Universa, managed by Mark Spitznagel, a protégé of “The Black Swan: The Impact of the Highly Improbable” author Nassim Nicholas Taleb, managed a little over $4 billion in assets as of the end of 2018. Claude Bovet, founder of Lionscrest Capital and a long time investor in the fund, estimates that Universa’s tail risk hedging strategy, representing part of its capital, earned more than 1,000% in a matter of days.Market Corrosion and the Catalyst of COVID-19 - by Frank K. Martin (LINK)
The Kmart store in Guam is located 6,000 miles west of California in the Pacific Ocean, well past the easy reach of Target , Wal-Mart or Amazon Prime.
The store, open 24 hours a day, also seems beyond the reach of time itself. Inside, it feels more like 1980, when Kmart ruled the big-box retail market.
...The company doesn’t disclose sales for individual stores, but a former executive said the two-decade-old Guam Kmart produces slightly more than $100 million in annual sales—about three times the revenue of the next-highest grossing store. The average Kmart store had sales of $9 million, according to retail consultancy eMarketer, down 20% since 2012.
Related book: The Choice Factory: 25 behavioural biases that influence what we buyA review of Niall Ferguson's book, The Square and the Tower (LINK)
Related video: Niall Ferguson on History’s Hidden Networks (also available in podcast format)
"So it's a terrible mistake to look at what's going on in the economy today and then decide whether to buy or sell stocks based on it. You should decide whether to buy or sell stocks based on how much you're getting for your money, long-term value you're getting for your money at any given time. And next week doesn't make any difference because next week, next week is going to be a week further away. And the important thing is to have the right long-term outlook, evaluate the businesses you are buying. And then a terrible market or a terrible economy is your friend. I don't care, in making a purchase of the Burlington Northern, I don't care whether next week, or next month or even next year there is a big revival in car loadings or any of that sort of thing. A period like this gives me a chance to do things. It's silly to wait. I wrote an article. If you wait until you see the robin, spring will be over."
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In this white paper, Matt Kadnar and James Montier, members of GMO’s Asset Allocation team, examine current US equity market valuations using several measures, starting with GMO’s own seven-year asset class forecast framework. They come to the same conclusion each time – the S&P 500 is exceptionally expensive. With this in mind, they then weigh in on what investors should and shouldn’t do in such an environment.Warren Buffett Cashes Out on GE, Cashing In on Crisis Loan (LINK)
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Related previous post: If it's not simple, then I'm not interested...Comments on investment philosophy - part one -- by John Hempton (LINK)
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Presently, the Shiller CAPE stands at close to 26, which is already well above historical norms, and above anything seen prior to the sequential bubbles (and collapses) of recent cycles. But the CAPE only captures part of the risk, because that 10-year average of inflation-adjusted earnings actually embeds the highest profit margin in history. By accepting the CAPE at face-value, investors are quietly assuming that profit margins will remain at this level permanently. On the basis of normalized profit margins, which systematically produce a more reliable valuation measure across history, the CAPE would presently be at 36.
Related book: Rome's Last Citizen: The Life and Legacy of Cato, Mortal Enemy of CaesarHow To Overcome Addiction And Make Lasting Changes In Your Life [H/T @AdamMGrant] (LINK)
This is truly stunning: Scientists have released a video showing evolution in action.
They built a table more than a meter long and put down a culture agent that allows bacteria (specifically, E. coli) to grow. But they set it up in a very interesting way. At each end of the table they allowed the bacteria to grow freely. But just inside these free zones they slathered a broad swath of an antibacterial substance, at a dose just more than enough to kill the critters. Then, next to those, they put down stripes at a dose 10 times that needed to kill them. Next to those were stripes 100 times the lethal dose, and then finally, in the center, a hyper-deadly patch 1,000 times stronger than needed to kill the original strain.
The video of what happens is staggering.
Ford stood for the “buying public” and its right to goods and services at the lowest possible cost. He believed it was far better to “sell a large number of cars at a reasonably small margin than to sell fewer cars at a large margin of profit.” With this attitude, he viewed a profit as “far more a fund to insure future progress than it is a payment for past performance.” Paying out profits in the form of dividends, particularly on preferred stock with burdensome payouts, put profits into a few hands rather than back into more roundabout production. As Ford said, “The owners and the workers will get their reward by the increased amount of business the lower prices bring. Industry cannot exist for a class.” (Insufficient capital reinvestment, as we will revisit later on, is essentially capital consumption in lieu of the roundabout.) Focusing on profits over productivity, ends over means, was, in Ford’s words, “trying to drive with the cart before the horse.”
Ford warned against “the most common error of confusing money and business,” which he blamed on the stock market for leading people to believe that “business is good if there is lively gambling upward in stocks, and bad if the gamblers happen to be forcing stock prices down.” He eloquently viewed the stock market as a “side show,” and little did he know how increasingly true this would be—as so much of investing today is the domain of “punters” over seekers of productive capital. To Ford, like in taijiquan and at the weiqi board, there were two distinct games going on between the stock market and true investment, the former a mere shadow of the latter. Disdainful of finance and suspicious of banks all his life (his abominable stereotypes and prejudices aside), Ford made the “shortsighted finance” of Wall Street his nemesis, viewing it as “strings on a business” in stark opposition to his roundabout redirecting of profits back into the operation and focusing instead on an immediate return. “The majority are so interested in getting the utmost out of the machine that they will give no time to improving it as it runs.” Ford cited the “Parable of the Talents” (interestingly, as Clausewitz did, in Chapter 3) “to whom much is given, of him shall be much required,” thus exhorting entrepreneurs never to sacrifice working capital for the sake of amassing personal fortune. He exposed what he called the “fallacy which has steered our country and other countries wrong on so many matters touching industry—the fallacy that business is money, and that big business is big money.” Make no mistake: Ford was a true-blue capitalist, who believed in making profits, but rather than consuming the capital produced today, saw the infinitely better wisdom of reinvesting intertemporally for a position of greater strategic advantage.
As Ford Motor Company expanded, the costs were paid for by efficiencies gained through faster output at the last “ring” of production and by eliminating in previous “rings” stockpiles of iron, coal, and steel—all unnecessary inventories that Ford saw as idle waste. By the mid-1920s, he would boast, “We do not own or use a single warehouse.” Ford also didn’t believe in having too much labor on hand, considering hiring two men for the job of one to be a crime against society, although he did have to account for high turnover because of the tedium of the assembly line work. In 1913, turnover reached an unbelievable 370 percent, and Ford hired more than 50,000 people to maintain an average labor force of about 13,600.
When profits swelled, he paid well for labor, creating an uproar when he doubled the basic wage to $5.00 a day, which triggered a virtual stampede of job seekers. Paying higher wages for labor was not altruistic in Ford’s eyes. Moreover, it wasn’t simply that Ford was trying to pay his workers “enough to buy back the product,” although he did preach a high-wage doctrine after the stock market crash in 1929. Rather, paying relatively high wages was, for Ford, a matter of smart business. He regarded well-paid skilled workers as important as high-grade material. By paying workers well, he effectively lowered his costs because higher wages reduced turnover and the need for constant training of new hires.
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“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 Power Revolutions (LINK)“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.
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 neatMasters in Business podcast: Paul McCulley (audio) (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
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)
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.
It is not the globe trotter who knows mankind, but the thinker. In order to know the sun's chemical composition we need not go to the sun; we can analyze the sun's light by spectrum analysis. We need not stretch a tape line to the moon to measure its distance from the earth, we can calculate it by the methods of an a priori science (trigonometry).
Boston billionaire Seth Klarman says most Republicans are “Neanderthals” on gay marriage. He calls Senator Tom Cotton’s letter to the Iranian leaders “divisive.” And he considers the 2010 Supreme Court ruling that ushered in an era of unlimited political donations “a terrible decision.”
Meet New England’s top campaign contributor. He gives mostly to Republicans, but he’s not much of one.
“I’m a complicated guy,” Klarman said to The Globe in a rare interview. “I’m fairly nuanced in my views. I’m trying to do what I think is the right thing for the country.” His registration: independent.
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Gross' list of the Top 5 Factors:Mysterious die-off sparks race to save saiga antelope (LINK)
1. Timing
2. Team / Execution
3. Idea "Truth" Outlier
4. Business Model
5. Funding
The first question that arises from the Commodity Futures Trading Commission’s case against Navinder Singh Sarao is: Why did it take them five years to bring it?
Jason Zweig: Excited About the Nasdaq Record? Don’t Overpay for Stocks Again (LINK)A guy living with his parents next to London's Heathrow Airport enters a lot of big, phony orders to sell U.S. stock market futures; the market promptly collapses on May 6, 2010; it takes five years for the army of U.S. financial regulators to work out that there might be some connection between the two events. It makes no sense.
Our businesses deliver returns in lumps. Results for the last few years have been uninspiring, yielding meager single-digit returns on equity. Earnings have been punished not only by mediocre conditions in the offshore and inland markets but also by hoarding capital. Fallow cash earns very little. We have not been inclined to reach for returns better than obtainable in safe, short-term paper and risk cash whose immediate availability would be the key to seizing opportunity in our core business.21 I estimate that the negative carry is approximately 500-600 basis points (pre-tax), which is considerably more than it had been in the 1990s and early part of the last decade. With hindsight, parking cash for the eventuality of pouncing on bargains has been far too costly. I am justifiably subject to criticism for not figuring out a better way to access capital, if or when useful, rather than paying a high price for it while idle.
It was challenging markets in the 1990s that eventually produced attractively priced assets and were the impetus for consolidation; we may be staring at the next wave. My recollection (probably accurate enough for this purpose) is that in 1989 there were about 36 operators of supply boats and anchor handlers in the Gulf of Mexico alone. By the late 1990s that number had shriveled to under 20 with four or five having large fleets. Our informal count is that today there are over 300 operators in the international and domestic offshore vessel industry.
Until the recent downturn, finding opportunities has been like looking for a needle in a haystack. It is perverse to welcome a downturn in business, but it will make life more interesting. In searching for places to deploy capital, sadly for stockholders, one of the compelling investments, we believe, has been our own shares. We would be remiss if we were to fail to consider whether repurchasing our own shares would not be an equally, if not a more productive use of capital, than constructing new vessels, buying secondhand equipment, or pursuing acquisitions. During the past year, SEACOR repurchased over 2.5 million shares at an average price of $77.16 per share, 12.4% of primary shares outstanding. Our year-end book value was $77.15.22 Adding to our fleet—or making acquisitions—would, of course, be more interesting than purchasing our own shares, but that is sometimes an expedient way to acquire well-priced equipment. As a colleague in the offshore business humorously remarked some years ago, buying in stock is like kissing your sister.
Concern is growing over a surge in bets by mom-and-pop investors using cash borrowed from brokers to pile into, and fuel, China’s booming stock market.
Margin lending has more than tripled in the past year to a record 1.7 trillion yuan ($274.6 billion), according to WIND Information Co., a provider of financial data. The upsurge echoes past investment crazes among Chinese speculators, who have long shown a penchant for rushing into whatever is yielding the highest returns, from real-estate and wealth-management products, to bitcoin and online money-market funds.
The practice isn’t unique to China, where margin debt equals 3.2% of total market capitalization, compared with 2.3% in the U.S. But when compared with the value of stock that is freely traded, making it accessible to ordinary investors, the percentage for China rises because state entities own more than half of the market.
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