Monday, December 29, 2014


Mohnish Pabrai, Guy Spier, and Michael Shearn on Investment Checklists [H/T ValueWalk... This is the video and transcript from their Value Conferences appearance early in 2014.] (LINK)
Related book: The Investment Checklist
Richard Muller's Physics for Future Presidents lectures (LINK)
Related book: Physics for Future Presidents
The Best (and Worst) Investments They Ever Made: Luminaries in Finance and Other Fields Reveal Their Greatest Hits—and Biggest Misses [H/T ValueWalk]  (LINK)

Guy Spier joins The Investors Podcast to discuss his book, The Education of a Value Investor (LINK)

Porsche: The Hedge Fund that Also Made Cars [H/T Whopper Investments] (LINK)

The Paradox of Choice, 10 Years Later [H/T Abnormal Returns] (LINK) [The audiobook MP3 CD version is currently only $8.06 as well.]

Hussman Weekly Market Comment: The Line Between Rational Speculation and Market Collapse (LINK)
The Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) is now 27, versus a long-term historical norm of 15 prior to the late-1990’s bubble. Importantly, the profit margin embedded into the Shiller P/E is currently 6.7% versus a historical norm of just 5.4%. The implied margin is simply the denominator of the Shiller P/E divided by current S&P 500 revenues (the ratio of trailing 12-month earnings to revenues is even higher at 8.9%). As I showed in Margins, Multiples and the Iron Law of Valuation, taking this embedded margin into account significantly improves the usefulness and correlation of the Shiller P/E in explaining actual subsequent market returns. With this adjustment, the margin-adjusted Shiller P/E is now nearly 34, easily more than double its historical norm.  
This fact is important, because the Shiller P/E averaged 40 during the first 9 months of 2000 as the tech bubble was peaking. But that Shiller P/E was associated with an embedded profit margin of only 5.0%. Adjusting for that embedded margin brings the margin-adjusted Shiller P/E at the 2000 peak to 37.
On other measures that have an even stronger historical correlation with actual subsequent market returns than either the Shiller P/E or the S&P 500 price/operating earnings ratio, the ratio of stock market capitalization to GDP is now about 1.33, compared to a pre-bubble norm of 0.55. The S&P 500 price/revenue multiple is now about 1.80, versus a historical norm of 0.80. On the measures we find most reliably associated with actual subsequent 10-year market returns (with a correlation of about 90%), the S&P 500 is not just double, but about 120-140% above historical norms. On a broader set of reliable but more varied measures, the elevation averages about 116%.
A couple of book recommendations from Twitter:

Via @Sanjay__Bakshi: Recasting India: How Entrepreneurship is Revolutionizing the World's Largest Democracy

Via @PlanMaestro: City of Fortune: How Venice Won and Lost a Naval Empire