Talks at Google: Mebane Faber, "Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns"

Link to video

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Related book: Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market

[H/T ValueWalk]

A Billionaire Mathematician’s Life of Ferocious Curiosity

Link to article: Seeker, Doer, Giver, Ponderer: A Billionaire Mathematician’s Life of Ferocious Curiosity

James H. Simons likes to play against type. He is a billionaire star of mathematics and private investment who often wins praise for his financial gifts to scientific research and programs to get children hooked on math. 

But in his Manhattan office, high atop a Fifth Avenue building in the Flatiron district, he’s quick to tell of his career failings. 

He was forgetful. He was demoted. He found out the hard way that he was terrible at programming computers. “I’d keep forgetting the notation,” Dr. Simons said. “I couldn’t write programs to save my life.” 

After that, he was fired. 

His message is clearly aimed at young people: If I can do it, so can you. 

How Not to Be Wrong...

A good friend recommended this book to me this morning, for those who may also be interested: How Not to Be Wrong: The Power of Mathematical Thinking - by Jordan Ellenberg

There are some links to reviews and press on the book HERE.

It also looks like the author has some pretty interesting articles HERE.

Charlie Munger: The Importance of Multiple Mental Models

From Poor Charlie's Almanack, and what I think is the single most important idea I carry with me when it comes to going through life:

You must know the big ideas in the big disciplines and use them routinely--all of them, not just a few. Most people are trained in one model--economics, for example--and try to solve all problems in one way. You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.

You need a different checklist and different mental models for different companies. I can never make it easy by saying, "Here are three things." You have to derive it yourself to ingrain it in your head for the rest of your life.

You can't learn those one hundred big ideas you really need the way many students do--where you learn 'em well enough to bang 'em back to the professor and get your grade, and then you empty them out as though you were emptying a bathtub so you can take in more water next time. If that's the way you learn the one hundred big models you're going to need, [you'll be] an "also ran" in the game of life. You have to learn the models so that they become part of your ever-used repertoire. 

By the way, there's no rule that you can't add another model or two even fairly late in life. In fact, I've clearly done that. I got most of the big ones quite early [however].

The happier mental realm I recommend is one from which no one willingly returns. A return would be like cutting off one's hands.

Coal-fired growth: Apollo Asia Fund: the manager's report for 2Q2014

Link to: Coal-fired growth

Many economic forecasters in Asia continue to extrapolate the trends of the recent past, failing to recognise the past contribution of resource windfalls which are dwindling, vanished, or overtaken by domestic consumption. Some of these trends are clearly unsustainable. If coal usage in Malaysia were to rise at its present rate for another 16 years, it would have risen 109 times since the start of the fund, and the consequences for the environment are important to contemplate. In practice it seems likely that coal will continue to increase as a proportion of the Southeast Asian energy mix; growth in energy use will moderate as costs rise and some subsidies are withdrawn; and GDP growth will be less than before. 

Moreover, a higher proportion of economic activity will relate to resource extraction and the costs of environmental change (from water procurement through flood mitigation to health impacts). Anecdotally, we have also noticed a number of cases of forced investment in replacement systems due to individual unobtainable parts, without any of the productivity benefits experienced at the time of the original expenditure. Maintenance and replacement expenditure, along with debt service, may thus consume a rising percentage of income. Exports, the traditional growth driver, have faltered since the global financial crisis erupted in 2008. In several countries it now seems appropriate to focus on companies supplying the goods and services that will be prioritised if disposable income is squeezed.

How Google Map Hackers Can Destroy a Business at Will

Link to article: How Google Map Hackers Can Destroy a Business at Will

Washington DC-area residents with a hankering for lion meat lost a valuable source of the (yes, legal) delicacy last year when a restaurant called the Serbian Crown closed its doors after nearly 40 years in the same location. The northern Virginia eatery served French and Russian cuisine in a richly appointed dining room thick with old world charm. It was best known for its selection of exotic meats—one of the few places in the U.S. where an adventurous diner could order up a plate of horse or kangaroo. “We used to have bear, but bear meat was abolished,” says proprietor Rene Bertagna. “You cannot import any more bear.” 

But these days, Bertagna isn’t serving so much as a whisker. It began in early 2012, when he experienced a sudden 75 percent drop off in customers on the weekend, the time he normally did most of his business. The slump continued for months, for no apparent reason. Bertagna’s profits plummeted, he was forced to lay off some of his staff, and he struggled to understand what was happening. Only later did Bertagna come to suspect that he was the victim of a gaping vulnerability that made his Google listings open to manipulation. 

He was alerted to that possibility when one of his regulars phoned the restaurant. “A customer called me and said, ‘Why are you closed on Saturday, Sunday and Monday? What’s going on?’” Bertagna says. 

It turned out that Google Places, the search giant’s vast business directory, was misreporting the Serbian Crown’s hours. Anyone Googling Serbian Crown, or plugging it into Google Maps, was told incorrectly that the restaurant was closed on the weekends, Bertagna says. For a destination restaurant with no walk-in traffic, that was a fatal problem.

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Beneath its slick interface and crystal clear GPS-enabled vision of the world, Google Maps roils with local rivalries, score-settling, and deception. Maps are dotted with thousands of spam business listings for nonexistent locksmiths and plumbers. Legitimate businesses sometimes see their listings hijacked by competitors or cloned into a duplicate with a different phone number or website. In January, someone bulk-modified the Google Maps presence of thousands of hotels around the country, changing the website URLs to a commercial third-party booking site (which siphons off the commissions). 

Small businesses are the usual targets. In a typical case in 2010, Buffalo-based Barbara Oliver & Co Jewelry saw its Google Maps listing changed to “permanently closed” at the exact same time that it was flooded with fake and highly unfavorable customer reviews. 

“We narrowed it down as to who it was. It was another jeweler who had tampered with it,” says Barbara Oliver, the owner. “The bottom line was the jeweler put five-star reviews on his Google reviews, and he slammed me and three other local jewelers, all within a couple of days.”

With Stocks So High, Should Investors Move to Cash?

Link to article: With Stocks So High, Should Investors Move to Cash?

As stock indexes hit record highs, nervous investors increasingly face a difficult choice: Do they keep betting as heavily on the markets, or do they move more money into cash? 

The answer isn't so simple. 

Cutting exposure with the aim of putting cash back to work when valuations drop can be soothing at first, but maddening if stocks continue climbing. What's more, many nonprofessionals don't have the expertise to accurately gauge valuations. 

And there is a fine line between adjusting exposure based on valuations and timing the market, which few individual or professional investors have done successfully. 

Eric Cinnamond of Aston/River Road Independent Value is among a small group of mutual-fund managers who are comfortable letting cash pile up in their portfolios. 

He believes small stocks are "outrageously expensive" and have significant risk. But his fund's huge amount of cash—around 70% of assets recently—is earning almost nothing, hurting performance as markets move higher. 

For investors who are considering such a strategy, here are a few things to keep in mind.

MOI Best Ideas Conference 2014 Presentation/Book

From ValueWalk: MOI Best Ideas Conference 2014 Presentation/Book 

How the 'PayPal Mafia' redefined success in Silicon Valley

Link to article: How the 'PayPal Mafia' redefined success in Silicon Valley

The PayPal Mafia -- a term that's used with affection and awe in Silicon Valley -- is defined as the Mountain View PayPal team either pre-IPO or pre-acquisition, depending on which founding member you ask. While those may seem like vastly different stages in a company's life, it's more like splitting hairs as PayPal's IPO happened only a few months before it was acquired. Former PayPal CEO Peter Thiel estimates the PayPal Mafia to be around 220 people. The PayPal Mafia does not include 700 person customer service operation that was running in Omaha, Nebraska at the time. 

That group of 220 people went on to create seven distinct "unicorn" companies. Unicorns are companies with a valuation of more than $1 billion.

Hussman Weekly Market Comment: Quotes on a Screen and Blotches of Ink

Link to: Quotes on a Screen and Blotches of Ink

Implied volatility in S&P 500 index options fell to just 10.3% last week, indicating enormous complacency about potential risk. I’ve noted before that extreme overvalued, overbought, overbullish conditions tend to feature “unpleasant skew”: the raw probability of an advance is typically greater than the probability of a decline, so the market tends to achieve a series of successive but fairly marginal new highs, which can feel excruciating for investors in a defensive position. The “skew” part is that while the raw probability favors an advance, the remaining probability often features vertical drops that can wipe out weeks or months of market gains in a handful of trading days. We’ve certainly seen an unusual persistence of overvalued, overbought, overbullish conditions without consequence in recent quarters, but it is notable that the implied skew in S&P 500 index options has soared. Indeed, the ratio of implied skew to implied volatility spiked to the highest level in history on Friday. Again, we’ll quietly state our case here, with an understanding that there is little use in waving our arms about.

Again, on a broad range of historically reliable measures, our estimate of 10-year S&P 500 nominal total returns is now less than 1.8% annually. That said, the most reliable measures actually project negative returns, but then, the most reliable measures are those that adjust most fully for cyclical variations in profit margins, and we are continually reminded that this time is different. The ratio of market capitalization to GDP, which Warren Buffett (correctly) observed in a 2001 Fortune interview is “probably the single best measure of where valuations stand at any given moment” is now about 150% (not just 50%) above its pre-bubble norm, even imputing a rebound in Q2 GDP growth. Of course, Buffett also wrote "A group of lemmings looks like a pack of individualists compared with Wall Street when it gets a concept in its teeth" - which may explain why Wall Street seems so entranced with the concept of QE instead of actually doing the math. The ratio of market capitalization to GDP, presented below on an inverted scale, is beyond every point in history except for the final quarter of 1999 and the first two quarters of 2000.

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Last week, the Bank for International Settlements, which acts as the central bank to central banks, issued its annual report. It is about the most insightful warning that one is likely to see from the central banking system, even if the Federal Reserve, ECB and other individual central banks are the ones being warned.

“Financial markets have been exuberant over the past year, at least in advanced economies, dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows. Obviously, market participants are pricing in hardly any risks. In advanced economies, a powerful and pervasive search for yield has gathered pace and credit spreads have narrowed. The euro area periphery has been no exception. Equity markets have pushed higher. To be sure, in emerging market economies the ride has been much rougher. At the first hint in May last year that the Federal Reserve might normalize its policy, emerging markets reeled, as did their exchange rates and asset prices. Similar tensions resurfaced in January, this time driven more by a change in sentiment about conditions in emerging market economies themselves. But market sentiment has since improved in response to decisive policy measures and a renewed search for yield. Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.

“In the countries that have been experiencing outsize financial booms, the risk is that these will turn to bust and possibly inflict financial distress. Based on leading indicators that have proved useful in the past, such as the behaviour of credit and property prices, the signs are worrying.