Quote (differentiated investment process)

“The great race for first flight tells a story that resembles the competitive landscape of the investment management industry. In order to produce superior compounded returns over time I believe one must not only have a differentiated view but more importantly a differentiated investment process. The vast majority of professional investors attempt to unlock the key to compounding success through horsepower at the expense of wing design/investment process and pilot control/manager skill.” –Christopher Begg, from East Coast Asset Management's Q3 Letter

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If you haven’t read the ECAM Q3 letter yet, I highly recommend at least reading the two-page addendum  entitled "Investment Process/Personal Evolution – Inventing a 'Learning' Machine". He mentions a great quote from the book Jonathan Livingston Seagull:

The elder Chiang reminded Jonathan: “It’s strange. The gulls who scorn perfection for the sake of travel go nowhere, slowly. Those who put aside travel for the sake of perfection go anywhere, instantly.”

Atul Gawande: The Difference Between Coaching and Teaching

Found via the Corner of Berkshire & Fairfax.


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Related previous post: PERSONAL BEST - By Atul Gawande

One Man, One Computer, 10 Million Students: How Khan Academy Is Reinventing Education

The headquarters of what has rapidly become the largest school in the world, at 10 million students strong, is stuffed into a few large communal rooms in a decaying 1960s office building hard by the commuter rail tracks in Mountain View, Calif. Despite the cramped, dowdy circumstances, youthful optimism at the Khan Academy abounds. At the weekly organization-wide meeting, discussion about translating their offerings into dozens of languages is sandwiched between a video of staffers doing weird dances with their hands and plans for upcoming camping and ski trips.

Pivoting, Salman Khan, the 36-year-old founder, cracks a sports joke appropriate for someone who holds multiple degrees from MIT and Harvard. It involves LeBron James (a Khan Academy fan), three-point shots and sophisticated algorithms called Monte Carlo simulations. The company’s 37 employees, mostly software developers with stints at places like Google and Facebook, are the types who know when to laugh. And they do.

It’s a prototypical Silicon Valley ethos, with one exception: The Khan Academy, which features 3,400 short instructional videos along with interactive quizzes and tools for teachers to chart student progress, is a nonprofit, boasting a mission of “a free world-class education for anyone anywhere.” There is no employee equity; there will be no IPO; funding comes from philanthropists, not venture capitalists.

“I could have started a for-profit, venture-backed business that has a good spirit, and I think there are many of them–Google for instance,” says Khan, his eyes dancing below his self-described unibrow. “Maybe I could reach a billion people. That is high impact, but what happens in 50 years?”

It’s a fair question, with an increasingly sure answer: The next half-century of education innovation is being shaped right now. After decades of yammering about “reform,” with more and more money spent on declining results, technology is finally poised to disrupt how people learn. And that creates immense opportunities for both for-profit entrepreneurs and nonprofit agitators like Khan.

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Related book: The One World Schoolhouse

Related previous posts:

Salman Khan speaks at Web 2.0 Summit

How Khan Academy Is Changing the Rules of Education

Salman Khan on Charlie Rose

TED Talk - Salman Khan: Let's use video to reinvent education

Related link: Khan Academy

Invest for Kids Conference Notes: Kyle Bass, James Grant, Steve Romick, and others

Via ValueWalk:

Steve Mandel – Lone Pine Capital

Idea: Verisign, Inc. (NASDAQ:VRSN)

Lone Pine currently owns 9% of the company.  Verisign, Inc. (NASDAQ:VRSN) has no net debt and about a $6 billion market cap.  The company currently receives about $7.85 for each registered domain name annually.  Thesis: the combination of 7-8% domain name growth and 7% annual pricing growth combined with the firm’s operating leverage will lead to a 25% annual return over the next four years at current prices.  The pricing on many of the firm’s domain name fees are allowed to be raised up to four times over the next six years, each time by 7-8%, per the Department of Commerce.  Furthermore, the US Department of Defense has come to view Verisign, Inc. (NASDAQ:VRSN)’s internet infrastructure services as critical to national security, which will likely result in a favorable negotiation relationship with the Department of Commerce going forward.  The firm provides a service essential to the internet and charges a relatively low toll for this service. This is an attractive market position.  Operating margin should expand for years to come.

Arnold Van Den Berg videos

A couple of Arnold Van Den Berg videos have popped up within the last week. The first is him at Century Management's 2012 Client Review (found via the Corner of Berkshire & Fairfax) and the second is a presentation he gave at Texas Lutheran University (found via ValueWalk).

Link to Client Review Video



Link to TLU Video

Berkshire's book value and share repurchases

At the end of Q3, Berkshire Hathaway’s book value stood at $111,718 per Class A equivalent share, or $74.48 per B share. Remember that Mr. Buffett can buy back stock at 110% of book value, a price he believes significantly undervalues Berkshire. So he can start buying back stock at: 1.10 x $74.48 = $81.93. At a current price of $85.75, Berkshire is trading at about 115% of tangible book value, a price Mr. Buffett would probably also consider significantly undervalued.

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Related excerpt from Mr. Buffett’s 2011 Letter to Shareholders:

Share Repurchases

Last September, we announced that Berkshire would repurchase its shares at a price of up to 110% of book value. We were in the market for only a few days – buying $67 million of stock – before the price advanced beyond our limit. Nonetheless, the general importance of share repurchases suggests I should focus for a bit on the subject.

Charlie and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.

We have witnessed many bouts of repurchasing that failed our second test. Sometimes, of course, infractions – even serious ones – are innocent; many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted. It doesn’t suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company has excess cash. Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another.

…Charlie and I have mixed emotions when Berkshire shares sell well below intrinsic value. We like making money for continuing shareholders, and there is no surer way to do that than by buying an asset – our own stock – that we know to be worth at least x for less than that – for .9x, .8x or even lower. (As one of our directors says, it’s like shooting fish in a barrel, after the barrel has been drained and the fish have quit flopping.) Nevertheless, we don’t enjoy cashing out partners at a discount, even though our doing so may give the selling shareholders a slightly higher price than they would receive if our bid was absent. When we are buying, therefore, we want those exiting partners to be fully informed about the value of the assets they are selling.

At our limit price of 110% of book value, repurchases clearly increase Berkshire’s per-share intrinsic value. And the more and the cheaper we buy, the greater the gain for continuing shareholders. Therefore, if given the opportunity, we will likely repurchase stock aggressively at our price limit or lower. You should know, however, that we have no interest in supporting the stock and that our bids will fade in particularly weak markets. Nor will we buy shares if our cash-equivalent holdings are below $20 billion. At Berkshire, financial strength that is unquestionable takes precedence over all else.

Richard Duncan quote

“Credit-induced boom and bust cycles are not new. What makes this one so extraordinary is the magnitude of the credit expansion that fed it.” –Richard Duncan, The New Depression

Nate Silver and the Lessons of 2012

Via The Big Picture.

Link to: Nate Silver and the Lessons of 2012

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Related book: The Signal and the Noise: Why So Many Predictions Fail-but Some Don't

Related link: Nate Silver on Charlie Rose (Oct. 30^th)

Bill Gross: Dividend Stocks at Risk If Tax Rates Rise

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TED Talk - Emma Teeling: The secret of the bat genome

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