Phil Libin, Co-Founder of Evernote, on Charlie Rose

Link to: Phil Libin on Charlie Rose

Which way for bonds? Mapping a path forward - By Bill Gross

Q: Can you explain what is happening in markets now? 

Gross: In 1980, the Federal Reserve, led by Paul Volcker, tightened the quantitative noose to tame double-digit inflation, fueling an unprecedented tailwind for bond prices. Thirty years later we find ourselves at the other extreme, as central banks print money in the trillions of dollars to stimulate economic growth, and inflation is abnormally low. While we are not likely to see a repeat of that type of bull market any time soon, we also do not believe we are at the beginning of a bear market for bonds. Rather, what we’re seeing is the continuation – and acceleration, in some respects – of the de-levering process, a key distinction that may be getting lost in some of the noise over the past few weeks. The Fed, the Bank of England, and now the Bank of Japan have all committed to holding their easing stance until growth targets are hit. We don’t see the Fed raising rates in a meaningful way for at least the next few years. 

That said, we believe caution is warranted not just for fixed income investors, but for investors in all risk assets. Central banks have reached a critical inflection point in which the negatives of their aggressive policies may be outweighing the positives and in fact hampering growth. Where their monetary repression has succeeded, however, is in forcing investors to take increasing amounts of risk, but for lower yields and more volatile returns. 

Mish Buys a Basket of Miners

Gold Stock Comments 

NEM - Newmont Mining: My best value play and weighted accordingly. Price/book is a mere 1.19 and I have no reason to believe book value is overstated. Trailing PE is 10.04 and the dividend yield is 4.10%. What's not to like?

GG - Goldcorp: A major Canadian gold miner with a respectable PE and dividend. Goldcorp trades right at book value (.99 to be precise).

ABX - Barrick Gold Corporation: Another major Canadian gold miner with a respectable dividend. Earnings were negative last quarter due to writedowns. Dividend appears solid. Price/per book is a mere .88 (less than book value).

GDX - Market Vectors Gold Miners ETF. Rather than pick too many additional stocks and following them all, I put 10% of my basket into a gold miners ETF basket.

GLDX - Global X Gold Explorers ETF. This is a speculative play on gold explorers. Some of the companies in the ETF are likely to go bust. Hopefully some will strike it big. I weighted this according to risk, with only 5% of my basket.

HMY: Harmony Gold Mining Company Limited: This is a South African mining company that stands to appreciate from its gold mining operations and also from a falling Rand.

SBGL - Sibanye Gold Limited: This is another South African miner and arguably my most speculative play. It is weighted accordingly at 2% of the basket.

Silver Stock Comments

SLW - Silver Wheaton Corp: SLW has a respectable PE and pays a reasonable dividend. It is a play on the price of silver which I expect to recover at some point.

PAAS - Pan American Silver Corp: PAAS is a major silver producer with a nice dividend yield of 4.10%. Pan American is trading at 68% of book value.

Kyle Bass Tells Beacon Reports its ‘Checkmate’ for Japan

Thanks to Will for passing these along.

Link to: Kyle Bass on it being Checkmate for Japan

Link to: Kyle Bass's Investment Advice For Residents (and Non-Residents) of Japan

Berkshire Hathaway Introduces Berkshire Hathaway Specialty Insurance

Thanks to Will for passing this along.

Berkshire Hathaway announced today that Berkshire Hathaway Specialty Insurance, its recently formed commercial property casualty insurance group, has commenced operations, underwriting property, casualty, professional and executive liability insurance and programs for customers in the U.S.

"It's official: We are moving into commercial insurance in a substantial way, and we are here to stay," said Warren E. Buffett, CEO of Berkshire Hathaway Inc. "With our proven underwriting discipline and financial strength, along with a stellar management team, Berkshire Hathaway Specialty Insurance is a welcome solution for customers seeking large-scale property and casualty capacity for the long term." 

How the Robots Lost: High-Frequency Trading's Rise and Fall

Thanks to Remmelt for passing this along.

For the first time since its inception, high-frequency trading, the bogey machine of the markets, is in retreat. According to estimates from Rosenblatt Securities, as much as two-thirds of all stock trades in the U.S. from 2008 to 2011 were executed by high-frequency firms; today it’s about half. In 2009, high-frequency traders moved about 3.25 billion shares a day. In 2012, it was 1.6 billion a day. Speed traders aren’t just trading fewer shares, they’re making less money on each trade. Average profits have fallen from about a tenth of a penny per share to a twentieth of a penny.

Supreme Court rules human genes may not be patented

The Supreme Court ruled unanimously Thursday that human genes cannot be patented, a decision that is likely to shape the future of medical and biotech research.

Those who challenged the notion that something that occurs naturally in the human body can be “owned” by a company said the decision could open a new era of expanded research and lower costs for genetic testing.

At the same time, the ruling held out hope for industry that certain research methods and the creation of synthetic DNA can be protected and thus worth the investment.

Graham and Dodd quote

From Security Analysis, 1940 edition:

"Analysis is concerned primarily with values which are supported by the facts and not with those which depend largely upon expectations. In this respect the analyst’s approach is diametrically opposed to that of the speculator, meaning thereby one whose success turns upon his ability to forecast or to guess future developments. Needless to say, the analyst must take possible future changes into account, but his primary aim is not so much to profit from them as to guard against them. Broadly speaking, he views the business future as a hazard which his conclusions must encounter rather than as the source of his vindication."

Seth Klarman quote

From Margin of Safety (Source):

Some investors insist on trying to obtain perfect knowledge about their impending investments, researching companies until they think they know everything there is to know about them. They study the industry and the competition, contact former employees, industry consultants, and analysts, and become personally acquainted with top management. They analyze financial statements for the past decade and stock price trends for even longer.

This diligence is admirable, but it has two shortcomings. First, no matter how much research is performed, some information always remains elusive; investors have to learn to live with less than complete information. Second, even if an investor could know all the facts about an investment, he or she would not necessarily profit. 

This is not to say that fundamental analysis is not useful. It certainly is.

But information generally follows the well-known 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to diminishing marginal returns. 

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen. 

Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty.

The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information.

A Rising Star Emerges at Berkshire

When Tracy Britt arrived in Omaha, Neb., in 2009 to meet with Warren Buffett, she brought a Harvard M.B.A., a glittering resume and a boatload of ambition. But she also brought the famed investor a gift to highlight their shared Midwestern roots: a bushel of corn and a batch of tomatoes.

The seed Ms. Britt planted that day yielded quick results: a job for Ms. Britt as Mr. Buffett's financial assistant at Berkshire Hathaway Inc. Almost four years later, it has blossomed further, with Ms. Britt emerging as one of Mr. Buffett's top lieutenants and even serving as chairman of four companies within his $284 billion conglomerate.

Ms. Britt, now 28 years old and more than five decades younger than her boss, occupies a role unlike any other within Berkshire. With an office next to Mr. Buffett's at Berkshire's headquarters, Ms. Britt helps with financial research, accompanies Mr. Buffett to meetings and occasionally drives him around town. The billionaire gradually tacked on additional responsibilities.

The firms in which she serves as chairman, including building-products company Johns Manville Corp. and paint manufacturer Benjamin Moore & Co., total more than $4 billion in annual sales. In March, a few weeks after Berkshire and Brazilian investment firm 3G Capital said they would buy ketchup maker H.J. Heinz & Co. for $23 billion, Mr. Buffett sent Ms. Britt to Brazil, according to people familiar with the matter.