The Manual of Ideas Interview with Guy Spier

Excerpts:

MOI: When it comes to stock selection, you have talked about the importance of checklists. Why are they so crucial, and what are some of the key items on your checklist?

Guy Spier: Those readers who have seen my two or three presentations know that I have talked about checklists. All of these ideas have emerged from conversations with Mohnish Pabrai, who noticed an article by Atul Gawande in The New Yorker with profound implications for investors. I'll share the basic insight that I have had as a result of these conversations: I think that we just have to acknowledge that there are some individuals out there — I think Warren Buffett in the investment world is one, Ajit Jain in the insurance world is another — who have a very particular ability to rationally analyze a situation in spite of crazy things going on in the world.

Most of us do not have that specific wiring. In spite of that, we can still improve our decision-making an awful lot by using checklists. The main way that I see it is that the investment world, either by design or by nature — and I think it is a combination of the two — throws up plenty of information that is designed to trigger one of two areas in the brain.

One is the threat detection fear mechanism, which throws up a very primeval response that has evolved within us for a very long time. It is one of the oldest parts of our brain — the fight-or-flight response. When we see something that makes us fearful, and we don’t have time to act, analyze and make weighted judgments, we have to decide either to run or to stay. We all know days in the market where that part of an investor’s brain is dominating and in which share prices can move around rather dramatically when compared to what appears to be very small amounts of news. So that is one sort of mode that the markets can be in, which is really the psychological mode of the majority of the participants in the market.

Then there is another side, which is irrational exuberance, as Alan Greenspan has described it, where the part of the brain that is being triggered is, as I’ve seen it described in various articles, the pleasure center of the brain. It turns out that the part of the brain we stimulate by the expectation of future profits is not that far away or dissimilar to the part of the brain that is stimulated, or lights up in CAT scans, when cocaine addicts either contemplate or are taking cocaine. These are very powerful centers.

Whether it is the fight-or-flight or the expectation of pleasure centers, the effect of both is to short-circuit rationally considered thoughts. They undermine the path of the brain that can make weighted, careful judgments about probabilities and about expectations. My perception is that it is the rational neocortex from which flow the very best investment decisions. Unfortunately, the world in which we operate is a minefield of opportunities to get caught up either by the fight-or-flight or by the pleasure center. So to the extent that somebody will talk about an investment being good when one is trembling with greed – I would not subscribe to that because trembling with greed implies that your greed and pleasure mechanisms in the brain are dominating the rational side.

I think that somebody like Warren Buffett is naturally wired not to be in either of those two extremes and spends his time in the happy middle. I think that what the rest of us human beings can do to train ourselves to be in that happy middle is use checklists. A checklist pulls us away from the kinds of actions that we would take if we were in either fight-or-flight or greed modes. So that is the basis for checklists.

The example I have given in talks is an airplane that is crashing. There is no question that checklists have been extremely helpful in reducing airplane accident rates. What it does is it brings the brain back to the place where one can make rational decisions.

…..

The real question is, as I look at the ideas, why am I discarding them and what personal biases am I engaging in as I discard them? I think something I have seen in a number of portfolios, including my own, is that the contents of the portfolio are a reflection of the particular biases of the person running the portfolio. To the extent that those biases or the model of the world that person has is faulty, it can lead to either phenomenal returns if the stars are aligned or it can lead to very bad returns if the stars do not align.

As I look at other people’s portfolios, I look to understand what their biases are and what particular chinks in their armor they may have. They may have a predilection for small-cap stocks or they may have a predilection for niche companies with niche ideas. Ultimately, what I can say for myself, I have had a bias towards low-capital invested, high-ROE businesses. In general, that is a bias that has probably been very productive. However, there are environments, particularly the one that we have just been through over the past 18 months, where that has probably hurt the portfolio more than it has helped the portfolio. So the way in which we go about generating ideas is obviously both important and critical and I think that ultimately it is a journey to explore our own personal biases.

…..

I think that the most profound pitfall and thing that one has to get over when investing beyond your borders is not to take the conditions that exist in the home investing country and assume that the same conditions exist in the country where the investment is being made. I have seen that going both ways. From the United States investing out, there are assumptions that investors have made about how the managers of the foreign company will allocate capital. There are also assumptions about what kind of standard managers hold themselves to. Not all managers of companies want to be remembered for being the best capital allocators. In some countries, being rapacious and greedy is considered a normal standard. Russia might be an example of that. At the same time, there are some countries such as Switzerland, where I would argue the ethics of drawing a modest salary and really acting for best interest of the shareholders are possibly even higher than the very high standards that already exist in the United States.

The reverse is also true. For example, Korean investors think that the United States is a very risky place to invest because they make assumptions about the way Americans act. I think that the key danger is that we make many assumptions that have to be checked and revised. One of the ways to do that is to spend some time in the country where the investments are being made. One of the rules that I have is that I want to be able to read the source documents in the language in which they are produced. I think there is a lot of subtlety that is missed when one reads a translation.

GR-NEAM Reflections: Inflation Quo Vadis

Thanks to Matt for the find.

Summary: If inflation is to accelerate it is not immediate, but more likely to appear over three or four years time. Insurance against it, however, is today generally attractively priced and should be purchased.

-

What Would Warren Do? - by Megan McArdle

This article was written by one of my dinner companions at Gorat’s during this year's Berkshire Hathaway Annual Meeting.

Much of what Graham and Dodd did so well was simply hard coolie labor. In an era before spreadsheets or financial databases, they looked at company reports and painstakingly did the arithmetic to see where a company stood. That effort offers no competitive advantage in today’s information-saturated market. So while value investors still hew to the core notion of determining a company’s intrinsic value, waiting for the market to misprice the stock, and then buying on the cheap, nowadays that determination has much more of a subjective skill element.

Buffett is the one who has, more than anyone else, refined and redefined value investing for a new era. He is the one who stopped hunting for superbargains and started buying exceptional companies, even if they weren’t available at fire-sale prices. But what makes a company “exceptional” is idiosyncratic. Warren Buffett is exceptionally good at asking the right questions; the speech he gave in 1999 explaining why he wasn’t investing in the tech boom is astonishing for its foresight. But teaching someone to ask the right questions is much easier said than done.

When Buffett lectures on his craft, his precepts often sound less like investing rules than like the distilled essence of bourgeois virtue. Don’t speculate. Don’t risk money you can’t afford to lose. Don’t try to ride market trends. Don’t try to get rich quick. Don’t panic when the price drops. If there are no good buys, don’t buy anything. Above all, ignore what other people are saying. If everyone jumped off a bridge, would you jump too?

These are admirable traits in any investor. But they are hard to uphold, even in the best of times.

…

Right now, the academic literature suggests that value investing has a modest advantage over a broader market strategy. Better information, more widely available, may continue to erode that edge. But the principles of prudence, patience, and thrift will always, in the end, offer a better chance at outsize returns.

Economic Depressions: Their Cause and Cure - by Murray N. Rothbard

This essay was originally published as a minibook by the Constitutional Alliance of Lansing, Michigan, 1969.

Excerpts:

An adequate theory of depressions, then, must account for the tendency of the economy to move through successive booms and busts, showing no sign of settling into any sort of smoothly moving, or quietly progressive, approximation of an equilibrium situation. In particular, a theory of depression must account for the mammoth cluster of errors which appears swiftly and suddenly at a moment of economic crisis, and lingers through the depression period until recovery. And there is a third universal fact that a theory of the cycle must account for. Invariably, the booms and busts are much more intense and severe in the "capital goods industries" – the industries making machines and equipment, the ones producing industrial raw materials or constructing industrial plants – than in the industries making consumers' goods. Here is another fact of business cycle life that must be explained – and obviously can't be explained by such theories of depression as the popular underconsumption doctrine: That consumers aren't spending enough on consumer goods. For if insufficient spending is the culprit, then how is it that retail sales are the last and the least to fall in any depression, and that depression really hits such industries as machine tools, capital equipment, construction, and raw materials? Conversely, it is these industries that really take off in the inflationary boom phases of the business cycle, and not those businesses serving the consumer. An adequate theory of the business cycle, then, must also explain the far greater intensity of booms and busts in the non-consumer goods, or "producers' goods," industries.

Fortunately, a correct theory of depression and of the business cycle does exist, even though it is universally neglected in present-day economics. It, too, has a long tradition in economic thought. This theory began with the eighteenth century Scottish philosopher and economist David Hume, and with the eminent early nineteenth century English classical economist David Ricardo. Essentially, these theorists saw that another crucial institution had developed in the mid-eighteenth century, alongside the industrial system. This was the institution of banking, with its capacity to expand credit and the money supply (first, in the form of paper money, or bank notes, and later in the form of demand deposits, or checking accounts, that are instantly redeemable in cash at the banks). It was the operations of these commercial banks which, these economists saw, held the key to the mysterious recurrent cycles of expansion and contraction, of boom and bust, that had puzzled observers since the mid-eighteenth century.

The Ricardian analysis of the business cycle went something as follows: The natural moneys emerging as such on the world free market are useful commodities, generally gold and silver. If money were confined simply to these commodities, then the economy would work in the aggregate as it does in particular markets: A smooth adjustment of supply and demand, and therefore no cycles of boom and bust. But the injection of bank credit adds another crucial and disruptive element. For the banks expand credit and therefore bank money in the form of notes or deposits which are theoretically redeemable on demand in gold, but in practice clearly are not. For example, if a bank has 1000 ounces of gold in its vaults, and it issues instantly redeemable warehouse receipts for 2500 ounces of gold, then it clearly has issued 1500 ounces more than it can possibly redeem. But so long as there is no concerted "run" on the bank to cash in these receipts, its warehouse-receipts function on the market as equivalent to gold, and therefore the bank has been able to expand the money supply of the country by 1500 gold ounces.

The banks, then, happily begin to expand credit, for the more they expand credit the greater will be their profits. This results in the expansion of the money supply within a country, say England. As the supply of paper and bank money in England increases, the money incomes and expenditures of Englishmen rise, and the increased money bids up prices of English goods. The result is inflation and a boom within the country. But this inflationary boom, while it proceeds on its merry way, sows the seeds of its own demise. For as English money supply and incomes increase, Englishmen proceed to purchase more goods from abroad. Furthermore, as English prices go up, English goods begin to lose their competitiveness with the products of other countries which have not inflated, or have been inflating to a lesser degree. Englishmen begin to buy less at home and more abroad, while foreigners buy less in England and more at home; the result is a deficit in the English balance of payments, with English exports falling sharply behind imports. But if imports exceed exports, this means that money must flow out of England to foreign countries. And what money will this be? Surely not English bank notes or deposits, for Frenchmen or Germans or Italians have little or no interest in keeping their funds locked up in English banks. These foreigners will therefore take their bank notes and deposits and present them to the English banks for redemption in gold – and gold will be the type of money that will tend to flow persistently out of the country as the English inflation proceeds on its way. But this means that English bank credit money will be, more and more, pyramiding on top of a dwindling gold base in the English bank vaults. As the boom proceeds, our hypothetical bank will expand its warehouse receipts issued from, say 2500 ounces to 4000 ounces, while its gold base dwindles to, say, 800. As this process intensifies, the banks will eventually become frightened. For the banks, after all, are obligated to redeem their liabilities in cash, and their cash is flowing out rapidly as their liabilities pile up. Hence, the banks will eventually lose their nerve, stop their credit expansion, and in order to save themselves, contract their bank loans outstanding. Often, this retreat is precipitated by bankrupting runs on the banks touched off by the public, who had also been getting increasingly nervous about the ever more shaky condition of the nation's banks.

The bank contraction reverses the economic picture; contraction and bust follow boom. The banks pull in their horns, and businesses suffer as the pressure mounts for debt repayment and contraction. The fall in the supply of bank money, in turn, leads to a general fall in English prices. As money supply and incomes fall, and English prices collapse, English goods become relatively more attractive in terms of foreign products, and the balance of payments reverses itself, with exports exceeding imports. As gold flows into the country, and as bank money contracts on top of an expanding gold base, the condition of the banks becomes much sounder.

This, then, is the meaning of the depression phase of the business cycle. Note that it is a phase that comes out of, and inevitably comes out of, the preceding expansionary boom. It is the preceding inflation that makes the depression phase necessary. We can see, for example, that the depression is the process by which the market economy adjusts, throws off the excesses and distortions of the previous inflationary boom, and reestablishes a sound economic condition. The depression is the unpleasant but necessary reaction to the distortions and excesses of the previous boom.

Why, then, does the next cycle begin? Why do business cycles tend to be recurrent and continuous? Because when the banks have pretty well recovered, and are in a sounder condition, they are then in a confident position to proceed to their natural path of bank credit expansion, and the next boom proceeds on its way, sowing the seeds for the next inevitable bust.

But if banking is the cause of the business cycle, aren't the banks also a part of the private market economy, and can't we therefore say that the free market is still the culprit, if only in the banking segment of that free market? The answer is No, for the banks, for one thing, would never be able to expand credit in concert were it not for the intervention and encouragement of government. For if banks were truly competitive, any expansion of credit by one bank would quickly pile up the debts of that bank in its competitors, and its competitors would quickly call upon the expanding bank for redemption in cash. In short, a bank's rivals will call upon it for redemption in gold or cash in the same way as do foreigners, except that the process is much faster and would nip any incipient inflation in the bud before it got started. Banks can only expand comfortably in unison when a Central Bank exists, essentially a governmental bank, enjoying a monopoly of government business, and a privileged position imposed by government over the entire banking system. It is only when central banking got established that the banks were able to expand for any length of time and the familiar business cycle got underway in the modern world.

…

Building on the Ricardians, on general "Austrian" theory, and on his own creative genius, Mises developed the following theory of the business cycle:

Without bank credit expansion, supply and demand tend to be equilibrated through the free price system, and no cumulative booms or busts can then develop. But then government through its central bank stimulates bank credit expansion by expanding central bank liabilities and therefore the cash reserves of all the nation's commercial banks. The banks then proceed to expand credit and hence the nation's money supply in the form of check deposits. As the Ricardians saw, this expansion of bank money drives up the prices of goods and hence causes inflation. But, Mises showed, it does something else, and something even more sinister. Bank credit expansion, by pouring new loan funds into the business world, artificially lowers the rate of interest in the economy below its free market level.

On the free and unhampered market, the interest rate is determined purely by the "time-preferences" of all the individuals that make up the market economy. For the essence of a loan is that a "present good" (money which can be used at present) is being exchanged for a "future good" (an IOU which can only be used at some point in the future). Since people always prefer money right now to the present prospect of getting the same amount of money some time in the future, the present good always commands a premium in the market over the future. This premium is the interest rate, and its height will vary according to the degree to which people prefer the present to the future, i.e., the degree of their time-preferences.

People's time-preferences also determine the extent to which people will save and invest, as compared to how much they will consume. If people's time-preferences should fall, i.e., if their degree of preference for present over future falls, then people will tend to consume less now and save and invest more; at the same time, and for the same reason, the rate of interest, the rate of time-discount, will also fall. Economic growth comes about largely as the result of falling rates of time-preference, which lead to an increase in the proportion of saving and investment to consumption, and also to a falling rate of interest.

But what happens when the rate of interest falls, not because of lower time-preferences and higher savings, but from government interference that promotes the expansion of bank credit? In other words, if the rate of interest falls artificially, due to intervention, rather than naturally, as a result of changes in the valuations and preferences of the consuming public?

What happens is trouble. For businessmen, seeing the rate of interest fall, react as they always would and must to such a change of market signals: They invest more in capital and producers' goods. Investments, particularly in lengthy and time-consuming projects, which previously looked unprofitable now seem profitable, because of the fall of the interest charge. In short, businessmen react as they would react if savings had genuinely increased: They expand their investment in durable equipment, in capital goods, in industrial raw material, in construction as compared to their direct production of consumer goods.

Businesses, in short, happily borrow the newly expanded bank money that is coming to them at cheaper rates; they use the money to invest in capital goods, and eventually this money gets paid out in higher rents to land, and higher wages to workers in the capital goods industries. The increased business demand bids up labor costs, but businesses think they can pay these higher costs because they have been fooled by the government-and-bank intervention in the loan market and its decisively important tampering with the interest-rate signal of the marketplace.

The problem comes as soon as the workers and landlords – largely the former, since most gross business income is paid out in wages – begin to spend the new bank money that they have received in the form of higher wages. For the time-preferences of the public have not really gotten lower; the public doesn't want to save more than it has. So the workers set about to consume most of their new income, in short to reestablish the old consumer/saving proportions. This means that they redirect the spending back to the consumer goods industries, and they don't save and invest enough to buy the newly-produced machines, capital equipment, industrial raw materials, etc. This all reveals itself as a sudden sharp and continuing depression in the producers' goods industries. Once the consumers reestablished their desired consumption/investment proportions, it is thus revealed that business had invested too much in capital goods and had underinvested in consumer goods. Business had been seduced by the governmental tampering and artificial lowering of the rate of interest, and acted as if more savings were available to invest than were really there. As soon as the new bank money filtered through the system and the consumers reestablished their old proportions, it became clear that there were not enough savings to buy all the producers' goods, and that business had misinvested the limited savings available. Business had overinvested in capital goods and underinvested in consumer products.

The inflationary boom thus leads to distortions of the pricing and production system. Prices of labor and raw materials in the capital goods industries had been bid up during the boom too high to be profitable once the consumers reassert their old consumption/investment preferences. The "depression" is then seen as the necessary and healthy phase by which the market economy sloughs off and liquidates the unsound, uneconomic investments of the boom, and reestablishes those proportions between consumption and investment that are truly desired by the consumers. The depression is the painful but necessary process by which the free market sloughs off the excesses and errors of the boom and reestablishes the market economy in its function of efficient service to the mass of consumers. Since prices of factors of production have been bid too high in the boom, this means that prices of labor and goods in these capital goods industries must be allowed to fall until proper market relations are resumed.

Since the workers receive the increased money in the form of higher wages fairly rapidly, how is it that booms can go on for years without having their unsound investments revealed, their errors due to tampering with market signals become evident, and the depression-adjustment process begins its work? The answer is that booms would be very short lived if the bank credit expansion and subsequent pushing of the rate of interest below the free market level were a one-shot affair. But the point is that the credit expansion is not one-shot; it proceeds on and on, never giving consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in costs in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit. It is only when bank credit expansion must finally stop, either because the banks are getting into a shaky condition or because the public begins to balk at the continuing inflation, that retribution finally catches up with the boom. As soon as credit expansion stops, then the piper must be paid, and the inevitable readjustments liquidate the unsound over-investments of the boom, with the reassertion of a greater proportionate emphasis on consumers' goods production.

Thus, the Misesian theory of the business cycle accounts for all of our puzzles: The repeated and recurrent nature of the cycle, the massive cluster of entrepreneurial error, the far greater intensity of the boom and bust in the producers' goods industries.

Mises, then, pinpoints the blame for the cycle on inflationary bank credit expansion propelled by the intervention of government and its central bank. What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom.

Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should, from the point of view of economic health and ending the depression as quickly as possible, maintain a strict hands off, "laissez-faire" policy. Anything it does will delay and obstruct the adjustment process of the market; the less it does, the more rapidly will the market adjustment process do its work, and sound economic recovery ensue.

The Misesian prescription is thus the exact opposite of the Keynesian: It is for the government to keep absolute hands off the economy and to confine itself to stopping its own inflation and to cutting its own budget.

Why Exercise Won't Make You Thin - By John Cloud

Self-Control Is like a Muscle

Many people assume that weight is mostly a matter of willpower — that we can learn both to exercise and to avoid muffins and Gatorade. A few of us can, but evolution did not build us to do this for very long. In 2000 the journal Psychological Bulletin published a paper by psychologists Mark Muraven and Roy Baumeister in which they observed that self-control is like a muscle: it weakens each day after you use it. If you force yourself to jog for an hour, your self-regulatory capacity is proportionately enfeebled. Rather than lunching on a salad, you'll be more likely to opt for pizza.

Some of us can will ourselves to overcome our basic psychology, but most of us won't be very successful. "The most powerful determinant of your dietary intake is your energy expenditure," says Steven Gortmaker, who heads Harvard's Prevention Research Center on Nutrition and Physical Activity. "If you're more physically active, you're going to get hungry and eat more." Gortmaker, who has studied childhood obesity, is even suspicious of the playgrounds at fast-food restaurants. "Why would they build those?" he asks. "I know it sounds kind of like conspiracy theory, but you have to think, if a kid plays five minutes and burns 50 calories, he might then go inside and consume 500 calories or even 1,000."

Last year the International Journal of Obesity published a paper by Gortmaker and Kendrin Sonneville of Children's Hospital Boston noting that "there is a widespread assumption that increasing activity will result in a net reduction in any energy gap" — energy gap being the term scientists use for the difference between the number of calories you use and the number you consume. But Gortmaker and Sonneville found in their 18-month study of 538 students that when kids start to exercise, they end up eating more — not just a little more, but an average of 100 calories more than they had just burned.

If evolution didn't program us to lose weight through exercise, what did it program us to do? Doesn't exercise do anything?

Sure. It does plenty. In addition to enhancing heart health and helping prevent disease, exercise improves your mental health and cognitive ability. A study published in June in the journal Neurology found that older people who exercise at least once a week are 30% more likely to maintain cognitive function than those who exercise less. Another study, released by the University of Alberta a few weeks ago, found that people with chronic back pain who exercise four days a week have 36% less disability than those who exercise only two or three days a week.

But there's some confusion about whether it is exercise — sweaty, exhausting, hunger-producing bursts of activity done exclusively to benefit our health — that leads to all these benefits or something far simpler: regularly moving during our waking hours. We all need to move more — the Centers for Disease Control and Prevention says our leisure-time physical activity (including things like golfing, gardening and walking) has decreased since the late 1980s, right around the time the gym boom really exploded. But do we need to stress our bodies at the gym?

…

Could pushing people to exercise more actually be contributing to our obesity problem? In some respects, yes. Because exercise depletes not just the body's muscles but the brain's self-control "muscle" as well, many of us will feel greater entitlement to eat a bag of chips during that lazy time after we get back from the gym. This explains why exercise could make you heavier — or at least why even my wretched four hours of exercise a week aren't eliminating all my fat. It's likely that I am more sedentary during my nonexercise hours than I would be if I didn't exercise with such Puritan fury. If I exercised less, I might feel like walking more instead of hopping into a cab; I might have enough energy to shop for food, cook and then clean instead of ordering a satisfyingly greasy burrito.

Closing the Energy Gap

The problem ultimately is about not exercise itself but the way we've come to define it. Many obesity researchers now believe that very frequent, low-level physical activity — the kind humans did for tens of thousands of years before the leaf blower was invented — may actually work better for us than the occasional bouts of exercise you get as a gym rat. "You cannot sit still all day long and then have 30 minutes of exercise without producing stress on the muscles," says Hans-Rudolf Berthoud, a neurobiologist at LSU's Pennington Biomedical Research Center who has studied nutrition for 20 years. "The muscles will ache, and you may not want to move after. But to burn calories, the muscle movements don't have to be extreme. It would be better to distribute the movements throughout the day."

…

So why does the belief persist that exercise leads to weight loss, given all the scientific evidence to the contrary? Interestingly, until the 1970s, few obesity researchers promoted exercise as critical for weight reduction. As recently as 1992, when a stout Bill Clinton became famous for his jogging and McDonald's habits, the American Journal of Clinical Nutrition published an article that began, "Recently, the interest in the potential of adding exercise to the treatment of obesity has increased." The article went on to note that incorporating exercise training into obesity treatment had led to "inconsistent" results. "The increased energy expenditure obtained by training may be compensated by a decrease in non-training physical activities," the authors wrote.

Then how did the exercise-to-lose-weight mantra become so ingrained? Public-health officials have been reluctant to downplay exercise because those who are more physically active are, overall, healthier. Plus, it's hard even for experts to renounce the notion that exercise is essential for weight loss. For years, psychologist Kelly Brownell ran a lab at Yale that treated obese patients with the standard, drilled-into-your-head combination of more exercise and less food. "What we found was that the treatment of obesity was very frustrating," he says. Only about 5% of participants could keep the weight off, and although those 5% were more likely to exercise than those who got fat again, Brownell says if he were running the program today, "I would probably reorient toward food and away from exercise." In 2005, Brownell co-founded Yale's Rudd Center for Food Policy and Obesity, which focuses on food marketing and public policy — not on encouraging more exercise.

Some research has found that the obese already "exercise" more than most of the rest of us. In May, Dr. Arn Eliasson of the Walter Reed Army Medical Center reported the results of a small study that found that overweight people actually expend significantly more calories every day than people of normal weight — 3,064 vs. 2,080. He isn't the first researcher to reach this conclusion. As science writer Gary Taubes noted in his 2007 book Good Calories, Bad Calories: Fats, Carbs, and the Controversial Science of Diet and Health, "The obese tend to expend more energy than lean people of comparable height, sex, and bone structure, which means their metabolism is typically burning off more calories rather than less."

In short, it's what you eat, not how hard you try to work it off, that matters more in losing weight. You should exercise to improve your health, but be warned: fiery spurts of vigorous exercise could lead to weight gain.

………………..

Related article: “What if It's All Been a Big Fat Lie?” By Gary Taubes

Related book: Good Calories, Bad Calories: Fats, Carbs, and the Controversial Science of Diet and Health

*Note: Nassim Taleb liked and reviewed this book HERE.

………………..

For more on exercise and the brain, see: Brain Rules: 12 Principles for Surviving and Thriving at Work, Home, and School

Lunch with the FT: Jared Diamond

Jared Diamond is the guru of collapse. Collapse is the title of one of the books that have made him a world-famous academic. It is a theme that captures the Zeitgeist: markets have collapsed, banks have collapsed and confidence, even in the capitalist system itself, has collapsed.

Diamond’s celebrated book – which added to the reputation he earned through Guns, Germs and Steel, a Pulitzer prize-winner about why some societies triumph over others – sought to discover what makes civilisations, many at their apparent zenith, crumble overnight. The Maya of Central America, the stone-carving civilisation of Easter Island, and the Soviet Union – all suddenly shattered.

The question lurking in Diamond’s work is: could we be next? Could the great skyscrapers of Manhattan one day become deserted canyons of a bygone civilisation, a modern version of Ozymandias’s trunkless legs of stone?

………………..

Related books:

Guns, Germs, and Steel: The Fates of Human Societies

Collapse: How Societies Choose to Fail or Succeed

Related previous post: Jared Diamond: What’s Your Consumption Factor?

Larry Coats on CNBC discussing Berkshire's Q2

Video from Jeff Bezos about Amazon and Zappos

I found this on the Street Capitalist blog.

The Mis-Match Problem

The Farnam Street blog posted a great video of Malcolm Gladwell at The New Yorker Conference in 2008: HERE

.....

Also, Gladwell's latest New Yorker article: The Courthouse Ring

-

Fairholme Fund: 2009 Semi-Annual Report

We were able to outperform in the past six months as well as in the trailing one- , three- , and five-year periods because our policy is always to keep adequate cash on hand. Cash is defensive when the market goes into a tailspin. Cash also allows us to be opportunistic in snapping up stocks that get unfairly battered. When panic sets in, as it did many times over the last year, some market participants are forced to sell without regard to price.

Cheap stocks are not necessarily good investments. A cheap stock can become cheaper, as was proven over and over again over the past twelve months. Many once-unassailable blue-chip stocks were brought to their knees. World-class banks and financial companies required government assistance to weather the maelstrom. General Motors went through bankruptcy, which would have been unthinkable a decade ago.

Successful investing is about getting much more cash over time than you give. Buying cheap relative to expected cash flows is half the battle. Today, even though the market is up significantly from the March lows, the investments we own appear undervalued reflecting the market’s hangover from years of irrational exuberance.

…

At this time, healthcare and defense remain significant sectors for the Fund. We believe many companies in these sectors are undervalued as they offer essential services and products, have few if any substitutes and have strong cash flows. What’s more, their margins are high enough to assure a steady stream of profits but not so high as to draw in competitors. We believe they are in the sweet spot.