Seneca quote

“Happy is the man who can make others better, not merely when he is in their company, but even when he is in their thoughts! And happy also is he who can so revere a man as to calm and regulate himself by calling him to mind! One who can so revere another, will soon be himself worthy of reverence.”

Thinking Fast and Slow - Daniel Kahneman in conversation with Richard Layard

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Related book: Thinking, Fast and Slow

Nassim Taleb quote

 “…it is the suppressed risk in the statistical “tails” that matters—not the failure to see the last grain of sand. One analogy to economics: after the inception of the financial crisis in 2007–2008, many people thought that predicting the subprime meltdown (which seemed in their mind to have triggered it) would have helped. It would not have, for Baal’s sake, since it was a symptom of the crisis, not its underlying cause.” –Nassim Taleb, Antifragile

Michael Hudson interview with The Real News

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Learning and Exhaustion...

“But when it comes to learning, the science is clear: Exhaustion is the enemy. Fatigue slows brains. It triggers errors, lessens concentration, and leads to shortcuts that create bad habits. It’s no coincidence that most talent hotbeds put a premium on practicing when people are fresh, usually in the morning, if possible. When exhaustion creeps in, it’s time to quit.” –Daniel Coyle, The Little Book of Talent: 52 Tips for Improving Your Skills

Mohnish Pabrai - Columbia Compounding Presentation (video of slides)

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Some of the key points from the slides on Mohnish's portfolio strategy since 2009:

• Do not invest in anything that does not look like a 2-3x in 2-3 years.
• If a stock trades at 10, it is a pass if intrinsic value is 13 or 14 or 17 or even 19.
• There are 50,000+ publicly-traded business around the globe…You just need to find 2-4 annually that meet this criteria.
• 1st 75% of cash – minimum 2x in 2-3 years
• Next 10% of cash – minimum 3x in 2-3 years
• Next 5% of cash – minimum 4x in 2-3 years
• Next 5% of cash – minimum 5x in 2-3 years
• Last 5% of cash – more than 5x in 2-3 years

Nassim Taleb quote

 “In medicine, we are discovering the healing powers of fasting, as the avoidance of the hormonal rushes that come with the ingestion of food. Hormones convey information to the different parts of our system, and too much of them confuses our biology. Here again, as with news received at too high a frequency, too much information becomes harmful—daily news and sugar confuse our system in the same manner.” –Nassim Taleb, Antifragile

John Mauldin: You Can’t Be Serious

I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written down. I wrote about all that a long time ago. What surprised me was that all the above was apparently a surprise to European leaders.

While there is much to not like about what European leaders have done since the onset of their crisis some five years ago, they have demonstrated a prodigious ability to kick, poke, and massage the can down the road, to defuse crisis after crisis, and to indefinitely postpone the inevitable. They have demonstrated a remarkable ability to spend taxpayers’ and others’ money in order to keep Europe and the euro more or less in one piece. At every step they have been keenly intent on maintaining trust in the system. That they have been successful in keeping a majority of citizens in favor of the Eurozone and the euro, even in countries forced to endure serious austerity, must be recognized.

However, the shock in Cyprus reveals an absolute lack of preparedness in dealing with a problem that had festered for several years. By now it should be no surprise to anyone that sovereign nations can default, that banks can go bankrupt under the weight of defaulted sovereign debt, and that banks can be too large for some countries to bail out. That a clear and consistent response to Cyprus should have been worked out in the halls of Brussels and the ECB seems so, well, reasonable. Clearly, the large depositors in Cypriot banks, the majority of whom were Russian (according to Financial Times reports) thought the Eurozone had a plan. In fact, the apparent assumption, bordering on religious faith, that Eurozone leaders would not allow depositors in Cypriot banks to lose one euro, is almost touching. This snafu is going to have repercussions that spread far beyond this tiny island nation. Let’s look at a few of the implications.

Danny Meyer speaks to GWU students

Restaurateur Danny Meyer joined José Andrés for the second "The World on a Plate" food class to discuss the food industry. Meyer, who is the CEO of Union Square Hospitality Group in New York, told students about his experiences and how the food industry has evolved. "Hospitality is being on the other person's side," said Meyer. "And food is love."

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Related previous posts:

Danny Meyer on Charlie Rose

Business Insider Interview With Danny Meyer: The Truth About The Restaurant Industry

Related articles:

A Movable Feast: Danny Meyer on a Roll

You Can’t Stop Shake Shack

Related book: Setting the Table

Related DVD: The Restaurateur

Barron’s Interviews David Winters

Why the chief of the Wintergreen Fund avoids leveraged financials and health-care stocks, but loves Swatch, Richemont, Canadian Natural Resources, and Wynn Macau.

Steve Jobs quote

“Whenever you do any one thing intensely over a period of time you have to give up other lives you could be living. You have to have a real single-minded kind of tunnel vision if you want to get anything significant accomplished. Especially if the desire is not to be a businessman, but to be a creative person.” -Steve Jobs, Esquire, 1986

Mark Sellers explains how Irish on Ionia grew into Michigan's largest St. Patrick's Day party

Thanks to Lincoln for passing this along.

In three years, Irish on Ionia has grown from an ambitious St. Patrick’s Day festival to Michigan’s largest spring holiday hooley.

As many as 14,000 partiers are expected downtown Saturday, March 16, for what’s become a signature St. Patrick’s Day event that has grown exponentially in short order.

In 2011, Irish on Ionia drew 3,000 people, said Mark Sellers, co-owner of BarFly Ventures, a company which operates HopCat, Stella’s Lounge, Grand Rapids Brewing Co. and McFadden’s Restaurant-Saloon — all in the city’s Heartside neighborhood.

The initial idea was to capitalize on the lines out the door at McFadden’s each St. Patrick’s Day.

“It was a huge success but we didn’t really know what we were doing," Sellers said.

Hussman Weekly Market Comment: The Hook

We are in very familiar – if frustrating – terrain here. While valuations are not as extreme as they were in 2000, the level of investor confidence in “free money” is nearly identical, as is my conviction that this belief in free money will end in tears. Even on the optimistic assumption of 6.3% nominal economic growth for the indefinite future, we estimate a probable 10-year nominal total return on the S&P 500 averaging just 3.6% annually (see Investment, Speculation, Valuation and Tinker Bell for a set of historically accurate models that share that conclusion).  Above, I’ve chosen quotations spanning several months in 2000 to emphasize the drawn-out nature of the 2000 peak – the seeming “resilience” of the market above the 1400 level certainly did not prevent the market from losing half of its value over the following 2-year period, wiping out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996.

Eric Hoffer quote

Thanks to Daniel for passing this quote along.

"It goes without saying that the fanatic is convinced that the cause he holds on to is monolithic and eternal - a rock of ages. Still, his sense of security is derived from his passionate attachment and not from the excellence of his cause. The fanatic is not really a stickler to principle. He embraces a cause not primarily because of its justness and holiness but because of his desperate need for something to hold on to. Often, indeed, it is his need for passionate attachment which turns every cause he embraces into a holy cause.

The fanatic cannot be weaned away from his cause by an appeal to his reason or moral sense. He fears compromise and cannot be persuaded to qualify the certitude and righteousness of his holy cause. But he finds no difficulty in swinging suddenly and wildly from one holy cause to another. He cannot be convinced but only converted. His passionate attachment is more vital than the quality of the cause to which he is attached."

- Eric Hoffer, The True Believer

TED Talk - Francis Collins: We need better drugs -- now

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Related link: The future of medicine (8 talks)

Jeffrey Hammerbacher on Charlie Rose

Link to: Jeffrey Hammerbacher on Charlie Rose

Nassim Taleb quote

“Since procrastination is a message from our natural willpower via low motivation, the cure is changing the environment, or one’s profession, by selecting one in which one does not have to fight one’s impulses. Few can grasp the logical consequence that, instead, one should lead a life in which procrastination is good, as a naturalistic-risk-based form of decision making….Using my ecological reasoning, someone who procrastinates is not irrational; it is his environment that is irrational. And the psychologist or economist calling him irrational is the one who is beyond irrational….In fact we humans are very bad at filtering information, particularly short-term information, and procrastination can be a way for us to filter better, to resist the consequences of jumping on information…” –Nassim Taleb, Antifragile

In Praise of Idleness – By Bertrand Russell (1932)

Like most of my generation, I was brought up on the saying: 'Satan finds some mischief for idle hands to do.' Being a highly virtuous child, I believed all that I was told, and acquired a conscience which has kept me working hard down to the present moment. But although my conscience has controlled my actions, my opinions have undergone a revolution. I think that there is far too much work done in the world, that immense harm is caused by the belief that work is virtuous, and that what needs to be preached in modern industrial countries is quite different from what always has been preached. Everyone knows the story of the traveler in Naples who saw twelve beggars lying in the sun (it was before the days of Mussolini), and offered a lira to the laziest of them. Eleven of them jumped up to claim it, so he gave it to the twelfth. this traveler was on the right lines. But in countries which do not enjoy Mediterranean sunshine idleness is more difficult, and a great public propaganda will be required to inaugurate it. I hope that, after reading the following pages, the leaders of the YMCA will start a campaign to induce good young men to do nothing. If so, I shall not have lived in vain.

Weekend Reading

Links:

Rebuilding the Polymath

You Are Not A Good Investor

On Cyprus, and the Difficulty of Predicting

Blackstone Crowds Housing Market as Rental Gains Slowing (A realtor I know was hired by a fund to buy single-family homes to rent. The rental yield they want on their money after purchasing the property and putting whatever money needs to be spent to make it rentable: 5.5 to 6% . He said that if an asking price will yield 7-8%, they just pay the asking price. My impression is that until about 6-12 months ago, these numbers were in the low double-digit range.)

James Grant on CNBC

Link

To Beat Amazon, Walmart Is Treating Its Stores Like Apps

This reminds me of a Warren Buffett comment from a recent interview:

“The pace of change in terms of what customers are doing, how they pay us, how they come to us – it’s breathtaking,” said Buffett. “Any company that interacts with consumers and thinks that last week’s technology and approach is going to work five years from now is probably making a mistake.

Walmart is a technology company. Let’s just put that out there right now. The company has crushed all competitors through its mastery of supply-chain logistics and inventory management, which above all are engineering problems.

But until recently, most of Walmart’s tech has lived behind the scenes. That’s changed because of smartphones. As Walmart pushes mobile as an integral part of shopping at its stores, the company has started to treat changes at those stores much like app makers handle the rollout of new features.

The Stockholder in the Sand

Worth an estimated $27 billion, the enigmatic Prince Alwaleed bin Talal has very public holdings: he is the second-largest voting shareholder in News Corp., he owns Paris’s George V hotel and part of New York City’s Plaza hotel, he is a stockholder in Apple, and he will soon own the world’s tallest building. But the private origins—and exact size—of his massive fortune are the subject of continued debate between bin Talal and prominent media outlets. So what’s the truth? And does one of the richest men on Bloomberg’s Billionaire Index—a calorie-counting cell-phone addict who loves texting James Murdoch—really spend his free time throwing dwarves?

Jeff Bezos recovers Apollo rocket engines

Jeff Bezos and his team have recovered engines that launched Apollo rockets to the moon, the Amazon founder reported Wednesday. He's hoping to assemble two engines and display on in Seattle.

"What an incredible adventure. We are right now onboard the Seabed Worker headed back to Cape Canaveral after finishing three weeks at sea, working almost 3 miles below the surface, Bezos wrote on the project website. "We found so much."

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Related video: Apollo 11 engines found 3 miles deep in ocean

Nassim Taleb quote

“There is an element of deceit associated with interventionism, accelerating in a professionalized society. It’s much easier to sell “Look what I did for you” than “Look what I avoided for you.” Of course a bonus system based on “performance” exacerbates the problem. I’ve looked in history for heroes who became heroes for what they did not do, but it is hard to observe nonaction; I could not easily find any….The true hero in the Black Swan world is someone who prevents a calamity and, naturally, because the calamity did not take place, does not get recognition—or a bonus—for it.” –Nassim Taleb, Antifragile

Bill Ackman's Latest Herbalife Presentation

Via Market Folly:

Link to: Bill Ackman's Latest Herbalife Presentation

Butler has found secret weapon in statistical guru Drew Cannon

Thanks to Lincoln for passing this along.

The formal basketball career of Drew Cannon ended in eighth grade as the sixth man of his junior high team. In college at Duke, Cannon's only hoops experience came from an intramural team called the Norse Forse.

When Cannon graduated with a degree in statistics last spring, he had modest expectations of finding a job right away. "We were hoping he would not be living in the basement," said Jim Cannon, his father. "That was our goal. And his."

Instead of toiling in the basement, Cannon spent the season on the Butler bench and will be with the team when the Bulldogs play Bucknell in the NCAA tournament on Thursday. Cannon's experience interning with recruiting analyst Dave Telep and his advanced writing about basketball analytics gained the attention of Butler coach Brad Stevens, who offered him a job as a graduate manager this summer.

Cannon takes MBA classes at Butler and makes just $1,000 per month, but his work has significantly impacted how Butler uses lineups and helped him emerge as a potentially transformative figure on the college basketball landscape. Cannon is considered to be the first pure statistics-based hire on a college basketball staff. When Stevens called to offer Cannon a job, Cannon's father said to his son, "Does he realize you are monumentally under qualified for this position?"

In reality, Cannon's experience in scouting and analyzing data has made him the perfect match with the numbers-savvy Butler program. Stevens, a longtime proponent of advanced statistical metrics, said if he had unlimited resources he would create his own statistics division. For now, he has Cannon and gushes about how his research has shaped lineups, substitution patterns and converted the staff's statistical skeptics.

Fireside Chat With Warren Buffett and Cathy Baron Tamraz, CEO of Business Wire

Found via the Corner of Berkshire & Fairfax.

A video interview with Warren Buffett on the power of innovation has officially launched the start of the PYMNTS.com's The Innovation Project™ 2013, a two-day program to challenge the way the payments and its broader commerce ecosystem thinks, talks, delivers and ignites innovation. Buffett sat down with Business Wire CEO Cathy Baron Tamraz and offered his view on the current landscape of the payments industry and his optimism for the economic future in his keynote introduction to the program, held at Harvard University. Business Wire is owned by Berkshire Hathaway and a joint venture partner, along with Market Platform Dynamics (MPD) in PYMNTS.com.

“The pace of change in terms of what customers are doing, how they pay us, how they come to us – it’s breathtaking,” said Buffett. “Any company that interacts with consumers and thinks that last week’s technology and approach is going to work five years from now is probably making a mistake.”

Steve Romick on CNBC

Link

John Mauldin: Will the Real Unemployed Please Raise Your Hands?

This week’s letter will be a very short part of a book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the future of employment. It has taken longer to write than I initially anticipated, for a host of reasons, chief among which is that the future is not as obvious as I originally thought. Diving into the data has brought a few surprises. It doesn’t help that I have (probably to the frustration of Dunk, although he is way too polite to say it) changed the focus from “merely” what we need to do to create jobs (which is still an important part of the book) to what kinds of jobs will the future bring and who will get them.

But to understand the future of employment, we have to be able to measure what we mean when we say employment. And the data that we all too often think of as hard and fast is anything but. Is unemployment in the eye of the beholder? We know what we mean when we say our brother-in-law is unemployed. But does the government data mean the same thing? The answer is “maybe, sometimes, and it depends.”

I selected this part of the book not only because it is toward the beginning but also as a result of a conversation I had this week that got me to thinking about data and its usefulness. It is in this context that we will look at unemployment data.

But first, a quick comment on why this letter is not about Cyprus, which seems to be the topic du jour. I wrote four weeks ago, after my visit to Athens, that Cyprus would be a problem and to pay attention.

Nigel Farage: EU wants to steal money from Cypriots bank accounts

Found via Zero Hedge. Felix Salmon also had a good update on the Cyprus situation HERE. I have very little opinion on the topic, but my guess is that we may soon start seeing references to "fingers of instability", similar to what I remember seeing in a great letter from John Mauldin about 3 years ago (HERE) that was discussing Greece and its chance of turning contagious.

Link

Nassim Taleb quote

“In business and economic decision making, reliance on data causes severe side effects—data is now plentiful thanks to connectivity, and the proportion of spuriousness in the data increases as one gets more immersed in it. A very rarely discussed property of data: it is toxic in large quantities—even in moderate quantities…. The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part, called the signal); hence the higher the noise-to-signal ratio.” –Nassim Taleb, Antifragile

Steve Keen on CNBC

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Manual of Ideas Conversation: Lawrence Cunningham on the Essays of Warren Buffett

Mr. Cunningham also recently released the third edition of The Essays of Warren Buffett, which is one worth having on the bookshelf and a must-read if you've never read all of Warren Buffett's letters to shareholders.

Link

CRABS & RIM Jobs

We don’t think it is a coincidence that the flaws in Canada’s banking system are being exposed at the same time China’s appetite for natural resources is being suppressed by a glass ceiling on capital misallocation.  In fact, while traveling through China last year, we learned that many of Chinese refer to one particularly popular Canadian city as “Hongcouver” – hence, our strong interest in Canada and in meeting new friends up north. Today, the world’s “healthiest” economies are closely tied to the insatiable Chinese demand for resources.  This is the part of the world that is supposed to be healthy.  These are the countries the rest of us are counting on for growth.  Yet, as noted in a recent report outlining the short thesis for iron ore, “The transmission mechanism that will take this disease that started quietly in the summer of 2011 and spread it globally are CRABS.  The CRABS are the commodity rich countries that are riding China’s spending spree.  They are Canada, Russia, Australia, Brazil and South Africa.”  This is absolutely perfect.  We think the CRABS will ultimately be a much bigger problem than the PIGS.  If for no other reason, we understand that CRABS are highly contagious.

The good news, for value investors, is that CRABS isn’t the end of the world.  And even in Canada, smart investors are still finding opportunities far away from bubbles in housing and commodities.

Mohamed El-Erian on CNBC discussing Cyprus

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Related link: Cyprus Update: Delay

JPMorgan’s Follies, for All to See

BE afraid.

That’s the takeaway for both investors and taxpayers in the 307-page Senate report detailing last year’s $6.2 billion trading fiasco at JPMorgan Chase. The financial system, thanks to dissembling traders and bumbling regulators, is at greater risk than you know.

After bailing out the nation’s banking system in 2008, taxpayers and investors have been assured that such a crisis will not happen again. The Dodd-Frank legislation was supposed to make our system safe from the kinds of reckless banking activities that brought the economy to its knees.

The Senate report disproves this premise with vigor.

Its pages of e-mails, testimony, telephone transcripts and analysis show that traders in the bank’s chief investment office hid money-losing derivatives positions, if only temporarily; that risk limits created by the bank to protect itself were exceeded routinely; that risk models were changed to minimize losses; that bank executives misled investors and the public; and that regulations are only as good as the regulators enforcing them.

60 Minutes: The Innovator: Jack Dorsey

Link

Hussman Weekly Market Comment: Investment, Speculation, Valuation, and Tinker Bell

Stocks remain in a mature – but not obviously complete – bull market, with the S&P 500 a stone’s throw away from its 2007 record high of 1565. In the midst of it all, investors face a confusing mix of arguments – some that stocks are significantly undervalued, some that they are dangerously elevated; some that sentiment is overly defensive, some that it is overly euphoric.

The most important questions investors should be asking are these: what do they know that can be demonstrated to be true; and what do they believe that can be demonstrated to be untrue. It is best to make these distinctions deliberately, lest the financial markets clarify these distinctions for investors later, against investors’ will, and at great cost. That’s not to say that understanding these distinctions will ensure investors the correct short-term stance in the market. More likely, though, it will help investors to distinguish good investment opportunities from poor ones. Even in the event the present bull market advance has a long way to go, it will also help to distinguish good speculative opportunities from poor ones.

Let’s begin with an observation. Not a prediction, but merely an observation. Last week, Investors Intelligence reported that the percentage of bearish investment advisors has declined to just 18.8%. The last time bearish sentiment was below 20%, at a 4-year market high and a Shiller P/E above 18 (S&P 500 divided by the 10-year average of inflation-adjusted earnings – the present multiple is 23) was for two weeks in May 2007 with the S&P 500 about 1525. The next instance before that was two weeks in August 1987 (bearish sentiment never dipped much below 27 approaching the 2000 peak except for a reading of 22.6 in April 1998, just before the Asian crisis). The next instance before that was for 3 weeks of a 5-week span in December 1972 and January 1973, which was immediately followed by a 50% market plunge. There are a handful of observations in March-May 1972 at a slightly lower level that were punctuated by a modest market decline before the final advance to the late-1972 peak (that lag is enough to discourage any near-term conclusions in the present instance). The instance before that was in February 1966, which was promptly followed by a bear market decline over the following year. You get the picture.

Again, these are observations. Frankly, I’m about as exhausted with such observations as you are. The problem is that particularly since March 2012, our estimates of prospective market returns (on a blended horizon of 2-weeks to 18 months) have moved from the worst 2% of historical observations, to the worst 1% of observations, to what is now such rarified air that only a handful of atoms remain. Still, markets are driven by beliefs, and so long as those beliefs are not challenged by anything to derail them – even if they ultimately prove incorrect – the markets may very well create their own reality for a while.

Speculation and Investment

We generally distinguish speculation from investment. For us, investment is buying a security at a price that is associated with a reasonable expectation of acceptable long-term returns. Speculation is buying a security in the expectation that its price will advance, with less regard for long-term prospects. Both benefit from solid valuation methods and reliable measures of market action, but investment weighs valuation more strongly, while speculation weighs market action more strongly. The problem for active market participants is to distinguish between investment and speculation in the first place, and then to identify good and bad opportunities to accept such positions.

Arthur Schopenhauer quote

“Men of learning are those who have read the contents of books. Thinkers, geniuses, and those who have enlightened the world and furthered the race of men, are those who have made direct use of the book of the world.” –Arthur Schopenhauer

Top Books for the New Investor, or Great Books to Read or Review for the Not-So-New Investor

[Update: This was originally a list of 10 books, but I felt compelled to add some that I thought couldn't be left out.]

Just a list of recommendations I thought I’d try and put together.

1. The Little Book of Value Investing

2. The Little Book That Still Beats the Market

3. The Intelligent Investor

4. Berkshire Hathaway Letters to Shareholders

5. Poor Charlie's Almanack

6. The Most Important Thing Illuminated

7. The Little Book of Behavioral Investing

8. Margin of Safety

9. Fooled by Randomness

10. The Investment Checklist

11. You Can Be a Stock Market Genius

12. The Little Book That Builds Wealth

13. Competition Demystified

14. The Manual of Ideas

15. Security Analysis, 6th edition

16. Modern Security Analysis

17. Financial Shenanigans

18. Creative Cash Flow Reporting

19. Boombustology

20. The Black Swan

21. Antifragile

22. Seeking Wisdom: From Darwin to Munger

"If at first you do succeed, quit trying."

As re-read in the newly released third edition of Lawrence Cunningham’s The Essays of Warren Buffett: Lessons for Corporate America. This excerpt is from Warren Buffett’s 1991 shareholder letter:

We continually search for large businesses with understandable, enduring and mouth-watering economics that are run by able and shareholder-oriented managements. This focus doesn't guarantee results: We both have to buy at a sensible price and get business performance from our companies that validates our assessment. But this investment approach - searching for the superstars - offers us our only chance for real success. Charlie and I are simply not smart enough, considering the large sums we work with, to get great results by adroitly buying and selling portions of far-from-great businesses. Nor do we think many others can achieve long-term investment success by flitting from flower to flower. Indeed, we believe that according the name "investors" to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic. 

If my universe of business possibilities was limited, say, to private companies in Omaha, I would, first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price. I certainly would not wish to own an equal part of every business in town. Why, then, should Berkshire take a different tack when dealing with the larger universe of public companies? And since finding great businesses and outstanding managers is so difficult, why should we discard proven products? (I was tempted to say "the real thing.") Our motto is: "If at first you do succeed, quit trying."

John Maynard Keynes, whose brilliance as a practicing investor matched his brilliance in thought, wrote a letter to a business associate, F. C. Scott, on August 15, 1934 that says it all: "As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.  It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. . . . One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence."

What if money was no object?

Found via Farnam Street.


Link

Nassim Taleb quote

“A main source of the economic crisis that started in 2007 lies in the iatrogenics of the attempt by Überfragilista Alan Greenspan—certainly the top economic iatrogenist of all time—to iron out the “boom-bust cycle” which caused risks to go hide under the carpet and accumulate there until they blew up the economy. The most depressing part of the Greenspan story is that the fellow was a libertarian and seemingly convinced of the idea of leaving systems to their own devices; people can fool themselves endlessly…..These attempts to eliminate the business cycle lead to the mother of all fragilities. Just as a little bit of fire here and there gets rid of the flammable material in a forest, a little bit of harm here and there in an economy weeds out the vulnerable firms early enough to allow them to “fail early” (so they can start again) and minimize the long-term damage to the system…An ethical problem arises when someone is put in charge. Greenspan’s actions were harmful, but even if he knew that, it would have taken a bit of heroic courage to justify inaction in a democracy where the incentive is to always promise a better outcome than the other guy, regardless of the actual, delayed cost.” –Nassim Taleb, Antifragile

Aquamarine Fund Annual Letter to Partners

Link to: Aquamarine Fund Annual Letter to Partners

Google Reader Is Shutting Down; Here Are the Best Alternatives

Google announced today that it'll be closing Google Reader's doors on July 1st of this year, meaning you'll need to find a new way to get your news fix. Here's how to export all your feeds and put them into a new reader.

Howard Marks Memo: The Outlook for Equities

Via ValueWalk.

Link to: Howard Marks Memo: The Outlook for Equities

Keeping it Simple...

Quotes from the section on 'Simplification' in Seeking Wisdom - from Darwin to Munger by Peter Bevelin.

"We have a passion for keeping things simple." -Charles Munger

"It's amazing how many people even today use a computer to do something you can do with a pencil and paper in less time." -Richard Feynman (from No Ordinary Genius)

"The art of being wise is the art of knowing what to overlook." -William James

"Part of that [having uncommon sense], I think, is being able to tune out folly, as distinguished from recognizing wisdom. You've got whole categories of things you just bat away so your brain isn't cluttered with them. That way, you're better able to pick up a few sensible things to do." -Charles Munger

"Yeah, we don't consider many stupid things. I mean, we get rid of 'em fast...Just getting rid of the nonsense -- just figuring out that if people call you and say, 'I've got this great, wonderful idea', you don't spend 10 minutes once you know in the first sentence that it isn't a great, wonderful idea...Don't be polite and go through the whole process." -Warren Buffett

"The harder you work, the more confidence you get. But you may be working hard on something that is false." -Charles Munger

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Related previous posts:

Video Summaries of Peter Bevelin's "Seeking Wisdom - from Darwin to Munger"

2007 and 2009 Interviews with Peter Bevelin

Related letter: Filters

TED Talk - Stewart Brand: The dawn of de-extinction. Are you ready?

Link

InvestorGuide’s Interview with Jim Rogers

Thanks to Tom for passing this along.

Jim Rogers is an investor, author, and Chairman of Rogers Holdings and Beeland Interests, Inc.  He is the creator of the Rogers International Commodities Index (RICI), and co-founder of the Quantum Fund.

We took the time to interview Jim because we feel that he’s an amazing investor with a truly remarkable long-term track record, and one of the best ways for our readers to become better investors is to learn from the masters.  Jim also ignores the crowds and current investing trends, which is a necessity for anyone that wants to outperform the masses.

Broyhill Asset Management: Put Me In Coach!!

Coach is a classic compounder, not to be confused with certain pyramid schemes, selling magic weight loss potions and masquerading as growth stories. From 2002 to 2012, the company's sales increased at a compound annual rate of 21.1%, while earnings per share grew 31.1%. However, in the past year, shares have slid 35.4% while the S&P 500 has generated a 13.4% total return, providing investors with a rare opportunity to own a high quality business at a significant discount to intrinsic value. Coach currently trades at 8.3x EBIT, 13.0x current and 11.7x forward earnings. In other words, the stock is priced as if Coach’s growth is long in its past. At its peak in 2001, shares fetched 32 times earnings. If we assume that Coach ultimately trades back towards its average forward multiple of 15x over the next three years, we estimate the stock is worth $76.60 in our base case, which represents more than 50% upside potential. In our bull case, upside is significantly greater.

Kyle Bass’ Presentation at Chicago Booth

Found via Zero Hedge. This took place last week. In response to a question about one investment for the next 10 yeas: "I would buy Gold in JPY and go to sleep... Sell JPY, Buy Gold, Go to sleep, and wake up ten years later and you'll be fine. Don't put all your money in it but that is the single best investment you can make today."

Link to video: Kyle Bass’ Presentation at Chicago Booth

John Mauldin: Argentina on Sale

There are some who worry whether the path that Argentina has taken to monetary ruin on multiple occasions (and that it seems intent on taking again) is one that the US may also find itself on. That worry has crossed my mind a few times, I must confess. Today we will look at Argentina more in depth. From a monetary perspective, it deserves attention. And once again there will be opportunity.

Let me jump right to the conclusion: Just as Spain is not Greece, because each chose a unique route to economic malaise, the US is not Argentina. We are perfectly capable of avoiding Argentina’s problems while cooking up ones that are all our own. But there are some worrisome and potentially instructive issues in Argentina.

Competitive Strength vs. Sustainable Competitive Advantage

“It is important for you to distinguish a business’s competitive strength from a sustainable competitive advantage. If a business has good customer service, a quality product, and knowledgeable workforces, those are all strengths, but those can often be duplicated.” –Michael Shearn, The Investment Checklist

The State of Long-Term Expectation

Chapter 12 (“The State of Long-Term Expectation”) of John Maynard Keynes’ The General Theory of Employment, Interest and Money is one that seems good to go back and re-read every now and then. Jeremy Grantham mentioned it in his interview with Charlie Rose, and Warren Buffett has mentioned it on several occasions (and mentioned the quote below in his 1991 Letter).

Link to: Chapter 12. The State of Long-Term Expectation

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Related Keynes quote (which he wrote in a letter to a business associate): “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence….One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”

Jeremy Grantham on Charlie Rose

Link to: Jeremy Grantham on Charlie Rose

Nassim Taleb quote

A little different take than Steven Pinker's case, as I understand it, in his book The Better Angels of Our Nature.

“Some people have fallen for the naive turkey-style belief that the world is getting safer and safer, and of course they naively attribute it to the holy “state” (though bottom-up Switzerland has about the lowest rate of violence of any place on the planet). It is exactly like saying that nuclear bombs are safer because they explode less often. The world is subjected to fewer and fewer acts of violence, while wars have the potential to be more criminal….When we look at risks in Extremistan, we don’t look at evidence (evidence comes too late), we look at potential damage: never has the world been more prone to more damage; never. It is hard to explain to naive data-driven people that risk is in the future, not in the past.” –Nassim Taleb, Antifragile

Video Summaries of Peter Bevelin's "Seeking Wisdom - from Darwin to Munger"

Links to videos:

MainTakeAway: Seeking Wisdom pt. 1 By Peter Bevelin

MainTakeAway: Seeking Wisdom pt. 2 By Peter Bevelin

MainTakeAway: Seeking Wisdom pt. 3 By Peter Bevelin

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Related previous post: 2007 and 2009 Interviews with Peter Bevelin

To purchase Seeking Wisdom, go to www.poorcharliesalmanack.com.

Dylan Grice: Would the real Peter and Paul please stand up?

A big thanks to Barry for passing this along! You can sign up to receive Grice’s future letters HERE.

Link to: Would the real Peter and Paul please stand up?

Prem Watsa's 2012 Shareholder Letter - Fairfax Financial

We continue to fully hedge our common stock portfolios because of the reasons first discussed in our 2010 and 2011 Annual Reports. Those reasons have not changed! Total debt (private and government) as a percentage of GDP in the U.S., Europe and the U.K. are at very high levels, thus limiting the options available to governments. Deleveraging in the private sector has only just begun. In spite of the significant deficit spending in the U.S. and Europe, high levels of unemployment prevail in both areas and economic growth continues to be very tepid. In fact, Europe and the U.K. appear to be heading for another recession. The markets are ignoring this as they believe the Fed and the European Central Bank will bail us out – again! Forgotten is the fact that the present Chairman of the Fed, in July 2008, yes July 2008, said that Fannie Mae and Freddie Mac were “adequately capitalized” and “are in no danger of failing”. In spite of QE1, QE2 and recently QE3, the economic fundamentals remain weak while stock markets and bond markets are back to near record levels, leading Gary Shilling, one of the best economists we know, to call this “the grand disconnect”. This “disconnect” or gap will be closed by either economic fundamentals rising to meet the financial markets or the markets coming down to meet the fundamentals. We think that the latter is likely and that the Fed has simply postponed the inevitable by its QE1, QE2 and QE3 actions.

"Fools give you reasons, wise men never try."

As found in the soon-to-be-released (later this week) third edition of Lawrence Cunningham’s The Essays of Warren Buffett: Lessons for Corporate America. This excerpt is from Warren Buffett’s 1999 shareholder letter:

Berkshire will someday have opportunities to deploy major amounts of cash in equity markets -- we are confident of that. But, as the song goes, "Who knows where or when?" Meanwhile, if anyone starts explaining to you what is going on in the truly-manic portions of this "enchanted" market, you might remember still another line of song: "Fools give you reasons, wise men never try."

Guru to the Stars

Howard Marks has made a killing on distressed debt. So, what does he think of the bond bubble? It's in only the "fifth inning."

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Related link: Investing in Uncertain Times

Martin Capital Management: 2012 Annual Report

I saw this posted in a couple of different places. It is a great read, as always.

Link to: Martin Capital Management: 2012 Annual Report

Hussman Weekly Market Comment: Two Myths and a Legend

In late-2008, with the S&P 500 down 40%, I noted that stocks had become reasonably valued (see Why Warren Buffett is Right, and Why Nobody Cares). The coupling of improved valuations with an early improvement in market action – at least on post-war measures – was a fairly standard combination of events warranting a constructive position, though I noted that our approach still indicated the need to maintain a “stop loss” a few percent below those market levels in the form of index put options. Valuations are a far cry from reasonable today.

On the policy front, I believed in 2008 that it was appropriate for the Treasury to provide capital to banks through the use of preferred stock (though I would have advised the use of Bagehot’s Rule – which would have provided that capital at much higher yields than the Treasury accepted). However, I did not believe that outright purchases of distressed assets were appropriate or ethical, and I railed against the notion of a Troubled Assets Relief Program (TARP), as well as Fed purchases of Fannie Mae and Freddie Mac’s liabilities, FASB accounting changes to reduce the transparency of financial reporting, and other interventions to defend bondholders and put bad private assets on the public balance sheet.

As the government pursued those more outrageous policies, it became clear what I had expected to be a fairly orderly “writeoff recession” (involving the appropriate restructuring of bad debts) was not going to happen, and without that restructuring, that the U.S. economy would be chained to the burden of those debts for a very long time. The inability of the economy to materially accelerate in recent years, and its constant hovering at the edge between expansion and recession, is a symptom of that failure to restructure debt in 2008 and early 2009. One cannot account for the full cost of defending bondholders during the crisis without adding in the trillions of dollars in additional government debt that has been expended in the effort to counteract that economic drag.

I am glad that the economy has created jobs recently. But payroll employment is not a forward-looking indicator, and is unlikely to prevent the U.S. from joining a global downturn that is already in progress among developed countries.

Nassim Taleb quote

“…the random element in trial and error is not quite random, if it is carried out rationally, using error as a source of information. If every trial provides you with information about what does not work, you start zooming in on a solution—so every attempt becomes more valuable, more like an expense than an error. And of course you make discoveries along the way.” –Nassim Taleb, Antifragile

Nassim Taleb quote

“Nature prefers to let the game continue at the informational level, the genetic code. So organisms need to die for nature to be antifragile—nature is opportunistic, ruthless, and selfish.” –Nassim Taleb, Antifragile

Seth Klarman quote

“We clear a high bar before making an investment, and we resist the many pressures that other investors surely feel to lower that bar. The prospective return must always be generous relative to the risk incurred. For riskier investments, the upside potential must be many multiples of any potential loss. We believe there is room for a few of these potential five and ten baggers in a diversified, low-risk portfolio. A bargain price is necessary but not sufficient for making an investment, because sometimes securities that seem superficially inexpensive really aren’t. “Value traps” are cheap for a reason--perhaps an inept and entrenched management, a poor history of capital allocation, or assets whose value is in inexorable decline. A catalyst for the realization of underlying value is something we seek, but we will also make investments without a catalyst when the price is sufficiently compelling. It is easy to find middling opportunities but rare to find exceptional ones. We conduct an expansive search for opportunity across industries, asset classes, and geographies, and when we find compelling bargains we drill deep to verify the validity of our assumptions. Only then do we buy. As for what we own, we continually assess and reassess to incorporate new fundamental information about an investment in the context of market price fluctuations. When bargains are lacking, we are comfortable holding cash. This approach has been rewarding--as one would hope with a philosophy that is painstaking, extremely disciplined, and highly opportunistic.”

Content economics, part 2: payments – By Felix Salmon

I found the excerpt below especially interesting. And remember (warning: shameless plug to follow), you can always support this site by clicking on the SUPPORT VALUE INVESTING WORLD link on the homepage, or by clicking HERE.

The bigger lesson here is that when it comes to persuading your readers to pay you money, it actually helps to be small. There’s an exception for finance, of course, and also for the NYT, which is unique in many ways. But the lesson of Palmer’s talk is that while 25,000 supporters aren’t nearly enough to support a band on a record label, they’re more than enough to support a band on Kickstarter — or, for that matter, to keep an iPad magazine going strong. What’s more, while consumers can be very loyal to brands and to publications, in many ways it’s easier to become loyal to an individual, especially when she has an idiosyncratic and unique voice.

If you want to read The Dish, you can’t get there by going to thedish.com or to thedailydish.com or anything like that: you get there by going to andrewsullivan.com. The person is the site, and when that happens, the readership becomes much more willing to hand over money. Do I want to give Fortune $20 a year so that I can read its magazine articles online? No, I do not — especially when we live in a social world, where if I find a story I love, the first thing I want to do is be able to share it. On the other hand, I’m much more willing to spend $20 a year to support Andrew Sullivan, even if I rarely visit his site, precisely because I don’t particularly have to do so, and can read any of his stuff whether I pay him or not.

We’re not talking about micropayments here: those have never taken off, and I doubt they will, at this point. For a long time, people thought that the sheer size of the internet would enable enormous numbers of people to pay negligible sums of money, which would add up to substantial amounts in aggregate. The problem with that was that it’s just too hard to spend money online: the effort involved just isn’t worth it, for sums of a dollar or less.

Instead, the sheer size of the internet enabled the opposite to happen: it enabled smallish numbers of people to pay modest amounts of money, which can add up to just as much in total.

So if you’re a huge publicly-listed corporation, by all means create an elaborate paywall in the hopes that people will decide that they need your content and will just have to pay for it. Every so often, that can work, as it has at the FT and the NYT. But frankly I don’t think those examples are particularly replicable: they’re both sui generis in many ways. Instead, it seems to me, the most promising aspect of content payments is at the other end of the spectrum. Build up a relationship with your readers, in large part by giving your content away for free; ask for money with pride and shamelessness; and place no cap on how much you let your readers spend. Give them the opportunity, and you might be very surprised at what they’re willing to buy.

TED Talk - Amanda Palmer: The art of asking

Link

NOVA scienceNOW w/ Neil deGrasse Tyson: Where did we come from?

Link

The Big Short War

Hedge-fund titan Bill Ackman has vowed to bring down Herbalife, the 33-year-old nutritional-supplement company, which he views as a pyramid scheme. With his massive shorting of Herbalife stock, the price plummeted, prompting two fellow billionaires—Ackman’s former friend Dan Loeb and activist investor Carl Icahn—to take the opposing bet on Herbalife. As the public brawl rivets Wall Street, William D. Cohan learns why, this time, it’s personal.

Ed Thorp on NPR (2010)

Thanks to Lincoln for passing this along.

In 1962, Ed Thorp became every gambler's favorite mathematician when he published the first mathematically proven method for beating the dealer at blackjack.

Thorp's work revolutionized the game. But he went further: In 1967, Thorp devised a system that uses math and computers to predict the future of the stock market. His hedge funds and his personal portfolio have been profitable ever since.

Thorp and the people who use such systems have come to be known as "quants" — it's a reference to the quantitative-analysis techniques they employ — and their stories are told in Scott Patterson's new book The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It.

Thorp has taught at MIT and UCLA. Patterson writes for the Wall Street Journal. They join Terry Gross for a conversation about Patterson's new book.

Michael Porter on Charlie Rose

Link to: Michael Porter on Charlie Rose

The Q Ratio and Market Valuation: Monthly Update

Via Doug Short:

Link to: The Q Ratio and Market Valuation: Monthly Update

U.S. Recession Began Middle of 2012, Achuthan Says (video)

March 7 (Bloomberg) -- Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, talks about the U.S. economy. Achuthan speaks with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." John Silvia, chief economist at Wells Fargo Securities LLC, also speaks.

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Related previous post: ECRI: Recession in the Yo-Yo Years

Value Investor Insight Sample Issue: February 2013

Includes an excerpt from Seth Klarman’s 2012 year-end letter.

Link to: Value Investor Insight Sample Issue: February 2013

Even a subpar Sage is pure genius - By John Kay

Berkshire owns a number of insurance companies, which are strongly cash-generative, since the nature of insurance is that the payment of premiums precedes the payment of claims. These funds, and Berkshire’s retained earnings, are invested in a portfolio of wholly owned businesses and large holdings in some listed companies. The distinguishing characteristic of all these businesses is that they have sustainable competitive advantages: market positions competitors would find it difficult or impossible to reproduce. There is little portfolio turnover. The preferred holding period for stocks is, Mr Buffett has often said, forever.

If he is a genius, it is the genius of simplicity. No special or original insight is needed to reach his appreciation of the nature of business success. Nor is it difficult to recognise that companies such as American Express, Coca-Cola, IBM, Wells Fargo, and most recently Heinz – Berkshire’s largest holdings – meet his criteria.

Which leads back to the question of why Berkshire has so few imitators. After all, another crucial insight of business economics is that profitable strategies that can be replicated are imitated until returns from them are driven down to normal levels. Why do the majority of investment managers hold many more stocks, roll them over far more often, engage in far more complex transactions – and derive less consistent and profitable results?

Partly the problem is the trap of short-term relative performance measurements – the distortion of perspective that allows a 14.4 per cent gain to be described as subpar performance.

But the deeper issue is that complexity is intrinsic to the product many money managers sell. How can you justify high fees except by reference to frequent activity, unique insights and arcana? But Mr Buffett understands the limitations of his knowledge. That appreciation distinguishes people who are very clever from those who only think they are.

Michael Mauboussin Interview: Untangling Skill and Luck in Business

Thanks to Lincoln for passing this along.


Link

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

Related previous post: Simoleon Sense: Miguel Barbosa's Interview with Michael Mauboussin

Jim Chanos on CNBC

Links to videos:

The Short Story on China

Where to Short the Market

Side Effects of the 'Smart Guy' Syndrome

Chanos: Avoid Chinese Property Bubble