Friday, October 31, 2014

Tony Robbins, The CEO Whisperer

Link to article: Tony Robbins, The CEO Whisperer
Multibillionaire Bridgewater Associates founder Dalio, who manages money exclusively for institutional clients, had some familiarity with Robbins before sitting down for an interview for his book. He had listened to a set of Robbins’ tapes years earlier. But he was captivated by Robbins’ ability to converse with him—what Robbins likes to call “pitching and catching”—at a high level. “I was blown away by him,” says Dalio. “He got the investment concepts we talk about better than many highly professional institutional investors who devote their lives to this subject. And he was able to convert it to a practical level. For me, it was really exciting.” 
For Dalio, who last year released a 30-minute animated video called How the Economic Machine Works, that ability to distill information is particularly compelling. “Sometimes people are wary of simplicity,” he says. “He’s able to see things in a simple but granular way. It’s a talent. I find that it’s a rare case that people have an ability to see things in a simple way and also appreciate the complexity of things. He’s blessed with a mind that allows him to see that way.”

Related book: MONEY Master the Game: 7 Simple Steps to Financial Freedom

Related link: Tim Ferriss interviews Tony Robbins

Walter Isaacson interview with Elon Musk

Link to video


Related book: The Innovators


Howard Marks' comments on Oaktree's call (LINK)

Michael Lewis on Charlie Rose discussing the 25th anniversary edition of Liar’s Poker (LINK)

Walter Isaacson does a reddit AMA [H/T Will] (LINK)
Related book: The Innovators
Jim Grant: Complexity: The Hidden Cost of Central Bank Actions (LINK)

Aswath Damodaran on Amazon (LINK)

Aswath Damodaran on HP (LINK)

The Great Philosophers: Henry David Thoreau (LINK)
Related book: Walden and Civil Disobedience

Thursday, October 30, 2014


Atul Gawande on Charlie Rose discussing his latest book, Being Mortal (LINK)

Talks at Google: Steve J. Martin discussing the book The small BIG: small changes that spark big influence (video) [H/T ValueWalk] (LINK)

Benedict Evans: Mobile Is Eating the World (LINK)

Frank Martin's latest: Why 1925? [H/T Santangel's Review] (LINK)

Jim Grant on Bloomberg (video) [H/T ValueWalk] (LINK)

Andrew Smithers: Fiscal stimulus – is it just a sugar rush? (LINK)

Buffett Pal Gottesman Says Don’t Expect Another Berkshire [H/T Will] (LINK)
Related book: Berkshire Beyond Buffett
Are You Sacrificing Your Health? (LINK)
Related book: The Primal Blueprint
Robert Sapolsky: Given chimps’ murderous tendencies, are we doomed to be violent? (LINK)
Related books (Sapolsky): A Primate's MemoirMonkeyluv: And Other Essays on Our Lives as Animals
Related recent post: Robert Sapolsky interview with Nautilus

Wednesday, October 29, 2014


Larry Cunningham gives a Google Talk on his book Berkshire Beyond Buffett (video) [H/T ValueWalk] (LINK)

Capitalize For Kids Conference Notes (LINK)

This University Teaches You No Skills—Just a New Way to Think (LINK)

Kevin Kelly: The Three Breakthroughs That Have Finally Unleashed AI on the World (LINK)

The Red Cross’ Secret Disaster (LINK)
IN 2012, TWO MASSIVE STORMS pounded the United States, leaving hundreds of thousands of people homeless, hungry or without power for days and weeks. 
Americans did what they so often do after disasters. They sent hundreds of millions of dollars to the Red Cross, confident their money would ease the suffering left behind by Superstorm Sandy and Hurricane Isaac. They believed the charity was up to the job. 
They were wrong. 
The Red Cross botched key elements of its mission after Sandy and Isaac, leaving behind a trail of unmet needs and acrimony, according to an investigation by ProPublica and NPR. The charity’s shortcomings were detailed in confidential reports and internal emails, as well as accounts from current and former disaster relief specialists.
E.O. Wilson on Charlie Rose discussing his book The Meaning of Human Existence (LINK)

Nova: How does the brain work (video) [H/T The Big Picture] (LINK)
Dr. Neal DeGrasse Tyson & NOVA science NOW delve into magic and the brain, artificial intelligence, magnetic mind control, and the work of neuroscientist and synesthesia researcher David Eagleman. Can we really believe our own eyes? Will machines one day think like us? Can magnetic wands effectively control brain functions and treat depression?

Tuesday, October 28, 2014


Graham & Doddsville's Fall 2014 Issue (LINK)
The new issue features Wally Weitz of Weitz Investment Management, Guy Gottfried of Rational Investment Group and the team at Development Capital Partners.  Additionally, you will find pictures from the 2014 “From Graham to Buffett and Beyond” Dinner in Omaha, news about the recently launched 5x5x5 Student Value Investing Fund and two investment ideas from CBS students.
Steven Romick's Q3 Commentary (LINK)

Expeditors' latest investor Q&A (LINK) [Which includes a great Steve Jobs quote: "People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to 1,000 things."]

Tracy Britt Cool named CEO of Berkshire Hathaway owned Pampered Chef (LINK)

Edward Snowden Explains Why He Blew the Whistle on the NSA in Video Interview with Lawrence Lessig (LINK)

The Great Philosophers: Michel de Montaigne (LINK)
Related book: The Complete Essays of Montaigne [Also available as an audiobook via MP3 CD or on Audible, which is one of the things I started listening to while on vacation last week.]
Investing quotes of the day:

Warren Buffett on EBITDA from the 2002 Berkshire Meeting (Source):
It amazes me how widespread the use of EBITDA has become. People try to dress up financial statements with it. 
We won’t buy into companies where someone’s talking about EBITDA. If you look at all companies, and split them into companies that use EBITDA as a metric and those that don’t, I suspect you’ll find a lot more fraud in the former group. Look at companies like Wal-Mart, GE and Microsoft — they’ll never use EBITDA in their annual report. 
People who use EBITDA are either trying to con you or they’re conning themselves.
Charlie Munger on EBITDA:
I think that, every time you see the word EBITDA, you should substitute the words “bullshit earnings.”
Seth Klarman on EBITDA (from Margin of Safety, and previously posted HERE):
It is not clear why investors suddenly came to accept EBITDA as a measure of corporate cash flow. EBIT did not accurately measure the cash flow from a company’s ongoing income stream. Adding back 100% of depreciation and amortization to arrive at EBITDA rendered it even less meaningful. Those who used EBITDA as a cash-flow proxy, for example, either ignored capital expenditures or assumed that businesses would not make any, perhaps believing that plant and equipment do not wear out. In fact, many leveraged takeovers of the 1980s forecast steadily rising cash flows resulting partly from anticipated sharp reductions in capital expenditures. Yet the reality is that if adequate capital expenditures are not made, a corporation is extremely unlikely to enjoy a steadily increasing cash flow and will instead almost certainly face declining results. 
It is not easy to determine the required level of capital expenditures for a given business. Businesses invest in physical plant and equipment for many reasons: to remain in business, to compete, to grow, and to diversify. Expenditures to stay in business and to compete are absolutely necessary. Capital expenditures required for growth are important but not usually essential, while expenditures made for diversification are often not necessary at all. Identifying the necessary expenditures requires intimate knowledge of a company, information typically available only to insiders. Since detailed capital-spending information was not readily available to investors, perhaps they simply chose to disregard it. 
Some analysts and investors adopted the view that it was not necessary to subtract capital expenditures from EBITDA because all the capital expenditures of a business could be financed externally (through lease financing, equipment trusts, nonrecourse debt, etc.). One hundred percent of EBITDA would thus be free pretax cash flow available to service debt; no money would be required for reinvestment in the business. This view was flawed, of course. Leasehold improvements and parts of a machine are not typically financeable for any company. Companies experiencing financial distress, moreover, will have limited access to external financing for any purpose. An over-leveraged company that has spent its depreciation allowances on debt service may be unable to replace worn-out plant and equipment and eventually be forced into bankruptcy or liquidation. 
EBITDA may have been used as a valuation tool because no other valuation method could have justified the high takeover prices prevalent at the time. This would be a clear case of circular reasoning. Without high-priced takeovers there were no upfront investment banking fees, no underwriting fees on new junk-bond issues, and no management fees on junk-bond portfolios. This would not be the first time on Wall Street that the means were adapted to justify an end. If a historically accepted investment yardstick proves to be overly restrictive, the path of least resistance is to invent a new standard.

Monday, October 27, 2014

Nebraska Furniture Mart: A Net-Net and 4x Earnings when Berkshire acquired it?

I had either forgotten this valuation or not paid enough attention to it before, but it is pretty interesting. From the book The Snowball:
The Blumkins had never had an audit, and Buffett did not ask for one. He did not take inventory or look at the detailed accounts. They shook hands. “We gave Mrs. B a check for fifty-five million dollars and she gave us her word,” he said. Her word was as good as “the Bank of England.”
Soon after, Berkshire’s auditors conducted the Nebraska Furniture Mart’s first inventory. The store was worth $85 million. Mrs. B, seized with a severe case of remorse after she had sold it for a total value of $60 million, including the share retained by the family, told Regardie’s magazine, “I wouldn’t go back on my word, but I was surprised…. He never thought a minute [before agreeing to the price], but he studies. I bet you he knew.” Buffett, of course, could not have “known,” not literally. But he had certainly known there was a whopping margin of safety in the price.
And while this is probably a pre-tax number, here was a hint at what NFM was making around that time, which occurred after Mrs. B had left NFM to start a competing business, before eventually selling back to NFM:
Some time earlier, Buffett had created a saying. “I would rather wrestle grizzlies,” he said, “than compete with Mrs. B and her progeny.” Stuck wrestling grizzlies, Buffett acted as he always did when any of his friends’ relationships broke down. He refused to take sides. Mrs. B thought that was disloyal. “Warren Buffett is not my friend,” she told a reporter. “I made him fifteen million dollars every year, and when I disagreed with my grandkids, he didn’t stand up for me.”

UPDATE - 10/28/2014

Thanks to Will who was kind enough to point out a 2014 Annual Meeting response from Buffett on the valuation (Q9 in these notes):

Q9: Station 9, Omaha.  Did you buy the Nebraska Furniture Mart at 85% of book value, or 2x earnings?
WB: I wish we had bought it that cheap.  We paid 11 or 12x p/e for 80% of company, and it was not a discount to book, $60m was the equivalent full purchase price, and there was a second transaction involved.  $60m for 100%, was not a bargain purchase, it was more than book at the time.  It would have been a multiple 11x or 12x pre‐tax.  It had $100m sales, pretax 7% margin, or about 4.5% after tax.  That is ballpark.  It was great business, but it was not a bargain.  It was great opportunity to join with this great family. There was another company from Germany trying to buy it at time.  Erskine Bowles was representing them actually.  On my birthday in 1983, in August, I gave a letter to Mrs. B, and Louis her son told her what was in it.  I asked, did she owe any money, did she own building?  No, and yes she did. 
So there's a little discrepancy between that comment and the above excerpt from The Snowball. I guess it can be reconciled a bit if earnings grew quite a bit from the time of Berkshire's purchase until Mrs. B left, and if the inventory was offset by a large accounts payable balance (given that there was no debt and the building was also owned). 


UPDATE 2 - 10/28/2014

Thanks to Jeff for being less lazy than me and digging through Buffett's letters for the info. I thought they didn't break NFM out until later, but Jeff was kind enough to bring it to my attention. 

It appears that NFM averaged just a bit over $15 million per year pre-tax in the 3 years after Berkshire purchased it in 1983. And given that it still made $3.8 million in the last 3 months of 1983 when Berkshire owned it, NFM probably also made close to $15 million or so in 1983 as well, maybe a bit less. So it does appear that Berkshire did in fact pay about 4-5x pre-tax (and about 8-9x after-tax) for the business.


James Montier: Shareholder Value Maximization: The World's Dumbest Idea? [Montier starts in the video around 5:30] (LINK)

The Apollo Asia Fund's Q3 report (LINK)

Hussman Weekly Market Comment: Fast, Furious and Prone to Failure (LINK)

Jason Zweig: So You Think You’re a Risk-Taker? (LINK)

Bill Ackman and His Hedge Fund, Betting Big [H/T Will] (LINK)

Jim Koch: The Steve Jobs of Beer (LINK)

Jared Diamond talks with The Guardian (LINK)
Related books, HERE.
On the Obsessive Focus of Bill Gates (LINK)
One trait that differentiated [Gates and Allen] was focus. Allen’s mind would flit between many ideas and passions, but Gates was a serial obsessor. 
“Where I was curious to study everything in sight, Bill would focus on one task at a time with total discipline,” said Allen. “You could see it when he programmed. He would sit with a marker clenched in his mouth, tapping his feet and rocking; impervious to distraction.”
Related book: The Innovators
Related previous post: Bill Gates quote from Charlie Rose interview (or, how the world's best companies are built by fanatics)
a16z Podcast: The (Definite) Optimism of Peter Thiel (LINK)
What is Silicon Valley’s greatest reigning monopoly? How did PayPal manage to emerge from the dotcom implosion? Can you build a great tech company and keep it private forever? And how did Elon Musk manage to wreck an uninsured, million-dollar car with Peter Thiel in the passenger seat speeding on the way to a VC meeting? Marc Andreessen and Thiel discuss all of it in a wide-ranging conversation that toggles off the topics in Thiel’s new book “Zero to One.”
Munger Gives $65 Million to U.C. Santa Barbara [H/T Daniel] (LINK)
Charles Munger, the vice chairman at Berkshire Hathaway Inc. (BRK/A), is giving $65 million to the University of California at Santa Barbara for a housing facility where visiting scientists can gather to discuss physics. 
Construction of the three-story residence is expected to be done in two years, the university said in a statement. The gift by Munger, the long-time business partner of Warren Buffett, is the largest single donation in the school’s history, according to the statement. 
“Once you see what a combination of calculus and Newton’s laws will do and the things you can work out, you get an awesome appreciation for the power of getting things in science right,” Munger, 90, said in the statement. “I don’t think you get a feeling for the power of science — not with the same strength — anywhere else than you do in physics.”
What Will Set Warren Buffett’s Company Apart When He’s Gone? (LINK)
Related book: Berkshire Beyond Buffett
Buffett’s Model Not Challenged by IBM Loss (video) [H/T Will] (LINK)
Oct. 21 (Bloomberg) -- Lawrence Cunningham, author of “Berkshire Beyond Buffett,” talks with Betty Liu about how the value lost in IBM impacts the effectiveness of Warren Buffett’s investment plans. He speaks on “In The Loop.”
Talks at Google: John Mihaljevic, "The Manual of Ideas: How to Find the Best Investment Ideas" (video) (LINK)
Related book: The Manual of Ideas: The Proven Framework for Finding the Best Value Investments
Steve Keen: Time for a Copernican Revolution in Economics (LINK)
Related book: Debunking Economics

Profit margins and investor expectations...

From the book Capital Account:
Companies that 'gouge' their customers in order to enhance profits tend to create overly optimistic expectations among investors. For instance, when Philip Morris announced that it was slashing cigarette prices in an attempt to stem market share erosion on 'Marlboro Friday' (April 22, 1993), its share price collapsed. This occasion provided a vivid demonstration of how excessive profit margins, being unsustainable, may actually be more dangerous to investors than modest ones.

Sunday, October 26, 2014

Review of Guy Spier's "The Education of a Value Investor"

A quick review of Guy Spier's excellent book, The Education of a Value Investor, which I just submitted on Amazon as well.
This book is about Guy's personal journey -- the good and the bad. As others have written about the book, he's extremely honest about the path he took to get to where he is today. And while his complete story is still one that is being written, his openness describing his path is what makes this book one that can make just about anyone a better investor. Even if the things that personally work for him don't fit your personality in the same way, he'll make make you think enough about certain things -- especially your environment and the people you surround yourself with -- that I imagine would cause almost anyone, and not just investors, to seriously consider making at least a couple of changes in their lives. 

And while far from strictly being an "investment book" (which makes it more interesting to readers of all types) there is still plenty of investment wisdom, and several things that I'll be adding to my own investing checklist. For example, one of the investing mistakes he discusses was his investment in Tupperware. The "Checklist Item" that may have prevented this investment mistake was "Is this company providing a win-win for its entire ecosystem?" While I already have this on my list as far as being careful of investing in tobacco companies, casinos, or public lottery companies (which he also discusses), I hadn't thought of it as much in regards to a company like Tupperware. It was selling a product that its customers wanted, that they couldn't really get elsewhere, and Tupperware was the market leader. Sounds good, right? But the problem was that they weren't giving their customers a good deal. They were overpricing their merchandise. So while there may be money to be made for a while, especially if you get in early and buy a company like this cheap enough, there is a big competitive risk in the future that isn't easy to see just by looking at the past. How loyal do you think customers are likely to be when someone comes along with essentially the same product at a much better price (especially when it then becomes clear how much customers were being overcharged in the past)? 

I also liked the CarMax example Guy wrote about. It stressed to me the importance of looking at how customers pay for their purchases. There's a big difference between a business whose customers have the money to pay for their products at the time of the transaction and ones that rely on outside creditors to provide their customers access to credit. While CarMax has other advantages of scale that still make it a decent business and allowed it to recover after credit had dried up, there are many other businesses that make a living relying on the credit of others that don't have any competitive advantages and can quickly and unexpectedly have their business models become at risk in the wrong environment. While things may work well if the wrong environment doesn't occur in one's investment horizon, I think the big key from Guy's examples and checklist items is to stick to areas where your odds of success of winning are higher, and areas where you are less likely to encounter unexpected and unfavorable surprises. As Charlie Munger likes to say, "All I want to know is where I'm going to die so that I'll never go there." 

So all in all, I think Guy has written a book very worthy of 5 stars, for investors of all levels of experience, and a book that I think would also be interesting to those outside of the investing world.

Charlie Munger: advice on getting ahead

From Poor Charlie's Almanack:
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts.... Slug it out one inch at a time, day by day. At the end of the day--if you live long enough--most people get what they deserve.

Saturday, October 25, 2014

John Keats on “Negative Capability”

Link to: John Keats on “Negative Capability,” Embracing Uncertainty, and Celebrating the Mysterious
[S]everal things dovetailed in my mind, & at once it struck me, what quality went to form a Man of Achievement especially in Literature & which Shakespeare possessed so enormously — I mean Negative Capability, that is when man is capable of being in uncertainties, Mysteries, doubts, without any irritable reaching after fact & reason — Coleridge, for instance, would let go by a fine isolated verisimilitude caught from the Penetralium of mystery, from being incapable of remaining content with half knowledge. This pursued through Volumes would perhaps take us no further than this, that with a great poet the sense of Beauty overcomes every other consideration, or rather obliterates all consideration.

That quote reminded me both of Nassim Taleb's work, as well as this quote from Richard Feynman:
“I think it's much more interesting to live not knowing than to have answers which might be wrong. I have approximate answers and possible beliefs and different degrees of uncertainty about different things, but I am not absolutely sure of anything and there are many things I don't know anything about, such as whether it means anything to ask why we're here. I don't have to know an answer. I don't feel frightened not knowing things, by being lost in a mysterious universe without any purpose, which is the way it really is as far as I can tell.”

Friday, October 24, 2014

Charlie Munger on the importance of reading

From Poor Charlie's Almanack:
In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time--none, zero. You'd be amazed at how much Warren reads--and at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out.

I am a biography nut myself. And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education. It's way better than just being given the basic concepts.

Peter Cundill quote

From There's Always Something to Do:
I believe that there is probably one opportunity in every man’s life which demands his knowledge, his guts, his self-esteem, and his judgement. If he seizes it with both hands and it is successful, he joins the first rank, if not he remains a mortal with feet of clay.

Howard Marks quote

From The Most Important Thing: order for something to be able to materially help your return if it succeeds, you have to do enough so that it could materially hurt you if it fails.

Thursday, October 23, 2014

Peter Cundill on forecasting

From There's Always Something to Do:
I think that intelligent forecasting (company revenues, earnings, etc.) should not seek to predict what will in fact happen in the future. Its purpose ought to be to illuminate the road, to point out obstacles and potential pitfalls and so assist management to tailor events and to bend them in a desired direction. Forecasting should be used as a device to put both problems and opportunities into perspective. It is a management tool, but it can never be a substitute for strategy, nor should it ever be used as the primary basis for portfolio investment decisions.

The biggest secret in venture capital...

From Peter Thiel via Zero to One:
The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. 
This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. (Even quite successful companies usually succeed on a more humble scale.) This leads to rule number two: because rule number one is so restrictive, there can't be any other rules. 

Appraising management as operators, investors and financiers...

From Modern Security Analysis:
The view of businesses as pure going concerns has led to appraising managements only as operators. Once one recognizes that businesses generate wealth both through going concern and resource conversion activities, it becomes apparent that managements should be appraised not only as operators but also as investors and financiers. It is our experience that investment success is more often related to being associated with managements who are opportunistic and take advantage of the resources of the business than by any other financial factor. 

Wednesday, October 22, 2014

Two to five observations before changing one's mind...

The excerpt below is from James Montier in The Little Book of Behavioral Investing. One lesson from this is that if you get good at changing your mind quickly when the facts change, good at destroying your own best-loved ideas, and good and filtering and identifying truly important information, you can gain an advantage over others that may be looking at the exact same data. 
The classic study on conservatism (from which the urn example at the start of this chapter was drawn) concludes its analysis by saying: “A convenient first approximation to the data would say that it takes anywhere from two to five observations to do one observation’s worth in inducing the subject to change their opinions.” In other words, people underreact to things that should make them change their minds. That certainly seems to sum up the average analyst. 
I should also point out that it appears that people are particularly bad at spotting regime changes. Researchers have shown that in a series of experiments using urns like in the question above, people tend to underreact in unstable environments with precise signals (turning points), but overreact to stable environments with noisy signals (trending markets). This helps explain why economists and analysts tend to miss turning points in the market. They get hung up on the stable environment and overreact to it; hence they miss the important things that happen when the environment becomes more unstable (a recession starts) and underreact to such developments. 
Sunk Costs at the Root of Conservatism 
So why are analysts and the rest of us so reticent to alter views? What is the root cause of this conservatism? The answer seems to me to lie in the “sunk cost” fallacy. This is a tendency to allow past unrecoverable expenses to inform current decisions. Brutally put, we tend to hang onto our views too long simply because we spent time and effort in coming up with those views in the first place.

Earnings and revenues...

From Capital Account, and written in November 1999. I think it is also a lesson that repeats itself over time, and it reminded me of Graham and Dodd on the ‘Relation of the Future to Investment and Speculation’:
Coincident with the migration toward technology shares, the market has redefined what is meant by growth, away from earnings to revenues. This may be because many technology companies have little in the way of profits, and so revenues are seen as a proxy for future earnings. However, in our opinion there is no necessary link between the two, especially among unproven Internet companies.

Alfred North Whitehead quote

"To come very near to a true theory, and to grasp its precise application, are two very different things, as the history of science teaches us. Everything of importance has been said before by somebody who did not discover it." -Alfred North Whitehead

Tuesday, October 21, 2014

Berkshire Beyond Buffett: The Enduring Value of Values

Just a reminder that Lawrence Cunningham’s new book, Berkshire Beyond Buffett: The Enduring Value of Values, was released today. Chapter 8 is also available as a free excerpt, HERE.

Howard Marks on the balance between offense and defense

From The Most Important Thing:
A conscious balance must be struck between striving for return and limiting risk— between offense and defense. In fixed income, where I got my start as a portfolio manager, returns are limited and the manager’s greatest contribution comes through the avoidance of loss. Because the upside is truly “fixed,” the only variability is on the downside, and avoiding it holds the key. Thus, distinguishing yourself as a bond investor isn't a matter of which paying bonds you hold, but largely of whether you’re able to exclude bonds that don’t pay. According to Graham and Dodd, this emphasis on exclusion makes fixed income investing a negative art.
On the other hand, in equities and other more upside-oriented areas, avoiding losses isn't enough; potential for return must be present as well. While the fixed income investor can pretty much practice defense exclusively, the investor who moves beyond fixed income—typically in search of higher return—has to balance offense and defense. 
The key is that word balance. The fact that investors need offense in addition to defense doesn't mean they should be indifferent to the mix between the two. If investors want to strive for more return, they generally have to take on more uncertainty—more risk. If investors aspire to higher returns than can be achieved in bonds, they can’t expect to get there through loss avoidance alone. Some offense is needed, and with offense comes increased uncertainty. A decision to go that way should be made consciously and intelligently.

Shareholder value...

From Capital Account:
Fluctuations in shareholder value are caused primarily by changes in competition (the capital cycle) and by the actions of management.

Monday, October 20, 2014

Reinvesting at Berkshire...

From Larry Cunningham's latest book, Berkshire Beyond Buffett, which is released tomorrow. The book has a bunch of great info on Berkshire subsidiaries and the people involved in them.
Reinvest profits in promising businesses; this is the central bastion of Berkshire culture driving its acquisitions. Do this to stimulate a complacent workface as James Hambrick did at Lubrizol; to build a company through steady bolting-on and tucking-in the way MiTek does; or to become an industry force like Berkshire Hathaway Energy. But avoid adding capital to businesses that do not generate high returns...

Peter Thiel on network effects

From Zero to One:
Network effects can be powerful, but you'll never reap them unless your product is valuable to its very first users when the network is necessarily small....Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students--Mark Zuckerberg's first product was designed to get all his classmates signed up, not to attract all people of Earth. This is why successful network businesses rarely get started by MBA-types: the initial markets are so small that they often don't even appear to be business opportunities at all. 

Marcus Aurelius quote

From Meditations:
Treat what you don’t have as nonexistent. Look at what you have, the things you value most, and think of how much you’d crave them if you didn't have them. But be careful. Don’t feel such satisfaction that you start to overvalue them—that it would upset you to lose them.

Sunday, October 19, 2014

Henry Ford quote

“None of our men are ‘experts.’ We have most unfortunately found it necessary to get rid of a man as soon as he thinks himself an expert because no one ever considers himself expert if he really knows his job . . . Thinking always ahead, thinking always of trying to do more, brings a state of mind in which nothing is impossible.” -Henry Ford (source)

Saturday, October 18, 2014

David Attenborough BBC Madagascar - Lost Worlds

If you are ever in the mood for a nature documentary, all you need to do is go to YouTube and search for David Attenborough, and you can find great videos like the one below. I'm without internet for the next week, so next week will be a week of quotes and short book excerpts I've had saved up.

Link to video

Friday, October 17, 2014


Horizon Kinetics: 3rd Quarter 2014 Commentary (LINK)

Broyhill Q3 Letter (LINK)

Google Thinks Amazon Is Its Biggest Competitor. Here’s why. [H/T The Big Picture] (LINK)
Related books:  How Google Works; The Everything Store (which was also a good audiobook)
The Empire Reboots: Bethany McLean's profile of Microsoft and its leadership [H/T Phil] (LINK)


Ed Catmull of Walt Disney and Pixar Animation Studio (LINK) [I've linked to this interview before, which is Catmull discussing his excellent book Creativity, Inc., but I wanted to highlight a particular segment from 37:52-42:38. In it, Catmull discusses Disney Animation, which he and John Lasseter were asked to run after the Disney acquisition of Pixar. Disney Animation had produced some huge hits in the '90s, and then went on a long run of failures. But they were able to change some of the principles and philosophy to completely turn things around, and the most interesting part to me is that it was all done with essentially the same people that were there when they were failing.]

Marcus Aurelius quote

From Meditations:
The first step: Don’t be anxious. Nature controls it all. And before long you’ll be no one, nowhere—like Hadrian, like Augustus.  
The second step: Concentrate on what you have to do. Fix your eyes on it. Remind yourself that your task is to be a good human being; remind yourself what nature demands of people. Then do it, without hesitation, and speak the truth as you see it. But with kindness. With humility. Without hypocrisy.

Thursday, October 16, 2014


Farnam Street with a great excerpt from Atul Gawande's latest book (LINK)

Aswath Damodaran values GoPro (LINK)

Buffett Cuts Tesco Stake (LINK)

Rick Bookstaber: My Recent Work on Agent-based Modeling (LINK)
Related book, essentially warning about the risk of a crisis before the 2008 crisis began: A Demon of Our Own Design
Bill Gates shares his thoughts on Thomas Piketty’s Capital in the Twenty-First Century (LINK)
Piketty’s favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax “will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.” 
I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today. 
But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There’s nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system—including a wealth tax—has similar challenges.

Wednesday, October 15, 2014

Tony Robbins: MONEY Master the Game, and interview link

Tony Robbins is coming out with an interesting book next month. While written for the popular audience, he apparently spent time with the likes of Ray Dalio, Paul Tudor Jones, and Kyle Bass, among many others leading up to writing the book. He discusses all of this in the latest parts of his interview with Tim Ferriss, HERE.

Link to book: MONEY Master the Game: 7 Simple Steps to Financial Freedom
Tony Robbins has coached and inspired more than 50 million people from over 100 countries. More than 4 million people have attended his live events. Oprah Winfrey calls him “super-human.” Now for the first time—in his first book in two decades—he’s turned to the topic that vexes us all: How to secure financial freedom for ourselves and our families.  
Based on extensive research and one-on-one interviews with more than 50 of the most legendary financial experts in the world—from Carl Icahn and Warren Buffett, to Ray Dalio and Steve Forbes—Tony Robbins has created a simple 7-step blueprint that anyone can use for financial freedom. 
Robbins has a brilliant way of using metaphor and story to illustrate even the most complex financial concepts—making them simple and actionable. With expert advice on our most important financial decisions, Robbins is an advocate for the reader, dispelling the myths that often rob people of their financial dreams.  
Tony Robbins walks readers of every income level through the steps to become financially free by creating a lifetime income plan. This book delivers invaluable information and essential practices for getting your financial house in order. 


Buffett's stock pickers are beating the market (LINK)

Jim Chanos' interview from Chapter 2 of The New House of Money [H/T ValueWalk] (LINK)
Related previous post: An interview with Kyle Bass
How Often Does the Stock Market Correct? (LINK)

Andrew Smithers: Valuing Japanese shares – part one (LINK)

The Great Philosophers: Alexis de Tocqueville (LINK)

Walter Isaacson on Charlie Rose


Related book: The Innovators

Tuesday, October 14, 2014


Deep Value Master, Walter Schloss (LINK)
I also posted a few quotes from the 1989 OID interview on Twitter over the past week, such as a Walter Schloss' comment on Ben Graham: "The difference is Graham didn't really like investments. He liked the challenge. He liked the game. He liked to make money. But he didn't really enjoy investments. As he once told me, it was easier to make more money than to cut down on his expenses. He was involved in a lot of things." 
Ryan Holiday: The 16 Best Books About Marketing (LINK) [I haven't read it yet, but Seth Godin's Purple Cow made Holiday's list as well as the other list from the weekend. I also added all of Holiday's recommendations HERE.]

Malcolm's Gladwell's 2002 article on Nassim Taleb [I've posted this before, but interesting to review 12 years later.] (LINK)
Related books: HERE

Monday, October 13, 2014

Eric Schmidt & Jonathan Rosenberg in conversation with Larry Vincent at Live Talks Los Angles

Eric Schmidt & Jonathan Rosenberg interviewed by Larry Vincent at Live Talks Los Angles on October 7, 2014, on the occasion of the release of their book, "How Google Works."

Link to video


Related book: How Google Works

[H/T ValueWalk]


A Dozen Things Learned From Guy Spier About Value Investing (LINK)
Related book: The Education of a Value Investor
Buffett rolls out the Berkshire Hathaway brand (LINK)

Atul Gawande talks with The Guardian about his new book, Being Mortal (LINK)

The Ants Go Marching On; So Do We - Edward O. Wilson Explains ‘The Meaning of Human Existence’(LINK)
Related book: The Meaning of Human Existence
Fear of Vaccines Goes Viral (LINK)

Tim Ferriss interviews Tony Robbins and Peter Diamandis  (LINK) [There are a number of books mentioned in this interview. One I hadn't read and bought was one of the ones Tony Robbins mentioned as a book he gifts the most, As a Man Thinketh by James Allen. If you go with the Audible version, be aware that there are a few different readings of it, one of which gets a bad narration review. The narration I went with was the one done by Brian Holsopple.]

The Brooklyn Investor reviews the book The Halo Effect (LINK)

The State of Investment Around the World (LINK)

David Webb's speech to the Hong Kong protesters (LINK)

Nikola Tesla Documentary (video) [H/T Crossing Wall Street] (LINK)

Hussman Weekly Market Comment: Air-Pockets, Free-Falls, and Crashes (LINK)
My view is that even passive buy-and-hold investors should primarily focus on ensuring that the effective duration of their portfolio is not significantly longer than the horizon over which they expect to spend the funds. In other words, the duration of the assets should be matched with the anticipated horizon of spending needs (or liabilities). The estimated duration of the S&P 500 Index is roughly 50 years, 10-year Treasury bonds presently carry a duration of about 9 years, and cash has zero duration, so a passive investor expecting the average date of spending to be about 15 years in the future might match that with an asset portfolio of similar duration. Examples would include a 20%-55%-25% mix of stocks, bonds, and cash, respectively, or perhaps a 24%-33%-43% mix, but in any case not more than about 30% in equities. 
The challenge here is that we associate each of those 15-year duration portfolio mixes with expected nominal total returns of less than 2% annually over the coming decade. Based on historically reliable valuation measures, we presently estimate prospective 10-year S&P 500 nominal total returns of just under 2% annually here, so increasing the equity portion does not improve the expected portfolio return. Investors should understand that “prices and valuations are high” is another way of saying “future returns have already been realized, leaving little to be gained for quite some time.” 
Fortunately, as valuations retreat, durations shorten. For example, at the 1982 low, the dividend yield of the S&P 500 reached 6.7%, bringing the duration of the index down to 15 years, so from a duration-matching standpoint, even an investor with an expected spending horizon averaging 15 years could have been comfortable with 100% of assets in equities. At the 2009 low, the yield was a more moderate 3.8%, but that still implied a 26-year duration, making a 60% equity allocation quite reasonable even for a passive investor expecting to spend the assets, on average, 15 years hence.

Sunday, October 12, 2014

McCloskey Speaker Series: Walter Isaacson on The Innovators

This was from a few months ago, but Isaacson is discussing his book, The Innovators, which was just released.

Link to video


Related video: Walter Isaacson on the Innovative Genius (92Y Talk)

Saturday, October 11, 2014

Top 15 Business Books Recommended by Today’s Top Entrepreneurs

Link to: Top 15 Business Books Recommended by Today’s Top Entrepreneurs
As promised in my last post on must-read business books, our team recently went through over 350 episodes to pull out the best of the best for you. Here’s how it all went down:
  • We started by figuring out which titles have been recommended more than once.
  • Then, we made a “short list” of those titles. Who can keep track of 350 books, anyway?
  • This brought us to a list of exactly 50 books – all of which have been recommendation more than one time.
  • Of those 50, 27 of them were only recommended twice. We didn’t want to just give you a list of 50 books – that’s still a whole lot of books!
  • So we sat at 23: still a little long…
  • Finally, we eliminated all that have been recommended just three times, which resulted in scratching eight more titles. 

The books:

The Lean Startup by Eric Ries

The 4-Hour Workweek by Timothy Ferriss

Rework by Jason Fried

How to Win Friends and Influence People by Dale Carnegie

Think and Grow Rich by Napoleon Hill

The E-Myth Revisited by Michael E. Gerber

The Alchemist by Paulo Coelho

The $100 Startup by Chris Guillebeau

Delivering Happiness by Tony Hseih

The Millionaire Fastlane by MJ DeMarco

Purple Cow by Seth Godin

Mastery by Robert Greene

Influence: The Psychology of Persuasion by Robert B Cialdini

Good to Great by Jim Collins

Crush it! by Gary Vaynerchuk

[H/T @tferriss]

Friday, October 10, 2014


Jason Zweig talks with Robert Shiller (LINK)

James Grant on CNBC (Videos: U.S. rates vs. equity value, Perspective on dollar strength, Headwinds facing Wall Street [with Robert Shiller], Jim Grant: Radical monetary policy doesn't work)

John Hempton: Spectrum valuation and a case for Verizon (LINK)

Importance of ROIC Part 5: A Glance at the Last 42 Years of Wells Fargo - By John Huber (LINK)

TED Talk - Dilip Ratha: The hidden force in global economics: sending money home (LINK)

2004 TIFF Commentary on lessons from the book Capital Account (LINK)
By popular demand, a fictional investment committee whose past deliberations have proven entertaining to many regular readers and illuminating to some returns to the TIFF stage this quarter. Focusing as itʼs wont to do on two deceptively similar fields of human endeavor — endowment management and a certain sport in which contrarian thinking also tends to be rewarded over time — the committee discusses energetically ... the lessons that fiduciaries might glean from a find new book on investing (Capital Accounts). 
Self-Scrutiny Applied with Kindness: Epictetus’s Enduring Wisdom on Happiness and How Philosophy Helps Us Answer the Soul’s Cry (LINK)
Related book: Art of Living: The Classical Manual on Virtue, Happiness, and Effectiveness

Thursday, October 9, 2014


Guy Spier discussing his book, The Education of a Value Investor (LINK)

Steven Levy interviews Eric Schmidt (LINK)
Related books: How Google Works (new), and In The Plex (a Charlie Munger recommendation from a few years ago)
Howard Marks Discusses Personal Finance On Bloomberg Radio ["The main mistake that people make, be they individual or professionals, is that they allow themselves to be affected by emotion. Emotion is the enemy."] (LINK)
On the show Howard Marks recommended his book, The Most Important Thing,as well as Joel Greenblatt's books, with the main ones being The Little Book That Still Beats the Market as well as my favorite You Can Be a Stock Market Genius
CNBC Transcript of Warren Buffett's conversation with Becky Quick on the show"On the Money" (LINK)

How You Make Decisions Says a Lot About How Happy You Are [H/T David] (LINK)

And interesting interview with Leon Panetta on Charlie Rose discussing his book, Worthy Fights: A Memoir of Leadership in War and Peace, and other things (LINK)

Wednesday, October 8, 2014

Shattered Screen Dreams at GT Advanced

Always worthwhile to study failures of any kind...

Link to article: Shattered Screen Dreams at GT Advanced
The rapid meltdown of GT Advanced Technologies GTAT remains shrouded in mystery. One thing is clear: it is a stark example of what can happen when expectations for a company get out of control and are based on potential gains from a single partner. 
GT’s Monday filing for bankruptcy protection seemed to surprise everyone. Even analysts who were bearish on the maker of sapphire material due to concerns about cash flow figured the company would be able to raise more capital. But things deteriorated quickly, as the company seemed to burn though about $248 million in cash in a single quarter. 
That may have led to the company’s filing, since its cash, at $85 million, was below a $125 million trigger point that would allow Apple AAPL to demand repayment of about $440 million in loans it had advanced. Apple had agreed to lend GT a total of $578 million to help get a large sapphire factory in Arizona up and running. The tech giant reportedly withheld the last $139 million payment it was due to make, although it isn’t clear why. 
What is obvious is that GT effectively bet the house on a new technology with a new business model and made itself dependent on a single customer—Apple. 
For their part, investors seemed to focus only on the potential bonanza a relationship with Apple represented—the stock more than doubled earlier this year—while ignoring the risk posed by a lopsided relationship. The company had what it described as significant “exclusivity provisions” limiting what sapphire it could sell to other companies, while Apple was under no obligation to buy a set amount from GT.

[H/T @jasonzweigwsj]

Deleveraging, What Deleveraging? - The 16th Geneva Report on the World Economy

Link to report: Deleveraging, What Deleveraging?
It is widely accepted that high levels of debt (of various forms) have played a central role in the 2008-09 global financial crisis, the 2010-12 euro crisis and many previous crisis episodes. The adverse macroeconomic impact of deleveraging also helps to explain the slow pace of recovery among the advanced economies in recent years, while the post-2009 surge in debt accumulation in a number of emerging markets (especially China) raises the prospect of a new wave of debt-related crises unless corrective policies are implemented. 
The 16th Geneva Report on the World Economy provides a multi-dimensional perspective on leverage for both advanced and emerging economies. The report’s comprehensive approach includes both public and private debt, with the latter broken down on sectoral lines (households, non-financial corporates, financial sector). It emphasises the macroeconomic impact of leverage, with a sharp distinction between ‘normal’ recessions and the long-lasting impact on output generated by excessive leverage and financial crises. 
The report shows that the world has not yet begun to de-lever and global debt ratios are breaking new highs. At the same time, in a poisonous combination, world underlying growth and inflation are also lower than previously expected, reducing global debt capacity. 
The authors argue that central banks in advanced economies should be slow to raise interest rates, given the fragile deleveraging process. Moreover, the European Central Bank should pursue an aggressive policy of quantitative easing in order to fulfill its mandate of price stability while fostering debt stabilisation and easing credit conditions. 
However, successful exit from a leverage trap also includes appropriate fiscal and macro-prudential policies, together with the restructuring of private-sector (bank, household, corporate) debt and sovereign debt where required. Furthermore, given the risks and costs associated with excessive leverage, the authors argue that more needs to be done to improve resilience to debt shocks and discourage excessive debt accumulation.

Related article: We are trapped in a cycle of credit booms - by Martin Wolf

Warren Buffett at Fortune's MPW Conference

Link to video

Elizabeth Holmes interview at TechCrunch Disrupt San Francisco ’14

Link to video

[H/T Corner of Berkshire & Fairfax]


Related previous posts:

This CEO is out for blood

This Woman Invented a Way to Run 30 Lab Tests on Only One Drop of Blood

Other videos from TechCrunch Disrupt San Francisco ’14 that may be of interest:

Getting the Point Across with Ev Williams and Walter Isaacson
Related book: The Innovators
Is Disruption Still a Thing? (Clayton Christensen)
Related books, HERE
Binary Truths with Peter Thiel
Related book: Zero to One
Affirm's Max Levchin Makes Some Predictions

The Things Marc Benioff Really Cares About

Tuesday, October 7, 2014

9 Books That Elon Musk Thinks Everyone Should Read

Link to article: 9 Books That Elon Musk Thinks Everyone Should Read


The books:

The Lord of the Rings

The Hitchhiker's Guide to the Galaxy

Benjamin Franklin: An American Life

Einstein: His Life and Universe

Structures: Or Why Things Don't Fall Down

Ignition!: An informal history of liquid rocket propellants

Superintelligence: Paths, Dangers, Strategies

Zero to One

Howard Hughes: His Life and Madness

[H/T Daniel]

Walter Isaacson on NPR

Walter Isaacson discusses his latest book (released today), The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution.

Link to: How The Cold War And George Orwell Helped Make The Internet What It Is
The story of how the digital age came to be involves a cast of more than 40 people, ranging from a 19th century English countess to California hippies. In his new book, The Innovators, Walter Isaacson profiles many of those characters, focusing on how their collaborations helped bring us into the digital age. 
Isaacson has long held an interest in creative minds. He's written highly regarded biographies of Benjamin Franklin, Albert Einstein and Steve Jobs. But, as he tells Fresh Air's Dave Davies, his latest book is an attempt to shift away from writing about one person's creativity. 
"One of the things we biographers realize is that we distort history a little bit," Isaacson says. "We make it sound like there's some great individual in a garage or a garret who has a light-bulb moment and all of a sudden innovation happens. But when you look at innovation, especially in this day and age, it happens in teams — creativity is a collaborative effort in the digital age. I wanted to get away from writing about the singular individual."


An excerpt from Atul Gawande's latest book, Being Mortal: Medicine and What Matters in the End, which was released today (LINK)

The Empire of Edge: How a doctor, a trader, and the billionaire Steven A. Cohen got entangled in a vast financial scandal [H/T George] (LINK)

From the archive: A 1988 (printed in 1989) OID interview with Walter and Edwin Schloss (LINK)

More Accomplishment, Less Worry: Follow the Epictetus Square [H/T @CravenPartners] (LINK)
Related book: Enchiridion

Monday, October 6, 2014


Bill Gates: Ebola, Beyond the Headlines (LINK)

FRMO Corporation Annual Meeting of Shareholders Transcript [H/T ValueWalk] (LINK)

Peter Thiel Speech At Stanford (video) [H/T ValueWalk] (LINK)
Related book: Zero to One
Jason Zweig: Look Who’s ‘Trading’ Commodities (LINK)
In the government’s bid to crack down on risky trading, charities and other nonprofit organizations may become collateral damage. That is causing alarm in the nonprofit world and should be a concern for donors.
Black Wednesday - a documentary about the crash of the pound sterling in 1992 (video) [H/T Cook & Bynum] (LINK)

Barron's interviews Bill Gross (LINK)

Barry Ritholtz interviews Jack Schwager (LINK)
Related books, HERE
Marc Andreessen on the latest a16z podcast (LINK) [He also recommended 2 books on this podcast: Doing Capitalism in the Innovation Economy which he called maybe the best book on the theory of venture capital; and Startup Rising: The Entrepreneurial Revolution Remaking the Middle East.]

PHILOSOPHICAL ECONOMICS: Free Banking on a Bitcoin Standard–The State Prepares its Death Blow (LINK)

Brian Arthur is coming out with a new book at the end of the month: Complexity and the Economy

Hussman Weekly Market Comment: Dancing Without a Floor (LINK)
A final note: There is a danger in ignoring the concerns of value-conscious investors as a bubble proceeds. The danger is that the longer these concerns are “proven wrong” by further advances, the more severely they are likely to be proven correct by an even deeper loss over the completion of the cycle. Roger Babson offers a useful lesson in that regard. Babson, whose first rule of investing was to “keep speculation and investments separate,” is known not only for founding Babson College in Massachusetts, but also for a speech at the National Business Conference on September 5, 1929, at the peak of the market, saying “sooner or later a crash is coming, and it may be terrific.”
The back-story, however, is that Babson’s presentation began as follows: “I’m about to repeat what I said at this time last year, and the year before…” The fact is that Babson had been “proven wrong” by an advance that had taken stocks relentlessly higher during the preceding years. Over the next 10 weeks, all of those market gains would be erased. From the low of the 1929 plunge, the stock market would then lose an additional 75% of its value by its eventual bottom in 1932 because of add-on policy errors that resulted in the Great Depression. As a side note, those policy errors were not that banks were allowed to fail, but that policy makers allowed them to fail in a disorganized way, forcing loans to be called in rather than taking banks into receivership and restructuring existing debt. It's a distinction our own policy makers still haven't learned, and simply obscured and papered over in the 2008-2009 crisis through distortionary monetary policy, bailouts, and FASB accounting changes. As a consequence, the debt overhang is still very much intact, as the Center for Economic Policy Research recently warned in its 16th annual Geneva Report. But that's now a problem for another day.