Thursday, April 30, 2015

The difference between a franchise and "a business"...

From Warren Buffett's 1991 Letter to Shareholders:
An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation. The existence of all three conditions will be demonstrated by a company's ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise's profitability, but they cannot inflict mortal damage. 
In contrast, "a business" earns exceptional profits only if it is the low-cost operator or if supply of its product or service is tight. Tightness in supply usually does not last long. With superior management, a company may maintain its status as a low-cost operator for a much longer time, but even then unceasingly faces the possibility of competitive attack. And a business, unlike a franchise, can be killed by poor management.

Wednesday, April 29, 2015


Videos from the Milken Institute's Global Conference [H/T ValueWalk] (LINK) [There are videos on the state of credit markets, capital structure, the internet of things, conversations with Ben Horowitz, Henry Paulson, one with a trio of guys Nassim Taleb may imagine chasing with sticks - Timothy Geithner, Henry Paulson and Robert Rubin, one with Ken Griffin and Mohamed El-Erian, etc.]

A Day in the Life of Melinda Gates [H/T Will] (LINK)

Latticework of Mental Models: Occam’s Razor (LINK)

The Broyhill Letter: Subprime Myth & Reality (LINK)

Amazon Bought This Man's Company. Now He's Coming for Them [article from earlier this year] [H/T Will] (LINK)

Uber, The Rashomon - by John Battelle [H/T Abnormal Returns] (LINK)

Why G.E. Ditched Finance [H/T Abnormal Returns] (LINK)

Catastrophe deals threaten reinsurance sector ‘collapse’ (LINK)
The $575bn industry that protects insurers from earthquakes, hurricanes and other disasters risks a banking-style meltdown if it continues making “dangerous” changes to how it is structured, new research has found. 
After a three-year study of the reinsurance sector, a team of business school academics has found that some companies are now packaging together catastrophe risks in a similar way to the carving up of subprime mortgages by big banks before the financial crisis. 
As a result, the victims of a costly catastrophe – such as an earthquake or storm that destroys large areas – could run into problems having their insurance claims paid.
A talk by Øystein Olsen, the Governor of Norges Bank (Norway's central bank): Integrating Financial Stability and Monetary Policy Analysis (LINK)

Book of the day: Deng Xiaoping and the Transformation of China

Tuesday, April 28, 2015

Lee Kuan Yew's Insights with Graham Allison and Robert Blackwill (May 6, 2013 Event)

Lee Kuan Yew, the first Prime Minister of the Republic of Singapore, is known around the world as an innovative leader and respected scholar of global strategy. Lee has been a mentor to every Chinese leader from Deng Xiaoping to Xi Jinping, and a counselor to every U.S. president from Richard Nixon to Barack Obama. In their new book, Graham Allison and Robert Blackwill distill the essence of Lee Kuan Yew's visionary thinking about critical issues including the futures of China and the United States, U.S.-China relations, India, and globalization. At a National Committee on U.S.-China Relations program on May 6, 2013, the authors discussed their new book, Lee Kuan Yew: The Grand Master's Insights on China, the United States, and the World, with National Committee President, Stephen Orlins.

Link to video (also available as a podcast)


If you don't have time to watch the whole thing, Robert Blackwill's intro and book excerpts from the 12-minute mark until the 24:15 mark are full of great wisdom from Lee Kuan Yew, including the leaders he most as admired, Charles de Gaulle, Deng Xiaoping, and Winston Churchill:
De Gaulle, because he had tremendous guts; Deng, because he changed China from a broken-backed state, which would have imploded like the Soviet Union, into what it is today; and Churchill, because any other person would have given up.
As well as how he'd like to be remembered:
I do not wish to be remembered as a statesman. First of all, I do not classify myself as a statesman. I put myself down as determined, consistent, and persistent. I set out to do something, and I keep on chasing it until it succeeds. That is all. Anyone who thinks he is a statesman needs to see a psychiatrist.


Phil DeMuth's Daily Journal Annual Meeting Notes, Part 4 (LINK)

Atul Gawande's conversation at the Harvard T.H. Chan School of Public Health (video) [H/T ValueWalk] (LINK) [Related books, HERE.]

Elon Musk’s Ex-Wife on What It Takes to Be a Mogul (LINK)

Chinese market becomes increasingly core to Apple (LINK)
IPhone sales in Greater China, which includes the mainland as well as Hong Kong and Taiwan, have overtaken those of the US, as total revenues for the region surpassed Europe.
Interesting fact of the day: Apple’s annual dividend is now greater than its share price from 11 years ago.

Tim Ferriss' TV Show is now available (LINK)

Investing quote of the day, via Jim Chanos:
The Fed will tell you that their two mandates are full employment and controlling inflation. A shadow third mandate is using asset prices to fulfill the first two parts of the mandate.

Monday, April 27, 2015

Top Books

This weekend, I mentioned on Twitter that the book Sapiens might be one of my Top 5 favorite books of all-time. Since I've gotten a couple of questions asking for what else I'd put on that list, I decided to post it here. But instead of just calling it a "favorite" list, I've decided to pose a more specific question, and maybe turn it into a series of posts over time by asking some others for their lists as well. So here's the question:

If you were to go away for 5 years and isolate yourself so that you had no internet or television, and the only things you could read would be the 5 books you can bring with you, what 5 books would you bring?

While my list may change over time, if I was forced to pick today, I think these would be the 5 I would take:

Seneca's letters and The Complete Essays of Montaigne were the ones I had a hard time not picking, and the ones that could potentially make the list depending on the mood I'm in at any given time. If there was one long book of Seneca's letters and essays together, it would make my Top 5. 


Nepal earthquake reduces World Heritage sites to rubble (LINK)

Great chart summarizing the strategies of those profiled in the book The Outsiders (LINK)

TED Talk - Nick Bostrom: What happens when our computers get smarter than we are? (LINK)
Related book (also a Bill Gates recommendation): Superintelligence: Paths, Dangers, Strategies
How to Analyze a Business, the Sherlock Holmes Way (LINK)
Related book: A Few Lessons from Sherlock Holmes
Ray Dalio talks with Fareed Zakaria (video) [H/T ValueWalk] (LINK)

Book of the day: Now It Can Be Told

Hussman Weekly Market Comment: Fair Value on the S&P 500 Has Three Digits (LINK)
We continue to classify market conditions among the most hostile expected return/risk profiles we identify. The current profile joins rich valuations with continued evidence of a subtle shift toward risk aversion among investors, which we infer from market internals (a variant of what we used to call “trend uniformity”), credit spreads, and other risk-sensitive measures. 
Liquidity in both the stock and bond markets is thinning considerably. In bonds, quantitative easing by global central banks has resulted in a scarcity of available collateral, a collapse in repo liquidity, and increasing frequency of delivery failures, all of which is shorthand for a bond market that is becoming less liquid and more fragile to any credit event. Meanwhile, risk premiums are minuscule. Avoiding a negative total return on 10-year bonds now requires that interest rates must not rise by even one percentage point over the next three years. Bond yields have historically covered investors against a meaningful change in yields before resulting in negative total returns. On a one-year return horizon, bond yields presently cover investors for a yield change amounting to only about 0.25 standard deviations – matching mid-2012 as the lowest level of yield coverage in history. 
Last week, the Nasdaq Composite finally clawed its way to breakeven, 15 years after its spectacular bubble peak in 2000. It’s a testament to the overvaluation of technology stocks in 2000 that it has required the third equity bubble in 15 years to reclaim that 2000 high, at least briefly. As you may remember, the Nasdaq Composite reached its intra-day high of 5132.52 in March 2000, plunging to 795.25 (down -78%) by October 2002. The Nasdaq 100, representing the most glamourous of the group, peaked at 4816.25 in March 2000, plunging to 795.25 (down 83%) by October 2002. Even a decade later, in 2010, both indices were still 60-65% below their 2000 highs. The 2000-2002 decline also took the S&P 500 down by half, wiping out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. 
On the basis of valuation measures best correlated with actual subsequent market returns, we can say with a strong degree of confidence that the S&P 500 would presently have to drop to the 940 level in order for investors to expect a historically normal 10-year total return of 10% annually. That 940 figure for the S&P 500 would not represent some extreme, catastrophic outcome. It’s not a level that would even represent undervaluation from a historical perspective. It’s the level that we would associate with average, historically run-of-the-mill long-term equity returns. As we observed at the 2000 peak, “if you understand values and market history, you know we’re not joking.” 
That said, if one believes that depressed interest rates warrant not only a low prospective return on stocks, but also virtually no risk premium whatsoever despite their significant full-cycle volatility, then you might be quite happy with the prospect of a 1.4% annual nominal total return on the S&P 500 over the coming decade, which is what we presently estimate from current levels, based on a variety of historically reliable methods (see Ockham’s Razor and the Market Cycle for the arithmetic behind these estimates). In that case, you might consider stocks to be "fairly valued" here. But you should still allow for a 940 level or below on the S&P 500 over the completion of this market cycle. 
One might think that low interest rates would preclude the possibility of the market losing more than half of its value, but historically, one would be wrong. Outside of the inflation-disinflation cycle from the mid-1960’s to the mid-1990’s, the historical correlation between 10-year Treasury yields and 10-year prospective stock returns has been far weaker than investors seem to believe. Indeed, except for the 2000-2002 cycle, the final low that completes a market cycle has historically taken the market well below run-of-the-mill valuation norms, even in periods prior to the mid-1960’s when interest rates were similarly low and much more stable.  One might think that Fed easing would preclude that possibility, until you realize that the Fed was easing aggressively and continuously throughout the 2000-2002 and 2007-2009 collapses.

Saturday, April 25, 2015

Li Lu on talking with management

From Tariq Ali’s Notes from Li Lu’s 2010 Lecture at Columbia
The key in investing is to know what you know and know what you don’t know. You can know about management teams without meeting with them. Every situation is slightly different. So I come back to the point that if you know enough on other things that there is enough margin of safety. Even if you meet with management, you may not learn something. Obviously, actions speak louder. You want to see what they have done. Everything being equal, the more you know about management, the more honest and upfront they are, the more motive they have, the better the situation is and the deeper the discount. You have to analyze it all. The key to analyzing it is you have to ask: Do I really know what I think I know? Do I really know what I don’t know? If you can’t answer that question, chances are you are gambling.

Friday, April 24, 2015

Confirmation and Disconfirmation

An excerpt from the Boyles Q1 letter to investors...

Confirmation and Disconfirmation

“The exceptions to any rule are most interesting in themselves, for they show us that the old rule is wrong. And it is most exciting, then, to find out what the right rule, if any, is.  The exception is studied, along with other conditions that produce similar effects.  The scientist tries to find more exceptions and to determine the characteristics of the exceptions, a process that is continually exciting as it develops.  He does not try to avoid showing that the rules are wrong; there is progress and excitement in the exact opposite.  He tries to prove himself wrong as quickly as possible.” -Richard Feynman (The Meaning of It All)

There is a powerful force in human psychology known as confirmation bias.  This drives people to look for evidence that confirms what one already believes—or wants to believe—and to ignore, or rationalize, evidence that contradicts those beliefs.  It is an especially prevalent cause of investment error.  As investors, we want to find great ideas.  We want to find great management teams.  And we want to uncover a story that we think the market has gotten wrong, so that we may profit. 

And to do this, we spend a lot of time learning.  To some extent, our job as fundamental value investors is part language learning, and part investigative journalism.  The language learning occurs as we look at unfamiliar businesses or industries.  Unless it is a company in the exact same line of business as one we’ve already studied, there are likely to be a few new terms and products to learn about.  Sometimes the amount of language learning is extremely small, and sometimes it is large, but it is usually fairly straightforward, and less prone to error.

The larger part of the research process is that akin to investigative journalism.  It is the deep dive into the business, its people, and the competitive landscape.  It is large not just because it requires a lot of effort, but because it also requires interpretation.  The more subjective the interpretation, the greater the chance for error; and there are few, if any, greater causes of investment error than human psychology.

Because investors want to invest, a positive story forms in their minds as they think about and research potential investments.  Almost any piece of data that can be viewed in a positive light is so viewed, and that which can’t is normally explained away, often by assuming that the negatives are far outweighed by the positives.  Historical achievements are seen as inevitability, or as managerial brilliance destined to continue.  But the narrative of history isn’t always what it seems.  As Yuval Noah Harari writes in his book Sapiens: A Brief History of Humankind:

“...the better you know a particular historical period, the harder it becomes to explain why things happened one way and not another…It is an iron rule of history that what looks inevitable in hindsight was far from obvious at the time.”

This holds true with business history just as it does with human history.  The more you learn about the biographies of certain businesses, such as Wal-Mart or Google, the more you begin to realize that not only were outsiders incapable of knowing what would happen, but those directly involved in the businesses were just about as incapable as everyone else.  More pressure from larger competitors or a potential acquirer willing to pay just a little more would probably have had major impacts on the outcomes of those businesses, as well as many others.

How do we use this knowledge to help us invest?  How do we try to prevent our minds from using information from the past and present to cloud our picture of the future?  We attempt to give special attention to evidence that disconfirms our current viewpoint.  There is a natural tendency to close one’s mind to such evidence and dismiss it as incorrect or unimportant.  But learning to welcome and actively search for disconfirming evidence, as well as actively questioning the implications if such evidence is true can give one a big advantage in investing and in life.  It can greatly improve one’s mental processing over time, as it did for Charles Darwin, as described by Charlie Munger in Poor Charlie’s Almanack:

“He trained himself, early, to intensively consider any evidence tending to disconfirm any hypothesis of his, more so if he thought his hypothesis was a particularly good one.…Darwin’s practice came from his acute recognition of man’s natural cognitive faults.…He provides a great example of psychological insight correctly used to advance some of the finest mental work ever done.”


Michael Lewis has questions about the Flash Crash [H/T The Big Picture] (LINK)
The first question that arises from the Commodity Futures Trading Commission’s case against Navinder Singh Sarao is: Why did it take them five years to bring it? 
A guy living with his parents next to London's Heathrow Airport enters a lot of big, phony orders to sell U.S. stock market futures; the market promptly collapses on May 6, 2010; it takes five years for the army of U.S. financial regulators to work out that there might be some connection between the two events. It makes no sense.
Jason Zweig: Excited About the Nasdaq Record? Don’t Overpay for Stocks Again (LINK)

Charles Fabrikant's 2014 Letter to SEACOR Stockholders (LINK)
Our businesses deliver returns in lumps. Results for the last few years have been uninspiring, yielding meager single-digit returns on equity. Earnings have been punished not only by mediocre conditions in the offshore and inland markets but also by hoarding capital. Fallow cash earns very little. We have not been inclined to reach for returns better than obtainable in safe, short-term paper and risk cash whose immediate availability would be the key to seizing opportunity in our core business.21 I estimate that the negative carry is approximately 500-600 basis points (pre-tax), which is considerably more than it had been in the 1990s and early part of the last decade. With hindsight, parking cash for the eventuality of pouncing on bargains has been far too costly. I am justifiably subject to criticism for not figuring out a better way to access capital, if or when useful, rather than paying a high price for it while idle. 
It was challenging markets in the 1990s that eventually produced attractively priced assets and were the impetus for consolidation; we may be staring at the next wave. My recollection (probably accurate enough for this purpose) is that in 1989 there were about 36 operators of supply boats and anchor handlers in the Gulf of Mexico alone. By the late 1990s that number had shriveled to under 20 with four or five having large fleets. Our  informal count is that today there are over 300 operators in the international and domestic offshore vessel industry. 
Until the recent downturn, finding opportunities has been like looking for a needle in a haystack. It is perverse to welcome a downturn in business, but it will make life more interesting. In searching for places to deploy capital, sadly for stockholders, one of the compelling investments, we believe, has been our own shares. We would be remiss if we were to fail to consider whether repurchasing our own shares would not be an equally, if not a more productive use of capital, than constructing new vessels, buying secondhand equipment, or pursuing acquisitions. During the past year, SEACOR repurchased over 2.5 million shares at an average price of $77.16 per share, 12.4% of primary shares outstanding. Our year-end book value was $77.15.22 Adding to our fleet—or making acquisitions—would, of course, be more interesting than purchasing our own shares, but that is sometimes an expedient way to acquire well-priced equipment. As a colleague in the offshore business humorously remarked some years ago, buying in stock is like kissing your sister. 
Debt Builds in China Stock Rally [H/T Matt] (LINK)
Concern is growing over a surge in bets by mom-and-pop investors using cash borrowed from brokers to pile into, and fuel, China’s booming stock market. 
Margin lending has more than tripled in the past year to a record 1.7 trillion yuan ($274.6 billion), according to WIND Information Co., a provider of financial data. The upsurge echoes past investment crazes among Chinese speculators, who have long shown a penchant for rushing into whatever is yielding the highest returns, from real-estate and wealth-management products, to bitcoin and online money-market funds. 
The practice isn’t unique to China, where margin debt equals 3.2% of total market capitalization, compared with 2.3% in the U.S. But when compared with the value of stock that is freely traded, making it accessible to ordinary investors, the percentage for China rises because state entities own more than half of the market.
Amazon Reveals Just How Huge the Cloud Is for Its Business (LINK)

Some highlights from Mark Spitznagel's book, The Dao of Capital (LINK)

Five Good Questions for Paul Allen about his book, Choose Stocks Wisely (LINK)

Profile of Dave Asprey, the Bulletproof coffee guy [H/T Abnormal Returns] (LINK) [Mark Sisson also recently gave his opinion on Bulletproof coffee, HERE.]

Circadian Rhythms with Paul Jaminet (podcast) (LINK)
Related book: Perfect Health Diet
Calbuco volcano blankets towns in Chile with ash (LINK)

Two huge magma chambers spied beneath Yellowstone National Park (LINK)

Book of the day: The Great Beanie Baby Bubble

Thursday, April 23, 2015


Google’s New Phone Service Bridges Cell and Wi-Fi Gaps (LINK) [It might be interesting to read this post from Benedict Evans last year first: Railways and WhatsApp.]

David Ogilvy’s 1982 Memo “How to Write” Offers 10 Pieces of Timeless Advice (LINK)
Related books: Writing That WorksConfessions of an Advertising Man
Slamming the Door Shut: Vaccines and Autism (LINK)
Related book (recently recommended by Bill Gates): On Immunity: An Inoculation
Video Of Volcano Erupting In Chile (LINK)

How Stephen Curry became the NBA's top point guard (LINK)

Books of the day, courtesy of THIS interview with Freeman Dyson (he mentions more titles in the interview as well):

The Ants

On Human Nature

The Man Who Knew Infinity

Men of Mathematics

Space, Time and Gravitation: An Outline of the General Relativity Theory

Cool IT: The Skeptical Environmentalist's Guide to Global Warming

The Varieties of Religious Experience

Maverick Genius: The Pioneering Odyssey of Freeman Dyson

Dreams of Earth and Sky (the book Dyson just released)

Previous posts related to Freeman Dyson:


The Civil Heretic

Wednesday, April 22, 2015


‘Flash Crash’ Charges Filed (LINK)
A trader who operated out of his West London home was arrested by British authorities Tuesday on U.S. charges that he helped cause the Dow Jones Industrial Average to plummet 1,000 points on May 6, 2010, in what came to be known as the “flash crash.” 
Prosecutors and regulators charged Navinder Sarao with using a souped-up version of commercially available software to manipulate a stock-market index futures contract, laying the groundwork for the index’s decline, in which hundreds of stocks momentarily lost nearly all their value. 
Authorities said Mr. Sarao, who was 31 years old at the time of the crash, earned $40 million in profits from 2010 to 2014 through alleged manipulations, including $879,000 on the day of the flash crash. His company, Nav Sarao Futures Ltd., is registered as operating out of a semidetached home in Hounslow, a London suburb close to Heathrow Airport.
Flash trading HQ (LINK)

Roger Lowenstein: Forget Buffett the investor. Follow Buffett the manager [H/T ValueWalk] (LINK)
Related book: Buffett: The Making of an American Capitalist
Andrew Smithers: Jean Tirole and the bonus culture (LINK)

John Kay on “truthiness” (LINK)

Drilling Deeper (LINK) [Related podcast, HERE.]
Drilling Deeper: A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom investigates whether the Department of Energy’s expectation of long-term domestic oil and natural gas abundance is founded. It aims to gauge the likely future of U.S. tight oil and shale gas production based on an in-depth assessment of all drilling and production data from the major shale plays, current through early- to mid-2014. The report determined future production profiles given assumed rates of drilling, average well quality by area, well- and field-decline rates, and the estimated number of available drilling locations.
Book of the day (a Marc Andreessen recommendation): Enchanted Objects: Design, Human Desire, and the Internet of Things

A few related quotes...

As I came across the Russo quote below again, I was reminded of a few others, so I thought I'd group them together. 

From Tom Russo:
…what I have observed about the really great investors is the simple decisions that they end up having to make by virtue of focusing on what’s important and what’s unknowable.
From Henry David Thoreau:
It’s not what you look at that matters, it’s what you see.
Don’t overlook the obvious by drowning in minutiae
From Li Lu's forward to the Chinese edition of Poor Charlie's Almanack:
...the true insights a person can get in life is still very limited, so correct decision-making must necessarily be confined to your "circle of competence". A “competence” that has no defined borders cannot be called a true competence. How do you define your own circle of competence? Charlie said, if I want to hold a view, if I cannot refute or disprove this view better than the smartest, most capable, most qualified person on Earth, then I’m not worthy of holding that view. So when Charlie truly holds a certain point of view, his thinking is not only original and unique, but also almost never wrong. 
A beautiful lady once insisted that Charlie use one word to sum up the source of his success, Charlie said it was being “rational.” However, he has a more stringent definition of rationality. It is this kind of “rationality” that grants him the sensitive and unique vision and insight. Even in a completely unfamiliar territory, with just one look he could see through to the essence of things. Buffett calls this characteristic of Charlie the “two-minute effect” -- he said Charlie can, in the shortest time possible, unravel the nature of a complex business and understand it better than anyone else can.

Tuesday, April 21, 2015


Greenlight Capital's Q1 Letter [H/T ValueWalk] (LINK)

The Slow Death of the University [H/T @ProfSteveKeen] (LINK)

Latticework of Mental Models: Complex Adaptive Systems (LINK)

A Conversation between Sam Harris and Jonathan Gottschall about Fighting (LINK)

A spider mother that serves herself as dinner (LINK)

11 images that capture the incredible vastness of space [H/T @ritholtz] (LINK)

Book of the day: Citizen Coke: The Making of Coca-Cola Capitalism

The Worst Crime in History - by Yuval Noah Harari

Excerpt from the book Sapiens: A Brief History of Humankind...

Link to excerpt: The Worst Crime in History
Today, the majority of large animals on planet earth are domesticated farm animals that live and die as cogs in the wheels of industrial agriculture. Earth is home to about 7 billion humans, weighing together about 300 million tons. It is also home to several dozen billion farm animals – cows, pigs, chickens and so forth – whose total biomass is about 700 millions tons. In contrast, if you took all the large wild animals left on earth – all the penguins, baboons, alligators, dolphins, wolves, tune fish, lions and elephants – and put them on a very large scale, they will weigh together less than 100 million tons.
The disappearance of wildlife is a calamity of unprecedented magnitude, but the plight of the planet’s majority population—the farm animals—is cause for equal concern. In recent years there is growing awareness of the conditions under which these animals live and die, and their fate may well turn out to be the greatest crime in human history. If you measure crimes by the sheer amount of pain and misery they inflict on sentient beings, this radical claim is not implausible. 

Related previous post: "The Worst Mistake In The History Of The Human Race" – 1987 article by Jared Diamond

Related videos:

Yuval Harari's Talk at Google

(Not the best audio on the 2 videos below)

Yuval Noah Harari & Jared Diamond - Part 1

Yuval Noah Harari & Jared Diamond - Part 2

Monday, April 20, 2015


Phil DeMuth's Daily Journal Annual Meeting Notes, Part 3 (LINK)

Stan Druckenmiller's interview with Bloomberg (video) [H/T Market Folly] (LINK)

Measuring the Moat – Part 1 (LINK) [The tour de force on this topic is Mauboussin and Callahan's Measuring the Moat.]

60 Minutes was interesting all around this week, with a very powerful first segment that will be difficult for some to watch (LINK)
Scott Pelley reports on the 2013 sarin gas attack in Syria; then, Charlie Rose reports on the popular lecture series TED Talks; and, Lesley Stahl is introduced to an imaginary world by a man with an extraordinary ability.
Elon Musk had a deal to sell Tesla to Google in 2013 (video and article) [H/T The Tech Block] (LINK)
Related book: Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future
Foreign Companies at Risk From Proposed Chinese Law [H/T Matt] (LINK)

Tim Harford: Cigarettes, damn cigarettes and statistics (LINK)
Related book: How to Lie with Statistics
Happy 150th Birthday, Crossness Pumping Station! (LINK)

Breaking the communication barrier between dolphins and humans [H/T The Browser] (LINK)

Hussman Weekly Market Comment: Profit Margins - Is the Ladder Starting to Snap? (LINK)
Though it’s not widely recognized, measures such as the ratio of market capitalization/nominal GDP and the S&P 500 price/revenue ratio are actually better correlated with actual subsequent total market returns than price/operating earnings ratios, the Fed model, and even the raw Shiller P/E (though the Shiller P/E does quite well once one adjusts for the embedded profit margin). To fully understand the present valuation extreme, recognize that the market cap/GDP ratio is currently about 1.29 versus a pre-bubble norm of just 0.55, with “secular” lows such as 1982 taking the ratio to about 0.33. To fully understand the present valuation extreme, recognize that the S&P 500 price/revenue ratio is currently about 1.80, versus a pre-bubble norm of just 0.8, with “secular” lows taking the ratio to about 0.45. 

To put these figures in perspective, if we assume that nominal GDP and corporate revenues will grow perpetually at a 6% nominal rate (which is much faster than we actually observe here), and the market does not experience another secular market low until 2040 – a quarter century from now, the S&P 500 Index would still be approximately unchanged from current levels at that secular low 25 years from today. The arithmetic here is relatively simple. For market cap/GDP the annual percentage change of the S&P 500 Index over that 25 year period would be (1.06)*(0.33/1.29)^(1/25)-1 = 0.37%. For the price/revenue ratio, the calculation would be (1.06)*(0.45/1.8)^(1/25)-1 = 0.28%. In both cases, dividend income would result in a somewhat higher total return over that quarter-century horizon. 

One obtains less extreme conclusions, though still uncomfortable, if one assumes that these multiples simply touch their pre-bubble norms a decade from now. In that case, the annual percentage change in the S&P 500 Index over the coming decade would be -2.67% and -2.26%, respectively. If all of this seems preposterous, keep in mind that these revolting long-term prospective returns in stocks are simply a less recognized variant of what we observe more clearly in the bond market, where long-term interest rates are now negative in about one third of the developed world. Investors are literally paying their governments for the privilege of lending to them on a 5-10 year horizon. Investors are collectively out of their minds if they believe that current equity prices don’t quietly reflect the same absurd state of affairs.

Sunday, April 19, 2015


Ginni Rometty, chairman and CEO of IBM, on Charlie Rose (video) (LINK)

A breakdown of some of Michael Burry's posts on the Silicon Investor message boards from the late 90's (LINK)

The great bond conundrum (LINK)
AT THE start of 2015, the yield on Germany's 10-year bonds was 0.54%, which probably did not look very enticing to investors. Now, however, the yield is just 0.1% and seems to be heading inexorably for zero. Already the average yield on all German debt is negative. A recent survey found that a net 84% of global fund managers thought bonds were overvalued.

How far can this go? That is the dilemma. In the long run, such a yield looks crazy; in the short run, not so much. The European Central Bank is buying bonds to the tune of €60 billion ($64 billion) a month. Betting against a purchaser with an unlimited credit card is like standing in front of a train.
Bacteria bonanza found in remote Amazon village (LINK)

The printed organs coming to a body near you (LINK)

Saturday, April 18, 2015


Jason Zweig: Are You Hot or Not? For Investors, It’s Hard to Tell (LINK)

David Brooks: The Moral Bucket List (LINK)
Related book: The Road to Character
Related link (video): David Brooks on Charlie Rose
Meb Faber:  If US Stocks Are Expensive, How Do I Protect Myself? (LINK)

Podcast: Tony Robbins on Investing, RIAs, and Being a Great Business Owner [H/T Abnormal Returns] (LINK)
Related book:  MONEY Master the Game
Gorilla at Omaha zoo cracks window (video) (LINK)
Related previous post: Other Video Clips from Omaha

Friday, April 17, 2015


Presentations from The Ben Graham Centre’s 2015 Value Investing Conference [H/T ValueWalk] (LINK)

Nestle chairman: Heinz owners have 'pulverized' the food industry [H/T Matt] (LINK)

The Apollo Asia Fund's Q1 Report (LINK)

Horizon Kinetics: 1st Quarter 2015 Commentary (LINK)

Five Good Questions for Michael Yogg about his book, Passion for Reality (LINK)

Hank Paulson (discussing his new book Dealing with China: An Insider Unmasks the New Economic Superpower), and Steve Wynn on Charlie Rose (video) (LINK)

Hoisington Quarterly Review and Outlook, First Quarter 2015 (LINK)

This CEO may have the sweetest job around [H/T Phil] (LINK)

Y Combinator President Sam Altman is Dreaming Big (LINK)

Square’s Jack Dorsey Puts It All Together (LINK)

Mark Zuckerberg chooses Michael Chwe’s Rational Ritual for his book club (LINK)

Book of the day [H/T Phil]: The One Hour China Consumer Book

Thursday, April 16, 2015


David Brooks on Charlie Rose discussing his new book, The Road to Character (video) (LINK)

Sanjay Bakshi: WHEN YOU BUY A BANK… (LINK)

The Student-Loan Problem Is Even Worse Than Official Figures Indicate [H/T Matt] (LINK)

It’s Even Hard to Buy a House When Your Father Runs Wells Fargo [H/T Will] (LINK)

Lountzis Asset Management: Thoughts on Oil and Gas Investing (LINK)

David Einhorn Talks ZIRP, AerCap, John Bush, And More At Grant’s Conference (LINK)

Book of the day: A World Undone: The Story of the Great War, 1914 to 1918 [See also: The Hardcore History podcast series on WWI.]

Wednesday, April 15, 2015


Ben Graham on How to Handle Your Money (LINK)

Brian Grazer on Charlie Rose discussing his book, A Curious Mind: The Secret to a Bigger Life (video) (LINK)

Brent Schlender and Rick Tetzeli on Charlie Rose discussing their book, Becoming Steve Jobs (video) (LINK)

Andy Hertzfeld: Would Steve Jobs Have Liked the New Biography? I Don’t Think So (LINK)

Brainstorming with Marc Andreessen [H/T Abnormal Returns] (LINK)

Grant’s Conference: Jim Grant On The S&P 500 Great Debate (LINK)

Andrew Smithers: The importance of labour participation rates (LINK)

John Kay: We can reform the economics curriculum without creating new disciplines (LINK)

Richard Duncan: QE is Debt Cancellation (video) (LINK)

Religion without God, an excerpt from Sapiens: A Brief History of Humankind (LINK)

Tuesday, April 14, 2015


Phil DeMuth's Daily Journal Annual Meeting Notes, Part 2 (LINK)

Tips from Buffett, Bloomberg and Marina Abramović [H/T @GSpier] (LINK)
Related book: Getting There: A Book of Mentors
How Spanx Got Me an Interview With Warren Buffett (It's Not What You Think) [H/T @GSpier] (LINK)
Related book (same as above): Getting There: A Book of Mentors
David Einhorn’s Long And Short Ideas From Grant’s Conference (LINK)

The Brooklyn Investor on JPM's 2014 Annual Report (LINK)

Ackman Says Student Loans Are the Biggest Risk in the Credit Market [H/T Will] (LINK)

Biglari Holdings 2014 Annual General Meeting Notes [H/T Matt] (LINK)

Car Retailing Grabs Merger Spotlight (LINK)

A conversation with Yanis Varoufakis and Joseph Stiglitz (video) [H/T @ProfSteveKeen] (LINK)

An Indie-Documentary on The Life & Times of Christopher Hitchens (LINK)
Related book: Hitch-22

Monday, April 13, 2015


A large excerpt of the Boyles interview with Value Investor Confidential, minus the 3 stock ideas we discussed, on ValueWalk (LINK)

Sanjay Bakshi: Reply to a Mail from a Friend on Valuation (LINK)

A Dozen Things learned from Stanley Druckenmiller About Investing (LINK)

A recent speech from Stanley Druckenmiller (LINK)

Aswath Damodaran: The Small Cap Premium: Where is the beef? (LINK)

Philosophical Economics: Capital Recycling at Elevated Valuations: A Historical Simulation (LINK)

Perspectives on Stock Market Valuation (LINK)

GMO White Paper: The Case for Not Currency Hedging Foreign Equity Investments: A U.S. Investor's Perspective (LINK)

Farnam Street: Seymour Schulich on Deals, Business, Decisions and Life (LINK)
Related book: Get Smarter
60 Minutes:  The Attack on Sony (LINK)
North Korea's cyberattack on Sony Pictures exposed a new reality: you don't have to be a superpower to inflict damage on U.S. corporations
Acidic oceans linked to greatest extinction ever (LINK)

Volcanoes and climate: After Tambora [H/T Will] (LINK)
Two hundred years ago the most powerful eruption in modern history made itself felt around the world. It could happen again at almost any time
Hussman Weekly Market Comment: Valuation and Speculation: The Iron Laws (LINK)
There are two central considerations in investing that, when used in combination, have been the source of virtually every major success I’ve had in 30 years as a professional investor, and when inadvertently missed or underappreciated, have been the source of virtually every significant disappointment.
The first is what I’ve often called the Iron Law of Valuation: every security is a claim on an expected stream of future cash flows, and given that expected stream of future cash flows, the current price of the security moves opposite to the expected future return on that security. The higher the price an investor pays for that expected stream of cash flows today, the lower the return that an investor should expect over the long-term. Particularly at market peaks, investors seem to believe that regardless of the extent of the preceding advance, future returns remain entirely unaffected. The repeated eagerness of investors to extrapolate returns and ignore the Iron Law of Valuation has been the source of the deepest losses in history (see Margins, Multiples, and the Iron Law of Valuation).
The second consideration, however, is equally important over any horizon other than the long-term. It deserves its own name, and I’ll call it the Iron Law of Speculation: The near-term outcome of speculative, overvalued markets is conditional on investor preferences toward risk-seeking or risk-aversion, and those preferences can be largely inferred from observable market internals and credit spreads. In the long-term, investment outcomes are chiefly defined by valuations, but over the shorter-term, the difference between an overvalued market that becomes more overvalued, and an overvalued market that crashes, has little to do with the level of valuation and everything to do with investor risk preferences (see A Better Lesson than “This Time is Different”).
Book of the day (a Bill Gates recommendation): Superintelligence: Paths, Dangers, Strategies (Also available on Audible, which is currently having its Spring Cleaning Sale and has almost everything half-off.)

Sunday, April 12, 2015

A Conversation between Joel Greenblatt and Howard Marks

A great quote from Greenblatt during the conversation, which reminded me of the Kelly Criterion: "My largest positions are not the ones I think I'm going to make the most money from. My largest positions are the ones I don't think I'm going to lose money in."

Link to video


Related books:

The Little Book That Still Beats the Market

You Can Be a Stock Market Genius

The Most Important Thing Illuminated

Friday, April 10, 2015


Baidu CEO Robin Li interviews Bill Gates and Elon Musk at the Boao Forum, March 29 2015 (video...but not the best audio) (LINK)

Morgan Housel interviews Michael Lewis [H/T Abnormal Returns] (LINK)

'Great Debate': Realist Bogle vs optimist Grant [H/T Will] (LINK)

Notes from the book Strangers to Ourselves (LINK)

a16z Podcast: Cyber Security’s Painful Prominence and Why There is No Turning Back [H/T Abnormal Returns] (LINK)

Here's What It Looks Like When A Startup Wins Big at Y Combinator [H/T @maxolson] (LINK)

Book of the day: Four Fish: The Future of the Last Wild Food

Thursday, April 9, 2015


Jamie Dimon's Letter to Shareholders (LINK)

PBS: America Revealed episodes (LINK)

TED Talk - Dan Ariely: How equal do we want the world to be? You'd be surprised (LINK)

Chinese Stock Buying Frenzy Sweeps Into Hong Kong (LINK)

NYC Pension Earns $40 Million Over 10 Years, Pays Fund Managers $2 Billion (LINK)

Howard Marks on CNBC: No compelling bargains right now (video) [H/T ValueWalk] (LINK)

Sanjay Bakshi Session on Value Investing at IIM Ranchi (video - not the greatest audio) (LINK) [The slides are available HERE.]

OTC Adventures blog: Lessons Learned (LINK)

Claudio Borio's INET Conference Presentation (LINK)

Bobcat snatches shark out of the ocean (video) (LINK)

Book of the day: Dropping Ashes on the Buddha

Excerpt from Charlie Munger's March 11, 2008 conversation at Caltech

THIS link to the Munger video starts at the 1:15:40 mark, and is a question David Winters asked to Munger about what was going on in the financial markets at the time. I think his answer, which ends around the 1:21:18 mark, is worth reviewing.


On a related note, attendees were given a "2-hour show on science" DVD (see 1:45:35 of the video) as they left the talk. Does anyone know what that show/DVD was? Thanks.

Wednesday, April 8, 2015

More from Warren Buffett on having good filters...

Via the notes from the Ivey MBA and HBA student meeting with Warren Buffett:
At Berkshire we have certain filters that have been developed. If in the course of a presentation or evaluation part of a proposal[,] an idea hits a filter then there is no way I will invest. Charlie has similar filters. We don’t worry about a lot of things as we only have to be right about a certain number of things – things that are within our circle of competence. A great example is the Nebraska Furniture Mart that you visited this morning. Mrs. B took cash because she didn’t understand stocks. It is important to know what I can do. I have no idea which company will dominate in the auto industry in the next 5 years so I don’t pick. I prefer simple things in my circle of competence. Good decisions scream at you. For example in 2008 you shouldn’t have been afraid just because assets were cheap. In your entire investment lifetime you may have 6 times when this happens and it is ‘raining gold’.

Related previous post (one of the all-time most read posts on this blog): Filters


Part 1 of Phil DeMuth's Daily Journal Annual Meeting notes [H/T Will] (LINK)

Switzerland becomes first to sell 10-year debt at negative yield (LINK)
Switzerland has become the first country to sell benchmark 10-year sovereign debt at a negative yield, as the implications of the European Central Bank’s bond buying programme continue to ripple across markets. 
With a yield of minus 0.055 per cent, investors are in effect paying to lend SFr232.51m (€222.4m) to the Swiss government until 2025.
Spain Joins Negative Yield Club (LINK)
Spain has joined the sub-zero debt club, just. 
The Spanish Treasury on Tuesday issued short-term debt yielding a shade under 0%. The €725 million ($796 million) in six-month Spanish debt delivers an average yield to investors of -0.002%. Buyers were still keen, placing bids worth five times that amount, according to the Treasury.
Kyle Bass's New Tack: Dispute the Patent, Short the Stock (LINK)

Chris Mayer: Notes on Deflation From Tokyo (LINK)

The Absolute Return Letter, April 2015: The 'Perfect Storm' (LINK)

Andrew Smithers: Risks and dangers in the aftermath of QE (LINK)

Oliver Sacks' autobiography, On the Move, will officially be published on April 28th (LINK)

How Tiger Killed Tiger (LINK)

Book of the day [H/T @Sanjay__Bakshi]: Structures: Or Why Things Don't Fall Down [This was also a book recommended by Elon Musk, HERE.]

Tuesday, April 7, 2015


Star Investors Reveal Their Hits and Misses [H/T Matt] (LINK)
The hard lessons from Rob Arnott, Jeremy Grantham, Howard Marks and Jeffrey Gundlach
El-Erian's barbell strategy (video) (LINK) [For more on barbell strategies, via Nassim Taleb, see THIS.]
Mohamed El-Erian, Allianz chief economic adviser, discusses his personal asset allocation, and why he is invested in cash on one end and hedge funds on the other.
Jim Grant on CNBC (video) (LINK)

Buffett Ups The Ante On Auto Sector Bet With $560M Axalta Stake (LINK)

Bruce Lee: Be Like Water (video) [H/T @PeterAttiaMD] (LINK)

Book of the day [H/T Tim Ferriss]: We Learn Nothing

Monday, April 6, 2015


Bud Labitan made his book Moats free for all (LINK)

Read the letter Bill Gates sent to Microsoft employees for the company's 40th anniversary (LINK)

Life after Pimco: Mohamed El-Erian on economics, politics and his hope for a 'Sputnik moment' (LINK)
Q. Where is your money? Stocks? Treasuries? Bonds? 
A. It is mostly concentrated in cash. That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.
Some interesting thoughts on Amazon and Wal-Mart [H/T Linc] (LINK)

Richard Duncan visits the Peak Prosperity podcast (LINK)
Related book: The New Depression: The Breakdown of the Paper Money Economy
Hussman Weekly Market Comment: Stock-Flow Accounting and the Coming $10 Trillion Loss in Paper Wealth (LINK)
Many of the misconceptions that investors hold about the economy and the financial markets can be clarified by understanding the relationship between the “flow” and “stock” of various quantities in the economy.
Book of the day: The Way to Wealth: To which is added: The Whistle & The Advantages of Drunkenness - by Benjamin Franklin

Sunday, April 5, 2015


Jason Zweig: Would Benjamin Graham Have Hated Index Funds? (LINK)

A Dozen Things Learned from Lou Simpson About Investing and Business (LINK)

Liaquat Ahamed on WealthTrack (LINK)
Related book: Lords of Finance: The Bankers Who Broke the World [I listened to the audiobook a few years ago, and highly recommend.]
Five Good Questions for Barbara Oakley about her book, A Mind for Numbers (LINK)

The Real Reason College Tuition Costs So Much (LINK)

Michael Lewis: Berkshire Hathaway My Hedge (LINK)

Notes from the Meeting Dr. George Athanassakos and Ivey MBA and HBA students had with Mr. Warren Buffett Omaha on February 27th [H/T David] (LINK)