Links

Edward Chancellor: Why I’m cheering gold’s fall – and how to profit from it ($) (LINK) [I'm not a subscriber and don't have access to the article, but since it may be timely and since it is from Ed Chancellor, I thought it was worth mentioning.]

John Maynard Keynes and Currency Speculation in the Interwar Years [H/T @jasonzweigwsj] (LINK)

Summary and transcript of Sam Zell's appearance on Bloomberg yesterday (LINK) [I liked his quote about "...creating a competitive advantage by virtue of your entry price." This was also good: "I've sold real estate based on cap rates, I don't buy real estate based on cap rates. So I mean there's nothing more relevant than replacement cost. And so you can generate values that are way above replacement cost by virtue of very low cap rates. And that's a sucker's bet."]

An excerpt from Matt Ridley's latest book, The Evolution of Everything: How New Ideas Emerge (LINK)

If you sign up for Blake Boles' newsletter, you'll get links to two of his books sent to you for free, Better Than College in PDF format, and The Art of Self-Directed Learning in audio format, which looks interesting (LINK)

Book of the day: The Life and Work of George Boole

Quotes I'm thinking about today:

“At Baupost, we constantly ask: 'What should we work on today?' We keep calling and talking. We keep gathering information. You never have perfect information. So you work, work and work. Sometimes we thumb through Value Line. How you fill your inbox is very important.” –Seth Klarman  

“The difference between successful people and really successful people is that really successful people say no to almost everything.” –Warren Buffett

Links

TEDx Talk - The (ab)surd golden ratio | Robb Enzmann (video) (LINK)

The Guinness Brewer Who Revolutionized Statistics [H/T @mjmauboussin] (LINK)

A Seismic Shift in How People Eat (LINK)

Slack and the State of Technology at the End of 2015 (LINK)

Quote of the day, from Warren Buffett commenting in  his 1990 letter on Berkshire's non-insurance operations [H/T @Sanjay__Bakshi]: "Our extraordinary returns flow from outstanding operating managers, not fortuitous industry economics."

Related link: WHY YOU SHOULDN’T INVEST IN A BUSINESS THAT EVEN A FOOL CAN RUN

Book of the day (I haven't read this yet, but I've now seen it mentioned twice this year, with the first being an earlier mention by Freemon Dyson): Men of Mathematics

Links

I've seen this before, but it's probably about time for a re-read [H/T @CravenPartners]: James Montier: Seven Sins of Fund Management

Latticework Of Mental Models : Mental Accounting (LINK)

What Investors Can Learn From the Oil Bust - by Jason Zweig (LINK)

History of the deregulation of the trucking industry [H/T @paulg] (LINK)

Some great notes from the UBS Global Media and Communications Conference (LINK)

Audiobook of the day ($2.95): Napoleon Hill in His Own Voice: Rare Recordings of His Lectures

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As a reminder around holiday shopping season, you can support this blog by shopping on Amazon through THIS LINK. And if you don't have one yet and are considering it, my favorite all-in-one device for reading books, earnings transcripts, articles, etc. is still $20 off regular price: Kindle Paperwhite.

Links

Garrett Hardin on the Three Filters Needed to Think About Problems (LINK)

Related book: Filters Against Folly

What are Charlie Munger’s views on giving back to society? (LINK)

The Misunderstanding of Peter Lynch’s Investment Style (LINK)

CAN YOU PICK THE GUYS WHO PICK THE GUYS WHO PICK THE BEST STOCKS? - by Jason Zweig (LINK)

Nine Lessons From Third Avenue's Liquidation - by Mohamed A. El-Erian (LINK)

Financial Backtesting: A Cautionary Tale (LINK)

Jordan’s Furniture brings Buffett, ziplines and hooplah to New Haven [H/T Linc] (LINK)

Can Nikesh Arora Make Softbank the Berkshire Hathaway of Tech? (LINK)

How Elon Musk and Y Combinator Plan to Stop Computers From Taking Over (LINK)

TED Talk - Paul Greenberg: The four fish we're overeating -- and what to eat instead (video) (LINK)

Related book: Four Fish: The Future of the Last Wild Food

I've posted some quotes from the book Men and Rubber: The Story of Business in the past, and have some more planned in the future. While I still recommend the entire book if you can find a copy for a reasonable price, I did notice that there now appears to also be an abridged audio version out for those interested, HERE. The same is true of the book Be My Guest by Conrad Hilton, though there are plenty of cheap, used copies available of that entire book. 

It’s our job as contrarians to catch falling knives...

Given some of Howard Marks' more recent comments, as well as some of Oaktree's recent investments in the distressed energy space, this excerpt from The Most Important Thing seemed worth revisiting:

Skepticism is usually thought to consist of saying, “no, that’s too good to be true” at the right times. But I realized in 2008—and in retrospect it seems so obvious—that sometimes skepticism requires us to say, “no, that’s too bad to be true.” 

Most purchases of depressed, distressed debt made in the fourth quarter of 2008 yielded returns of 50 to 100 percent or more over the next eighteen months. Buying was extremely difficult under those trying circumstances, but it was made easier when we realized that almost no one was saying, “no, things can’t be that bad.” At that moment, being optimistic and buying was the ultimate act of contrarianism. 

~~~ 

Certain common threads run through the best investments I’ve witnessed. They’re usually contrarian, challenging and uncomfortable—although the experienced contrarian takes comfort from his or her position outside the herd. Whenever the debt market collapses, for example, most people say, “We’re not going to try to catch a falling knife; it’s too dangerous.” They usually add, “We’re going to wait until the dust settles and the uncertainty is resolved.” What they mean, of course, is that they’re frightened and unsure of what to do. 

The one thing I’m sure of is that by the time the knife has stopped falling, the dust has settled and the uncertainty has been resolved, there’ll be no great bargains left . When buying something has become comfortable again, its price will no longer be so low that it’s a great bargain. Thus, a hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron. 

It’s our job as contrarians to catch falling knives, hopefully with care and skill. That’s why the concept of intrinsic value is so important. If we hold a view of value that enables us to buy when everyone else is selling—and if our view turns out to be right—that’s the route to the greatest rewards earned with the least risk.

Links

Warren Buffett Takes 8% Stake in Sears Spinoff Seritage (LINK)

Billionaire investor Warren Buffett has taken an 8.02% stake in Seritage Growth Properties Inc., the real-estate company split off from Sears Holdings Corp. earlier this year. 

Mr. Buffett disclosed in a regulatory filing Thursday that he has bought 2 million shares in Seritage, a passive stake. At Wednesday’s closing price, the stake would be valued at about $70.5 million. 

The filing didn’t detail what he plans to do with the shares. Mr. Buffett took the stake personally, not through his company, Berkshire Hathaway Inc.

Five Good Questions for William Green about his book The Great Minds of Investing (LINK)

Third Avenue Blocks Redemptions From Credit Fund Amid Losses (LINK)

Amazon’s instant gratification service aims to disrupt delivery (LINK)

Michael Lewis On Why The Bank Bailout Was A Mistake (video) (LINK)

Related book: The Big Short

Have You Gotten Over Yourself? (LINK)

Book of the day [H/T @Sanjay__Bakshi]: Do the Work: Overcome Resistance and Get Out of Your Own Way

Links

The Best Books Bill Gates read in 2015 [H/T ValueWalk] (LINK)

The Two Sides of Seneca and A Lesson on Human Fallibility (LINK)

The Manual of Ideas' Top 10 Interviews (LINK)

Richard Thaler: "The Behavioralizing of Economics" | Talks at Google (LINK)

Related book: Misbehaving: The Making of Behavioral Economics

Niall Ferguson with David Gergen: On Henry Kissinger (video) (LINK)

Related book: Kissinger: 1923-1968: The Idealist

The latest from Horizon Kinetics in their 'What’s in Your Index?' series (LINK)

Aswath Damodaran: Aging in Dog Years? The Short, Glorious Life of a Successful Tech Company! (LINK)

A good presentation on the oil market [H/T @AlexRubalcava] (LINK)

Can Elizabeth Holmes Save Her Unicorn? [H/T Matt] (LINK)

Gene-Editing Technology Could Help Eradicate Malaria, Study Shows (LINK)

The Art of Setting a Drug Price [H/T @BaseHitInvestor] (LINK)

It's All Gone Wrong for One of World's Biggest Mining Companies (video plays) [H/T @Wexboy_Value] (LINK)

Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke (video plays) (LINK)

The Origin Story of Marie Kondo’s Decluttering Empire (LINK)

Related book: The Life-Changing Magic of Tidying Up

Steve Jobs introducing the 'Think Different' ad campaign, a couple of months after returning to the company in 1997 (video) [H/T @iancassel] (LINK)

Quote of the day, from Walter Isaacson in his book The Innovators: "Sometimes the difference between geniuses and jerks hinges on whether their ideas turn out to be right."

Investing thought of the day, via Ben Inker in the GMO Q3 Letter: "The rather odd thing about financials relative to other industries is that a high return on equity capital is as likely to be a sign of weakness as strength. Overly-levered financial firms generally look extremely profitable in the good times but have no cushion against losses when the cycle turns."

Book of the day: Dark Matter and the Dinosaurs: The Astounding Interconnectedness of the Universe

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On an investment-related note, I had previously posted an excerpt from the Boyles Q2 Letter where we mentioned one of our latest investments, Legend Corporation Limited (ASX: LGD) in Australia. As value investors who think the stock is undervalued, the company's buyback announcement from today is one we like to see: 

Managing Director Brad Dowe said: “The buy-back is an effective means of returning capital to shareholders whilst the directors see the company’s share price trading much below the underlying value of the company. Legend expects the buy-back to be earning per share accretive, funded from existing cash reserves and debt facilities and will be prudently managed to maintain appropriate balance sheet capacity to fund further acquisitions”

Disclosure: I am a portfolio manager at Boyles Asset Management, LLC ("Boyles") and the fund managed by Boyles may in the future buy or sell shares of the stock(s) mentioned above and we are under no obligation to update our activities. This is for information purposes only and is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.

Crocodile in the Yangtze - Story of Alibaba & Jack Ma (Full Documentary)

“eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.” -Jack Ma

Link to video: Crocodile in the Yangtze - Story of Alibaba & Jack Ma

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The Jack Ma quote above also reminded me of a couple of quotes from Charlie Munger about the domination of a niche leading to good economics, and that positive reinforcement then leading to advantages of scale: 

Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world—and get very good because they specialize—frequently find good economics that they wouldn't get any other way. 

And once we get into microeconomics, we get into the concept of advantages of scale. Now we're getting closer to investment analysis—because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.

GMO Quarterly Letter: Just How Bad Is Emerging, and How Good Is the U.S.? and Give Me Only Good News!

Link to: Just How Bad Is Emerging, and How Good Is the U.S.? and Give Me Only Good News!

GMO's 3Q 2015 Letter includes Ben Inker's "Just How Bad Is Emerging, and How Good Is the U.S.?" and Jeremy Grantham's "Give Me Good News Only!" 

..... 

[Inker] 

And this leads to the quandary for thinking about the U.S. stock market. We cannot find any convincing evidence that the U.S. is deserving of trading at a premium P/E to the rest of the world. This profitability, however, could be read either of two ways. Either the U.S. has somehow unlocked a secret to permanently higher profitability or this is an extremely dangerous time to be investing in the U.S. U.S. profitability has never looked materially better relative to the rest of the world than it does today. The bull case would be that, for whatever reason, this profitability gap is sustainable and U.S. stocks are only mildly more expensive than the rest of the developed world given U.S. P/Es are only about a point higher.  

But, frankly, we have a hard time believing this bull case. U.S. outperformance in recent years can be readily explained by the better trends in profitability, but that is a long way from saying that outperformance was truly justified. From a macroeconomic perspective, maintaining such high levels of profitability in the face of low investment rates implies ever-increasing wealth inequality in this country, unless taxes were to be raised in a way that seems highly implausible. Generating sufficient end demand in the economy given the inequality would call on either the rich to start spending their wealth at signficantly greater rates than we have seen historically or the rest of households to spend more than 100% of their income, as they did in the housing bubble. It is hard to envision that an economy that relies on those foundations to be a sustainable one.  

And even if the U.S. has somehow managed to unlock the secret to permanently high profits and the economy remains solid, it seems unlikely that the secret will remain an entirely U.S. phenomenon. If we imagine a world in which U.S. profitability is able to remain well above historical levels, we would expect non-U.S. companies to begin to copy their American counterparts, similar to the way profitability converged from the 1970s to the early 2000s. In that scenario, we are being too tough on U.S. stocks, but they are still the worst of the global bunch as our forecasts for other equities are similarly underestimated.  

..... 

[Grantham]  

It takes little experience in the investment business to realize that investors prefer good news. As a bear in the bull market of 1999 I was banned from an institution’s building as being “dangerously persuasive and totally wrong!” The investment industry also has a great incentive to encourage this optimistic bias, for little money would be made if the market ticked slowly upwards. Five steps forward and two back are far more profitable. 

Similarly, we environmentalists were shocked to realize how profoundly the general public preferred to believe good news on our climate, even if it meant disregarding the National Academies of the world. The fossil fuel industry, not surprisingly, encouraged this positive attitude. They had billions of dollars to protect. If the realistic information were to be widely believed, most of their assets would be stranded.  

When dealing with realistic limits to growth it is also obvious how reluctant everyone is to accept the natural mathematical limits: There simply cannot be compound growth in a finite world. A modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times! Yet, the improbability of feeding ten billion or so global inhabitants in 50 years is shrugged off with ease. And the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.  

Hard realities in these three fields are inconvenient for vested interests and because the day of reckoning can always be seen as “later,” politicians can always find a way to postpone necessary actions, as can we all:  “Because markets are efficient, these high prices must be reflecting the remarkable potential of the internet”; “the U.S. housing market largely reflects a strong U.S. economy”; “the climate has always changed”; “how could mere mortals change something as immense as the weather”; “we have nearly infinite resources, it is only a question of price”; “the infinite capacity of the human brain will always solve our problems.”

Having realized the seriousness of this bias over the last few decades, I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics.

Links

Shane Parrish talks to Philip Tetlock on The Knowledge Project (LINK)

Related book: Superforecasting: The Art and Science of Prediction

Google and NASA Hope Lightning-Fast Computers Will Unlock the Secrets of Nature [H/T Matt] (LINK)

Ian Morris' latest lecture at the LSE (audio) (LINK) [His first lecture as part of this series is available HERE.]

20,000 years ago, ‘international relations’ meant interactions between tiny foraging bands; now it means a global system. Philippe Roman Chair Ian Morris explains how the growth of the international system and the shifts of power within it are linked to geography and energy extraction. In tracing this story, Professor Morris asks: Why were the world’s greatest powers concentrated in western Eurasia until about AD 500? Why did they shift to East Asia until AD 1750? Why did they return to the shores of the North Atlantic? And where will they go next? 

For male peacock spiders, the best dancers get the girl (LINK)