Wednesday, December 30, 2015


The latest Howard Marks interview [H/T ValueWalk] (LINK)

Michael Burry interview with New York Magazine (LINK)

Amazon Invades India (LINK)

Hard to Pick the "Game Changers" (LINK)

Three Value Investors Meet in a Bar (LINK) [Maybe some price-to-book mean reversion is on the horizon?]

Lemurs chat only with their best friends (LINK) [And on a related note, if you ever find yourself in North Carolina, you may want to check out The Duke Lemur Center.]

Tuesday, December 29, 2015

Investors should be thinking 90% about supply...

In one of the interviews Edward Chancellor gave recently, he made the comment below, which I think was probably the most practical investing lesson that can be used going forward:
Ed: And this interesting point is that people, I don’t quite know why, but they love to think about and project demand into the future. They love it, I suppose, because… well, they like projecting demand because demand is unknowable. And because it’s unknowable, then you can have any fantasy you want about it at all, optimistic or pessimistic. 
But given the nature of mankind, those would tend to be optimistic. So a huge amount of work goes into forecasting demand. As our mutual friend Russell Napier says, analysts spend 90% of their time thinking about and forecasting demand, and 10% of their time thinking about supply. 
Now, the interesting thing about supply is that supply actually can be forecasted because in most industries, it takes quite a while for the supply to come on stream. You can see how much assets have grown inside an industry, or inside any particular business. You can see it through any number of measures. 
Through IPO issues, through secondary share issues, through companies taking on more debt, through companies going through a boom, such as the mining companies or the US homebuilders, who have had a surge in profitability, and have reinvested those profits. 
You can measure it technically through looking at things, like current capital spending to depreciation ratios. Or you can look at it, for instance, the rate of reported profitability of a company to its cash flow, the so called cash conversion rate. And if a company is generating large profits, but not generating any cash flow, it’s probably in a negative phase of the capital cycle. 
So the point, to go back to what you were saying, is that investors, if they knew the right way to approach, would be thinking 90% about supply, and then fantasising 10% about the completely, or not quite completely, but more or less completely unknowable demand side.
In his introduction to the book Capital Returns he gives several recent examples where a focus on supply instead of rosy demand projections would have allowed one to better grasp the risk one was taking investing in particular stages of those industry cycles, including the telecoms in the late 1990s, shipping in the 2001-2007 period, and the homebuilding industry that peaked in 2006. The below excerpt on the homebuilding boom is a good example showing the capital cycle and the importance of focusing on industry supply:
Rising house prices after 2002 prompted another capital cycle in the US homebuilding industry. By the time the US housing bubble peaked in 2006, the excess stock of new homes was roughly equal to five times the annual production required to satisfy demand from new household formation. Spain and Ireland, whose real estate markets had even more pronounced upswings, ended up with excess housing stocks equivalent to roughly 15 times the average annual supply of the pre-boom period. Whilst under way, housing booms are invariably justified by references to rosy demographic projections. In the case of Spain, it turned out that recent immigration had largely been a function of the property boom. After the bubble burst and the Spanish economy entered a depression, foreigners left the country by the hundreds of thousands. 
Several well-known “value” investors who ignored capital cycle dynamics were blindsided by the housing bust. In the years before US home prices peaked in 2006, homebuilders had grown their assets rapidly. After the bubble burst, these assets were written down. As a result, investors who bought US homebuilders’ stocks towards the end of the building boom when they were trading around book value – towards their historical lows – ended up with very heavy losses [5]. From a capital cycle perspective, it’s interesting to note that although UK and Australia experienced similar house price “bubbles,” strict building regulations prevented a supply response. Largely as a consequence, both the British and Australian real estate markets recovered rapidly after the financial crisis [6]. 

[5] For instance, the large US homebuilder KB Home experienced a 28 per cent compound annual growth in assets between 2001 and 2006. By summer of 2006, its shares were trading at 1.2 times book. From that point, KB’s book value declined by 85 per cent, and its shares, already well below their peak, fell a further 75 per cent 
[6] The fact that UK housing supply didn’t respond to the British housing bubble is reflected in the superior performance of UK homebuilding stocks relative to their US counterparts over the last decade

Monday, December 28, 2015


The Importance of First Principle Thinking (LINK) [There is also a little bit on this in the book on Elon Musk. From that part of the book, I took a mental note on first principles to ask the questions: What are the physics (or the fundamental definition of the thing under consideration)? How much time will it take? How much will it cost?.... Peter Kaufman's “three-bucket” framework is also similar, as is backward thinking. "Invert, always invert."]

Related article to the above: Getting My Ass Handed to Me by the World’s Largest Hedge Fund,
and learning to reason from first principles

Sanjay Bakshi: The Hedonic Treadmill (LINK)

A Dozen Things I learned from Michael Milken about Finance (LINK)

Aswath Damodaran: Intergalactic Finance: Valuing the Star Wars Franchise (LINK)

Farnam Street: Gary Taubes on What Really Makes Us Fat (LINK)

Brain Pickings: A Nonbeliever’s Case for the Bible (LINK)

Ed Chancellor on the capital cycle...

From his introduction to Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15, which was released in hardcover today:
Typically, capital is attracted into high-return businesses and leaves when returns fall below the cost of capital. This process is not static, but cyclical – there is constant flux. The inflow of capital leads to new investment, which over time increases capacity in the sector and eventually pushes down returns. Conversely, when returns are low, capital exits and capacity is reduced; over time, then, profitability recovers. From the perspective of the wider economy, this cycle resembles Schumpeter’s process of “creative destruction” – as the function of the bust, which follows the boom, is to clear away the misallocation of capital that has occurred during the upswing. 
The key to the “capital cycle” approach – the term Marathon uses to describe its investment analysis – is to understand how changes in the amount of capital employed within an industry are likely to impact upon future returns. Or put another way, capital cycle analysis looks at how the competitive position of a company is affected by changes in the industry’s supply side. In his book, Competitive Advantage, Professor Michael Porter of the Harvard Business School writes that the “essence of formulating competitive strategy is relating a company to its environment.” Porter famously described the “five forces” which impact on a firm’s competitive advantage: the bargaining power of suppliers and of buyers, the threat of substitution, the degree of rivalry among existing firms and the threat of new entrants. Capital cycle analysis is really about how competitive advantage changes over time, viewed from an investor’s perspective.

Saturday, December 26, 2015


Sanjay Bakshi: What did HE mean when he said Never Lose Money? (LINK)

How the Third Avenue Fund Melted Down (LINK)

Many Concerns About Third Avenue [H/T Linc] (LINK)

Oil Bankruptcies Reach Highest Quarterly Level Since Recession (LINK)

Energy Companies Gird for Weaker Prices in 2016 (LINK)

What I Learned from Losing $200 Million (LINK)

Two Business Lessons From Patagonia’s Yvon Chouinard (LINK)
Related book: Let My People Go Surfing: The Education of a Reluctant Businessman
Ray Dalio's Investing Thoughts: 3 Things He Always Repeats (LINK)
1.) It isn't easy for me to be confident that my opinions are right. In the markets, you can do a huge amount of work and still be wrong. 
2.) Bad opinions can be very costly. Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure. 
3.) The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong.
Apatheia vs Ataraxia: what’s the difference? (LINK)

Friday, December 25, 2015

A good conscience is a continual Christmas...

“Let no pleasure tempt thee, no profit allure thee, no ambition corrupt thee, no example sway thee, no persuasion move thee, to do any thing which thou knowest to be evil; so shalt thou always live jollily; for a good conscience is a continual Christmas.” –Ben Franklin

Thursday, December 24, 2015


Grant's 2015 Christmas Vacation Issue (LINK)

2011 Video: Warren Buffett and Ajit Jain Answer Questions From MBA Class [H/T GuruFocus and Linc] (LINK)

The Sagan Series [H/T @cullenroche] (LINK)

A Conversation With Michael Lewis About How The Big Short Became a Movie (LINK)

'Moneyball' meets medicine: DePodesta joins Topol at Scripps [H/T Linc] (LINK)
Related book: The Patient Will See You Now: The Future of Medicine is in Your Hands
Latticework of Mental Models: Externalities (LINK)

Mark Spitznagel: Revisiting the ticking time bomb [H/T James] (LINK)

How to Decrease E-mail Overwhelm in 2016–The First Step (LINK)

Wednesday, December 23, 2015

Harvey Firestone on salesmanship...

From Men and Rubber: The Story of Business:
A man of affairs does not want to be bothered in the evening. A great many salesmen make the mistake of thinking that pestering a man is the same as selling him, and they get their prospects into such a state of exasperation that they would not buy a gold dollar from them at 50 percent off. Just getting to a man is not enough--it is when and how you get to him. There are more wrong times to sell a man than there are right times, and if I ever should write a book on salesmanship I should give about one third of the book to the topic "Common Sense." I have been buttonholed thousands of times by salesmen who, if they had just exercised a grain of common sense, would have known that, while the moment might be a very good one in which to make my acquaintance, it was no time at all to persuade me to buy anything. A good salesman will never intrude. In the first place, he will know that intruders do not make sales, and in the second place he will have brains enough to arrange for the right kind of a meeting with his prospect--no man likes to be panhandled, and some selling comes close to panhandling.

Related previous post: The first principle of salesmanship...

Tuesday, December 22, 2015


I finally finished the audiobook of Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future over the weekend. I enjoyed it, and also want to point out Appendix 2 in the book, which was a short overview of Musk's thoughts about PayPal, why it worked and why he thinks it hasn't gotten any better as a service since 2001. It was a brief but interesting overview of creating a low cost competitive advantage in a business and it gave me a few things to think about. 

Why SpaceX Rocket Landing Is a Giant Leap for Space Travel (LINK)

Steven Pinker on What a Broad Education Should Entail (LINK) [Shane's post and the Pinker excerpt also reminded of the excerpt I posted from East Coast Asset Management's Q3 2014 Investment Letter.]

Tom Gayner & Steve Markel On What Makes A Great Business (LINK)

Monday, December 21, 2015


Edward Chancellor: ‘intelligent contrarians’ should follow the capital cycle (video) [H/T Tom] (LINK)
Related book: Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15
Edward Chancellor: why gold miners are a better bet than conventional miners [Part 2 of the interview above] (video) (LINK)

Howard Marks' CNBC appearance from this past Friday (video) [H/T ValueWalk] (LINK)

Why does Charlie Munger not invest in high-technology businesses? (LINK)

Aswath Damodaran on The Tech Challenge for Value Investors (LINK)

Benedict Evans: 16 mobile theses (LINK)

Apple and Tim Cook on 60 Minutes (videos) (Part 1, Part 2)

EconTalk: Philip Tetlock on Superforecasting (LINK)
Related book: Superforecasting
Ten Commandments for Aspiring Superforecasters (LINK)

Hussman Weekly Market Comment: Reversing the Speculative Effect of QE Overnight (LINK)
In recent quarters, I’ve remained adamant that the immediate first step of the Federal Reserve in normalizing monetary policy should have been to reduce the size of its balance sheet. The Fed’s failure to prioritize that first step, in the apparent desire to maintain an aggrandized role in the U.S. financial markets, has significantly increased the risk of a collapse from the speculative extremes the Fed has created in recent years. Given the increasing risk-aversion evident in market internals, we doubt that even a reversal of last week’s rate hike would materially reduce that prospect. 
To see why, it’s important to understand how the Federal Reserve’s tools - open market purchases, interest on reserves, and reverse repurchases - actually work in affecting the economy and the behavior of speculative investors.
Meet Dole, the World’s Full-Stack Banana Company [H/T @paulg] (LINK)

The tiny creatures that flew to the Moon twice, and survived [H/T @JohnSHendricks] (LINK)

Finding an edge, and the intelligent fanatic that was Sam Walton

As Charlie Munger has said:
So you do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And, of course, that's hog heaven day. If you don't load up when you get those opportunities, it's a big mistake.  
Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks—who was second generation in Marks & Spencer of England—was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man. 
These people do come along—and in many cases, they're not all that hard to identify. If they've got a reasonable hand—with the fanaticism and intelligence and so on that these people generally bring to the party—then management can matter much. 
As Munger said, Sam Walton was such a man, and I think the excerpt below from his book Made In America gives a good example of that.
There’s no question whatsoever that we could not have done what we did back then if I hadn’t had my airplanes. I bought that first plane for business, to travel between the stores and keep in touch with what was going on. But once we started really rolling out the stores, the airplane turned into a great tool for scouting real estate. We were probably ten years ahead of most other retailers in scouting locations from the air, and we got a lot of great ones that way. From up in the air we could check out traffic flows, see which way cities and towns were growing, and evaluate the location of the competition—if there was any. Then we would develop our real estate strategy for that market. 
I loved doing it myself. I’d get down low, turn my plane up on its side, and fly right over a town. Once we had a spot picked out, we’d land, go find out who owned the property, and try to negotiate the deal right then. That’s another good reason I don’t like jets. You can’t get down low enough to really tell what’s going on, the way I could in my little planes. Bud and I picked almost all our sites that way until we grew to about 120 or 130 stores. I was always proud of our technique and the results we got. I guarantee you not many principals of retailing companies were flying around sideways studying development patterns, but it worked really well for us. Until we had 500 stores, or at least 400 or so, I kept up with every real estate deal we made and got to view most locations before we signed any kind of commitment. A good location, and what we have to pay for it, is so important to the success of a store. And it’s one area of the company in which we’ve always had family involvement.

Friday, December 18, 2015


The collection of old articles by James Montier posted the other day reminded me of another good collection of his work during 2008, HERE.

Collection of Michael Mauboussin's Research Papers From Credit Suisse (LINK)

Five Good Questions for Michael Mauboussin about his book The Success Equation (video) (LINK)

Jim Chanos: Here are my energy shorts (video) (LINK)

The best science images of 2015 (LINK)


As a reminder around holiday shopping season, you can support this blog by shopping on Amazon through THIS LINK

Avoiding promotional management...

From Capital Account (and written by Marathon in December 2002):
We suspect that business leaders who are busy promoting themselves or their stock are not properly focused on running their companies. We go out of our way to look for management that cares about shareholder value but doesn't hype its stock. In this respect we admire Johann Rupert, the CEO of Richemont, the luxury products group, who advises against the corporate hard sell on the grounds that 'if you talk up the stock, when the price comes down, the folks come looking for you!' All too often, however, denial and a desire to 'spin' the most optimistic message gets the better of truth in meetings with shareholders. Bad news is rarely telegraphed in advance. One learns to apply a filter to all promotional noises and avoid those companies whose executives seem most talented in the art of spin.

And in case anyone has missed it, the more recent set of Marathon letters is available in the book Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15.

Thursday, December 17, 2015


Edward Chancellor: Why I’m cheering gold’s fall – and how to profit from it ($) (LINK) [I'm not a subscriber and don't have access to the article, but since it may be timely and since it is from Ed Chancellor, I thought it was worth mentioning.]

John Maynard Keynes and Currency Speculation in the Interwar Years [H/T @jasonzweigwsj] (LINK)

Summary and transcript of Sam Zell's appearance on Bloomberg yesterday (LINK) [I liked his quote about "...creating a competitive advantage by virtue of your entry price." This was also good: "I've sold real estate based on cap rates, I don't buy real estate based on cap rates. So I mean there's nothing more relevant than replacement cost. And so you can generate values that are way above replacement cost by virtue of very low cap rates. And that's a sucker's bet."]

An excerpt from Matt Ridley's latest book, The Evolution of Everything: How New Ideas Emerge (LINK)

If you sign up for Blake Boles' newsletter, you'll get links to two of his books sent to you for free, Better Than College in PDF format, and The Art of Self-Directed Learning in audio format, which looks interesting (LINK)

Book of the day: The Life and Work of George Boole

Quotes I'm thinking about today:
“At Baupost, we constantly ask: 'What should we work on today?' We keep calling and talking. We keep gathering information. You never have perfect information. So you work, work and work. Sometimes we thumb through Value Line. How you fill your inbox is very important.” –Seth Klarman  
“The difference between successful people and really successful people is that really successful people say no to almost everything.” –Warren Buffett

Wednesday, December 16, 2015


TEDx Talk - The (ab)surd golden ratio | Robb Enzmann (video) (LINK)

The Guinness Brewer Who Revolutionized Statistics [H/T @mjmauboussin] (LINK)

A Seismic Shift in How People Eat (LINK)

Slack and the State of Technology at the End of 2015 (LINK)

Quote of the day, from Warren Buffett commenting in  his 1990 letter on Berkshire's non-insurance operations [H/T @Sanjay__Bakshi]: "Our extraordinary returns flow from outstanding operating managers, not fortuitous industry economics."
Book of the day (I haven't read this yet, but I've now seen it mentioned twice this year, with the first being an earlier mention by Freemon Dyson): Men of Mathematics

Tuesday, December 15, 2015


I've seen this before, but it's probably about time for a re-read [H/T @CravenPartners]: James Montier: Seven Sins of Fund Management

Latticework Of Mental Models : Mental Accounting (LINK)

What Investors Can Learn From the Oil Bust - by Jason Zweig (LINK)

History of the deregulation of the trucking industry [H/T @paulg] (LINK)

Some great notes from the UBS Global Media and Communications Conference (LINK)

Audiobook of the day ($2.95): Napoleon Hill in His Own Voice: Rare Recordings of His Lectures


As a reminder around holiday shopping season, you can support this blog by shopping on Amazon through THIS LINK. And if you don't have one yet and are considering it, my favorite all-in-one device for reading books, earnings transcripts, articles, etc. is still $20 off regular price: Kindle Paperwhite.

Monday, December 14, 2015


Garrett Hardin on the Three Filters Needed to Think About Problems (LINK)
Related book: Filters Against Folly
What are Charlie Munger’s views on giving back to society? (LINK)

The Misunderstanding of Peter Lynch’s Investment Style (LINK)


Nine Lessons From Third Avenue's Liquidation - by Mohamed A. El-Erian (LINK)

Financial Backtesting: A Cautionary Tale (LINK)

Jordan’s Furniture brings Buffett, ziplines and hooplah to New Haven [H/T Linc] (LINK)

Can Nikesh Arora Make Softbank the Berkshire Hathaway of Tech? (LINK)

How Elon Musk and Y Combinator Plan to Stop Computers From Taking Over (LINK)

TED Talk - Paul Greenberg: The four fish we're overeating -- and what to eat instead (video) (LINK)
Related book: Four Fish: The Future of the Last Wild Food
I've posted some quotes from the book Men and Rubber: The Story of Business in the past, and have some more planned in the future. While I still recommend the entire book if you can find a copy for a reasonable price, I did notice that there now appears to also be an abridged audio version out for those interested, HERE. The same is true of the book Be My Guest by Conrad Hilton, though there are plenty of cheap, used copies available of that entire book. 

It’s our job as contrarians to catch falling knives...

Given some of Howard Marks' more recent comments, as well as some of Oaktree's recent investments in the distressed energy space, this excerpt from The Most Important Thing seemed worth revisiting:
Skepticism is usually thought to consist of saying, “no, that’s too good to be true” at the right times. But I realized in 2008—and in retrospect it seems so obvious—that sometimes skepticism requires us to say, “no, that’s too bad to be true.” 
Most purchases of depressed, distressed debt made in the fourth quarter of 2008 yielded returns of 50 to 100 percent or more over the next eighteen months. Buying was extremely difficult under those trying circumstances, but it was made easier when we realized that almost no one was saying, “no, things can’t be that bad.” At that moment, being optimistic and buying was the ultimate act of contrarianism. 
Certain common threads run through the best investments I’ve witnessed. They’re usually contrarian, challenging and uncomfortable—although the experienced contrarian takes comfort from his or her position outside the herd. Whenever the debt market collapses, for example, most people say, “We’re not going to try to catch a falling knife; it’s too dangerous.” They usually add, “We’re going to wait until the dust settles and the uncertainty is resolved.” What they mean, of course, is that they’re frightened and unsure of what to do. 
The one thing I’m sure of is that by the time the knife has stopped falling, the dust has settled and the uncertainty has been resolved, there’ll be no great bargains left . When buying something has become comfortable again, its price will no longer be so low that it’s a great bargain. Thus, a hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron. 
It’s our job as contrarians to catch falling knives, hopefully with care and skill. That’s why the concept of intrinsic value is so important. If we hold a view of value that enables us to buy when everyone else is selling—and if our view turns out to be right—that’s the route to the greatest rewards earned with the least risk.

Friday, December 11, 2015


Warren Buffett Takes 8% Stake in Sears Spinoff Seritage (LINK)
Billionaire investor Warren Buffett has taken an 8.02% stake in Seritage Growth Properties Inc., the real-estate company split off from Sears Holdings Corp. earlier this year. 
Mr. Buffett disclosed in a regulatory filing Thursday that he has bought 2 million shares in Seritage, a passive stake. At Wednesday’s closing price, the stake would be valued at about $70.5 million. 
The filing didn’t detail what he plans to do with the shares. Mr. Buffett took the stake personally, not through his company, Berkshire Hathaway Inc.
Five Good Questions for William Green about his book The Great Minds of Investing (LINK)

Third Avenue Blocks Redemptions From Credit Fund Amid Losses (LINK)

Amazon’s instant gratification service aims to disrupt delivery (LINK)

Michael Lewis On Why The Bank Bailout Was A Mistake (video) (LINK)
Related book: The Big Short
Have You Gotten Over Yourself? (LINK)

Book of the day [H/T @Sanjay__Bakshi]: Do the Work: Overcome Resistance and Get Out of Your Own Way

Thursday, December 10, 2015


The Best Books Bill Gates read in 2015 [H/T ValueWalk] (LINK)

The Two Sides of Seneca and A Lesson on Human Fallibility (LINK)

The Manual of Ideas' Top 10 Interviews (LINK)

Richard Thaler: "The Behavioralizing of Economics" | Talks at Google (LINK)
Related book: Misbehaving: The Making of Behavioral Economics
Niall Ferguson with David Gergen: On Henry Kissinger (video) (LINK)
Related book: Kissinger: 1923-1968: The Idealist
The latest from Horizon Kinetics in their 'What’s in Your Index?' series (LINK)

Aswath Damodaran: Aging in Dog Years? The Short, Glorious Life of a Successful Tech Company! (LINK)

A good presentation on the oil market [H/T @AlexRubalcava] (LINK)

Can Elizabeth Holmes Save Her Unicorn? [H/T Matt] (LINK)

Gene-Editing Technology Could Help Eradicate Malaria, Study Shows (LINK)

The Art of Setting a Drug Price [H/T @BaseHitInvestor] (LINK)

It's All Gone Wrong for One of World's Biggest Mining Companies (video plays) [H/T @Wexboy_Value] (LINK)

Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke (video plays) (LINK)

The Origin Story of Marie Kondo’s Decluttering Empire (LINK)
Related book: The Life-Changing Magic of Tidying Up
Steve Jobs introducing the 'Think Different' ad campaign, a couple of months after returning to the company in 1997 (video) [H/T @iancassel] (LINK)

Quote of the day, from Walter Isaacson in his book The Innovators: "Sometimes the difference between geniuses and jerks hinges on whether their ideas turn out to be right."

Investing thought of the day, via Ben Inker in the GMO Q3 Letter: "The rather odd thing about financials relative to other industries is that a high return on equity capital is as likely to be a sign of weakness as strength. Overly-levered financial firms generally look extremely profitable in the good times but have no cushion against losses when the cycle turns."

Book of the day: Dark Matter and the Dinosaurs: The Astounding Interconnectedness of the Universe


On an investment-related note, I had previously posted an excerpt from the Boyles Q2 Letter where we mentioned one of our latest investments, Legend Corporation Limited (ASX: LGD) in Australia. As value investors who think the stock is undervalued, the company's buyback announcement from today is one we like to see: 
Managing Director Brad Dowe said: “The buy-back is an effective means of returning capital to shareholders whilst the directors see the company’s share price trading much below the underlying value of the company. Legend expects the buy-back to be earning per share accretive, funded from existing cash reserves and debt facilities and will be prudently managed to maintain appropriate balance sheet capacity to fund further acquisitions”

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 stock(s) mentioned above 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.

Crocodile in the Yangtze - Story of Alibaba & Jack Ma (Full Documentary)

“eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.” -Jack Ma

Link to video: Crocodile in the Yangtze - Story of Alibaba & Jack Ma


The Jack Ma quote above also reminded me of a couple of quotes from Charlie Munger about the domination of a niche leading to good economics, and that positive reinforcement then leading to advantages of scale: 
Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world—and get very good because they specialize—frequently find good economics that they wouldn't get any other way. 
And once we get into microeconomics, we get into the concept of advantages of scale. Now we're getting closer to investment analysis—because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.

Wednesday, December 9, 2015

GMO Quarterly Letter: Just How Bad Is Emerging, and How Good Is the U.S.? and Give Me Only Good News!

GMO's 3Q 2015 Letter includes Ben Inker's "Just How Bad Is Emerging, and How Good Is the U.S.?" and Jeremy Grantham's "Give Me Good News Only!" 
And this leads to the quandary for thinking about the U.S. stock market. We cannot find any convincing evidence that the U.S. is deserving of trading at a premium P/E to the rest of the world. This profitability, however, could be read either of two ways. Either the U.S. has somehow unlocked a secret to permanently higher profitability or this is an extremely dangerous time to be investing in the U.S. U.S. profitability has never looked materially better relative to the rest of the world than it does today. The bull case would be that, for whatever reason, this profitability gap is sustainable and U.S. stocks are only mildly more expensive than the rest of the developed world given U.S. P/Es are only about a point higher.  
But, frankly, we have a hard time believing this bull case. U.S. outperformance in recent years can be readily explained by the better trends in profitability, but that is a long way from saying that outperformance was truly justified. From a macroeconomic perspective, maintaining such high levels of profitability in the face of low investment rates implies ever-increasing wealth inequality in this country, unless taxes were to be raised in a way that seems highly implausible. Generating sufficient end demand in the economy given the inequality would call on either the rich to start spending their wealth at signficantly greater rates than we have seen historically or the rest of households to spend more than 100% of their income, as they did in the housing bubble. It is hard to envision that an economy that relies on those foundations to be a sustainable one.  
And even if the U.S. has somehow managed to unlock the secret to permanently high profits and the economy remains solid, it seems unlikely that the secret will remain an entirely U.S. phenomenon. If we imagine a world in which U.S. profitability is able to remain well above historical levels, we would expect non-U.S. companies to begin to copy their American counterparts, similar to the way profitability converged from the 1970s to the early 2000s. In that scenario, we are being too tough on U.S. stocks, but they are still the worst of the global bunch as our forecasts for other equities are similarly underestimated.  
It takes little experience in the investment business to realize that investors prefer good news. As a bear in the bull market of 1999 I was banned from an institution’s building as being “dangerously persuasive and totally wrong!” The investment industry also has a great incentive to encourage this optimistic bias, for little money would be made if the market ticked slowly upwards. Five steps forward and two back are far more profitable. 
Similarly, we environmentalists were shocked to realize how profoundly the general public preferred to believe good news on our climate, even if it meant disregarding the National Academies of the world. The fossil fuel industry, not surprisingly, encouraged this positive attitude. They had billions of dollars to protect. If the realistic information were to be widely believed, most of their assets would be stranded.  
When dealing with realistic limits to growth it is also obvious how reluctant everyone is to accept the natural mathematical limits: There simply cannot be compound growth in a finite world. A modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times! Yet, the improbability of feeding ten billion or so global inhabitants in 50 years is shrugged off with ease. And the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.  
Hard realities in these three fields are inconvenient for vested interests and because the day of reckoning can always be seen as “later,” politicians can always find a way to postpone necessary actions, as can we all:  “Because markets are efficient, these high prices must be reflecting the remarkable potential of the internet”; “the U.S. housing market largely reflects a strong U.S. economy”; “the climate has always changed”; “how could mere mortals change something as immense as the weather”; “we have nearly infinite resources, it is only a question of price”; “the infinite capacity of the human brain will always solve our problems.”

Having realized the seriousness of this bias over the last few decades, I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics.


Shane Parrish talks to Philip Tetlock on The Knowledge Project (LINK)
Related book: Superforecasting: The Art and Science of Prediction
Google and NASA Hope Lightning-Fast Computers Will Unlock the Secrets of Nature [H/T Matt] (LINK)

Ian Morris' latest lecture at the LSE (audio) (LINK) [His first lecture as part of this series is available HERE.]
20,000 years ago, ‘international relations’ meant interactions between tiny foraging bands; now it means a global system. Philippe Roman Chair Ian Morris explains how the growth of the international system and the shifts of power within it are linked to geography and energy extraction. In tracing this story, Professor Morris asks: Why were the world’s greatest powers concentrated in western Eurasia until about AD 500? Why did they shift to East Asia until AD 1750? Why did they return to the shores of the North Atlantic? And where will they go next? 
For male peacock spiders, the best dancers get the girl (LINK)

Tuesday, December 8, 2015

Howard Marks comments...

Comments by Howard Marks from the Goldman Sachs U.S. Financial Services Conference today (via a transcript, so they may not be perfectly exact): we were sitting here waiting to start, that I was animated when he spoke to me yesterday, and really, for the credit investor, we have our first opportunities in several years. We thought that the environment was lackluster. I think I told you last year and maybe the year before that, that our mantra for 4.5 years has been "move forward but with caution." We didn't think there were compelling opportunities to move forward and we thought there was a great need for caution. Now of course, there are opportunities. I mentioned to Alex that there's this old Chinese curse, you should live in interesting times. Times are more interesting now. For some, it's a curse. They say in golf, that every putt makes somebody happy. And so some of the price declines and some of the weakness, which has been noted so far, makes the perspective buyer very happy, and the holder, very unhappy. But we've raised a lot of capital over the last 1.5 years to be prepared for an opportunity that we believed was coming. And now, we are more interested, now that it seems to be here. We have bonds that have gone from 90 to 60 in the last few months, and not only in the energy sector. And we had a dinner here last night, Jay and I did, and one of our colleagues from the distressed debt group who was supposed to be there from L.A. begged off. He says, "I'd like your permission to stay in L.A. There's too much for us to do." Well believe me, it's been a long, long time since you could say there's too much for us to do. Maybe actually 7 years, fourth quarter of '08. You need to be post Lehman. There was too much to do. And now there is again, but it's been a long time. 
[on the energy space] 
Well, I think that hedges were in place that have worn off that companies will lose their credit lines. And so it's not -- there's never a demarcation line. I think that $37 oil will produce a lot of opportunities for the distressed investor. $30 will produce more if it gets there. Of course, nobody -- maybe with the exception of the people in this room, if you let me know or give me your cards afterwards, nobody knows where the price of oil is going. And there's nothing intelligent to be said about the future of the price of oil. And so, you have to invest in it very gingerly and carefully. But I wrote -- a year ago, December 18, I wrote a memo on oil. I said, "At $110 everybody says, if it ever gets to $90, I'm going to back up the truck. When it falls to $80, at -- they say if it ever hits $60, I'll give it a lot of thought. And when it hits $50, they said, can't touch it, falling knife." So certainly, it looks like a falling knife, but I've always believed that it's our job to catch falling knives, but to do it with caution. 
...liquidity is a complex topic. And I wrote a memo in the first half of the year about it and anybody who wants to can read it on our website. But if you think about it, we only -- one only needs liquidity for 3 reasons: to be a day trader or a short-term trader, for-profit, which we never are; to be able to realize profits after a long hold; and to be able to fix one's mistakes. But while we do some of all of those, well some -- we do some of the latter too, we don't trade for profit in the short run. But we think of trading just as a way to effect our fundamental long-term investment decisions. And so we don't care that much about trading for the short term. It happens that when liquidity gets worse, it gets harder for the people who have holdings to exit. If we're holding cash at that time, that's -- I mean, dried up liquidity has given us, probably, our best opportunities ever. So we kind of welcome it. And I said in that memo that the best defense against a lack of liquidity is to only own things you can hold through the long term. And I think that because of our investment process and because the vast majority of our capital is in locked up funds, we can hold for a long time. We raised the funds in the last 1.5 years for distressed. So far, we've announced having raised $9.9 billion. And that funds got 10 years to run from here without requiring an LP extension. So we don't need Mr. Market to give us our returns, the fundamental results will give us our returns. 
... I do travel a lot and meet a lot, I always get -- there's usually one question that I get more than any other. And of course, that one question for the last 2.5 years has been, "What month will the Fed raise interest rates?" And my answer is always the same, "Number one, I have no idea. And number two, why do you care?" I mean, if -- point is, if rates are going up, what matters is how much, how fast and -- but certainly, not which month. And if I told you a given month, would that change your actions? More recently, the question has been, we know things can't stay good forever, what could knock them off? And what does the question mean? Well it means that people understand and believe in cycles, which is a healthy thing, but on the other hand, people couldn't imagine 6 months ago anything going wrong. And that's the nature of our world. I think I told you last night that my favorite cartoon was from, I think, was the financial analyst journal, excuse me, in the '60s. And it showed a guy who was giving a -- reading a speech before a TV camera. And he said, "Everything that was good for the market yesterday is bad for it today." And that's the way our world goes, black to white, the swing of the pendulum. And 6 months ago, people, they had an instinctive sense that it couldn't be good forever, but no idea what could knock it off. And of course now, and I pointed it out in my memo last December, that not only did essentially nobody predict that oil would have in price, but nobody is asking about oil. So it's very, very easy to miss the thing that's going to knock the market off stride. And now we get lots of questions about oil and other commodities, I think that we get some questions about China. I think that China's performance in the short term is going to be very important for the performance of the world economy. And liquidity has been a major theme. I mean, now all of a sudden people are thinking -- are able to think of lots of things that could do the market in. And of course, the market moves in stages. And in the first stage, everybody thinks, everything's going to -- a few smart people think things could get better, and in the middle stage, everybody thinks that things really are improving. And then, the last stage of the bull market, everybody thinks that things will get better forever. And now, in the first stage, maybe a few years ago, people started to think, "Well, there could be a problem." And now, most people think that there can be a problem, and we'll reach a stage where everybody thinks things are going to get worse forever. And of course, that's when the opportunities will come to a maximum. 
Well, we have 3 basic jobs. And your -- we're about, thanks to your question, we're about to touch on the third one. But the 3 jobs are: raise capital, buy low, sell high. By definition, we're unlikely to be able to buy low and sell high at the same time. And we readily accepted it's something that's not within our control. So -- and I think that people build models for us, which include the realization of carried interest, but I think it's extremely hard to make any forecast about. The worsening climate for asset prices does not imply that we are going to be able to accelerate the pace of realizations. We don't sell things just to fill a need for earnings. We only sell them if their time has come, if they're fully valued and we get a good buyer. And so I can't really say anything intelligent about when we're going to be able to realize. And my excitement about the increased availability of bargains, we're not going to be somebody else's bargain. And so it's -- that in itself does not imply an acceleration of the trend in realizations. 
[on the apparent disconnect between credit and equity markets] 
It's a good question, it's a hard one. I think the fixed income markets we're talking about are inherently more illiquid and are the site of the dried up liquidity. And the issuance of high-yield and leverage loans, let's say in '11, '12, '13 and '14 was a huge record numbers, given the strong demand. Leverage loans had 95 straight weeks of inflows to mutual funds that's really dramatic. And so Wall Street filled the vacuum, shall we say. And now, there are no takers for it. Though securities like they used to say about mutual funds were sold not bought, and now the buyers are gone. So I think personally that credit has probably gone from being the cheaper of the 2 -- the more expensive of the 2 worlds the cheaper now. And the relative move that you point out has been really quite dramatic in a rather short time. And so, that's another thing that's making us excited about the opportunities. 
[on the unintended consequences of the Fed raising rates] 
There's nothing in this world that's either all good or all bad. And the Feds [indiscernible] over this for the last 2.5 years certainly indicates that there have been arguments on both sides. It seems clear that the Fed is going to raise rates, unless something happens in the next week or 2 this month. There are reasons not to do it. What we would do to the rate of growth in this country? How can we do it when the rest of the world is cutting rates, what will it do to the dollar, the negative consequences are on our global competitiveness. So it's not an easy thing. I have felt for a while that the merits on balance were on the side of raising rates. I don't like the fact that the rates have been administered, and I don't like the fact that the Fed hasn't had any room to react if the market, if the economy should recon. That room has to come in the form of the ability to drop rates, which is hard to do from 0. But it's not an easy decision, and that's why I'm glad I don't have -- as Obama would say, that's above my pay grade. I'm glad I didn't have to make that decision. But there are a lot of reasons, negatives on both sides. And I think with us having a very strong currency already, further strengthened by relative increases in interest rates, I think it's -- we're going to have significant challenges on the export side. 
[more on liquidity] should not mark down the return you demand, just because you think an asset is highly liquid. Similarly, you shouldn't mark it up just because it's illiquid. We come to the value that we'll pay for an asset based on the -- what we think is the intrinsic value of the business and we -- as we predict a return based on the future value of the business and I'm talking about the value of the business, I'm not talking about the value of the security. And we think, if we get the business decisions right, the security decisions will take care of themselves.


With the movie based on The Big Short coming out soon, it may be a good time to re-read Charlie Munger's 2010 parable: Basically, It's Over

60 Minutes - Bonobos: What we can learn from our primate cousin (video) (LINK)
Related book: Bonobo Handshake: A Memoir of Love and Adventure in the Congo
The Unbundling Of Education (video) [H/T AVC] (LINK)

Malcolm Gladwell reviews the book The Death of Cancer (LINK)


As a reminder around holiday shopping season, you can support this blog by shopping on Amazon through THIS LINK.

Monday, December 7, 2015


If you haven't bought one yet and are interested, Max Olson has set up a print-on-demand link for the hardcover version of the Berkshire Hathaway Letters to Shareholders (LINK)

What does Charlie Munger mean when he says that something is a lollapalooza? (LINK)
Related book: Charlie Munger: The Complete Investor
Peter Lynch, 25 Years Later: It’s Not Just ‘Invest in What You Know’ [H/T Will] (LINK)
Related books: One Up On Wall StreetBeating the Street
Valeant, Short Selling, and the Too-Hard Pile (LINK)

Sohn London Conference Notes 2015 (LINK)

Roger Lowenstein talks to Barry Ritholtz on the Masters in Business podcast (LINK)
Related book: America's Bank: The Epic Struggle to Create the Federal Reserve
Robert Shiller: Don’t Assume a Fed Action Will Move the Market (LINK)

Planet Money Podcast: How Four Drinking Buddies Saved Brazil (LINK)

Exponent podcast discussing when disruption theory is useful — and when it isn’t (LINK)

Short-lived fish may hold clues to human ageing (LINK)


As a reminder around holiday shopping season, you can support this blog by shopping on Amazon through THIS LINK.

Friday, December 4, 2015


Five Good Questions for Tren Griffin about his book Charlie Munger: The Complete Investor (LINK)

Dan Yergin: Why oil prices cannot stay this low (video) (LINK)
Related books by Dan Yergin: The Prize; The Quest
Ben Bernanke talks with the Freakonomics podcast (LINK)
Related book: The Courage to Act: A Memoir of a Crisis and Its Aftermath
Books of the day [H/T @GSpier and @rorysutherland]:

Reflections on the Art of Living: A Joseph Campbell Companion

Wild Life: Adventures of an Evolutionary Biologist

And via Taleb on Twitter ("Bill Easterly is the man. If you are going to read two economists on development, read him twice."): The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor

Make obstacles spur you to creative new angles in the learning process...

Another excerpt from The Art of Learning:
One thing I have learned as a competitor is that there are clear distinctions between what it takes to be decent, what it takes to be good, what it takes to be great, and what it takes to be among the best. If your goal is to be mediocre, then you have a considerable margin for error. You can get depressed when fired and mope around waiting for someone to call with a new job offer. If you hurt your toe, you can take six weeks watching television and eating potato chips. In line with that mind-set, most people think of injuries as setbacks, something they have to recover from or deal with. From the outside, for fans or spectators, an injured athlete is in purgatory, hovering in an impotent state between competing and sitting on the bench. In my martial arts life, every time I tweak my body, well-intended people like my mother suggest I take a few weeks off training. What they don’t realize is that if I were to stop training whenever something hurt, I would spend my whole year on the couch. Almost without exception, I am back on the mats the next day, figuring out how to use my new situation to heighten elements of my game. If I want to be the best, I have to take risks others would avoid, always optimizing the learning potential of the moment and turning adversity to my advantage. That said, there are times when the body needs to heal, but those are ripe opportunities to deepen the mental, technical, internal side of my game.  
When aiming for the top, your path requires an engaged, searching mind. You have to make obstacles spur you to creative new angles in the learning process. Let setbacks deepen your resolve. You should always come off an injury or a loss better than when you went down. Another angle on this issue is the unfortunate correlation for some between consistency and monotony. It is all too easy to get caught up in the routines of our lives and to lose creativity in the learning process. Even people who are completely devoted to cultivating a certain discipline often fall into a mental rut, a disengaged lifestyle that implies excellence can be obtained by going through the motions. We lose presence. Then an injury or some other kind of setback throws a wrench into the gears. We are forced to get imaginative. 
Ultimately we should learn how to use the lessons from this type of experience without needing to get injured: a basketball player should play lefty for a few months, to even out his game. A soccer player who favors his right leg should not take a right-footed shot for an extended period of time. If dirty opponents inspire a great competitor to raise his game, he should learn to raise his game without relying on the ugly ruses of his opponents (see Making Sandals, in Part III). Once we learn how to use adversity to our advantage, we can manufacture the helpful growth opportunity without actual danger or injury. I call this tool the internal solution—we can notice external events that trigger helpful growth or performance opportunities, and then internalize the effects of those events without their actually happening. In this way, adversity becomes a tremendous source of creative inspiration.

Thursday, December 3, 2015



Nice write-ups on the 3G Culture [H/T Linc] (Part 1, Part 2)
Related book: DREAM BIG
Bottom Keeps Falling for Energy-Debt Investors (LINK)

Elon Musk: Only a Carbon Tax Will Accelerate the World's Exit from Fossil Fuels (LINK)

T. Boone Pickens talks Energy, Security and Shop with Carl Icahn (video) [H/T ValueWalk] (LINK) [If you don't have time for the whole thing, I'd probably start at the 14:24 mark and go from there, which is about the last 10 minutes of the conversation.]

The Absolute Return Letter - December 2015 (LINK)

Richard Duncan Interview: Austrian Economics Would Destroy The World (LINK)

We don't have a position in Westshore Terminals, but it came up on an insider buying screen and after checking out the investor relations site, they have a video from their 2015 Annual General Meeting that gives some interesting info about how coal moves from train to ship (about first 5 minutes of video) (LINK)

If you're looking for book recommendations for the holidays, these are the ones I still think are some of the best to consider:

Charlie Munger and Peter Kaufman recommendations from Poor Charlie's Almanack

The books mentioned by Peter Bevelin in my interviews with him

Wednesday, December 2, 2015


Mark Zuckerberg plans to give away 99% of his Facebook shares during his lifetime (currently worth about $45 billion) (LINK)

Interestingly, at the time of Warren Buffett's announcement in 2006, his net worth was also about $45 billion. And if the roughly 500,000 A shares he held at the time were priced at today's prices, that $45 billion would be worth over $100 billion, which would make him the world's richest person by more than $20 billion. Those claim checks that will be given back to society continue to compound.

U.S. Embassies Are Obsessed With Warren Buffett’s Chocolate [H/T Linc] (LINK)

Vishal Khandelwal interviews microcap investor Ian Cassel (LINK)

The Persistence of Growth (LINK)

Einhorn's 20.6 pct loss puts fund on course for down year [H/T Will] (LINK)

David Tepper sent out a rare angry letter about one of his undisclosed stock positions [H/T Will] (LINK)

Beyond Disruption - by Ben Thompson (LINK)


As a reminder around holiday shopping season, you can support this blog by shopping on Amazon through THIS LINK. If you choose not to use the link for this blog, consider using the link for one of your other favorite blogs....unless of course you are a major Amazon shareholder and want to save the company having to pay a small commission. But overall, it's a good way to support the bloggers of the world without directly using their sites' donation tabs and tip jars.

Keys to successful investing...

From Marathon Asset Management's Neil Ostrer in an interview with Vanguard last year, and probably worth taping on a wall next to your desk:
There are three keys to successful investing. First, being a contrarian with a long-term perspective is very important. Second is the ability to be open to new ideas combined with a skeptical approach to those people incentivized to sell these new ideas. Third, having the ability to focus on what matters, while ignoring what doesn't, is important. 
Adding more information to an investment thesis may improve confidence in a decision but not necessarily accuracy. Dr. Herbert Simon, 1978 Nobel Prize winner, is quoted as saying, "A wealth of information creates a poverty of attention." 
That idea is particularly important to bear in mind in a time when information, data, and models are becoming more complex and readily available, yet the percentage of active managers with a track record of outperformance relative to the market hasn't increased.

[H/T Corner of Berkshire & Fairfax]


Related books:

Capital Account: A Fund Manager Reports on a Turbulent Decade, 1993-2002

Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15

Tuesday, December 1, 2015


The 4th edition, and 20th anniversary, of Lawrence Cunningham's The Essays of Warren Buffett is now available.

The Effect of Scale in Social Science, or Why Utopia Doesn’t Work (LINK)
Related book (which was given especially high remarks by Peter Bevelin in one of my interviews with him): Filters Against Folly
David Einhorn and Reasons Why Widely Followed Stocks Get Mispriced (LINK)
Related book: Fooling Some of the People All of the Time
Video of The 2015 Motley Fool Pro AGM [H/T @tobyshute] (LINK)

Mutual Fund Observer, December 2015 (LINK)

Tony Schwartz’s Internet Addiction (and Why You Should Care) (LINK) [Related article: Addicted to Distraction]

Books of the day [H/T Rohit Chauhan]:

Clockspeed : Winning Industry Control in the Age of Temporary Advantage

Value Migration: How to Think Several Moves Ahead of the Competition

The Characteristics of Easy and Difficult Turnarounds

In his 1979 letter to shareholders, Warren Buffett wrote:
Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.
In 1990, he also wrote:
Charlie and I frequently get approached about acquisitions that don’t come close to meeting our tests: We’ve found that if you advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels. A line from a country song expresses our feeling about new ventures, turnarounds, or auction-like sales: “When the phone don’t ring, you’ll know it’s me.” 
And while they seldom turn, and it may in general be best to avoid them, there are certain characteristics that may make the likelihood of success increase should you find yourself looking at or involved in a turnaround. I think the excerpt below, from the book Capital Account, captures those characteristics about as well as anything, and it makes a great addition to any kind of turnaround checklist:
Evaluating the likely success of a corporate turnaround is a notoriously difficult activity for investors. They need to distinguish between easy and difficult turnarounds. In almost every case, however, they must start by understanding how the firm got into trouble in the first place. Most troubled companies can only hope to recover once management open-mindedly appraises the situation -- when there is a mood of denial, turnarounds are unlikely. This explains why successful new starts are so often associated with fresh management, usually from outside the industry.  
In Table 5 we rank the factors to be considered when evaluating corporate turnarounds by importance. After the honesty with which management addresses the problem, we consider the second most important issue is the level of investment. A successful turnaround should not need large levels of new investment. After all, why risk throwing good money after bad? 
… There is no shortage of poorly performing companies that appear cheap on paper. But it’s how management allocates capital that determines the success or failure of any turnaround.  
… Firms with short product lives, such as speciality retailers and technology firms, face an uphill battle. Miss a fashion trend or a technology leap and it is very difficult to catch up.  
… To sum up, the three most favourable characteristics for identifying the probability of success in a corporate turnaround are: intellectually honest management, good capital allocation (preferably declining levels of investment) and a robust core business. 

And in case anyone has missed it, the more recent set of Marathon letters is available in the book Capital Returns: Investing Through the Capital Cycle: A Money Manager's Reports 2002-15.