Looming Port Strike Deadline Pressures Obama to Intervene

This seems like a story that should be getting a little more attention. I talked to someone this morning who works for a manufacturing firm and they've been having weekly meetings on this for 3 months. They've built up an extra month's inventory just in case, but since every day of strike means about 7 days of backup in the ports, that one month's supply would only be good if the strike lasted for less than about 5 days. Finding alternate routes is difficult, both because other companies will be doing the same thing and the fact that some of their product could freeze if the shipping route goes too far north.

President Barack Obama is facing pressure to intervene and prevent a strike that would gridlock eastern U.S. ports and risk damaging industries from retail to manufacturing. 

Federal mediators have been pushing for a deal between dockworkers and their employers before a Dec. 29 deadline. Talks between the International Longshoremen’s Association and the U.S. Maritime Alliance broke down last week amid a dispute over so-called container royalty fees, or levies that supplement wages. 

A walkout would be the first at East Coast and Gulf Coast ports since 1977, and would halt shipments of containerized cargo, including clothing, frozen foods and car parts. Obama would be left to choose between forsaking a pro-labor stance by invoking the 1947 Taft-Hartley Act and allowing a union action that could compound the effects of the fiscal cliff. 

Biotech and Mining comparison...

From the book Cracking the Code:

For every success in biopharma there are at least 10 failures. In a way, the biomedicine industry is a bit like the mining industry: it’s a capital intensive industry full of thousands of small companies trying to strike gold or other commodities; it’s an industry where travelling hopefully is often better than arrival; it has a fair share of charlatans; and when small exploration companies are successful, they often partner with mining giants, or sell outright to them. Mining is an industry where the time lags are long between the enterprise’s creation and the first mine (though not as long as in biotech) and, like biotech (although again, not to the same extent) it involves regulatory processes that create barriers both of time and of money.

Book TV: Lords of Finance: The Bankers Who Broke the World

This interview is from 2009.

Liaquat Ahamed presents in his book, Lords of Finance: The Bankers Who Broke the World that four of the world's central bankers attempted to rebuild the global economy following World War I but instead contributed to the economic collapse that led to the Great Depression.  Mr. Ahamed profiles the central bankers from England, Germany, France, and the United States and examines their collective fear of inflation, their interest in the gold standard, and their failed plans to stabilize the international economy.  Liaquat Ahamed discusses his book with Gerald Seib, executive Washington editor of The Wall Street Journal.  Liaquat Ahamed's Lords of Finance was the 2010 Pulitzer Prize recepient for history.

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Related book: Lords of Finance

Graham and Dodd quote

From Security Analysis, 1940 edition: 

"Characteristically, stocks thought to have good prospects sell at relatively high prices. How can the investor tell whether or not the price is too high? We think that there is no good answer to this question —in fact we are inclined to think that even if one knew for a certainty just what a company is fated to earn over a long period of years, it would still be impossible to tell what is a fair price to pay for it today.....On the other hand, assume that the investor strives to avoid paying a high premium for future prospects by choosing companies about which he is personally optimistic, although they are not favorites of the stock market. No doubt this is the type of judgment that, if sound, will prove most remunerative. But, by the very nature of the case, it must represent the activity of strong-minded and daring individuals rather than investment in accordance with accepted rules and standards."

Hussman Weekly Market Comment: Aspirin for a Broken Femur

Since 2009, both the stock market and the broad U.S. economy have been dependent on perpetual support from massive federal deficits and unprecedented money creation. Meanwhile, Wall Street is content to ignore the extent of this support, and looks on every movement of the economy as a sign of intrinsic health – which is a lot like admiring the graceful flight of a dead parrot swinging by a string from the ceiling fan. 

To put some numbers on this, it’s worth noting that since 1940, the S&P 500 has achieved an average annual total return of 14.5% in weeks where it was above its 200-day moving average as of the prior week’s close, and just 4.4% when it was below its 200-day moving average (only slightly more than the 4.2% average Treasury bill yield during that time, and with deep drawdowns usually concentrated in this partition). By contrast, since 2009, the S&P 500 has achieved an average total return of just 5.4% annually when it has been above its 200-day average, versus 36.7% when it has been below. Put another way, advancing trends above the 200-day average have repeatedly failed, making limited net progress overall, but declines have been halted and often breathtakingly reversed with each intervention. This pattern also reflects an unfinished cycle, the completion of which is likely to significantly damage the appeal of reflexively “buying the dip.” 

The recent pattern isn’t just an artifact of the rebound from the 2009 low. Even since 2010, the S&P 500 has gained just 1.5% annually when it has been above its 200-day moving average, versus a striking 46.3% annual return when it has been below. Needless to say, this pattern is not necessarily indicative of how the S&P 500 will behave in the future, and is in fact contrary to the historical pattern. Policy makers have committed a staggering amount of fiscal and monetary resources to kick-the-can strategies, following policies that ultimately cannot be sustained, in order to prevent outcomes that ultimately cannot be prevented. The eventual restructuring of unserviceable mortgage, sovereign, and financial debt is among those outcomes. 

A quick look at how the deleveraging of the U.S. economy is going - total credit market debt has now reached $55 trillion, including government, corporate and household sectors, representing 3.5 times GDP (down only slightly from the 3.8 multiple observed at the recession trough of early 2009). To put this in perspective, every 100 basis point change in interest rates on maturing and refinanced debt now implies a redistribution of income between borrowers and lenders on the order of $500 billion annually. The Fed has worked tirelessly to ensure that borrowing is as cheap as possible – the risk being that any departure from that would give every interest rate change of one percent an annual economic effect the same size as the “fiscal cliff.”

Frank Martin PBS Interview

Thanks to Steve for passing this along.

Watch The Fiscal Cliff on PBS. See more from Economic Outlook.

Link

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Related book: A Decade of Delusions: From Speculative Contagion to the Great Recession

Interview with Rachel Fox

Rachel Fox is a 16-year-old actress, most prominently featured on the shows “Desperate Housewives” and “Melissa and Joey”.  She has also become passionate about investing and trading, and has a website, Fox on Stocks, where she gives her thoughts and educates readers on things she's learned or is in the process of learning. I recently had the pleasure of interviewing her. My questions (in bold) and her answers are below. When speaking with Rachel and reading her answers to my questions, the one thing that really popped into my mind were Steve Jobs' words of advice at the end of his 2005 Stanford Commencement Address: "Stay Hungry. Stay Foolish." If the hunger and work ethic Rachel shows in everything she does stays with her, I think you're going to be hearing much more from her in the future, and I'm looking forward to following her progress.

Interview with Rachel Fox

The investing spark hits people in many different ways. I remember one investor describing his interest being sparked when his father explained the stock quotes in the newspaper to him, and he realized that he could make money by just buying shares of stocks and then sitting back letting the market work without him having to strain too much. From what I understand, you also got the investing spark through a desire to make your money work for you, and that you got some early education from your mom about how the markets work. So can you tell readers a little more about how your interest in investing and trading was initially started and how it has progressed since that time?

My interest in trading came about immediately after my mom explained the concept of the stock market to me when I was about 15 years old. When I was 14 years old, I explored different business opportunities to invest my money in. I considered real estate buying and selling, and was also very interested in owning billboards, that is until I heard about the stock market. I had never heard of a simpler way to make money. Letting the market do all the work seemed like the greatest thing ever. Not only is it a carefree way to make money but there is also an amazing level of excitement and adrenaline when I'm trading. I love it and couldn't live without it.

Initially, I traded stocks in a virtual trading account so I could learn the basics and show my parents that it was a profitable endeavor for me. I made my first real trade after my family went to our friend’s house for Thanksgiving dinner a couple of years ago. There, I met a man who told me about a stock that I should invest in that was trading for $2 and was sure to rise to $10 very soon. I was so excited to make the trade, I finally convinced my parents to let me do it...... I have to say, taking a stock tip was the worst mistake ever. The stock is currently trading for $.02. But I was excited anyway and knew I could figure out which stocks would rise and which would likely fall. I used this very difficult lesson to learn to trust only my choices. It was good to learn the lesson early and I'm glad I did it because it was the thing that got me started.

My interest in trading hasn't evolved too much and I don't want it to. I'd hate to turn into one of those jaded, fearful traders who have been doing this for too many years and who have grown cynical with the process. When that happens, it dampens your results. Having traded almost daily for a little over a year, I don’t think about the risks I'm really taking everyday. But that's great and it makes me a fearless trader.

I think a lot of medical students learn medicine using the ‘see one, do one, teach one’ method. Similarly, I think learning investing can be done in a similar way, and using a blog to do it is one way to go about the teaching part of that process. So for you, how much has writing about investing and explaining concepts to readers helped you develop and learn?

Oh my gosh, writing about investing is a perfect way to better understand the market. It has helped a huge amount. The research I do to produce each blog goes deep so I learn so much about individual companies, individual stocks, entire industries, ratios, stochastics charts, earnings reports, Fiscal Cliff…it’s endless and exciting. I can never get enough and I can never learn too much.

The danger, on the other side of this, is that sometimes, too much information can take you off your game. It can make you paranoid and it can make you change what you would otherwise do successfully. Too much information can mess you up. The trick is to take what you need and then not consider information that is irrelevant, redundant, or that you simply don’t agree with.

In this world of information overload, that is sometimes difficult to do.

One of my favorite investing quotes is this one from Seth Klarman, whom I think is one of the greatest investors of all-time: “To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough. Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale behind the rules in order to appreciate why they work when they do and don't when they don't.” In your young investing career, what are some of the rules you’ve learned, and some of the rules you maybe thought you had learned but where hands-on experience led you to change your mind?

I love this question.

The first and most important rule that I've learned that hasn't changed is never take a stock tip. Trust your own gut and act fearlessly on your own beliefs. You should only make trades that come from your own mind.

Second, buy low sell high. It works every time :) especially when the stock actually goes higher.

Third, don’t buy overbought stocks and don’t sell short oversold stocks.

Fourth, don’t be emotional when trading and don’t get attached.

As far as rules that I learned but I quickly changed due to hands on experience are

1. Diversify your risk. I truly understand diversification and appreciate it and know that in a long-term portfolio it is essential to diversify. However, I'm a day trader. In order for me to gain a comfortable sum of money on each trade, I need to buy large quantities of stock so I generally do and therefore, I tend to favor one or two stocks at a time instead of 10 or 15 at a time to attain large volume trades.
2. Stay away from stocks with a high P/E ratio. I’ve successfully traded stocks like LinkedIn, Facebook, and Starbucks with a high PE ratio and although I look at it as a factor, I don’t stay away from it.
3. Some experts believe it is not good to employ dollar cost averaging techniques after you buy a stock and the stock price goes down. On one of my most profitable trades ever, I faced fear square in the eyes after I went long on a stock, the stock price dropped substantially and I went ahead and bought more. A lot more. The stock price soared and I made a killing.

I was looking through some quotes from the book Reminiscences of a Stock Operator and this one stood out: “Don’t misunderstand me.  I never allowed pleasure to interfere with business.  When I lost it was always because I was wrong and not because I was suffering from dissipation or excesses.  There were never any shattered nerves or rum-shaken limbs to spoil my game.  I couldn’t afford anything that kept me from feeling physically and mentally fit.  Even now I am usually in bed by ten.  As a young man I never kept late hours, because I could not do business properly on insufficient sleep.” As someone who is a successful actress, rock star, and investor, how do you balance your life to make sure you can give all your interests their proper time?

Haha! I wish I couldn’t do business on insufficient sleep and I wish I never kept late hours and got a lot of sleep…but I don’t really. I try to live big every single minute of my day so I sometimes go to bed at 1am, 2am, or later and sometimes I fall asleep from exhaustion earlier. I’m not into illegal drugs or anything not age appropriate, I’m just on the go, love to work, perform, and travel as much as possible.

Even though I live big during the day and often into the am (sometimes writing Fox on Stocks blogs), I am very disciplined and I get up at 6:00am most weekdays to prepare for the 6:30am (9:30am EST time) NYSE opening bell.

I work best and accomplish the most when I have a million things to do at one time. My favorite days are when I’m on set shooting a tv show or film, making trades in between takes, then running off to a singing session, then out to a movie or a party with friends, then getting up early the next day to do it again.

Since I’m 16, my body is physically able. (I also run 5 miles, sometimes each day, but at least every other day.) I’ll likely slow down and need more balance when I get older…but until then, balance is not for me. I think it’s more living big fearlessly and I’ll balance when my physical body forces me to.

One of the topics I’ve frequently brought up on this blog is the idea of expertise and the process it takes to be successful at something, whether it’s investing or in some other arena. When we briefly talked about this on the phone, you mentioned that there was more to becoming an actress than just being good at acting, similar to the fact that there is more to building a successful investing business than just being a good investor. One needs to build networks of people, get clients, navigate the politics of the business, and other things that turn a particular skill into a successful, complete package. Can you discuss some of the lessons you’ve learned along these lines from the acting business, and how you are trying to apply those as you continue to get more and more into investing?

In the entertainment industry, it's more important to have those connections and to learn how to navigate the political side of the business. Because I don't work for an investing company and only trade on my own, there really isn't too much political navigating to do. That's another thing I love about stock trading. I get to do something I love that I have complete control over. There are no political games or people to impress. I trade to make money. It’s that simple.
 
One very important thing that carries over from the entertainment industry to my day to day stock trading is the element of doing everything fearlessly. Every time I film something, I know I have to make my choices and execute them fearlessly. In stock trading, I have to do that same thing...enter into every trade with full confidence and strength.

Another thing I’ve learned from the entertainment industry that I use in stock trading is to constantly and quickly learn more than it seems possible to learn and take into my brain then with piercing focus, I take action – make a choice at the very highest levels. After that, I have to QUICKLY LET GO, learn from what I did, then move on to the next. No dwelling. Move onward.

Warren Buffett—one one of the investing heroes of this blog—has said that the only diploma hanging on the wall in his office is a certificate of completion for a Dale Carnegie course he took when he was younger that allowed him to get comfortable speaking in public. He has called it “the most important degree that I have.” Similarly, I believe your mom put you into a program to get you comfortable with public speaking when you were young. At what age did you enter that program, and how much do you think that helped your acting career?

It's the reason I'm an actress today. When I was four, almost five years old, my mom put my sister and me into theatre classes so we could get really comfortable with public speaking. I ended up falling in love with acting but in addition gained an incredible amount of confidence speaking to large groups of people.

I think it’s about being comfortable in your own skin, knowing your strengths and weakness, being confident enough to do huge things, then being fearless.

To conclude, can you give us some thoughts on your future goals, both in investing and acting, which seems like it is still your number one passion? And can you also let readers know how they can follow you more closely?

Acting is by far my number one passion. I love it more than everything and nothing could ever replace it.

My goals are to work on sets almost every day of my life, win an Oscar, and always trade fearlessly.

To follow me more closely, readers can visit foxonstocks.com to read my daily blog and follow my twitter @foxonstocks. For all things acting and rock related, follow me on instagram @rachelgianafox.
 

Follow me on Twitter @rachelgfox and check out my website www.rachelgfox.com

Thank you Rachel!

FT Alphaville’s Christmas podcast: Dylan Grice

Found via The Big Picture.

David Keohane and Izabella Kaminska are joined for FT Alphaville’s Christmas podcast by Dylan Grice, until recently part of Société Générale’s global strategy team, to discuss the economy in 2013, robots, patents, inflation and, perhaps most importantly, the difference between a Star Trek and a Star Wars economy.

Simoleon Sense: Miguel Barbosa's Interview with Michael Mauboussin

Link: Miguel Barbosa's Interview with Michael Mauboussin

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Related book: The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing

Related previous post: Luck and Skill Untangled: The Science of Success

Jack Schwager on Opalesque.TV

Found via ValueWalk. Schwager discusses his newest book, Market Sense and Nonsense, in which Joel Greenblatt wrote the forward to the book.

Link to video: Jack Schwager's new book “Market Sense and Nonsense” – 30 years observing investment mistakes