Nassim Taleb quote on focus

“To be able to focus is a great virtue if you are a watch repairman, a brain surgeon, or a chess player. But the last thing you need to do when you deal with uncertainty is to “focus” (you should tell uncertainty to focus, not us). This “focus” makes you a sucker; it translates into prediction problems, as we will see in the next section. Prediction, not narration, is the real test of our understanding of the world.” –Nassim Taleb, The Black Swan

Mauboussin on Strategy: Shaking the Foundation

In his latest strategy piece, Shaking the Foundation: Revisiting Basic Assumptions about Risk, Reward, and Optimal Portfolios, Michael Mauboussin works through the ideas and implications in an interview with Ole Peters.

Warren Buffett quote

“The truly big investment idea can usually be explained in a short paragraph.” –Warren Buffett, 1994 Letter to Shareholders (found via A Few Lessons for Investors and Managers)

Hussman Weekly Market Comment: Too Little to "Lock In"

We've regularly observed that corporate profit margins (and economy-wide, profits as a share of GDP) have a strong tendency to "mean revert" over time - specifically, elevated profit margins are associated with unusually weak earnings growth over the following 5-year period, and depressed profit margins are associated with unusually strong earnings growth over that horizon (see last week's comment, A False Sense of Security ). Notably, the ratio of corporate profits to GDP is presently nearly 70% above its historical norm. Of course, the most common valuation methods used by Wall Street analysts (whether they use the "Fed model" or "forward operating earnings times arbitrary P/E multiple") rely almost exclusively on estimates of year ahead earnings. Embedded in these toy models is the quiet assumption that current profit margins will be sustained indefinitely.

By contrast, a wide range of measures that use "normalized" fundamentals of one form or another are extraordinarily stretched. Andrew Smithers recently took note of the elevated levels of cyclically adjusted P/E ratios and price to replacement cost ("q") and observed "As of 8th March, 2012, with the S&P 500 at 1365.9 , the overvaluation by the relevant measures was 48% for non-financials and 66% for quoted shares. Although the overvaluation of the stock market is well short of the extremes reached at the year ends of 1929 and 1999, it has reached the other previous peaks of 1906, 1936 and 1968."

At 1400 on the S&P 500, the market's overvaluation has now reached 70% on these measures, which have a far stronger correlation with subsequent market returns than the Fed Model or other unadjusted methods using forward operating earnings. This is particularly true over horizons of 4 years or longer.

Graham and Doddsville Newsletter - Winter 2012

Link to: Graham and Doddsville Newsletter - Winter 2012

John Mauldin: All Spain All the Time

Last Monday I was in Paris and was asked to do a spot on CNBC London. I arrived at the studios an hour early due to a misunderstanding of the time zones, so while trying to catch up on the news I listened to CNBC. I had just written about Spain in last week's letter and guessed that was what they wanted to talk to me about, but for the full hour before I got on it seemed like every guest wanted to talk about Spain. When I had my turn and indeed got the Spain question, I smiled and noted that we were now in a period when it would be "All Spain All the Time," for at least the next year. I should have noted that there would be brief interruptions where we glanced at Portugal and perhaps Ireland, but the real focus would be on Spain.

I fully intended to write about something other than Europe this week, but the events of the last 24 hours compel me to once again look "across the pond" at the problems that not only plague Europe but will be a drag on world growth as well, as Europe goes through its continued painful adjustment as a consequence of trying to adopt a single currency. Since Spain is going to be on the front page for some time, it will be useful to look at some of the problems it is facing, to put it all into context. And what I heard while in Europe in private meetings is troubling.

60 Minutes: Is sugar toxic?

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Related link: Sugar: The Bitter Truth

Related previous posts:

Authors@Google: Robert Lustig

Is Sugar Toxic? - By Gary Taubes

Specialty Health Interviews Gary Taubes and Dr. Thomas Dayspring

FiveBooks Interview: Gary Taubes on Dieting

Gary Taubes on EconTalk

Gary Taubes Talk on Why We Get Fat

Gary Taubes Interview with Jimmy Moore

The Scientist and the Stairmaster

Related books:

Why We Get Fat: And What to Do About It

The Primal Blueprint

The New Evolution Diet

60 Minutes: High joblessness in the home of U.S. space flight

I recommend watching THIS video before watching the 60 Minutes segment below.

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Marc Faber on CNBC

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Erskine Bowles and Alan Simpson on Charlie Rose

Link to: Erskine Bowles and Alan Simpson on Charlie Rose