Words of Wisdom

I'll be taking a break from the blog for a few days, so I thought I’d post some quotes I found interesting before taking a going on a brief hiatus.

Howard Marks, The Most Important Thing:

Many people possess the intellect needed to analyze data, but far fewer are able to look more deeply into things and withstand the powerful influence of psychology. To say this another way, many people will reach similar cognitive conclusions from their analysis, but what they do with those conclusions varies all over the lot because psychology influences them differently. The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.

From The Invisible Hands:

The prevailing wisdom looks at cash on a historical basis, which completely neglects the inherent opportunity costs associated with a lack of cash. By this I mean simply that cash affords you flexibility; if you have cash, you can allocate that cash when attractive opportunities arise. By taking a backward look at cash, you wind up focusing on the rate it has earned historically. The correct way to measure the return on cash is more dynamic: cash is bounded on the lower side by its actual return, whereas the upper side possesses an additional element of positive return received from having the ability to take advantage of unique opportunities.

…

Holding cash when markets are cheap is expensive, and holding cash when markets are expensive is cheap.

From Boombustology:

One of the most important elements of a boom–bust sequence that helps one identify where in the cycle one might be is, to use language from epidemiology, the population of unaffected or unexposed individuals. When one hears that everyone, including those not traditionally active or invested in the market, is “in the market,” then one might naturally (and accurately) assume that the boom cycle is far along and very mature (perhaps approaching expiration), with a limited population of infectable participants.

Arthur Schopenhauer, “the Wisdom of Life”:

Absolute value can be predicated only of what a man possesses under any and all circumstances,--here, what a man is directly and in himself. It is the possession of a great heart or a great head, and not the mere fame of it, which is worth having, and conducive to happiness.

…

And so people who feel that they possess solid intellectual capacity and a sound judgment, and yet cannot claim the highest mental powers, should not be afraid of laborious study; for by its aid they may work themselves above the great mob of humanity who have the facts constantly before their eyes, and reach those secluded spots which are accessible to learned toil. For this is a sphere where there are infinitely fewer rivals, and a man of only moderate capacity may soon find an opportunity of proclaiming a theory which shall be both new and true; nay, the merit of his discovery will partly rest upon the difficulty of coming at the facts.

Art De Vany, The New Evolution Diet:

Out of this tragedy came my attitude that I have only one moment of power, which is now, and that I can determine not the outcome but only the probable path.

Seneca, Letters from a Stoic (also posted these HERE):

Nothing, to my way of thinking, is a better proof of a well ordered mind than a man’s ability to stop just where he is and pass some time in his own company.

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It is not the man who has too little who is poor, but the one who hankers after more.

From Meditations by Marcus Aurelius (reminds me of Ben Franklin’s process for achieving virtue):

It should be a man's task, says the Imitation, 'to overcome himself, and every day to be stronger than himself.' 'In withstanding of the passions standeth very peace of heart.' 'Let us set the axe to the root, that we being purged of our passions may have a peaceable mind.' To this end there must be continual self-examination. 'If thou may not continually gather thyself together, namely sometimes do it, at least once a day, the morning or the evening. In the morning purpose, in the evening discuss the manner, what thou hast been this day, in word, work, and thought.'

Viktor Frankl, Man's Search for Meaning:

Forces beyond your control can take away everything you possess except one thing, your freedom to choose how you will respond to the situation. You cannot control what happens to you in life, but you can always control what you will feel and do about what happens to you.

…

Live as if you were living already for the second time and as if you had acted the first time as wrongly as you are about to act now!

Institutional Investor article on Bruce Berkowitz

From the beginning, Berkowitz’s investing style was clear: He liked to make bets on just a few companies, and he was savvy about financial stocks, which many value investors shun for their complexity. At one point in 1994, he owned shares in just two companies: Berkshire Hathaway and Fireman’s Fund Insurance Co. Nearly a decade earlier he’d learned of Berkshire from Jack Byrne — Fireman’s legendary chief executive, who had previously run Geico and brought it back from the brink with an investment from Buffett — and Berkowitz bought the stock as a baby gift for his first child 25 years ago.

“Jack would always be talking about Warren Buffett,” says Berkowitz. “Berkshire Hathaway is an outstanding model.”

By the late 1990s, however, Berkowitz was chafing under the constraints of working for a big Wall Street firm and itching to go out on his own. In 1999 he recruited two men who would join him at Fairholme: Keith Trauner, a longtime value manager, and Larry Pitkowsky, a PaineWebber broker who’d been managing money on the side. Berkowitz established Fairholme, named after the street he’d lived on in London, in December 1999.

The new firm set up shop in tony Short Hills, New Jersey, operating out of the same building where value investor Michael Price ran the Mutual Series funds. “We all sat in a little room together for a long time,” says Trauner, 53, who had originally met Berkowitz at a shareholder meeting of financial holding company Leucadia National Corp., in which they were both invested. At first, as with most start-up mutual funds, no one paid much attention to Fairholme. “The mutual fund idea was just to throw spaghetti against the wall and see if it stuck,” Berkowitz says.

In its first semiannual report to shareholders, on May 31, 2000, Fairholme, with just $6.2 million in assets, reported that more than 50 percent of the portfolio was in property/­casualty insurers. “These companies fall within our circle of competence and were bought at multi-year lows,” according to that report. Or as Berkowitz, who has sat on the boards of directors of various insurers over the years, says, “I’m addicted to buying life insurance.”

Robert Shiller: I'm Betting the Farm

Yale’s Robert Shiller, the economist who foresaw the implosions of the tech bubble in 2000 and the housing market in 2007, is now closely watching a different asset class. This time, however, it is one that is in an early stage of bubble formation, not of collapse.

“This is my only bullish call that I'm making right now: It's farmland,” Shiller said last week.

Shiller delivered the keynote presentation at the IMCA 2011 annual conference in Las Vegas.

His prognosis for the economy was that a lack of motivation on the part of consumers to spend will impede recovery. Equity returns will be disappointing over the next decade, he said, and TIPS is the only other asset class he likes right now.

But for those who follow Shiller – he writes a regular column in the Sunday New York Times – farmland was the big surprise.

Madoff's Curveball: Will Fred Wilpon be forced to sell the Mets? - By Jeffrey Toobin

Thanks to Lincoln for passing this along.

It isn’t a Brooklyn boy but, rather, a son of Queens who now threatens to undo Fred Wilpon’s life’s work: Bernard Madoff. Wilpon and Madoff had much in common. Wilpon is just a year and a half older than Madoff, and both grew up as outer-borough strivers. Three decades ago, when they met, the two men were already rich and respected beyond their youthful dreams; both were poised to become leaders in their fields. Sterling Equities, Wilpon’s company, became a national power in real-estate development, and also acquired interests in biotech, cable television, and, of course, baseball. Bernard L. Madoff Investment Securities, L.L.C., developed a pioneering electronic stock-trading operation, and Madoff himself operated a separate money-management business, which he made available to a select group of investors. Fred and his wife, Judy, and Bernie and Ruth Madoff became friends, if not intimates, sharing occasional trips and dinners a few times a year. Both families had vacation houses in Palm Beach, and they enjoyed a landmark night at the movies there. “It was the first time I ever got in as a senior citizen,” Wilpon recalled. “We were going to meet them at the movie theatre in West Palm. And I remember going to the booth to buy the tickets. And Bernie was of senior-citizen age at that time, too, but I didn’t think Ruth was. So I bought three senior citizens and one regular, and we laughed about it.”

Mostly, though, the relationship was about business. Starting in the mid-eighties, Wilpon, along with his partners, his family, and his friends, began sending money to Madoff to manage. The returns were not spectacular, but they were steady; indeed, that was the core of Madoff’s appeal. In bull and bear markets, Madoff returned about ten per cent a year to Wilpon. He and his partners used Madoff as a bank, sending spare cash Madoff’s way until it was needed for investments or to make a payroll. Sterling employed an accountant whose responsibilities included managing the many accounts that the firm and its partners and associates had with Madoff. The investments took place automatically, without any specific orders from the Sterling partners.

The Wilpon stake with Madoff grew to be enormous. There were eventually some four hundred and eighty Sterling-related accounts with the firm: three hundred or so belonged to Wilpon, his partners in Sterling, and their family members, trusts, and charities; the other accounts were owned by close friends, employees, and business associates. In all, the Sterling cluster was one of the largest groups of Madoff investors. On December 11, 2008, the day that Madoff’s money-management business was revealed to be the largest Ponzi scheme in American history, Wilpon and his partners’ stake was listed at five hundred and fifty million dollars. On that one day, it all vanished.

John Mauldin: All for One Euro and One Euro for All?

I have long said that the euro is not an economic currency but a political one. The question now before the voters and politicians in Europe is whether the EU evolves into something that looks more like the US, with limited state sovereignty and market-imposed limits on sovereign debt, where states and cities can fail and bond holders are at their own risk, and where the ECB takes over regulation of all national banks and becomes the backstop, as with the Fed, or devolves into something else.

Have the powers that be in the ECB quietly decided to let Greece go, as they should never have been allowed it into the eurozone to begin with, and because Greece clearly cheated on its statements about its debt and balance sheet in order to get in? You will never hear that in public from the leaders. It is simply not politically correct in “all for one, one for all” Europe. But that may be the outcome if Trichet really means “non!”

It really is the political class all over the world we have to watch. I will be glad when we get through the Endgame and can go back to worrying about balance sheets and consumer spending. What a quaint time that now seems. Think it is interesting now? Have you watched Spanish debt spreads? Wait until the market turns on Spain. Stay tuned.

Edge 2011: What Scientific Concept Would Improve Everybody’s Cognitive Toolkit?

Found via Simoleon Sense.

Link to: What Scientific Concept Would Improve Everybody’s Cognitive Toolkit?