Monday, August 31, 2015


Always a great time to revisit this: Seth Klarman on the Painful Decision to Hold Cash [H/T @trengriffin] (LINK)

Latticework of Mental Models: Moral Hazard (LINK)

Meet Mark Spitznagel, the Investor Behind Universa’s Big Gain [H/T Jim] (LINK)
Related book: The Dao of Capital
Boeing uses its clout to control supplier consolidation (LINK)

How farmers from rural China bet on the stock market and lost [H/T @jasonzweigwsj] (LINK)

Nick Kristof: This Land Is Our Land (LINK)

I noticed that one of my all-time favorite reads is now also available in audio format for those interested: On the Shortness of Life - by Lucius Seneca

Sunday, August 30, 2015


A Dozen Things Learned from Charlie Munger About Benjamin Graham’s Value Investing System (LINK)
Related book: Charlie Munger: The Complete Investor
Tren Griffin talks with Forbes about his book on Charlie Munger (LINK)

James Chanos discusses China on the Full Disclosure podcast (audio) (LINK)

A 'Black Swan' Fund Makes $1 Billion (LINK) [Related book: The Dao of Capital]
“This is just the beginning,” said Universa founder Mark Spitznagel, referring to the market volatility last week. His longtime collaborator, Mr. Taleb, who advises Universa, is a professor at New York University and is known for his pessimistic forecasts on the global economy. 
“The markets are overvalued to the tune of 50%, and I’ve been saying that for some time,” said Mr. Spitznagel, who has spent the past several years warning of a coming correction he viewed as inevitable given the easy-money policies by central banks around the world.
The Power Revolutions (LINK)
Natural gas, solar power and data-driven efficiency are making big gains, but history shows that the shift away from coal and oil won’t be fast or neat
Masters in Business podcast: Paul McCulley (audio) (LINK)

PHILOSOPHICAL ECONOMICS: Fiscal Inflation Targeting and the Cost of Large Government Debt Accumulation (LINK)

Hussman Weekly Market Comment: If You Need to Reduce Risk, Do it Now (LINK)
It’s important to recognize that the S&P 500 is down only about 6% from its record high, while the most historically reliable valuation measures are double their historical norms; a level that we still associate with expected 10-year S&P 500 nominal total returns of approximately zero. We fully expect a 40-55% market loss over the completion of the present market cycle. Such a loss would only bring valuations to levels that have been historically run-of-the-mill. Investors need not expect, but should absolutely allow for, a market loss of that magnitude. If your investment portfolio is well-aligned with your actual risk tolerance and the horizon over which you expect to spend the funds, do nothing. Otherwise, use this moment as an opportunity to set it right. Whatever you're going to do, do it. You may not get another opportunity, and if you're taking more equity risk than you wish to carry over the completion of this cycle, you still have the opportunity to adjust at stock prices that are close to the highest levels in history.
Oliver Sacks, Neurologist Who Wrote About the Brain’s Quirks, Dies at 82 (LINK)
Related book: On the Move

Graham and Dodd quote

From Security Analysis:
Current Earnings Should Not Be the Primary Basis of Appraisal. The market level of common stocks is governed more by their current earnings than by their long-term average. This fact accounts in good part for the wide fluctuations in common-stock prices, which largely (though by no means invariably) parallel the changes in their earnings between good years and bad. Obviously the stock market is quite irrational in thus varying its valuation of a company proportionately with the temporary changes in its reported profits. A private business might easily earn twice as much in a boom year as in poor times, but its owner would never think of correspondingly marking up or down the value of his capital investment.  
This is one of the most important lines of cleavage between Wall Street practice and the canons of ordinary business. Because the speculative public is clearly wrong in its attitude on this point, it would seem that its errors should afford profitable opportunities to the more logically minded to buy common stocks at the low prices occasioned by temporarily reduced earnings and to sell them at inflated levels created by abnormal prosperity.

Saturday, August 29, 2015

Maximizing the experience of the people who have the most aptitude and the most determination as learning machines...

From Poor Charlie's Almanack:
Another idea that I found important is that maximizing non-egality will often work wonders. What do I mean? Well, John Wooden of UCLA presented an instructive example when he was the number one basketball coach in the world. He said to the bottom 5 players, "You don't get to play - you are practice partners." The top seven did almost all the playing. Well, the top seven learned more--remember the importance of the learning machine--because they were doing all the playing. And when he adopted that non-egalitarian system, Wooden won more games than he had won before. I think the game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines. And if you want the very highest reaches of human achievement, that's where you have to go. You do not want to choose a brain surgeon for your child by drawing straws to select one of fifty applicants, all of whom take turns doing procedures. You don't want your airplanes designed in too egalitarian a fashion. You don't want your Berkshire Hathaways run that way either. You want to provide a lot of playing time for your best players.

Friday, August 28, 2015


Horizon Kinetics - Under the Hood: What’s in Your Index? (LINK)

The ETF Flash Crash (LINK)

Stock Halts Added to Monday’s Market Chaos [H/T Matt] (LINK)

Many Psychology Findings Not as Strong as Claimed, Study Says (LINK)
Related link [mentioned by Peter Bevelin in one of my interviews with him]: Why Most Published Research Findings Are False
Josh Foer on the James Altucher podcast (LINK)
Related book: Moonwalking with Einstein 
Related previous post: Memortation, or One Way to Put What You Learn to Practical Use
Stoic Mindfulness (LINK)

The Really Big One: An earthquake will destroy a sizable portion of the coastal Northwest. The question is when. [H/T Phil] (LINK)

Book of the day [H/T Phil]: Shaky Ground: The Strange Saga of the U.S. Mortgage Giants

A rule of intuition...

From Thinking, Fast and Slow:
It is wrong to blame anyone for failing to forecast accurately in an unpredictable world. However, it seems fair to blame professionals for believing they can succeed in an impossible task. Claims for correct intuitions in an unpredictable situation are self-delusional at best, sometimes worse. In the absence of valid cues, intuitive “hits” are due either to luck or to lies. If you find this conclusion surprising, you still have a lingering belief that intuition is magic. Remember this rule: intuition cannot be trusted in the absence of stable regularities in the environment. 

The above also reminded me of some Graham and Dodd comments, from Security Analysis:
Intuition Not a Part of the Analyst’s Stock in Trade. In the absence of indications to the contrary we accept the past record as a basis for judging the future. But the analyst must be on the lookout for any such indications to the contrary. Here we must distinguish between vision or intuition on the one hand, and ordinary sound reasoning on the other. The ability to see what is coming is of inestimable value, but it cannot be expected to be part of the analyst’s stock in trade. (If he had it, he could dispense with analysis.) He can be asked to show only that moderate degree of foresight which springs from logic and from experience intelligently pondered. It was not to be demanded of the securities statistician, for example, that he foretell the enormous increase in cigarette consumption since 1915 or the decline in the cigar business or the astonishing stability of the snuff industry; nor could he have predicted—to use another example—that the two large can companies would be permitted to enjoy the full benefits from the increasing demand for their product, without the intrusion of that demoralizing competition which ruined the profits of even faster growing industries, e.g., radio. 

Thursday, August 27, 2015


Ruane, Cunniff & Goldfarb Investor Day Transcript (May 2015) [H/T market folly] (LINK)

Pershing Square Holdings' interim report [H/T Will] (LINK)

Jim Grant: The Fed Turned the Stock Market Into a 'Hall of Mirrors' (video) (LINK)

Are You a "Ben Graham Defensive Investor"? (LINK)

The Absolute Return Letter - August/September 2015 (LINK)
This month's Absolute Return Letter is a little different. It was a very eventful summer with many incidents impacting financial markets and we have compiled all these topics into one letter. China is, not surprisingly, a core subject. If the Chinese economy is slowing (and it is), we don't think China is in for a hard landing. If anyone is in the near term - and this may surprise you - we think the U.S. and the euro zone are far more likely candidates.
Kazakhstan to host IAEA nuclear fuel bank to assist non-proliferation [H/T Linc] (LINK)
One of NTI's supporters, U.S. billionaire investor Warren Buffett, contributed $50 million to "jumpstart" the project, Nunn said. 
"I look forward to the time soon when the fuel bank will become an operational reality," Buffett said in a message read by Nunn. 
"Please tell all the decision makers that I am a patient and long-term investor and I know that international agreements take a considerable amount of time. But please also tell them that I am 84 years old."
Book of the day: Men to Match My Mountains

Wednesday, August 26, 2015


The Trajectory of a Crash (LINK)

Glut of Chinese Steel Looms Large [H/T Matt] (LINK)

The 27 Must-Follow Feeds in the World of Science (LINK)

Last Week Tonight with John Oliver: Televangelists (video) (LINK)

Book of the day (recommended by Marc Andreessen): Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

Structuring compensation incentives...

From Charlie Munger: The Complete Investor:
Munger believes that structuring compensation incentives is critical. If the right structure exists, then a seamless web of deserved trust can be created which lessens problems related to this tendency. For example, it is surprising how many people fail to recognize how performance suffers if you pay someone in advance rather than after the work has been completed. It’s precisely because of the dangers of misaligned incentives that Munger and Buffett chose to make compensation decisions themselves, whereas they delegate almost all management responsibilities.

Tuesday, August 25, 2015

The importance of an above-average sales organization...

From Common Stocks and Uncommon Profits:
In this competitive age, the products or services of few companies are so outstanding that they will sell to their maximum potentialities if they are not expertly merchandised. It is the making of a sale that is the most basic single activity of any business. Without sales, survival is impossible. It is the making of repeat sales to satisfied customers that is the first benchmark of success. Yet, strange as it seems, the relative efficiency of a company's sales, advertising, and distributive organizations receives far less attention from most investors, even the careful ones, than do production, research, finance, or other major subdivisions of corporate activity.  
There is probably a reason for this. It is relatively easy to construct simple mathematical ratios that will provide some sort of guide to the attractiveness of a company's production costs, research activity, or financial structure in comparison with its competitors. It is a great deal harder to make ratios that have even a semblance of meaning in regard to sales and distribution efficiency.
... Again, the way out of this dilemma lies in the use of the “scuttlebutt” technique. Of all the phases of a company's activity, none is easier to learn about from sources outside the company than the relative efficiency of a sales organization. Both competitors and customers know the answers. Equally important, they are seldom hesitant to express their views. The time spent by the careful investor in inquiring into this subject is usually richly rewarded.

Monday, August 24, 2015

Charlie Munger on practice evolution

From Whitney Tilson's 2000 Wesco Annual Meeting Notes:
Practice Evolution 
"This is really important. For example, Hertz and Enterprise Rent-a-Car through practice evolution have developed personnel systems, etc. that work for them. They are like different species in similar ecological niches. 
"Common stock investors can make money by predicting the outcomes of practice evolution. You can't derive this by fundamental analysis -- you must think biologically. 
"Another example is Tupperware, which developed what I believe to be a corrupt system of psychological manipulation. But the practice evolution worked and had legs. Tupperware parties sold billions of dollars of merchandise for decades. 
"We wouldn't have bought CORT if we didn't like the culture, which resulted from long practice evolution." 


Rescuing Mes Aynak: Mega Copper Deal in Afghanistan Fuels Rush to Save Ancient Treasures (LINK)

a16z Podcast: Tech’s Biggest Ideas and How They Take Hold (LINK)

Nate Silver on the Masters in Business radio podcast (LINK)
Related book: The Signal and the Noise
Evan Osnos' article on Donald Trump and his campaign (LINK)

Scott Adams continues his look into Donald Trump's persuasion tactics - Trump VS Bush: Persuasion Wars (LINK)

Brad Katsuyama’s Next Chapter (LINK)

In Times of Market Panic (LINK)

The Method in the Market’s Current Madness - By James Surowiecki (LINK)

James Grant on CNBC this morning (Video 1, Video 2)

Hussman Weekly Market Comment: Risk Turns Risky: Unpleasant Skew, Scale Dilation, and Broken Lines (LINK)
The same lesson has been learned and re-learned by investors across a century of market cycles. When a previously overvalued, overbought, overbullish market is joined by internal deterioration – with numerous securities, sectors, industries and securities simultaneously breaking down, accepting market risk is typically not rewarded, and stocks instead become vulnerable to air-pockets, free-falls, and crashes. Range-bound markets, particularly at elevated valuations, often offer a false sense of security; making investors believe that their risk is low because day-to-day volatility is contained. Last week's market loss was initial and quite contained from the standpoint of current valuations. My view is that under the market conditions we presently observe, investors face the continued potential for steep, vertical losses. That outlook will change as market conditions change. 
I’ll emphasize, as usual, that the message here is not “sell everything.” The message is to understand where we are in the market cycle from the standpoint of a century of reliable evidence, and to act in a way that meets your investment objectives. Align your portfolio with careful consideration for your tolerance for losses over the market cycle; with your willingness to miss out on interim market gains should they emerge; with the horizon over which you will actually need to spend from your investments; with the extent that you believe that history is actually informative for making investment decisions; with the extent to which alternative investment outlooks are supported by evidence, ideally spanning numerous market cycles. I am not encouraging buy-and-hold investors to depart from well-considered investment plans or to abandon their discipline; only that they take every step to ensure their portfolio is actually aligned with their true risk tolerance and investment horizon.
Quote of the day:
"I think it’s essential to remember that just about everything is cyclical. There’s little I’m certain of, but these things are true: Cycles always prevail eventually. Nothing goes in one direction forever. Trees don’t grow to the sky. Few things go to zero. And there’s little that’s as dangerous for investor health as insistence on extrapolating today’s events into the future." -Howard Marks, The Most Important Thing

Sunday, August 23, 2015


A Dozen Things Learned from Charlie Munger about Making Rational Decisions (LINK)

A Dozen Things Learned from Charlie Munger about Mental Models and Worldly Wisdom (LINK)
Related book: Charlie Munger: The Complete Investor
Jason Zweig: 5 Things Investors Shouldn’t Do Now (LINK)

Benedict Evans: Ways to think about cars (LINK)

The Short-Termism Myth - By James Surowiecki (LINK)

Why One Of The Best Athletes In The World Refuses To Compete (LINK)

Scott Adams: The Day You Became a Better Writer (2nd Look) (LINK)

Your Brain, Your Disease, Your Self (LINK)

Friday, August 21, 2015


This looks like a great event if you're in NYC on November 11th: Berkshire Hathaway 50th Anniversary Symposium [H/T @CunninghamProf] (LINK)

Creating an ideal environment for optimal investment decision making (LINK)


Bernstein: Investors Need to Completely Rethink the Way They Value Media Companies (LINK)

No End in Sight for Oil Glut (LINK)
When oil prices started to edge down a year ago, most energy mavens thought the drop would be small and short-lived. 
Instead, the price of crude has plunged by almost 60% from its 2014 peak—and suddenly looks likely to stay low for months and maybe years to come. The reason: In the global battle for market share, nobody has backed down. Nobody has even blinked. Not Saudi Arabia, not the U.S., and not even troubled producers from Russia to Iraq. Everyone who can seems locked into pumping as much oil as possible.
Aswath Damodaran - Beijing Blunders: Bull in a China Shop! (LINK)

Jim Chanos on CNBC -- Links to videos:
Legendary short seller: China worse than you think 
Chanos: Today's emerging markets not quite like '97 
Chanos short SolarCity 
Chanos remains short Hewlett-Packard
Ant knows how to self-medicate to fight off fungal infection [H/T @SciencePorn] (LINK)

Book of the day: A Short History of Financial Euphoria

Phil Fisher quote

From Common Stocks and Uncommon Profits:
Not even the most outstanding growth companies need necessarily be expected to show sales for every single year larger than those of the year before. In another chapter I will attempt to show why the normal intricacies of commercial research and the problems of marketing new products tend to cause such sales increases to come in an irregular series of uneven spurts rather than in a smooth year-by-year progression. The vagaries of the business cycle will also have a major influence on year-to-year comparisons. Therefore growth should not be judged on an annual basis but, say, by taking units of several years each. Certain companies give promise of greater than normal growth not only for the next several-year period, but also for a considerable time beyond that.

Thursday, August 20, 2015


Today's Audible Daily Deal is one of the all-time great books: Man's Search for Meaning (for $2.95)

Will and Ariel Durant: The Three Lessons of Biological History (LINK)

Can Warren Buffett Also Predict Equity Market Downturns? [H/T @Greenbackd] (LINK)
In a 2001 interview, Warren Buffett suggested that the ratio of the market value of all publicly traded stocks to the Gross National Product could identify potential overvaluations and undervaluations in the US equity market. In this paper, we investigate whether this ratio is a statistically significant predictor of equity market downturns.
The Post-YC Slump [H/T @rogerfarley] (LINK)

New Video: Great White Shark Leaps After Seal in Cape Cod (LINK)

Learning from mistakes...

From Tren Griffin in his book Charlie Munger: The Complete Investor:
Buffett has said that if you cannot explain why you failed after you have made a mistake, the business was too complex for you. In other words, Munger and Buffett like to understand why they made a mistake so they can learn from the experience. If you cannot understand the business, then you cannot determine what you did wrong. If you cannot determine what you did wrong, then you cannot learn. If you cannot learn, you will not know what you’re doing, which is the real cause of risk.   
"Forgetting your mistakes is a terrible error if you’re trying to improve your cognition. Reality doesn’t remind you. Why not celebrate stupidities in both categories?" —CHARLIE MUNGER, WESCO ANNUAL MEETING, 2006

Wednesday, August 19, 2015


Latticework of Mental Models: Feedback Loops (LINK)

Grant's Summer 2015 Vacation Issue (LINK)

Share of IPOs this year with dual-class stock structures [H/T Matt] (LINK)
More than 13.5% of the 133 companies listing shares on U.S. exchanges in 2015 have set up a dual-class structure, according to data provider Dealogic. That’s up from 12% last year and just 1% in 2005.
Book of the day (published in 1997): Investment Gurus - by Peter J. Tanous
Tanous: Since you stopped managing the fund actively, have you seen anything in the markets that has changed your views about either the way the market works or the value of investing in stocks over the long term? 
[Peter] Lynch: Zero. Human nature hasn’t changed much in about 40,000 years. Corporate profits have their ups and downs. Markets have their ups and downs. Companies turn around; companies deteriorate. I don’t think these things are going to change in the next hundred years.

On checklists and not being stupid...

From Charlie Munger: The Complete Investor:
A lattice approach is, in effect, a double-check on the investing process. But instead of just two checks, you are checking the result over and over. Munger believes that by going over your decision-making process and carefully using skills, ideas, and models from many disciplines, you can more consistently not be stupid. You will always make some bone-headed mistakes even if you’re careful, but his process is designed to decrease the probability of those mistakes.  
To make sure he is taking advantage of as many models as possible, Munger likes checklists:  
You need a different checklist and different mental models for different companies. I can never make it easy by saying, “Here are three things.” You have to derive it yourself to ingrain it in your head for the rest of your life. 
—Charlie Munger, Berkshire Annual Meeting, 2002

Tuesday, August 18, 2015

Tren Griffin on mental models and investing...

From Charlie Munger: The Complete Investor (which according to Amazon, is now being shipped for end-of-week deliveries):
No one can know everything, but you can work to understand the big important models in each discipline at a basic level so they can collectively add value in a decision-making process. Simply put, Munger believes that people who think very broadly and understand many different models from many different disciplines make better decisions and are therefore better investors.


Scott Adams: Wizard Wars (LINK)

In Praise of Slowness: Challenging the Cult of Speed (LINK)

The Meaning of Kissinger - By Niall Ferguson (LINK)
Related book: Kissinger: 1923-1968: The Idealist
This Is a Fine Time to Be a Big Corporation [H/T Matt] (LINK)

Jim Grant: The Fed Will Not Raise Rates In 2015 (video) [H/T ValueWalk] (LINK)

Edge Master Class 2015: A Short Course in Superforecasting (LINK)
Related book (released next month): Superforecasting: The Art and Science of Prediction

Monday, August 17, 2015

Observing what works and what doesn't and why...

From Tren Griffin in his book Charlie Munger: The Complete Investor, which it appears will now be released at the end of this week instead of next month. So if you haven't ordered your copy yet, you can order it HERE and may even get it by the end of the week. I plan on doing a fuller review once I finish my review copy; but as a prelude, I highly recommend it. 
Much of what is interesting about Munger is explained by this simple sentence: "I observe what works and what doesn't and why." Life happens to Munger as it does to everyone, but unlike many people he thinks deeply about why things happen and works hard to learn from the experience.


Malcolm Gladwell's latest: What Social Scientists Learned from Katrina (LINK)

The critical article on Amazon's working environment making the rounds (LINK), and Jeff Bezos' response (LINK)

Panel discussing Google's reorganization on Charlie Rose (video) (LINK)

Meet the New King of Subprime Lending (LINK)

Nassim Taleb: People rarely mean the same thing when they say "religion" (LINK)

Hussman Weekly Market Comment: Debt-Financed Buybacks Have Quietly Placed Investors On Margin (LINK)
“The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.”  
- James Grant 
When corporations and even developing countries experience debt crises, one of the primary means of restructuring is the debt-equity swap. This sort of transaction involves canceling out debt of the company or government in return for equity of the company, or privatization of some of the assets of the country. Corporate debt-equity swaps typically result in severe dilution of the equity claims of existing shareholders, and in some cases, can wipe those claims out as creditors take control of the company. At a national level, debt-equity swaps can take a punitive form that forces countries to privatize and sell off their assets in satisfaction of their debts. Aside from austerity demands, one of the most severe outcomes of the ongoing saga in Greece is the demand for exactly that kind of debt restructuring. 
The opposite of a debt-equity swap, of course, is a debt-financed stock repurchase, which leverages up the claims of existing shareholders. One of the more troubling aspects of the Federal Reserve’s suppression of interest rates is the speculation it has encouraged, by giving companies access to enormously cheap funding on a 5-7 year horizon. Though nominal economic growth has been tepid, revenue growth has turned negative, and profits as a share of GDP have been falling for more than a year, companies have scampered to boost their per-share earnings by taking out debt to repurchase and reduce the number of shares outstanding. This leveraging has been done at market valuations that are near the highest levels in history on historically reliable measures.
Book of the day: Leonardo: The Artist and the Man

Sunday, August 16, 2015


A Dozen Things Learned from David Einhorn About Investing (LINK)

US Labor Market Observations (via reading public restaurant company transcripts) (LINK)

Richard Duncan talks with The Financial Sense Newshour (audio) (LINK)

Audiobook of the day: When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar, Germany

Friday, August 14, 2015


William Deresiewicz: How To Learn How To Think (LINK) [A great find/post/excerpt from Shane. It also reminds me of a recent comment Charlie Munger made about how he thinks the younger generations' lack of focus is doing them a great disservice. And a reply to a question about speed reading at the 2011 Berkshire Annual Meeting. Buffett had said that reading fast can give one a big advantage, but Munger replied with something along the lines that speed reading is overrated.... maybe because, like the excerpt in Shane's post, it increases how much thinking others do for you, and decreases the amount you think for yourself. Going slower may allow one to think things through, understand them better by coming to one's own conclusions, and in the end make fewer mistakes when that knowledge gets applied to something.]

Stung by Losses, Kyle Bass Hopes for Comeback [H/T ValueWalk] (LINK)

China’s Long Minsky Moment (LINK)

A Catalog of Montaigne’s Beam Inscriptions [H/T @jasonzweigwsj] (LINK)
Related book: The Complete Essays of Montaigne (also has a good narration on the audiobook)
A response by Charlie Munger at the May 2007 Berkshire Hathaway Annual Meeting to a question about derivatives that I came across again and think is worth sharing:
Munger: The accounting being enormously deficient contributes to the risk. If you get paid enormous bonuses based on profits that don’t exist, you’ll keep going. What makes it difficult [to stop] is that most of the accounting profession doesn’t realize how stupidly it’s behaving. One person told me the accounting is better because positions are marked to market and said, “Don’t you want real-time information?” I replied that if you can mark to market to report any level of profits you want, you’ll get terrible human behavior. The person replied, “You just don’t understand accounting.”  
...As sure as God made little green apples, this will cause a lot of trouble. This will go on and on, but eventually will cause a big dénouement. 

Charlie Munger and learning

From Charlie Munger: The Complete Investor:
It is clear that Munger loves to learn. He actually has fun when he is learning, and that makes the worldly wisdom investing process enjoyable for him. This is important because many people do not find investing enjoyable, especially when compared to gambling, which science has shown can generate pleasure via chemicals (e.g., dopamine) even though it is an activity with a negative net present value. What Munger has done is created a system—worldly wisdom—that allows him to generate the same chemical rewards in an activity that has a positive net present value. When you learn something new, your brain gives itself a chemical reward, which motivates you to do the work necessary to be a successful investor. If you do this work and adopt a worldly wisdom mindset, Munger believes you will create an investing edge over other investors.

Thursday, August 13, 2015


From Poor Charlie's Almanack:
The life of Darwin demonstrates how a turtle may outrun a hare, aided by extreme objectivity, which helps the objective person end up like the only player without a blindfold in a game of Pin the Tail on the Donkey. 
If you minimize objectivity, you ignore not only a lesson from Darwin but also one from Einstein. Einstein said that his successful theories came from "Curiosity, concentration, perseverance, and self-criticism." And by self-criticism, he meant the testing and destruction of his own well-loved ideas.

Wednesday, August 12, 2015


Latticework of Mental Models: Do Something Bias (LINK)

For Google’s New CEO Sundar Pichai, a Low-Key Style Pays Off (LINK)

Buried in the Wordplay: Life Sciences Graduates From Google X - by Steven Levy [author of In The Plex: How Google Thinks, Works, and Shapes Our Lives] (LINK)
Buried in the Alphabet announcement was a significant piece of news: one of the new portfolio companies in Larry Page’s Scrabble game is Life Sciences. Until yesterday, the medical research operation had been one of the major initiatives inside of Google X. So Page’s declaration is the de-facto “graduation” of this enterprise from the moonshot-loving research division. 
Michael Mauboussin - Investing: The Art of Paying Attention (video) [H/T ValueWalk] (LINK)

Aswath Damodaran revisits Apple, Facebook and Twitter (LINK)

Mark Spitznagel on the Paradox of Higher Returns with Lower Risk (video) [H/T Zero Hedge and James, for earlier post of this video] (LINK)

The Lens of Ken Burns: A Conversation on History, Storytelling, and the Power of Film (video) (LINK)
The Aspen Institute’s 22nd Annual Summer Celebration Conversation, featuring Ken Burns: Filmmaker and 2015 Public Service Award Honoree. Moderated by Walter Isaacson, President and CEO of The Aspen Institute.
Now THAT'S a Supernova (LINK) [Related video: The Most Astounding Fact About the Universe]
Supernovae are terrifying. But they’re also important; we literally owe our existence to them. They create heavy elements in the blast, then fling them for dozens of light years around. This can then seed other clouds of gas, which then make stars, planets… and you. Nearly every element in the Universe other than hydrogen and helium was forged in the heart of an exploding star like the one that created the Vela nebula, including the iron in your blood and the phosphorus in your DNA. 
So when you look on this picture, you’re seeing death and destruction on a soul-crushing scale, but you’re also seeing the factory in which the ingredients of life itself are made.

Tuesday, August 11, 2015


Schopenhauer: On Reading and Books (LINK)
Related previous post: Arthur Schopenhauer quote
Horizon Kinetics: Utilities - Running on Empty: Major Disruption Ahead (LINK)
The attached white paper was originally published in late 2014. However, we feel it sufficiently relevant, despite the modest 10% to 15% decline since year-end, such that it continues to bear reading. The Utilities sector was among the best-performing of 2014. Yet, it is not much represented in Horizon Kinetics strategies, despite the sector’s 3% weight in the S&P 500 Index®. This is not an oversight. 
We believe the Utilities sector is in the midst of a largely unrecognized bubble—a valuation correction of the scale we anticipate has never befallen it before. The source of the valuation risk, aside from any substantive increase in interest rates—which would be no small matter—is a threat to demand. The largest (of a number) of drivers for this drop is the emergence of solar power as a viable source for a meaningful share of the electricity supply. One need only look at the European experience (particularly in Germany) to preview what might occur in the United States as solar power adoption increases.
Larry Page on Google and Alphabet (LINK)

The SEC filing for the Google announcement of Alphabet  (LINK)

Alphabet Lets Google Chase Moonshots and Stay Profitable (LINK)
In an interview with The Financial Times in October, Page said there’s no precedent for the company he wants to build. But it seems he’s taking a page or two from the most successful investor in Wall Street history: Warren Buffett, who runs the vast conglomerate Berkshire Hathaway. 
Indeed, Page pointed to Buffet as someone who knows how to lead the kind of company he and Google co-founder Sergey Brin have in mind. And according to The Wall Street Journal, Page went even further in December during a meeting with top shareholders, saying Berkshire Hathaway—which spans everything from insurance to underwear to aerospace supplies—exemplifies how a large, complex company should be run. “Mr. Buffett has a cadre of CEOs running operating companies and doles out capital from the holding company to these businesses based on their performance each year,” the Journal wrote.
Fred Wilson on Google and Alphabet (LINK)

China Moves to Devalue Yuan (LINK)

Books of the day (since I felt the urge to watch the Pale Blue Dot video a few times last night):

Pale Blue Dot: A Vision of the Human Future in Space 

The Demon-Haunted World: Science as a Candle in the Dark

“Science is not only compatible with spirituality; it is a profound source of spirituality. When we recognize our place in an immensity of light‐years and in the passage of ages, when we grasp the intricacy, beauty, and subtlety of life, then that soaring feeling, that sense of elation and humility combined, is surely spiritual. So are our emotions in the presence of great art or music or literature, or acts of exemplary selfless courage such as those of Mohandas Gandhi or Martin Luther King, Jr. The notion that science and spirituality are somehow mutually exclusive does a disservice to both.” 

Monday, August 10, 2015


Berkshire Hathaway Inc. to Acquire Precision Castparts Corp. for $235 Per Share in Cash (~$37.2 billion) (LINK)

Warren Buffett on CNBC this morning, discussing the deal and other things (videos) [UPDATE: The transcript is available HERE.]:
Warren Buffett: Why we bought Precision Castparts 
Warren Buffett: Precision deal 'very high multiple' 
Warren Buffett: Precision CEO loves what he does 
Warren Buffett on IBM: I feel fine 
Media selloff not enticing: Warren Buffett 
Warren Buffett: It's tough to push rates higher
The Value Investor Insight issue from April where Francois Rochon discussed Precision Castparts (LINK)

A Microsoft Executive’s Investing Answer: Charlie Munger (LINK)
Related book: Charlie Munger: The Complete Investor
A few great quotes, via Max (LINK)

Mental Model: Misconceptions of Chance (LINK)

GMO white paper: The Idolatry of Interest Rates, Part II: Financial Heresy (free registration required) (LINK)
James Montier follows up with "Financial Heresy," Part II in his take on interest rate idolatry. Included is a response to James' thoughts from Ben Inker, "Potential Utility in an Equity Risk Premium Framework."
The Miracle of SolarCity [H/T Abnormal Returns] (LINK)
Related book: Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future [I also started the audiobook this weekend, and the narration is great so far.]
Bob Olstein on Wall Street Week (video) (LINK) [I liked this quote: "I would fire anybody who values a company on EBITDA."]

Hussman Weekly Market Comment: Thin Slices from the Top of a Bubble (LINK)
“You need to know very little to find the underlying signature of a complex phenomenon…. This is the gift of training and expertise – the ability to extract an enormous amount of meaningful information from the very thinnest slice of experience.” 
Malcolm Gladwell, Blink 
The ability to make accurate decisions in the face of overwhelming amounts of information can require a great deal of experience, but what does that experience actually do? My impression is that experience – studied and absorbed carefully – nurtures the ability to see and identify subtle elements in the landscape, and eventually to recognize patterns. Accurate decision-making doesn’t rely on weighing and deliberating over every detail of that landscape. As Malcolm Gladwell brilliantly writes in Blink, accurate decisions often rely on “thin-slicing” – a kind of pattern recognition that perceives and filters out the very few factors that actually matter. 
That’s not to suggest that simplicity, in and of itself, is the objective. Ockham’s Razor doesn’t merely say that the simplest explanation is usually the best; it requires that the explanation must also be consistent with the evidence. Likewise, Einstein joined his advice that “A theory should be made as simple as possible,” with the essential condition “but not so simple that it does not conform to reality.”
How to Watch This Week's Perseid Meteor Shower (LINK)

Sunday, August 9, 2015


A Dozen Things Learned from Sam Zell about Investing and Business (LINK) [I've also recently begun to read a review copy of Tren Griffin's book on Charlie Munger, which will be released next month. It is fantastic. As always, you can pre-order the book at no extra cost to you and also support this blog by buying it through THIS link.]

Paul Graham: If you have a US startup called X and you don't have, you should probably change your name. (LINK)

a16z Podcast: A Copernican Update ... In Tech, the Smartphone is the Center (LINK)

The Seven Books You Must Read If You Want to Understand Oil [H/T Matt] (LINK)
The books:  
The Prize: The Epic Quest for Oil, Money & Power  
The Quest: Energy, Security, and the Remaking of the Modern World 
Abu Dhabi: Oil and Beyond 
Oil & Gas Production in Nontechnical Language 
The History of The Standard Oil Company 
Inorganic Chemistry For Dummies 
The Commanding Heights : The Battle for the World Economy
Eye Shape May Help Distinguish Predator From Prey (LINK)
Why do the eyes of some animals, including goats, have horizontal-shaped pupils, while others, such as rattlesnakes and domestic cats, have vertical slits? 
It is a question that has longed intrigued researchers, and a study of 214 species published Friday suggests the answer may be strongly linked to giving animals a survival edge: vertical pupils and circular pupils help certain predators hunt, while horizontal pupils help other species spot predators from afar. 
Not all vision scientists accept the researchers’ hypothesis, however, citing examples of animals that do not fit cleanly into these classifications.

Friday, August 7, 2015


Michael Lewis on what execs and elites often overlook (video) [H/T Linc] (LINK)
The moral problem, such as it is, on Wall Street isn’t that people are kind of looking to do bad things. That’s not at all what people are doing. I think they would rather do good things if they could make as much money doing the good things as doing the bad things. But they’re looking to make money. 
We live in a society in which the elites have maybe more power than they have ever had, a greater share of the wealth than they had in a very long time. But it’s not clear they feel much in the way of obligation to society. 
There’s a natural tendency for people to tell the story of their lives, of their success, forgetting all the accident that was involved, all the help they got, all the gratitude they should feel.
Boomtown, USA [H/T Will] (LINK)
EVEN if you expect everything to be bigger in Texas, the north Texas branch of the Nebraska Furniture Mart, near Dallas, is a shock. The megastore, which is owned by Warren Buffett’s Berkshire Hathaway, is the size of ten American football fields and employs 2,300 staff. Around 70 delivery trucks arrive every day and 20,000 visitors descend each Saturday. Mr Buffett predicts that the store, which opened only in May, will have a turnover of $1 billion in its first year.
Longform Podcast #152: Carol Loomis [H/T Abnormal Returns] (LINK)

Freight Startups Attract Silicon Valley’s Attention (LINK) Runs Into Turbulence With Retailers (LINK)

Toby Carlisle's analysis of Movado (LINK)

A summary of Markel's Q2 (LINK)

The Brooklyn Investor on Mondelez International (LINK)

The great filter - by Matt Ridley (LINK)

Book of the day (praised by Ridley in the article above): The Vital Question: Energy, Evolution, and the Origins of Complex Life

Thursday, August 6, 2015


GMO founder Grantham says markets ‘ripe for major decline’ in 2016 (LINK)
A well-known fund manager who foresaw the Japanese crash, the dotcom bubble and the global financial crisis has predicted that markets will be “ripe for a major decline” some time in 2016, potentially triggering government bankruptcies. 
Jeremy Grantham , founder and chief strategist of GMO, a $118bn investment house based in Boston, expects the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016.
Saudi Arabia may go broke before the US oil industry buckles [H/T @AlexRubalcava] (LINK)
If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade. 
The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.
From a Million Miles Away, NASA Camera Shows Moon Crossing Face of Earth [H/T James] (LINK)

Book of the day: My Life & Work - An Autobiography of Henry Ford

Glenn Greenberg on zeroing in and not getting caught up in the minutiae

As quoted in the ECAM Q2 2011 letter:
“I’ve just found that it’s very easy for me to zero in, after studying something for a few hours, the key make or break factor that makes it interesting. And that’s with any of the investments that we have that you can boil it down to a fairly simple theory. And you’re constantly looking for why that theory might be wrong. But the likelihood of it being, severely wrong is probably small.” 
“I really felt that when I watched A Beautiful Mind about John Nash. In the movie, they showed Nash analyzing formulae and then it showed how it looked to him and it was like some things were really bold. And I understood exactly what he felt. I see a lot of times people are just totally caught up in the minutia and the details. A lot of the questions on earnings calls I listen to, people are getting into stuff that’s not going to move things one-tenth of one percent. It’s just not important and then people are really focused on it and they’re missing the really important stuff.”

Related links:

Graham & Doddsville interview with Glenn Greenberg (Spring 2010)

Glenn Greenberg talk at Columbia (video) (Spring 2010) [And related, John Huber's excellent article after he watched the video: Great Investor Glenn Greenberg Discusses His Investment Philosophy]

Wednesday, August 5, 2015


Latticework of Mental Models: Tragedy Of Commons (LINK)

Has Einhorn Lost His Mojo? (LINK)

Stock Guru Bill Miller Is Back But the Questions and Pain Linger (LINK)

Mark Hanson's latest thoughts on the housing market (LINK)

Book of the day: Einstein's Cosmos

Tuesday, August 4, 2015


Sanjay Bakshi: What GEICO’s Customer Acquisition and Associated Costs Taught Me about Business Economics, Management Quality, and Valuation (LINK)

David Einhorn Blames Worst Month Since October 2008 On “Challenging” Market (LINK)

Chris Mayer on why utilities are a sell (LINK)

Darren Gee, President and CEO of PEYTO, is out with his August report (LINK) [Chris Mayer also recently linked to his November report, where he quotes the book The Outsiders.]

Richard Duncan's video warning on China's economy from 16 months ago (~14 minutes) (LINK) [If you're interested in subscribing to his Macro Watch video newsletter, see the mention of it in THIS post to use this blog's coupon code, 'valueinvestingworld'.]

Phil Libin, co-founder and executive chairman of Evernote, on the Tim Ferriss podcast (LINK)

Tim Harford: Worming our way to the truth (LINK)

Monday, August 3, 2015


Greek stocks close with record drop of 16.23% (LINK)
Greece's stock exchange closed Monday with a record drop of 16.23 percent on reopening after a five-week shutdown caused by capital controls.... The banking index on Monday lost nearly 30 percent, with the top four Greek lenders shedding the same amount, the maximum daily loss allowed.
5 Things Learned from Jeff Bezos on Business and Investing (LINK)

Third Point's Q2 Letter (LINK)

Hussman Weekly Market Comment: A Bad Equilibrium & How Speculative Distortion Ends (LINK)
From our perspective, the fundamental reason for economic stagnation and growing income disparity is straightforward: Our current set of economic policies supports and encourages a low level equilibrium by encouraging debt-financed consumption and discouraging saving and productive investment. We permit an insular group of professors and bankers to fling trillions of dollars about like Frisbees in the simplistic, misguided, and repeatedly destructive attempt to buy prosperity by maximally distorting the financial markets. We offer cheap capital and safety nets to too-big-to-fail banks by allowing them to speculate with the same balance sheets that we protect with deposit insurance. We pursue easy monetary fixes aimed at making people “feel” wealthier on paper, far beyond the fundamental value that has historically backed up that wealth. We view saving as dangerous and consumption as desirable, failing to recognize a basic accounting identity: there can only be a "savings glut" in countries that fail to stimulate investment. We leave central bankers in charge of our economic future because we're too timid to directly initiate or encourage productive investment through fiscal policy. When zero interest rates don't do the trick, we begin to imagine that maybe negative interest rates and penalties on saving might coerce people to spend now. Look around the world, and that same basic policy set is the hallmark of economic failure on every continent. 
You'll have to go through the Agora marketing machine and cancel a newsletter subscription if you don't want to keep it, but Chris Mayer, inspired by Thomas Phelps' 100 to 1 in the Stock Market, has updated some of Phelps' work and data (Phelps wrote the book in the early 1970s) with his own book on 100-baggers (LINK)

Book of the day (released tomorrow): Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence

Quote of the day, via Shane at Farnam Street:
"Whatever is good for us should be discussed often and frequently brought to mind, so that it may be not Just familiar to us, but also ready for use. Remember also that in this way what is clear often, becomes clearer." -Seneca
That quote summarizes my reasons for continuing on the Memortation path.

Sunday, August 2, 2015


Bill Gates: We Need Clean-Energy Innovation, and Lots of It (LINK)

Mohnish Pabrai on How to be a Mentor (LINK)
Related book: The Education of a Value Investor
Value Investing Podcast: Robert Hagstrom on the Art of Value Investing (LINK)
Related books:  
Investing: The Last Liberal Art 
The Warren Buffett Way
Mutual Fund Observer, August 2015 (LINK)

Hackers Remotely Kill a Jeep on the Highway (LINK)

Steven Pinker: The moral imperative for bioethics (LINK)

If Yellowstone Super Volcano Erupted (short video) (LINK)

Saturday, August 1, 2015

Phil Fisher on research and development

From Common Stocks and Uncommon Profits:
The impact of this sort of thing on investment can hardly be over-stated. The cost of this type of research is becoming so great that the corporation which fails to handle it wisely from a commercial standpoint may stagger under a crushing burden of operating expense. Furthermore, there is no quick and easy yardstick for either management or the investor to measure the profitability of research. Just as even the ablest professional baseball player cannot expect to get a hit much more often than one out of every three times he comes to bat, so a sizable number of research projects, governed merely by the law of averages, are bound to produce nothing profitable at all. Furthermore, by pure chance, an abnormal number of such unprofitable projects may happen to be bunched together in one particular span of time in even the best-run commercial laboratory. Finally, it is apt to take from seven to eleven years from the time a project is first conceived until it has a significant favor-able effect on corporate earnings. Therefore,even the most profitable of research projects is pretty sure to be a financial drain before it eventually adds to the stockholder's profit.  
But if the cost of poorly organized research is both high and hard to detect, the cost of too little research may be even higher.