Friday, July 31, 2015


Warren Buffett’s Family Secretly Funded a Birth Control Revolution [H/T Linc] (LINK)

Donald Yacktman: "Viewing Stocks as Bonds" | Talks at Google (video) [H/T ValueWalk] (LINK)

Value Guru Joel Greenblatt's Performance Could Be A Sign Of Overheated Stock Market [H/T Linc] (LINK)

Can the Insurance Industry Survive Driverless Cars? [H/T Matt] (LINK)

The adblocking revolution is months away (with iOS 9) – with trouble for advertisers, publishers and Google [H/T @AlexRubalcava] (LINK)

The Ordeal That Made Dan Ariely a Student of Humanity [H/T Will] (LINK)

Earth's ancient magnetic field just got a lot older (LINK)

Book of the day: Digital Wars: Apple, Google, Microsoft and the Battle for the Internet

Harvey Firestone quote

From Men and Rubber: The Story of Business:
Sometimes it seems that it might be better to go back to those simpler days, that one might get more out of a less complex life. But it cannot be done. One changes with prosperity. We all think we should like to lead a simple life, and then we find that we have picked up a thousand little habits which we are quite unconscious of because they are a part of our very being--and these habits are not in the simple life. There is no going back--except as a broken man.

Thursday, July 30, 2015


Mark Zuckerberg's latest book club book is also a Charlie Munger recommendation, Genome: The Autobiography of a Species in 23 Chapters (LINK)

Charles Brandes and the orthodoxy of value investing (LINK)
Related book: Brandes on Value
Bruce Berkowitz's Semi-Annual Letter (LINK)

Horizon Kinetics: Asia Opportunity Second Quarter Commentary (LINK)

Fred Wilson: The Bull Case For Solar (LINK)

Scott Adams: Living by the Odds (LINK)

Book of the day: The Contrarian's Guide to Leadership

Quote of the day, from Seneca:
" is praiseworthy to pursue wholesome studies even if they lead to no practical outcome. Is it so remarkable if those who attempt to scale the heights do not attain the summit? But if you are a man, look up with admiration at those who attempt great things, even if they fall. This is the sign of a noble heart--to aim at high things, measuring one's effort, not by one's own strength, but by the strength of one's nature, and to envisage enterprises beyond the accomplishment even of those equipped with heroic courage."

Wednesday, July 29, 2015


Bill Gates reviews the book Stuff Matters: Exploring the Marvelous Materials That Shape Our Man-Made World (LINK)

Tom Weik, Mohnish Pabrai, and John Mihaljevic discuss the parallels between investing and the game of bridge (LINK)

Greece’s Ex-Finance Minister Tells All (LINK)

Latticework of Mental Models: Thermodynamics (LINK) [If you want to go deeper, The Great Courses has a nice course on thermodynamics, which looks like it is currently on sale for $69.95 for the video download format: Thermodynamics: Four Laws That Move the Universe. You can also occasionally find decent coupon codes online to get a bit larger discount.]

a16z Podcast: When Bio Meets Computer Science (LINK)
Related quote: “One of the very few silver linings about me getting sick is that Reed’s gotten to spend a lot of time studying with some very good doctors…. I think the biggest innovations of the twenty-first century will be the intersection of biology and technology. A new era is beginning, just like the digital one when I was his age.” –Steve Jobs (from Isaacson's biography of Jobs
Related book (and if you know of any other good ones on the topic, feel free to pass along recommendations): Cracking the Code
Hospital checklists are meant to save lives — so why do they often fail? (LINK)
Related book: The Checklist Manifesto
Notes from Hillhouse Capital's Lei Zhang's lecture at Columbia Business School (LINK)

Breaking Smart - by Venkatesh Rao (LINK)
Today, I am launching a new site: Breaking Smart. It is a seasonal binge-reading site (think Netflix binge-watching, but for blogs) devoted to big-picture analysis of technology trends. Starting with this first season, I plan to publish a complete season of essays once every 2 years. The inaugural season has 20 essays, amounting to a total of about 30,000 words.
Thanks to Graham for passing along (and starting) what looks like a useful news feed of investing psychology and behavioural economics news (LINK)

Jamestown excavation unearths four bodies — and a mystery in a small box (LINK)

Boyles Q2 letter excerpt

Below are some sections (slightly edited for public viewing) from a letter just sent to the investors of the fund I help manage.
Disclosure: I am a portfolio manager at Boyles Asset Management, LLC ("Boyles") and the fund managed by Boyles may in the future buy or sell shares of the stocks mentioned below and we are under no obligation to update our activities. This is for information purposes only and is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.


News of China’s stock market and of Greece’s place in the Eurozone (as well as the closure of its banks and stock market) dominated the headlines as the second quarter came to a close.  After surging by more than 100% in less than a year, China’s stock market fell by roughly 30% before the government then stepped in with actions we might call “weird” in order to try and stop the plunge. Though unique in its own way, it’s a storyline that has been repeated throughout financial history.  As Jason Zweig wrote in a July 10 Wall Street Journal article, “Governments have been trying—and failing—to control markets for centuries.  If the Chinese government succeeds, it will be the exception to that rule. If it fails, the results could be dire.”

While we claim no insight into how the situations above will play out, as a fund that began the quarter with roughly half of our portfolio in cash, we welcomed the volatility that these events and some Australia year-end tax selling created, which in turn allowed us to put some capital to work. After additional purchases early in the third quarter, our cash balance is now down to about 34% as of this writing.

During the quarter we added a new position in Legend Corporation Limited (ASX: LGD).  The company, headquartered in Australia, designs, manufactures, imports and distributes for the local market a variety of electrical-oriented products, including connectors, tools, cables, measurement instruments, wiring and HVAC items.  We were initially attracted to the company by what appeared to be a very good acquisition, a very low multiple to the significant free cash flow that the company was producing, and an owner-operator possessing strong incentives to appropriately manage the business.

The fund was able to acquire the vast majority of its position at A$.245 per share from what we believe to be a forced seller.  At that price the fund was able to acquire the business at a multiple of 5.9x free cash flow (including that of the recently acquired business) and .82x book value.  The dividend yield at the time of purchase was 7.1%.  It was our judgment that given the nature of the business, the shares were quite a bargain.

Legend Corporation’s business is fairly attractive from a return-on-tangible-equity basis, returning 40% on average since 2008.  Built intelligently through a series of acquisitions, return on equity has averaged 13% during that period.  Relative to many distributors, and attributable to the owned brand and innovative products that Legend designs and sources internally, the company boasts fairly attractive consolidated margins, with underlying pre-tax margins averaging 9.8% since 2008.  We see some scope to recover some margin over the next couple of years, as the rapid decline in the Australian Dollar during the last two years has been a headwind for margins.  Underlying pre-tax margins peaked at 13.2% in 2012 before falling to the mid 9% range recently.  If one assumes the company regains 50% of the lost margin, Legend would produce enough additional free cash flow to reduce our acquisition multiple of free cash flow to 5x.

Legend Corporation is run by Bradley Dowe, who founded the business with his wife in their kitchen in the early 1990s.  Today he owns 28.4% of the company, worth A$15.6 million at our acquisition price.  His base salary is about A$.33 million and so his stake in the company is worth 47x his annual salary.  In fact, last year he received A$1.1 million in dividends, or more than 3.3x his annual salary.  Needless to say, we think we and Dowe are on the same side!

Dowe has built the business through a series of acquisitions.  Originally, when the company listed in 2004, it was a manufacturer of computer memory products, which it sold to OEMs.  This business eventually ran into significant competitive pressures as Asia emerged as the dominant low-cost supplier to many of the world’s computer manufacturers.  Dowe repositioned Legend through a series of acquisitions, completed at attractive prices, in the electrical distribution space it occupies today.  The most recent acquisition, completed shortly before our share purchases, was a company called System Control Engineering.  We believe the acquisition will continue Dowe’s history of attractive dealmaking.  At the total maximum purchase price, the company will have paid a multiple of 4.7x earnings before interest and taxes.  In and of itself, that is an attractive multiple, but the company has additional potential levers to reduce its working capital intensity and increase margins, which combined could reduce the multiple to 3.3x.  In our judgment, the market is not paying attention to, among other things, this attractive acquisition.

Cheap and Dear, Quality and Value

“Nearly every issue might conceivably be cheap in one price range and dear in another.”
-Benjamin Graham and David Dodd, Security Analysis

While it has taken a bit longer than we would have expected (or hoped) to put as much cash as we have to work, and while we still have a decent amount of dry powder left, we’ve always felt it most important to remain disciplined to the margin of safety creed we follow.  Like the quote above, we believe almost everything is a good deal at one price and a bad deal at another, and that belief has taken us in several directions in our search for value.  Since the end of last year, we’ve purchased shares in what we’d consider good businesses with growth opportunities in the UK and Australia; additional shares in a couple of mining services companies as tax selling and a further decline in sentiment drove down prices; and a couple of Hong Kong-listed companies with decent businesses and real estate portfolios.  In all of those cases, there is a well-incentivized owner-operator helping to steer the ship on our behalf.

As outside, passive, minority shareholders, there are things we can’t know about the inner workings of a particular business.  Our job is to do as much work as we can to get to the point where we feel we have a clear edge in our understanding compared to most others, and where we feel the odds and payouts are extremely tilted in our favor. Sometimes the future path of a company is fairly predictable, and sometimes it is largely unknowable because it is dependent on things that can’t be predicted with any degree of reliable certainty.  We prefer more predictability to less, but given that the human brain shares the same preference, market psychology often discounts uncertainty to such a degree that it’s worth venturing into areas where things are less certain.  One historical example of this occurred with the economist David Ricardo, as told by Richard Zeckhauser in his paper “Investing in the Unknown and Unknowable”:

“David Ricardo made a fortune buying bonds from the British government four days in advance of the Battle of Waterloo.  He was not a military analyst, and even if he were, he had no basis to compute the odds of Napoleon’s defeat or victory, or hard-to-identify ambiguous outcomes.  Thus, he was investing in the unknown and the unknowable.  Still, he knew that competition was thin, that the seller was eager, and that his windfall pounds should Napoleon lose would be worth much more than the pounds he’d lose should Napoleon win.  Ricardo knew a good bet when he saw it.”

The keys in these situations, we believe, are focusing on one’s downside, and doing the work to come up with conservative estimates of what you can lose if you are wrong and what you can make if you are right.  And while probabilities can’t be estimated reliably, one can look for situations that at least tilt the odds in one’s favor, such as by focusing on downside risk and buying from eager sellers.  We discussed this in more detail in our Q2 letter last year, but we bring it up again because we believe that at least three of our main purchases during the second quarter, and continuing into the early third quarter, involved eager sellers on the other side of the trades, though maybe not as eager as the British government was in Ricardo’s time.

Tuesday, July 28, 2015

Oaktree's responses to oil questions on quarterly conference call

I thought these were worthwhile comments to share:
Christopher Harris [Wells Fargo analyst] 
First question relates to the opportunity in energy you guys talk about there. Really just wanting the team to talk about how you guys have sort of managed the risks investing in that sector. And kind of what I'm wondering about is that if you underwrite investment, assuming kind of $50 oil was the baseline yet $25 ends up being the reality, it seems it could be a lot of downside associated with those investments. So that's the question, part one of the question. Part 2 is do you think it's a little early yet to be an aggressive investor in the sector at this point? 
David M. Kirchheimer [Chief Financial Officer] 
Well, the hallmark of Oaktree investing is to focus on the downside. And when we look at energy, we try to do the same. We try to assume -- we look at obviously the forward curve and what that's telling us, but then we assume a lot of downside and -- to that and try to build that into the equation. So the most recent transaction that we're working on right now, for example, our breakeven would be well below the forward curve and probably something in the 30s. Now if oil gets down to $25, that's got to hurt a lot of people. And of course, no one knows what's going to happen. But the interesting things about Oaktree, and I could have said this to Mike in answer to the very first question, is as things gets worse and worse, the opportunity set for us opens up more and more. And so, for example, we would raise more money in Opps Xb to take advantage of the opportunity set a year or 2 from now. But in terms of today, we can't proceed assuming that oil is going to be $25. All we can to is structure our investment such that we protect ourselves in a downside scenario which we do, do. 
Christopher Harris [Wells Fargo analyst] 
And the second part of the question, is it a little early yet to be really aggressive in investing in the sector? Do you think now would -- there's been enough shakeout with there are some really an attractive opportunity at this point?
Bruce A. Karsh [Co-Chairman and Chief Investment Officer] 
Well, in the last quarterly call, I mentioned the psychology that there wasn't opportunities because the psychology was not really that negative. The psychology is starting to turn negative, but it's just beginning. And we haven't dived in yet by any means. We have a lot of dry powder, and we're right now accessing opportunities that again are structured to basically minimize the risk, but also want to take advantage of now happens to be, in retrospect, the right time to step in for part of the opportunity. So our instinct is that it's not time to dive into the water completely, but it is time to take advantage of low oil prices and gas prices.

GMO Quarterly Letter: Price-Insensitive Sellers and Ten Quick Topics to Ruin Your Summer

Link to: Price-Insensitive Sellers and Ten Quick Topics to Ruin Your Summer (free registration may be required)
GMO's 2Q 2015 Letter includes Ben Inker's "Price-Insensitive Sellers," and Jeremy Grantham's "Ten Quick Topics to Ruin Your Summer."
The last decade has seen an extraordinary rise in the importance of a unique class of investor. Generally referred to as “price-insensitive buyers,” these are asset owners for whom the expected returns of the assets they buy are not a primary consideration in their purchase decisions. Such buyers have been the explanation behind a whole series of market price movements that otherwise have not seemed to make sense in a historical context. In today’s world, where prices of all sorts of assets are trading far above historical norms, it is worth recognizing that investors prepared to buy assets without regard to the price of those assets may also find themselves in a position to sell those assets without regard to price as well. This potential is compounded by the reduction in liquidity in markets around the world, which has been driven by tighter regulation of financial institutions, and, paradoxically, a greater desire for liquidity on the part of market participants. Making matters worse, in order to see massive changes in the price of a security, you don’t need the price-insensitive buyer to become a seller. You merely need him to cease being the marginal buyer. If price-insensitive buyers actually become price-insensitive sellers, it becomes possible that price falls could take asset prices significantly below historical norms. This is not to suggest that such an event is inevitable, still less is it an attempt to predict in which assets and when it will occur, but anyone conditioned to think that these investors provide a permanent support for the markets should be aware that the support may at some point be taken away.
Two significant items seem to be different this time. First, profit margins in the U.S. seem to have stopped mean reverting in the old, normal way, and second, some real estate markets have bubbled up and then stayed there at high prices. Both seem surprising events, even against what I would call “the laws of nature,” or at least the usual laws of capitalism. What is going on?


The Audible Daily Deal is a good one today. It's a Great Courses lecture series from Robert Sapolsky (for $2.95): Being Human: Life Lessons from the Frontiers of Science

Why do Family-Controlled Public Companies Outperform? The Value of Disciplined Governance [H/T @ChrisMayerAgora] (LINK)

George Cooper talks about his book, Money, Blood and Revolution (video) (LINK)

Austbrokers faces major buffeting [H/T Linc] (LINK)
Corporate disasters usually stem from many small problems conspiring to cause one very big one. A dip in sales, distracted management, a little too much debt; for want of a nail, the kingdom was lost. 
Austbrokers, however, is threatened by the opposite principle: one enormous problem that will cause many more. Warren Buffett wants to put the company out of business.
Video Captures Catlike Creature (a Genet) Riding Rare Rhino (LINK)

The first principle of salesmanship...

From Harvey Firestone in Men and Rubber: The Story of Business:
Thereby, quite unconsciously, I turned up the first principle of salesmanship--which is, that you must thoroughly believe in what you have to sell. Then selling becomes merely a matter of showing how your product will help a prospect. I have always been more of a salesman than a manufacturer--it has been hard for me to learn factory methods. But selling has always come easy to me, simply because, since those patent medicines, I have never attempted to sell anything which I did not thoroughly believe in. Therefore, I have never really had to sell at all--only to explain the favour I expected to do the prospect. The principle holds true, whether one is selling a tangible thing, like a rubber tire, or whether one is selling something intangible, like the future of the company, either in the shape of capital stock or in the shape of credit at a bank. Persuading a man to buy is not, to my notion, salesmanship. It is just persuading him to buy and nothing more. 
Salesmanship has to establish a continuing relation in which the seller helps the buyer. Going to great lengths to sell a man something he does not want is a clumsy way of trying to get money--it is much simpler and just as honest to knock the fellow on the head and take the money away from him.

Monday, July 27, 2015


A Dozen Things Charlie Munger has said about Reading (LINK)
Related books: 
Charlie Munger: The Complete Investor 
Poor Charlie's Almanack
FPA Crescent Fund: Second Quarter 2015 Commentary [H/T ValueWalk] (LINK)

Complete video of Bill Miller and Jeff Gundlach at Delivering Alpha (LINK)

China stocks tumble, suffer biggest one-day loss in 8 years (LINK)
Chinese shares tumbled more than 8 percent on Monday amid renewed fears about the outlook for the world’s No. 2 economy, reviving the specter of a full-blown market crash that prompted unprecedented government intervention earlier this month.
Drones and driverless tractors – is this the future of farming [H/T @Sanjay__Bakshi] (LINK)

Malcolm Gladwell: More data doesn’t mean you know everything [H/T value and opportunity] (LINK)

Hussman Weekly Market Comment: Memorize This, Earn a Dollar (LINK)
If I were to choose anything that investors should memorize – that will serve them well over a lifetime of investing – it would be the following two principles: 
1) Valuations control long-term returns. The higher the price you pay today for each dollar you expect to receive in the future, the lower the long-term return you should expect from your investment. Don't take current earnings at face value, because profit margins are not permanent. Historically, the most reliable indicators of market valuation are driven by revenues, not earnings. 
2) Risk-seeking and risk-aversion control returns over shorter portions of the market cycle. 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 the attitude of investors toward risk. When investors are risk-seeking, they are rarely selective about it. Historically, the most reliable way to measure risk attitudes is by the uniformity or divergence of price movements across a wide range of securities. 
I've called these The Iron Law of Valuation, and The Iron Law of Speculation. I've repeated them frequently. They deserve to be repeated. They’re not Kipling, but if you remember both of those principles through the ups and downs of the market cycle, I expect that they’ll replace a great deal of grief with a great deal of success over a lifetime of investing. They also explain virtually every major success and occasional stumble I've experienced in three decades as a professional investor.
Brain Pickings: A Zen Master Explains Death and the Life-Force to a Child and Outlines the Three Essential Principles of Zen Mind (LINK)
Related book: Dropping Ashes on the Buddha 
Related podcast: Maria Popova answers 10 questions

Sunday, July 26, 2015


A Dozen Things Learned from Paul Tudor Jones About Investing and Trading (LINK)

Sanjay Bakshi: Some Thoughts on Roller Coaster Investing (LINK)

Morgan Downey, author of Oil 101, on The Investors Podcast [H/T beforelosingmysanity] (LINK)

Amazon Dazzles in the Brave New World of the Cloud (LINK)

6 Great Investors Explain What Makes Stocks Rise (LINK)

Easy DNA Editing Will Remake the World. Buckle Up. [H/T The Big Picture] (LINK)

Four-legged fossil snake is a world first (LINK)

NASA spies Earth-sized exoplanet orbiting Sun-like star (LINK)

Oliver Sacks: My Periodic Table (LINK) [Beautiful writing like this makes me excited to read Sacks' autobiography, On the Move, soon. And catch up on some of his earlier work at some point.]
A few weeks ago, in the country, far from the lights of the city, I saw the entire sky “powdered with stars” (in Milton’s words); such a sky, I imagined, could be seen only on high, dry plateaus like that of Atacama in Chile (where some of the world’s most powerful telescopes are). It was this celestial splendor that suddenly made me realize how little time, how little life, I had left. My sense of the heavens’ beauty, of eternity, was inseparably mixed for me with a sense of transience — and death.

Friday, July 24, 2015


A big thanks to everyone who passed along invites to Inbox by Gmail. I really appreciate it.

TED Talk - Yuval Noah Harari: What explains the rise of humans? (LINK)
Related book: Sapiens: A Brief History of Humankind 
Related previous post (with other links): Yuval Noah Harari at Hay Festival: Why our imaginations make us human
Jim Grant still likes gold (video) [H/T ValueWalk] (LINK)

Larry Robbins’s Gamble on Health Law Pays Off Big [H/T Matt] (LINK)

Books of the day:

1491: New Revelations of the Americas Before Columbus

1493: Uncovering the New World Columbus Created

It is not the globe trotter who knows mankind, but the thinker...

From The Canon of Reason and Virtue (which I came across via the quote below in Mark Spitznagel's The Dao of Capital):
It is not the globe trotter who knows mankind, but the thinker. In order to know the sun's chemical composition we need not go to the sun; we can analyze the sun's light by spectrum analysis. We need not stretch a tape line to the moon to measure its distance from the earth, we can calculate it by the methods of an a priori science (trigonometry).

Thursday, July 23, 2015


Henry Blodget reminding people how expensive stocks are (LINK)

Meb Faber: Small Cap CAPE Ratios (LINK)

Scientists Are Hoarding Data And It’s Ruining Medical Research - by Ben Goldacre [H/T @TimHarford] (LINK)

How Google's Inbox Transformed the Way I Use Email (LINK) [It's still by invite only. I'd love to try it, so if any readers have it and have invites left they are willing to send to it would be much appreciated.] 

Lionfish Are Resorting to Cannibalism (LINK)

What the Next Generation Needs to Thrive in Exponential Times (LINK)

Innovation and disruption...

A Tweet from Alice Lloyd George [H/T @PlanMaestro] about the shipping container moved me to add it to a section (below) of my investment reminder file, and reminded me that I need to finish the book The Box (There are also a couple of Malcom McLean tidbits in the book Pay Attention to the Thin Cow):
Are you using the current business model and not anchoring on how the business used to be (i.e. remember that businesses are always changing)?
  • Has there been a significant change in the structure of this market/industry, no matter how stable it seems to have been in the past? For example:
    • Steel prices declined 80% after Carnegie developed and built a new kind of plant that massively increased output.
    • After the Spindletop discovery in Texas by the Hamil brothers in 1901, a barrel of oil dropped from about $2.00 down to $0.03. Oil at that time was cheaper than water.
    • The price of a car went from 2 years wages to 3 months wages due to the assembly line, although this was over a ten year period.
    • Malcolm McLean’s 1956 innovation of the shipping container slashed shipping prices from $6 to $0.16 cents per ton.

Wednesday, July 22, 2015


Latticework of Mental Models: Deprival Super Reaction Tendency (LINK)

Hedge Funds Gear Up for Another Big Short [H/T Will] (LINK)
Hedge funds are lining up to profit from potential trouble at some “alternative” mutual funds and bond exchange-traded funds that have boomed in popularity among retirees and other individual investors. 
Financial advisers have pushed ordinary investors into those funds in search of higher returns, a strategy that has come into favor as Federal Reserve benchmark interest rates remain near zero. But many on Wall Street worry that junk bonds, bank loans and esoteric investments held by some of those funds will be extremely hard to sell if the market turns, leaving prices pummeled in a rush for the exits. 
Concerns about such scenarios have been escalating for some time. Now, investment firms such as Leon Black’s Apollo Global Management LLC and Oaktree Capital Management LP are laying the groundwork to cash in if they come to pass.
Andrew Ross Sorkin talks to Fred Wilson about creating startup hubs (video) (LINK)

BeyondProxy Interview with Clarkston Capital Partners (LINK)

Nut-Bashing Monkeys Offer Window Into Human Evolution (LINK)

A New Blue Marble - By Scott Kelly [who is also great to follow on Twitter] (LINK)

Phil Fisher quote

From Common Stocks and Uncommon Profits:
"...there is a complicating factor that makes the handling of investment mistakes more difficult. This is the ego in each of us. None of us likes to admit to himself that he has been wrong. If we have made a mistake in buying a stock but can sell the stock at a small profit, we have somehow lost any sense of having been foolish. On the other hand, if we sell at a small loss we are quite unhappy about the whole matter. This reaction, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process. More money has probably been lost by investors holding a stock they really did not want until they could ‘at least come out even’ than from any other single reason. If  to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

Tuesday, July 21, 2015


Research Affiliates: Are Stocks Overvalued? A Survey of Equity Valuation Models (LINK)
Our answer to the question “Are stocks overvalued?” in the U.S. market is a resounding “Yes!” Our forecast for core U.S. equities is a 0.8% annualized real return over the next decade. The 10-year expected real return for emerging markets equity, however, is much higher at 5.9% a year. The return potential of the nondeveloped markets is so high, in fact, that the valuation models, warts and all, paint a very clear picture.
Frenzy Around Shopping Site Harks Back to Dot-Com Boom [H/T Will] (LINK)
Online marketplace Inc. has almost no revenue, years of likely losses in its future and a strategy that includes underpricing mighty Inc. on millions of items. Jet also has perhaps the highest valuation ever among e-commerce startups before their official launch. 
That is no contradiction in Silicon Valley, where investors keep pouring money into audacious business experiments filled with big-splash potential. Jet is the buzziest e-commerce arrival of the current boom, with $225 million in capital raised in the past year and a timer on its website counting down the seconds to Tuesday’s opening of Jet to the public. 
More than just about any other current startup, Jet seems reminiscent of the dot-com boom era, when e-commerce companies assumed giant losses before breaking into the black. 
Anticipation runs so high that Jet’s founder and chief executive, Marc Lore, is in talks with investors about raising hundreds of millions of dollars in additional capital by year end, according to people briefed on the discussions. The infusion could increase the online retailer’s value to $3 billion from $600 million.
Tim Harford: It’s tough turning ideas into gold (LINK)

The Magic of Tidying Up—Digitally [H/T @DanielPink] (LINK)
Related book: The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing
Best of Neil deGrasse Tyson Arguments And Comebacks, Part 1 (video) [H/T Linc] (LINK)

Alien Animals and Tortured Seascapes off the Galápagos (LINK)

Howard Marks quote

In investing, as in life, there are very few sure things. Values can evaporate, estimates can be wrong, circumstances can change and “sure things” can fail. However, there are two concepts we can hold to with confidence: 
Rule number one: most things will prove to be cyclical. 
Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one. 
Very few things move in a straight line. There’s progress and then there’s deterioration. Things go well for a while and then poorly. Progress may be swift and then slow down. Deterioration may creep up gradually and then turn climactic. But the underlying principle is that things will wax and wane, grow and decline. The same is true for economies, markets and companies: they rise and fall. 
The basic reason for the cyclicality in our world is the involvement of humans. Mechanical things can go in a straight line. Time moves ahead continuously. So can a machine when it’s adequately powered. But processes in fields like history and economics involve people, and when people are involved, the results are variable and cyclical. The main reason for this, I think, is that people are emotional and inconsistent, not steady and clinical. 

Monday, July 20, 2015


Daniel Kahneman: ‘What would I eliminate if I had a magic wand? Overconfidence’ (LINK)
Related book: Thinking, Fast and Slow
Chris Pavese's idea presentation on SeaWorld Entertainment (video) (LINK)
Related book: Walt's Revolution!: By the Numbers
Amazon's Hollywood Shopping Cart Secrets (LINK)

Richard Branson's Billionaire Paradise (Documentary about Necker Island) (video) (LINK)

Hussman Weekly Market Comment: Two-Tier Markets, Full-Cycle Investing, and the Benefits and Costs of Defense (LINK)
As a reminder of where the market stands at the moment, the chart below shows the ratio of nonfinancial market capitalization to corporate gross value added. While other historically reliable metrics carry a very similar message, Market Cap/GVA has the highest correlation with actual subsequent 10-year S&P 500 total returns than any other valuation ratio we’ve examined across history. Despite my admitted stumble in the half-cycle since 2009, it’s perplexing that the equity market is at the second greatest valuation extreme in the history of the United States, on what are objectively the most durably reliable valuation measures available, but it has somehow become an affront to suggest that this will not end well.  
Notice that no market cycle in history, even in recent decades, has failed to carry the ratio of MarketCap/GVA to 1.0 or below by the completion of the cycle. The S&P 500 is presently twice that level. We allow that short-term interest rates may be pegged well below historical norms for several more years, and we know that for every year that short-term interest rates are held at zero (rather than a historically normal level of 4%), one can “justify” equity valuations about 4% above historical norms – a premium that removes that same 4% from prospective future stock returns. So assuming historically normal long-term nominal growth in the economy and corporate revenues, coupled with suppressed interest rates, we accept that another 5 years of zero interest rates might “justify” a premium to historically normal valuations of about (5 years x 4% =) 20%. Again, the problem is that market valuations are presently more than double those norms on the most historically reliable measures. 
...Presently, we anticipate negative total returns for the S&P 500 Index over the coming decade. Even if valuations remain above historical norms a decade from today, it will be extremely difficult for stocks to post total returns beyond the low single digits in the coming 10-year period.

Warren Buffett and Bill and Melinda Gates on Charlie Rose

Sunday, July 19, 2015


Barry Ritholtz talks with Howard Marks (LINK)
Related book: The Most Important Thing
Let’s Be Honest About Gold: It’s a Pet Rock - by Jason Zweig (LINK)

Bill Miller: NYSE Trading Halt Symptomatic of Broader Problem (video) [H/T ValueWalk] (LINK)

Michael Pettis on the China stock market (LINK)

A discussion of 'The Stanford Prison Experiment' on Charlie Rose (video) (LINK)

A Dozen Things Learned from Sam Altman about Venture Capital, Startups and Business (LINK)
Related link: Sam Altman's class lectures on How to Start a Startup
Pluto and Charon Keep Getting WEIRDER (LINK)

Buddhist Geeks Podcast: What Science Can Teach Us About Practice (LINK) [Ed Catmull mentioned this talk in his book, Creativity, Inc.]
In this episode, taken from the Buddhist Geeks Conference in 2011, Kelly McGonigal, PhD in Health Psychology, speaks on how the neuroscience of meditation can help us understand how practice shapes the mind and can also offer fresh insights into concepts like mindfulness and suffering. As Dr. McGonigal presents various scientific studies that show differences in the brain functioning between meditators and non-meditators, she highlights how meditation practice benefits the practitioner in various ways such as higher pain thresholds and reduced depression.

Friday, July 17, 2015


Warren Buffett and Bill and Melinda Gates will be on Charlie Rose tonight.

Horizon Kinetics: 2nd Quarter Commentary (LINK)

Claire Barnes' Q2 Report: Stormy macro, reassuring micro (LINK)

TEDx Talk - Lukas Neely: Is This the Death of Investing? (video) (LINK)
Related book: Value Investing: A Value Investor's Journey Through The Unknown
Speech by Andrew Haldane, Executive Director and Chief Economist of the Bank of England (LINK)

Study Shows Diseases Like Plague Can Perilously Evolve (LINK)

Edge: The Next Wave: A Conversation With John Markof (LINK)

Stephen Colbert talks to Neil deGrasse Tyson about Pluto (video) (LINK)

David McCullough with Ken Burns on The Wright Brothers (video) (LINK)
Related book: The Wright Brothers

Thursday, July 16, 2015


Charlie Munger on Frozen Corportion [H/T @Sanjay__Bakshi] (LINK)

Related book: Your Money and Your Brain
Delivering Alpha Conference Notes (LINK)

Scott Adams: The Judgy Bubble (LINK)

Book of the day [H/T Pat Dorsey, via the Value Investing Podcast]: Jannie Mouton: And then they fired me

In that podcast, I believe Pat Dorsey also mentioned Cintas, which deworsified its very good business a bit by getting into the more capital intensive document shredding business. I was reminded of it after the Stericycle news today, which will be interesting to see if it ends up being a similar deworsifier for it as well.

Wednesday, July 15, 2015

Richard Thaler with Malcolm Gladwell on Misbehaving

Link to video


Related book: Misbehaving: The Making of Behavioral Economics


Mental Models: Contrast-Misreaction Tendency (LINK)

Are We There Yet? Secular Stock Market Cycle Status - By John Mauldin and Ed Easterling (LINK)

Benedict Evans: Office, messaging and verbs (LINK)
When people talk about productivity - about PowerPoint and Excel and how Google Docs and the cloud will or won't kill them, or messaging and the cloud, or how you need a PC for 'real work' -  I'm reminded of CC Baxter and his Friden calculating machine. What killed those machines was not better, cheaper competitors but a completely different way to address the same underlying business need. Instead of hundreds of people recalculating insurance rates, the company bought a mainframe. The business need was being met, but the mechanism changed completely and the old tools disappeared. 
Getting Knocked Down (LINK)

Greece debt crisis: IMF attacks EU over bailout terms (LINK)

Scientists jubilant as Pluto mission phones home — safe (LINK)

Book of the day: Creating Room to Read: A Story of Hope in the Battle for Global Literacy

Tuesday, July 14, 2015


Mental Model: Regression to the Mean (LINK)

Pat Dorsey Follows Buffett’s Lessons to Pick Stocks [H/T Linc] (LINK) [Related book: The Little Book That Builds Wealth]
How has your understanding of “economic moats” evolved over the years? 
The biggest mistake I made at Morningstar was underplaying the value of good management. At a smaller business, the ability of a manager to create something incredible out of not much is quite striking. Buffett started with a textile mill -- the worst raw material of all -- and look what he did. Or look at what John Malone did at Liberty. But not every manager needs to be insanely brilliant. Beyond that, you just find a great business run by a smart manager who has the ability to reinvest excess free cash flow at a high incremental rate of return. That, to me, is the key. Having a moat is great. Having a good capital allocator at the helm is important. But the business also needs a good runway ahead of it, so the manager can reinvest the cash inside their moat. That’s what we’re looking for. 
Do you hedge against currency risk in any of the countries where you invest?

No. Full hedging is expensive. The costs are certain; the returns are uncertain. And selective hedging would just give us something else to be wrong about. The strength of the U.S. dollar has been painful for us, but the currency drag has been smaller so far this year. Some years, currency will make you look like a genius; some years, it will make you look like an idiot. You’re probably neither.
David Einhorn's Q2 Letter (LINK)
Greece has been anything but sun-kissed. We continue to hold a small position in Greek bank stocks and warrants. The best we can say is that from the outset we recognized this to be a high-risk, high-reward proposition and sized the position accordingly. Neither our losses nor remaining downside exposure are significant. 
Last year, it appeared that Greece had finally turned the corner after years of suffering through imposed austerity and the resultant 25% collapse in GDP. Much like the Seahawks’ ill-fated decision to pass the ball at the end of Superbowl XLIX, instead of giving it to monster running back Marshawn Lynch, Greece snatched defeat from the jaws of victory by electing the populist anti-austerity, pro-debt-writedown, Syriza coalition. 
Puerto Rico’s governor recently said of its own debt, “This is not about politics; it’s about math.” The math for Greece is easy: austerity hasn’t improved the economy and its debts are unsustainable. Knowing this, Syriza no longer wanted to play the “extend and pretend” game. Further, Greece’s recently resigned finance minister Yanis Varoufakis believed they wouldn’t have to. Mr. Varoufakis, who kept reminding everyone that he is a professor of game theory, believed that the European leaders would prefer to make concessions now rather than manage the disruption of a Greek default. He must not be familiar with the Tyler Durden school of negotiation: the first rule of using game theory is you do not talk about using game theory. What’s more obvious is that Syriza didn’t understand what the game is. 
This is not about math; it’s about politics. Consider that the main difference between Greece and France is that France is a big fan of extend and pretend. And as long as France says it will pay, its bonds might yield just a bit more than Germany’s. Though Greece has a superficially unmanageable ratio of debt to GDP, the debt had been restructured so that there is little debt service burden for the next several years. Politically, European leaders prefer to leave the future problems in the future. Syriza’s refusal to play along is a problem not just for bondholders but also for those holding seats of power. The European leaders fear that if Syriza can claim even a moral victory, it will inspire other European countries to oust their current leaders in favor of populist governments who campaign on the promise of debt repudiation. 
Though Mario Draghi promised he would do whatever it takes to save the euro, that doesn’t include lifting a finger to assist Greece financially or in any way signal that the ECB has Greece’s back. Just days prior to the January elections, Mr. Draghi announced that the ECB would exclude Greece from quantitative easing for at least six months. Doing whatever it takes is proving to be a conditional promise, as denying Greece access to the capital markets is a key tenet of the European strategy to pressure Syriza. 
For anyone still missing the joke, Bank of Japan Governor Haruhiko Kuroda summarized the view of the global central planners when he said, “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.” Perception supplants reality. The moment leaders (or markets) start making it about the math, gravity comes into play.
Hoisington Quarterly Review and Outlook, Second Quarter 2015 (LINK)

Saving Greece, Saving Europe (LINK)

This is pretty funny, and makes a great point - Last Week Tonight with John Oliver: Stadiums (video) (LINK)

The New Horizons spacecraft photographs Pluto (LINK)

And a great quote from Einhorn's letter: “A diamond is a piece of coal that stuck to the job.” -Thomas Edison

Monday, July 13, 2015


Back from vacation with some links...

Memo to China: You Are Doomed to Fail - by Jason Zweig (LINK)


Wilbur Ross: Here's the real goal of Greek deal (LINK)

Barry Ritholtz talks to Leon Cooperman (LINK)

A Dozen Things Learned from Leon Cooperman About Investing (LINK)

A Dozen Things Learned from Ben Horowitz about Management, Investing and Business (LINK)
Related book: The Hard Thing About Hard Things
Lessons Learned from A History of Oil (LINK) [I listened to the podcast mentioned last year, and also highly recommend it. For some related books, see HERE. And a related DVD:The Prize - An Epic Quest for Oil; Money & Power.]

A London Hedge Fund Lost $1.2 Million in a Friday Afternoon Phone Scam [H/T Will] (LINK)

Hussman Weekly Market Comment: Greece and the King of Asteroid 325 (and The One Lesson to Learn Before a Market Crash) (LINK)
Last week, the price of Greek government debt soared on hopes of an 11th hour stick-save bailout by the European Union. Unfortunately, that price jump still left Greek bonds priced to reflect a default probability of 100% at every maturity. The jump only reflected an increase in the amount that bondholders evidently expect to recover in default, raising the implied recovery rate from the recent low near 30% to something closer to 50%. Put another way, the bond market has fully priced in the likelihood of a default coupled with a major haircut on Greek debt. What prices may not reflect is that the style of the haircut Greece wants may be modeled after former finance minister Yanis Varoufakis. 
While a can-kicking bailout is still possible, it’s not at all clear that it would be desirable for anyone in the longer-run. Meanwhile, in my view, the blame and finger-pointing being aimed at Greece is not only unfortunate but unjust. In Antoine de Saint Exupery’s The Little Prince, the King of Asteroid 325 asks, “If I ordered a general to change himself into a sea bird, and the general did not obey me… which of us would be in the wrong?” 
The fact is that the entire structure of the euro itself is wrong – flawed – because it demands exactly that sort of transformation by any country that is not sufficiently similar to stronger European countries such as Germany, France and Finland. One of the first things that international economists learn to appreciate is the idea of an “adjustment variable.” When two countries differ significantly in their growth, productivity, tax structure, demographics, and other factors, the relative differences are typically resolved by changes in exchange rates, interest rates, and price levels. Those adjustment variables provide a buffer for each country that allows them to adapt individually to economic differences and shocks. 
The problem with the euro is that the treaty that allowed each country entry into the system was much like an errant request by the King of Asteroid 325: transform yourself into a sea bird. 

Saturday, July 11, 2015

Seneca quote

From Moral letters to Lucilius - Letter 59 (Kindle):
We human beings are fettered and weakened by many vices; we have wallowed in them for a long time and it is hard for us to be cleansed. We are not merely defiled; we are dyed by them. But, to refrain from passing from one figure to another, I will raise this question, which I often consider in my own heart: why is it that folly holds us with such an insistent grasp? It is, primarily, because we do not combat it strongly enough, because we do not struggle towards salvation with all our might; secondly, because we do not put sufficient trust in the discoveries of the wise, and do not drink in their words with open hearts; we approach this great problem in too trifling a spirit. But how can a man learn, in the struggle against his vices, an amount that is enough, if the time which he gives to learning is only the amount left over from his vices? None of us goes deep below the surface. We skim the top only, and we regard the smattering of time spent in the search for wisdom as enough and to spare for a busy man. What hinders us most of all is that we are too readily satisfied with ourselves; if we meet with someone who calls us good men, or sensible men, or holy men, we see ourselves in his description, not content with praise in moderation, we accept everything that shameless flattery heaps upon us, as if it were our due. We agree with those who declare us to be the best and wisest of men, although we know that they are given to much lying. And we are so self-complacent that we desire praise for certain actions when we are especially addicted to the very opposite. Yonder person hears himself called "most gentle" when he is inflicting tortures, or "most generous" when he is engaged in looting, or "most temperate" when he is in the midst of drunkenness and lust. Thus it follows that we are unwilling to be reformed, just because we believe ourselves to be the best of men.

Friday, July 10, 2015

Value and growth investing...

From The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns:
A common misperception among professional investors is that there is a bright-line distinction between value and growth investing. This is a legacy belief that was driven largely by institutional consultants. They have attempted to group managers whose portfolio characteristics clustered around low prices in relation to book value and earnings as value managers. Conversely, a manager with a portfolio filled with companies that exhibit growth in sales or earnings are considered growth managers. If a small-cap manager engages in fundamental company analysis with any regularity, the irrationality of this model becomes readily apparent. Growth (or lack thereof) is simply incorporated into the mathematics of appraisal. No manager, growth or otherwise, is attempting to purchase a security at a steep premium to estimated appraisal. The industry perpetuates the myth that value managers are concerned with buying statistically cheap securities and that growth managers do not care what they pay. Nothing could be further from the truth. 
The previous section included a discussion on the pros and cons of relying on historical accounting data for valuation. Appraising an operating business is almost always about the future profits attributable to owners. If expected profits are discounted appropriately and adjusted for capital structure, then an appraisal should reflect all variability within the various line items on the income statement. Both value and growth managers are correct to attempt to purchase at a discount to appraisal. Conversely, both are likely to be wrong if, in the case of value managers, they blindly purchase stocks with low relative price-to-book values without considering the future of the company and, in the case of growth managers, they blindly purchase fast-growing companies regardless of valuation.

Richard Feynman quote

“I can live with doubt, and uncertainty, and not knowing. I think it’s much more interesting to live not knowing than to have answers which might be wrong.” -Richard Feynman

Thursday, July 9, 2015

Starting with a qualitative search...

From The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns:
Most investment processes begin with quantitative elements like filters and screens. The qualitative work is often left for the latter stages, after suitable investment candidates have been identified. Investment processes are often structured in this quantitative-first order for two reasons. First, it is more convenient for the manager to reduce the size of the opportunity set to a more manageable list of companies. Second, institutional investors often demand a step-by-step process that can neatly illustrate the filtering of thousands of companies into a final portfolio. But convenience and marketing should not be the drivers of a robust investment process. Managers who understand the hidden dangers of screening and strict adherence to quantitative investment processes should instead start with the qualitative search for competitive advantage and management talent. By compiling a list of qualitatively superior companies first, and limiting valuation work to these, a small-cap manager prevents being drawn into seductively cheap subpar ideas.

Marcus Aurelius quote

From Meditations:
It never ceases to amaze me: we all love ourselves more than other people, but care more about their opinion than our own. If a god appeared to us—or a wise human being, even—and prohibited us from concealing our thoughts or imagining anything without immediately shouting it out, we wouldn’t make it through a single day. That’s how much we value other people’s opinions—instead of our own.

Wednesday, July 8, 2015

Ben Graham quote

From The Intelligent Investor:
Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom. In forty-four years of Wall Street experience and study I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.

Statistics and investing...

From Nassim Taleb in Fooled By Randomness:
If the science of statistics can benefit me in anything, I will use it. If it poses a threat, then I will not. I want to take the best of what the past can give me without its dangers. Accordingly, I will use statistics and inductive methods to make aggressive bets, but I will not use them to manage my risks and exposure. Surprisingly, all the surviving traders I know seem to have done the same. They trade on ideas based on some observation (that includes past history) but, like the Popperian scientists, they make sure the costs of being wrong are limited (and their probability is not derived from past data).

Tuesday, July 7, 2015

Peter Lynch quote

From Beating the Street:
Buying a cyclical after several years of record earnings and when the P/E ratio has hit a low point is a proven method for losing half of your money in a short period of time.

Bertrand Russell and uncertainty

"I think nobody should be certain of anything. If you’re certain, you’re certainly wrong because nothing deserves certainty. So one ought to hold all one’s beliefs with a certain element of doubt, and one ought to be able to act vigorously in spite of the doubt…. One has in practical life to act upon probabilities, and what I should look to philosophy to do is to encourage people to act with vigor without complete certainty." -Bertrand Russell


Monday, July 6, 2015

John Maynard Keynes quote

"In chemistry and physics and other natural sciences the object of experiment is to fill in the actual values of the various quantities and factors appearing in an equation or a formula; and the work when done is once and for all. In economics that is not the case, and to convert a model into a quantitative formula is to destroy its usefulness as an instrument of thought." -J. M. Keynes

Marcus Aurelius quote

From Meditations:
Your three components: body, breath, mind. Two are yours in trust; to the third alone you have clear title.  
If you can cut yourself—your mind—free of what other people do and say, of what you’ve said or done, of the things that you’re afraid will happen, the impositions of the body that contains you and the breath within, and what the whirling chaos sweeps in from outside, so that the mind is freed from fate, brought to clarity, and lives life on its own recognizance—doing what’s right, accepting what happens, and speaking the truth—  
If you can cut free of impressions that cling to the mind, free of the future and the past—can make yourself, as Empedocles says, “a sphere rejoicing in its perfect stillness,” and concentrate on living what can be lived (which means the present) … then you can spend the time you have left in tranquillity. And in kindness. And at peace with the spirit within you.

Sunday, July 5, 2015

Montaigne quote

"In order always to be learning something by communication with others (which is one of the finest schools there can be), I observe in my travels this practice: I always steer those I talk with back to the subjects they know best....For most often the opposite happens: each man chooses to hold forth on another man's occupation rather than his own, thinking that this is so much new reputation acquired....Thus we must always throw the architect, the painter, the shoemaker and the rest each back to his quarry. And apropos of this, in the reading of history, which is everybody's business, I make it a habit to consider who are the authors. If they are people who have no other profession than letters, I learn mainly their style and language; if they are doctors, I believe them most readily in what they tell us about the temperature of the air, the health and constitution of princes and and wounds and maladies; if they are lawyers, we must take what they say on controversies over rights, the laws, the establishment of governments, and things like that; if theologians, Church affairs, ecclesiastical censures, dispensations, and marriages; if courtiers, manners and ceremonies; if men of war, what belongs to their business, and principally the accounts of the great actions at which they were present in person; if ambassadors, negotiations, understandings, and diplomatic practices, and the way to conduct them." -Michel de Montaigne (The Complete Essays of Montaigne)