars of Full-Cycle Investing (LINK)
On any given trading day, only a fraction of 1% of total market capitalization changes hands, and the vast majority of that is high-frequency trading and portfolio reallocation between existing equity holders. Think about it – the only way for an investor to get out of stocks without someone else getting in is for the stock to be literally removed from the market. That source of net removal of stock is corporate repurchase activity, which recently hit a year-over-year pace of about $500 billion. That’s still less than 4% of total market cap in an entire year, and it’s a fairly good upper limit on the percentage of investors who will successfully get out of this bubble without the appearance of a miraculous multitude of greater fools at the very moment existing holders decide to sell. 
Notably, the heaviest repurchase activity is associated with market peaks – repurchases actually dwindle at market lows. As our friend Albert Edwards across the pond in England points out, corporate cash flow alone is not enough to finance buybacks and other corporate expenditures, so buybacks are instead typically funded primarily through debt issuance.
Last week, Investors Intelligence reported that the percentage of bearish advisors has dropped to a 27-year low of 13.3%, a level last seen in 1987 a few months prior to the market crash of that year. 

So Bill Gates Has This Idea for a History Class

In 2008, shortly after Bill Gates stepped down from his executive role at Microsoft, he often awoke in his 66,000-square-foot home on the eastern bank of Lake Washington and walked downstairs to his private gym in a baggy T-shirt, shorts, sneakers and black socks yanked up to the midcalf. Then, during an hour on the treadmill, Gates, a self-described nerd, would pass the time by watching DVDs from the Teaching Company’s “Great Courses” series. On some mornings, he would learn about geology or meteorology; on others, it would be oceanography or U.S. history. 
As Gates was working his way through the series, he stumbled upon a set of DVDs titled “Big History” — an unusual college course taught by a jovial, gesticulating professor from Australia named David Christian. Unlike the previous DVDs, “Big History” did not confine itself to any particular topic, or even to a single academic discipline. Instead, it put forward a synthesis of history, biology, chemistry, astronomy and other disparate fields, which Christian wove together into nothing less than a unifying narrative of life on earth. Standing inside a small “Mr. Rogers"-style set, flanked by an imitation ivy-covered brick wall, Christian explained to the camera that he was influenced by the Annales School, a group of early-20th-century French historians who insisted that history be explored on multiple scales of time and space. Christian had subsequently divided the history of the world into eight separate “thresholds,” beginning with the Big Bang, 13 billion years ago (Threshold 1), moving through to the origin of Homo sapiens (Threshold 6), the appearance of agriculture (Threshold 7) and, finally, the forces that gave birth to our modern world (Threshold 8). 
Christian’s aim was not to offer discrete accounts of each period so much as to integrate them all into vertiginous conceptual narratives, sweeping through billions of years in the span of a single semester. A lecture on the Big Bang, for instance, offered a complete history of cosmology, starting with the ancient God-centered view of the universe and proceeding through Ptolemy’s Earth-based model, through the heliocentric versions advanced by thinkers from Copernicus to Galileo and eventually arriving at Hubble’s idea of an expanding universe. In the worldview of “Big History,” a discussion about the formation of stars cannot help including Einstein and the hydrogen bomb; a lesson on the rise of life will find its way to Jane Goodall and Dian Fossey. “I hope by the end of this course, you will also have a much better sense of the underlying unity of modern knowledge,” Christian said at the close of the first lecture. “There is a unified account.” 
As Gates sweated away on his treadmill, he found himself marveling at the class’s ability to connect complex concepts. “I just loved it,” he said. “It was very clarifying for me. I thought, God, everybody should watch this thing!” At the time, the Bill & Melinda Gates Foundation had donated hundreds of millions of dollars to educational initiatives, but many of these were high-level policy projects, like the Common Core Standards Initiative, which the foundation was instrumental in pushing through. And Gates, who had recently decided to become a full-time philanthropist, seemed to pine for a project that was a little more tangible. He was frustrated with the state of interactive coursework and classroom technology since before he dropped out of Harvard in the mid-1970s; he yearned to experiment with entirely new approaches. “I wanted to explore how you did digital things,” he told me. “That was a big issue for me in terms of where education was going — taking my previous skills and applying them to education.” Soon after getting off the treadmill, he asked an assistant to set a meeting with Christian.

Related links:

Big History Project (site)

Big History Project (YouTube videos)

Related previous post: TED Talk - David Christian: Big history

Sunday, September 7, 2014


A big thanks to Jason Zweig for mentioning me and this blog in his article Read ‘Em and Reap: Smart People for Investors to Follow. That recognition from someone I admire--and that I think just about every value investor would put near the top of their list if they made a similar one--led me to get going and put this post together, which had been brewing in my mind for a few days.

I was listening to the Bryan Callen podcast interview with Dan Coyle about his books The Talent Code and The Little Book of Talent and there was an interesting story brought up that I think applies to investing...
I was introduced to this notion [by a] friend of mine who was friends with Wynton Marsalis, the great jazz trumpet virtuoso. And Wynton would talk about the one thing he does that nobody else does [is that] he practices fundamentals for an hour in the morning, just blowing on a reed. Things that nobody wants to do, yet he does the things that he was taught as a kid, where you think you'd have graduated from that sort of practice... And that's what separates him... He would take that hour every morning. In fact, he'd be up talking to his brother late at night and in his mind he'd say, "Man, I'm going to be tired tomorrow," because he knew no matter what, he'd wake up at six in the morning and practice for an hour the thing that nobody else would do.
I think this story provides an important lesson for investors as well. It is easy to fall for a narrative in the market and stray from a sound, long-term investing framework. It is tough beat the market over the long term, and/or to achieve similar returns while taking far less risk, but to me, there are a few advantages that I think are sustainable if you can develop the right habits:
  1. Process - an almost obsessive focus on process over outcome, or in the lingo of Scott Adams, on systems over goals. It's okay to set big picture goals and you need to observe outcomes in order to assess and/or improve your process, but that is a small part of the day-to-day activity of focusing on your process and the things that within your control.
  2. Ego elimination - keeping your ego out of the investing process. If you don't keep your ego out of the process, you are much more likely to fall for the psychological biases that are likely the biggest cause of investment mistakes. You can't worry about looking good. You need to worry about finding out what is true and what is not.
  3. Long-term thinking - keep a long-term outlook when it comes investing and analyzing businesses. There is a lot of noise out there, and being able to clearly focus on making long-term decisions isn't always easy. After psychological mistakes, I think the inability to be patient and look past the short-term is likely the next major cause of investment mistakes, maybe even the biggest cause.
It's important to always keep reaching and keep improving one's knowledge in order to increase skill and expand one's ability. But it's also important not to stray from the fundamental framework that is necessary for sustained success. Personally, I try to do this by building the memory palaces of the most fundamental things, which I discussed in the Memortation article, and by reading or listening to just a little bit of the books that I think are the most important for my philosophy. I do this at least a few times a week, and sometimes every day of a given week.

While a couple of these may change over time, and they will probably be slightly different from person to person, my current list is made up of The Intelligent Investor (with Jason Zweig's commentary), Security Analysis (6th Edition), Warren Buffett's Letters to Shareholders, Poor Charlie's Almanack, Margin of Safety, The Most Important Thing (audiobook), Modern Security Analysis, Competition Demystified, Value Investing (Greenwald), Fooled by Randomness (audiobook), Seeking Wisdom, and Thinking, Fast and Slow (audiobook). I also have a file that I've put together of reminders and thoughts I want to remember over time that is also part of the reading list. And while none of this guarantees success, it can probably help one avoid some errors, and in my experience, greatly improve one's ability to filter out some of the noise in the world.

Can Peers Burn Holes In Your Portfolio? - by Jason Zweig

Link to article: Can Peers Burn Holes In Your Portfolio?
For investors, emotions can be contagious. With U.S. stocks near record highs and European bourses sizzling, now is the time to immunize yourself against the risk that a sudden selloff will infect the markets—and you—with panic.

New research helps explain how financial contagion spreads and how to protect yourself against it.

Paying attention to the right people turns out to be hugely important.

Saturday, September 6, 2014

Graham and Dodd quote

From Security Analysis (and maybe less relevant to a business with a wide moat):
These examples, extreme as they are, suggest rather forcibly that the book value deserves at least a fleeting glance by the public before it buys or sells shares in a business undertaking. In any particular case the message that the book value conveys may well prove to be inconsequential and unworthy of attention. But this testimony should be examined before it is rejected. Let the stock buyer, if he lays any claim to intelligence, at least be able to tell himself, first, what value he is actually setting on the business and, second, what he is actually getting for his money in terms of tangible resources. 
There are indeed certain presumptions in favor of purchases made far below asset value and against those made at a high premium above it. (It is assumed that in the ordinary case the book figures may be accepted as roughly indicative of the actual cash invested in the enterprise.) A business that sells at a premium does so because it earns a large return upon its capital; this large return attracts competition, and, generally speaking, it is not likely to continue indefinitely. Conversely in the case of a business selling at a large discount because of abnormally low earnings. The absence of new competition, the withdrawal of old competition from the field, and other natural economic forces may tend eventually to improve the situation and restore a normal rate of profit on the investment.

Related previous post: Filters