Links

Berkshire Hathaway Inc. to Acquire Precision Castparts Corp. for $235 Per Share in Cash (~$37.2 billion) (LINK)

Warren Buffett on CNBC this morning, discussing the deal and other things (videos) [UPDATE: The transcript is available HERE.]:

Warren Buffett: Why we bought Precision Castparts 

Warren Buffett: Precision deal 'very high multiple' 

Warren Buffett: Precision CEO loves what he does 

Warren Buffett on IBM: I feel fine 

Media selloff not enticing: Warren Buffett 

Warren Buffett: It's tough to push rates higher

The Value Investor Insight issue from April where Francois Rochon discussed Precision Castparts (LINK)

A Microsoft Executive’s Investing Answer: Charlie Munger (LINK)

Related book: Charlie Munger: The Complete Investor

A few great quotes, via Max (LINK)

Mental Model: Misconceptions of Chance (LINK)

GMO white paper: The Idolatry of Interest Rates, Part II: Financial Heresy (free registration required) (LINK)

James Montier follows up with "Financial Heresy," Part II in his take on interest rate idolatry. Included is a response to James' thoughts from Ben Inker, "Potential Utility in an Equity Risk Premium Framework."

The Miracle of SolarCity [H/T Abnormal Returns] (LINK)

Related book: Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future [I also started the audiobook this weekend, and the narration is great so far.]

Bob Olstein on Wall Street Week (video) (LINK) [I liked this quote: "I would fire anybody who values a company on EBITDA."]

Hussman Weekly Market Comment: Thin Slices from the Top of a Bubble (LINK)

“You need to know very little to find the underlying signature of a complex phenomenon…. This is the gift of training and expertise – the ability to extract an enormous amount of meaningful information from the very thinnest slice of experience.” 

Malcolm Gladwell, Blink 

The ability to make accurate decisions in the face of overwhelming amounts of information can require a great deal of experience, but what does that experience actually do? My impression is that experience – studied and absorbed carefully – nurtures the ability to see and identify subtle elements in the landscape, and eventually to recognize patterns. Accurate decision-making doesn’t rely on weighing and deliberating over every detail of that landscape. As Malcolm Gladwell brilliantly writes in Blink, accurate decisions often rely on “thin-slicing” – a kind of pattern recognition that perceives and filters out the very few factors that actually matter. 

That’s not to suggest that simplicity, in and of itself, is the objective. Ockham’s Razor doesn’t merely say that the simplest explanation is usually the best; it requires that the explanation must also be consistent with the evidence. Likewise, Einstein joined his advice that “A theory should be made as simple as possible,” with the essential condition “but not so simple that it does not conform to reality.”

How to Watch This Week's Perseid Meteor Shower (LINK)

Links

A Dozen Things Learned from Sam Zell about Investing and Business (LINK) [I've also recently begun to read a review copy of Tren Griffin's book on Charlie Munger, which will be released next month. It is fantastic. As always, you can pre-order the book at no extra cost to you and also support this blog by buying it through THIS link.]

Paul Graham: If you have a US startup called X and you don't have x.com, you should probably change your name. (LINK)

a16z Podcast: A Copernican Update ... In Tech, the Smartphone is the Center (LINK)

The Seven Books You Must Read If You Want to Understand Oil [H/T Matt] (LINK)

The books:  

The Prize: The Epic Quest for Oil, Money & Power  

The Quest: Energy, Security, and the Remaking of the Modern World 

Abu Dhabi: Oil and Beyond 

Oil & Gas Production in Nontechnical Language 

The History of The Standard Oil Company 

Inorganic Chemistry For Dummies 

The Commanding Heights : The Battle for the World Economy

Eye Shape May Help Distinguish Predator From Prey (LINK)

Why do the eyes of some animals, including goats, have horizontal-shaped pupils, while others, such as rattlesnakes and domestic cats, have vertical slits? 

It is a question that has longed intrigued researchers, and a study of 214 species published Friday suggests the answer may be strongly linked to giving animals a survival edge: vertical pupils and circular pupils help certain predators hunt, while horizontal pupils help other species spot predators from afar. 

Not all vision scientists accept the researchers’ hypothesis, however, citing examples of animals that do not fit cleanly into these classifications.

Links

Michael Lewis on what execs and elites often overlook (video) [H/T Linc] (LINK)

The moral problem, such as it is, on Wall Street isn’t that people are kind of looking to do bad things. That’s not at all what people are doing. I think they would rather do good things if they could make as much money doing the good things as doing the bad things. But they’re looking to make money. 

We live in a society in which the elites have maybe more power than they have ever had, a greater share of the wealth than they had in a very long time. But it’s not clear they feel much in the way of obligation to society. 

There’s a natural tendency for people to tell the story of their lives, of their success, forgetting all the accident that was involved, all the help they got, all the gratitude they should feel.

Boomtown, USA [H/T Will] (LINK)

EVEN if you expect everything to be bigger in Texas, the north Texas branch of the Nebraska Furniture Mart, near Dallas, is a shock. The megastore, which is owned by Warren Buffett’s Berkshire Hathaway, is the size of ten American football fields and employs 2,300 staff. Around 70 delivery trucks arrive every day and 20,000 visitors descend each Saturday. Mr Buffett predicts that the store, which opened only in May, will have a turnover of $1 billion in its first year.

Longform Podcast #152: Carol Loomis [H/T Abnormal Returns] (LINK)

Freight Startups Attract Silicon Valley’s Attention (LINK)

Jet.com Runs Into Turbulence With Retailers (LINK)

Toby Carlisle's analysis of Movado (LINK)

A summary of Markel's Q2 (LINK)

The Brooklyn Investor on Mondelez International (LINK)

The great filter - by Matt Ridley (LINK)

Book of the day (praised by Ridley in the article above): The Vital Question: Energy, Evolution, and the Origins of Complex Life

Links

GMO founder Grantham says markets ‘ripe for major decline’ in 2016 (LINK)

A well-known fund manager who foresaw the Japanese crash, the dotcom bubble and the global financial crisis has predicted that markets will be “ripe for a major decline” some time in 2016, potentially triggering government bankruptcies. 

Jeremy Grantham , founder and chief strategist of GMO, a $118bn investment house based in Boston, expects the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016.

Saudi Arabia may go broke before the US oil industry buckles [H/T @AlexRubalcava] (LINK)

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade. 

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

From a Million Miles Away, NASA Camera Shows Moon Crossing Face of Earth [H/T James] (LINK)

Book of the day: My Life & Work - An Autobiography of Henry Ford

Glenn Greenberg on zeroing in and not getting caught up in the minutiae

As quoted in the ECAM Q2 2011 letter:

“I’ve just found that it’s very easy for me to zero in, after studying something for a few hours, the key make or break factor that makes it interesting. And that’s with any of the investments that we have that you can boil it down to a fairly simple theory. And you’re constantly looking for why that theory might be wrong. But the likelihood of it being, severely wrong is probably small.” 

“I really felt that when I watched A Beautiful Mind about John Nash. In the movie, they showed Nash analyzing formulae and then it showed how it looked to him and it was like some things were really bold. And I understood exactly what he felt. I see a lot of times people are just totally caught up in the minutia and the details. A lot of the questions on earnings calls I listen to, people are getting into stuff that’s not going to move things one-tenth of one percent. It’s just not important and then people are really focused on it and they’re missing the really important stuff.”

...................

Related links:

Graham & Doddsville interview with Glenn Greenberg (Spring 2010)

Glenn Greenberg talk at Columbia (video) (Spring 2010) [And related, John Huber's excellent article after he watched the video: Great Investor Glenn Greenberg Discusses His Investment Philosophy]

Links

Latticework of Mental Models: Tragedy Of Commons (LINK)

Has Einhorn Lost His Mojo? (LINK)

Stock Guru Bill Miller Is Back But the Questions and Pain Linger (LINK)

Mark Hanson's latest thoughts on the housing market (LINK)

Book of the day: Einstein's Cosmos

Links

Sanjay Bakshi: What GEICO’s Customer Acquisition and Associated Costs Taught Me about Business Economics, Management Quality, and Valuation (LINK)

David Einhorn Blames Worst Month Since October 2008 On “Challenging” Market (LINK)

Chris Mayer on why utilities are a sell (LINK)

Darren Gee, President and CEO of PEYTO, is out with his August report (LINK) [Chris Mayer also recently linked to his November report, where he quotes the book The Outsiders.]

Richard Duncan's video warning on China's economy from 16 months ago (~14 minutes) (LINK) [If you're interested in subscribing to his Macro Watch video newsletter, see the mention of it in THIS post to use this blog's coupon code, 'valueinvestingworld'.]

Phil Libin, co-founder and executive chairman of Evernote, on the Tim Ferriss podcast (LINK)

Tim Harford: Worming our way to the truth (LINK)

Links

Greek stocks close with record drop of 16.23% (LINK)

Greece's stock exchange closed Monday with a record drop of 16.23 percent on reopening after a five-week shutdown caused by capital controls.... The banking index on Monday lost nearly 30 percent, with the top four Greek lenders shedding the same amount, the maximum daily loss allowed.

5 Things Learned from Jeff Bezos on Business and Investing (LINK)

Third Point's Q2 Letter (LINK)

Hussman Weekly Market Comment: A Bad Equilibrium & How Speculative Distortion Ends (LINK)

From our perspective, the fundamental reason for economic stagnation and growing income disparity is straightforward: Our current set of economic policies supports and encourages a low level equilibrium by encouraging debt-financed consumption and discouraging saving and productive investment. We permit an insular group of professors and bankers to fling trillions of dollars about like Frisbees in the simplistic, misguided, and repeatedly destructive attempt to buy prosperity by maximally distorting the financial markets. We offer cheap capital and safety nets to too-big-to-fail banks by allowing them to speculate with the same balance sheets that we protect with deposit insurance. We pursue easy monetary fixes aimed at making people “feel” wealthier on paper, far beyond the fundamental value that has historically backed up that wealth. We view saving as dangerous and consumption as desirable, failing to recognize a basic accounting identity: there can only be a "savings glut" in countries that fail to stimulate investment. We leave central bankers in charge of our economic future because we're too timid to directly initiate or encourage productive investment through fiscal policy. When zero interest rates don't do the trick, we begin to imagine that maybe negative interest rates and penalties on saving might coerce people to spend now. Look around the world, and that same basic policy set is the hallmark of economic failure on every continent. 

You'll have to go through the Agora marketing machine and cancel a newsletter subscription if you don't want to keep it, but Chris Mayer, inspired by Thomas Phelps' 100 to 1 in the Stock Market, has updated some of Phelps' work and data (Phelps wrote the book in the early 1970s) with his own book on 100-baggers (LINK)

Book of the day (released tomorrow): Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence

Quote of the day, via Shane at Farnam Street:

"Whatever is good for us should be discussed often and frequently brought to mind, so that it may be not Just familiar to us, but also ready for use. Remember also that in this way what is clear often, becomes clearer." -Seneca

That quote summarizes my reasons for continuing on the Memortation path.

Links

Bill Gates: We Need Clean-Energy Innovation, and Lots of It (LINK)

Mohnish Pabrai on How to be a Mentor (LINK)

Related book: The Education of a Value Investor

Value Investing Podcast: Robert Hagstrom on the Art of Value Investing (LINK)

Related books:  

Investing: The Last Liberal Art 

The Warren Buffett Way

Mutual Fund Observer, August 2015 (LINK)

Hackers Remotely Kill a Jeep on the Highway (LINK)

Steven Pinker: The moral imperative for bioethics (LINK)

If Yellowstone Super Volcano Erupted (short video) (LINK)

Phil Fisher on research and development

From Common Stocks and Uncommon Profits:

The impact of this sort of thing on investment can hardly be over-stated. The cost of this type of research is becoming so great that the corporation which fails to handle it wisely from a commercial standpoint may stagger under a crushing burden of operating expense. Furthermore, there is no quick and easy yardstick for either management or the investor to measure the profitability of research. Just as even the ablest professional baseball player cannot expect to get a hit much more often than one out of every three times he comes to bat, so a sizable number of research projects, governed merely by the law of averages, are bound to produce nothing profitable at all. Furthermore, by pure chance, an abnormal number of such unprofitable projects may happen to be bunched together in one particular span of time in even the best-run commercial laboratory. Finally, it is apt to take from seven to eleven years from the time a project is first conceived until it has a significant favor-able effect on corporate earnings. Therefore,even the most profitable of research projects is pretty sure to be a financial drain before it eventually adds to the stockholder's profit.  

But if the cost of poorly organized research is both high and hard to detect, the cost of too little research may be even higher.