Buffett Seizes Lead in Bet Against Protege (video)

March 21 (Bloomberg) -- Warren Buffett made a friendly bet four years ago that funds that invest in hedge funds for their clients couldn’t beat the stock market over a decade. So far he’s winning. The wager that began on Jan. 1, 2008, pits Buffett against Protege Partners LLC, which built an index of five funds that invest in hedge funds to compete against a Vanguard mutual fund that tracks the Standard & Poor’s 500 Index. The winner’s charity of choice gets $1 million when the bet ends on Dec. 31, 2017. Betty Liu reports on Bloomberg Television's "In the Loop."

Wilbur Ross on CNBC

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Howard Marks Memo: Déjà Vu All Over Again

Link to: Déjà Vu All Over Again

Daniel Simons on the dangers of only focusing on what's at hand

A quote from Daniel Simons during the great interview that my friend Miguel did with him (HERE). They were discussing the difficulty of seeing and paying attention to other things around you when you’re so focused on doing something else.

“Let’s say you’re reviewing a prospectus and they’re throwing lots and lots of data at you. You’ll get this impression that you really understand the company really well, but you’re not thinking about what data is missing from that prospectus. So you don’t notice the risks that are not highlighted in that prospectus. That’s a real danger.”

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I had a checklist item that went at follows:

- Is my information Accurate AND Complete?

o Do I really know what I think I know?

o Do I really know what I don’t know?

§ “We work really hard never to get confused with what we know from what we think or hope or wish.” –Seth Klarman

I’m now also going to add the Simons quote below the Klarman quote on the checklist.

TED Talk - Jonathan Haidt: Religion, evolution, and the ecstasy of self-transcendence

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GMO whitepaper: What Goes Up Must Come Down - By James Montier

In this white paper, James Montier, a member of GMO's Asset Allocation team, looks at the macro drivers of profit margins, assessing whether today's record margins, especially in the US, are due for a fall to more reasonable levels.

Howard Marks on “Playing Within Yourself”

“An expression from the broadcasting booth that’s relevant to investing relates to the need to avoid pushing too hard. “Playing within yourself,” they call it. It means not trying to do things you’re not capable of, or things that can’t be accomplished within the environment as it exists….We simply cannot create investment opportunities when they’re not there…. If it’s not there, hoping won’t make it so. All we ever can do is take what they give us.” –Howard Marks, “What’s Your Game Plan?” (September 2003)

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Another quote from the same Memo that I liked (comparing Warren Buffett and Ted Williams): “Buffett’s approach, like that of Williams, rewards patience, selectivity and a superior understanding of the underlying process.”

Screen

Over the years, I've found it useful when James Montier (writing from wherever he was at the time) would run a value screen and show the number of names that came up. It gave another data point to compare the attractiveness of ideas in the market at any given time. He often used a screen run by Ben Graham, which he described in his March 2011 paper “The Seven Immutable Laws of Investing”:

"These projections are reinforced for equities when we investigate the number of stocks able to pass a deep value screen designed by Ben Graham. In order to pass this screen, stocks are required to have an earnings yield of twice the AAA bond yield, a dividend yield of at least two-thirds of the AAA bond yield, and total debt less then two-thirds of the tangible book value. I’ve added one extra criterion, which is that the stocks passing must have a Graham and Dodd P/E of less than 16.5x."

I often run screens similar to this, and decided to start running a certain version of it periodically and post the number of results that show up. I’m not going to add the Graham and Dodd P/E to this particular version, but I will add a pre-tax return on capital criteria (to try and find at least decent businesses) using the formula from Joel Greenblatt’s books, and a cash flow from operations criteria (to try and weed out where accounting earnings may not translate into free cash flow). Here are the summary metrics I will use for now:

• Market Cap over $10 million
• Industry: NOT Utilities or Investment Funds
• Geographic Locations: USA, Canada, UK, Australia
• TEV/LTM EBIT under 8.34x
• Dividend yield greater than 2.6%
• TD/TBV less than 67%
• EBIT/(NWC+NFA) greater than 12%
• CF from ops greater than 67% of NI

I decided to use 12% as the pre-tax hurdle, which would translate into about 7-9% after tax (depending on the tax rate) for a minimum return on capital and earnings yield. This screen today turns up 208 results. I’m not going to list all of the names here, but here are a few to give an example of the things that turned up:

Intel Corporation (NasdaqGS:INTC), Walgreen Co. (NYSE:WAG), Newmont Mining Corp. (NYSE:NEM), Kohl's Corp. (NYSE:KSS), London Stock Exchange Group plc (LSE:LSE), Corby Distilleries Ltd. (TSX:CDL.A), STW Communications Group Ltd. (ASX:SGN), Calamos Asset Management Inc. (NasdaqGS:CLMS).

Disclosure: This article is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chanticleer Investment Partners ("CIP") or any other entities related to or owned by CIP's parent company, Chanticleer Holdings, Inc. Neither I nor any investment product I co-manage at Chanticleer have an investment in the stock(s) mentioned in this article at the time of posting.

TED Talk - T. Boone Pickens: Let's transform energy -- with natural gas

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Bridgewater: An In-Depth Look at Deleveragings - By Ray Dalio

Found via the Santangel's Review ‘Value Links’ email. If you would like to be added to that mailing list, please email Steve at sfriedman@gmail.com.

The purpose of this paper is to show the compositions of past deleveragings and, through this process, to convey in-depth, how the deleveraging process works.

The deleveraging process reduces debt/income ratios. When debt burdens become too large, deleveragings must happen. These deleveragings can be well managed or badly managed. Some have been very ugly (causing great economic pain, social upheaval and sometimes wars, while failing to bring down the debt/income ratio), while others have been quite beautiful (causing orderly adjustments to healthy production-consumption balances in debt/income ratios). In this study, we are going to review the mechanics of deleveragings by showing how a number of past deleveragings transpired in order to convey that some are ugly and some are beautiful. What you will see is that beautiful deleveragings are well balanced and ugly ones are badly imbalanced. The differences between how deleveragings are resolved depend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth from the haves to the have-nots and 4) debt monetization. What we are saying is that beautiful ones balance these well and ugly ones don’t and what we will show below is how.

Before we examine these, we will review the typical deleveraging process.