Links

Ruane, Cunniff & Goldfarb Investor Day Transcript (May 2016) [H/T ValueWalk] (LINK)

Buffett's 167-year-old railroad tests skies for drone age [H/T Linc] (LINK)

Jana Vembunarayanan with a great post on Anders Ericsson's book Peak: Secrets from the New Science of Expertise (LINK)

Interview with Anurag Sharma, author of Book of Value: The Fine Art of Investing Wisely (Part 1, Part 2, Part 3)

10 Money Revelations in My 30s - by Ben Carlson (LINK)

Bill Gross' September Investment Outlook (LINK)

Google, Uber, and the Evolution of Transportation-as-a-Service - by Ben Thompson (LINK)

Dog brains divide language tasks much like humans do (LINK)

No, We Almost Certainly Did Not Detect an Alien Signal (LINK)

Links

The New Yorker reviews Jeff Gramm's book, Dear Chairman (LINK)

Shane Parrish talks to Pedro Domingos on The Knowledge Project podcast (audio) (LINK)

Related book (which I've seen quite a few smart people recommend): The Master Algorithm

Frank Martin's Q2 Letter [H/T Santangel's Review] (LINK)

Young Hedge-Fund Manager Cracks The Private-Equity Code: Small Stocks And Leverage [H/T @williamgreen72] (LINK)

India on track to be the world’s largest oil consumer (LINK)

Ford Offers 72 Month 0% Financing as Car Loan Defaults Surge [H/T Will] (LINK)

a16z Podcast: It’s Complicated (LINK)

Related book: Overcomplicated: Technology at the Limits of Comprehension

Book of the day [H/T @mjmauboussin]: The Story of the Human Body: Evolution, Health, and Disease

Links

Mental Model: Commitment and Consistency Bias (LINK)

Today’s Inequality Could Easily Become Tomorrow’s Catastrophe - by Robert J. Shiller (LINK)

How Bankrupt Is Horsehead Holding? Its Investors Want to Know (LINK)

The Sinister Side of Cash - by Kenneth S. Rogoff [H/T @jasonzweigwsj] (LINK)

Paper money fuels corruption, terrorism, tax evasion and illegal immigration—so the U.S. should get rid of the $100 bill and other large notes

a16z Podcast: Ethereum, App Coins, and Beyond (LINK)

I'm looking forward to this book coming out in January: A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market - by Edward O. Thorp

Book of the day [H/T 25iq, which linked to THIS excerpt]: The Vanishing American Corporation: Navigating the Hazards of a New Economy

Links

Here's Why the Pundits Are Wrong About Warren Buffett - by Roger Lowenstein (LINK)

It takes a lot of cherry-picking to make him look bad. 

Norman Pearlstine, the vice chairman and longtime editorial soul of Time Inc., which publishes Fortune, once said that every feature story fit into one of three archetypes: “How the Mighty Have Fallen;” “David v. Goliath,” or—referring to stories that go against the trend—“The Hole in the Donut.” 

He might have added a fourth: “Take-downs of Warren Buffett.” Ever since the Omaha investor was discovered to be human, reporters have churned out stories claiming that Buffett is (a) just plain lucky; (b) not as good as his record; (c) a hypocrite; (d) over the hill; (e) exploiting an unfair advantage; (f) a monopolist; or (g) some or all of the above. 

One of the worst of the genre, “Don’t Buff it up: The other side of Warren Buffett,” appeared in The Economist earlier this month. While journalists, of course, should treat Buffett as skeptically as they do other public figures—and criticize unreservedly where it is warranted—The Economist article would seem a transparent attempt at fault-finding.

Warren Buffett Could Lose an $8-Per-Second Windfall on His Dow Chemical Stock [H/T @crowdturtle] (LINK)

Warren Buffett’s Berkshire Hathaway Inc. continues to reap rich dividends from a canny loan extended to Dow Chemical Co. seven years ago. But a recent rally in Dow’s stock is putting that income stream at risk. 

Shares of Dow have spent much of the past month hovering above $53—perilously close to a level that would cause Berkshire to lose a $255 million-a-year dividend.

Are Index Funds Eating the World? - by Jason Zweig (LINK) [On the topic and as an example of the indices mostly buying the same stocks, one can look at the top 10 holdings MSCI World Index and the MSCI USA Index and see that they basically hold the same thing, and are fairly close to the top 10 holdings of the S&P 500 Index as well.]

Big data, Google and the end of free will - by Yuval Noah Harari (LINK) [I had no idea that Harari was coming out with another book, Homo Deus: A Brief History of Tomorrow, but since Sapiens was one of my all-time favorites, I'm looking forward to the new one. There is also a book review of Homo Deus HERE.]

25iq: A Dozen Things I’ve Learned from Michael Dell about Business (Pre-2002 edition) - by Tren Griffin (LINK)

The 8 New Books to Read This Fall - by Adam Grant (LINK)

The books: 1) The Undoing Project by Michael Lewis; 2) Messy by Tim Harford; 3) 100 Tricks to Appear Smart in Meetings by Sarah Cooper; 4) Pre-Suasion by Robert Cialdini; 5) Feminist Fight Club by Jessica Bennett; 6) The Fix by Jonathan Tepperman; 7) Take Pride by Jessica Tracy; 8) Forward by Abby Wambach

Links

Berkshire’s Jain Tells Gen Re Staff to Fix ‘Problem’ With Costs [H/T Will] (LINK)

Mohnish Pabrai's Hedge Fund Interview Guide (LINK)

Paul Tudor Jones & the Nature of the Beast - by Ben Carlson (LINK)

NPR: TED Radio Hour - Can Slowing Down Help You Be More Creative? (LINK) [This podcast episode goes well with  Episode 07 (“Hallelujah”) of Malcolm Gladwell's podcast.]

Related book: Originals: How Non-Conformists Move the World

I’m a very slow thinker - by Derek Sivers (LINK)

Colombia and FARC Announce Deal to End the Americas’ Longest War (LINK)

Latticework of Mental Models: The Halo Effect (LINK)

Related book: The Halo Effect (the audiobook is also just $5.95, HERE)

Audible's latest sale (ends August 31st) has a bunch of former Daily Deals on sale once again. And there are some fantastic titles on the list. Here are some that stood out to me (if you're not an Audible member, you can sign up for a free trial HERE, which includes 2 free audiobooks as well):

Man's Search for Meaning ($2.95)

Surely You're Joking, Mr. Feynman! ($3.95)

The Little Book of Talent: 52 Tips for Improving Your Skills ($0.99)

How to Fail at Almost Everything and Still Win Big ($2.95)

The Inexplicable Universe: Unsolved Mysteries ($1.95)

The Drunkard's Walk: How Randomness Rules Our Lives ($3.95)

The Five Elements of Effective Thinking ($1.95)

A Mind for Numbers: How to Excel at Math and Science (Even If You Flunked Algebra) ($2.95)

The Clockwork Universe: Isaac Newton, The Royal Society, and the Birth of the Modern World ($3.95)

The Hunt for Vulcan: …And How Albert Einstein Destroyed a Planet, Discovered Relativity, and Deciphered the Universe ($1.95)

Stuff Matters: Exploring the Marvelous Materials That Shape Our Man-Made World ($2.95)

Earth Moved: On the Remarkable Achievements of Earthworms ($2.95)

John Quincy Adams ($3.95)

The Prince - By Niccolo Machiavelli ($1.95)

Candide - by Voltaire ($1.95)

Peace Is Every Step: The Path of Mindfulness in Everyday Life - By Thich Nhat Hanh ($1.95)

Links

Superman and Stocks: It's not the Cape (CAPE), it's the Kryptonite (Cash flow)! - by Aswath Damodaran (LINK)

FRMO August 2016 Letter [H/T @BrattleStCap] (LINK)

WD-40: A Case Study of the Bubble in “Safe” Stocks (LINK)

Big Oil Companies Binge on Debt [H/T @jasonzweigwsj] (LINK)

Some of the world’s largest energy companies are saddled with their highest debt levels ever as they struggle with low crude prices, raising worries about their ability to pay dividends and find new barrels. 

Exxon Mobil Corp., Royal Dutch Shell PLC, BP PLC and Chevron Corp. hold a combined net debt of $184 billion—more than double their debt levels in 2014, when oil prices began a steep descent that eventually bottomed out at $27 a barrel earlier this year. Crude prices have rebounded since, but still hover near $50 a barrel. 

The soaring debt levels are a fresh reminder of the toll the two-year price slump has taken on the oil industry. Just a decade ago, these four companies were hauled before Congress to explain “windfall profits” but now can’t cover expenses with normal cash flow.

Why 4 a.m. Is the Most Productive Hour (LINK)

TED Talk - Don Tapscott: How the blockchain is changing money and business (LINK)

Venomous Snakes Ride Ocean Currents Around the World (LINK)

Tiniest grazing mammal was a pig at the front, horse at the back (LINK)

Book of the day: The Age of Uncertainty  - by John Kenneth Galbraith

Links

Bill Gates on personalized learning (LINK)

Why primary research is overrated [H/T @StaleyRdCap] (LINK)

Related previous posts: 1) Quotes on doing what matters...; 2) Continuous reorganization, activity...

Grant's Summer 2016 Vacation Issue (LINK)

An exclusive inside look at how artificial intelligence and machine learning work at Apple [H/T Techmeme] (LINK)

Everyone Wants Emerging-Market Bonds, But There Aren’t Enough to Go Around [H/T @jasonzweigwsj] (LINK)

As the hunt for yield stretches into emerging-market bonds, investors are finding there isn’t a lot of game to shoot. Such crowded terrain spells danger. 

The gusher of money into emerging-market bonds has hit extraordinary levels of late. In July, over $18 billion flooded in, and as of last week, $5 billion had entered emerging-market bond funds this month, according to data provider EPFR. As a comparison, July’s inflows are almost the same amount that were sucked out of emerging markets during the so-called taper tantrum three years ago. If anything, the balance of flows are looking a lot like the 2009 post-financial crisis world. 

And like 2009, bond supply is scarce. So even as some investors are driven by negative rates into higher yielding emerging-market bonds, they are meeting a dearth of product.  

...This supply-demand mismatch has had an obvious effect on yields. It is with high-quality emerging-market bonds where the spreads seem to have become the most extreme. Emerging-market debt tends to trade alongside U.S. junk bonds, given the level of currency and political risk. 

However now, emerging-market sovereigns are trading in line with investment grade global corporates, according to Moody’s indexes that track spreads on such debt. Meanwhile, lower-rated sovereign issuers are trading at about 1 percentage point tighter compared to Treasurys than similarly rated corporate issuers. They usually trade around the same levels.

Five Books: Massimo Pigliucci recommends the best books on Stoicism [H/T The Browser] (LINK)

The books: 1) The Discourses of Epictetus; 2) A Guide to the Good Life; 3) Meditations; 4) Letters on Ethics; 5) A New Stoicism 

Related previous posts: 1) Stoicism quotes, thoughts, and readings; 2) Stoicism audiobooks; 3) Presentation by Massimo Pigliucci: Stoicism 101

Sporadic/Intermittent Reinforcement

John Huber has an excellent post on the 1977 WSJ article on Warren Buffett I linked to a couple of days ago. I wanted to highlight a couple of paragraphs here about his mention of value traps because it ties in with a mental model from psychology (Sporadic/Intermittent Reinforcement) that I've seen in a couple of places. From John's post:

Whenever I review my own investment mistakes, they almost always come from situations where I was attracted much more to the valuation than to the business. These are the so-called value-traps—catnip to most value investors, but very often poor choices as investment candidates. I’ve learned to steer clear. 

The problem for many investors is that sometimes these so-called value traps work out. You’re able to buy them and sell them for a 50% gain. But a year or two later they are often trading at or below (often well below) your original purchase price. The investment looked smart based on the realized gain, but was it really being smart, or just fortunate timing?

The key thing I want to highlight above is John's mention of the problem being "that sometimes these so-called value traps work out." This is similar to a point made by Mark Yusko in the Morgan Creek Q2 Letter in a discussion about Seth Klarman and his thoughts on why the average mutual fund investor vastly underperforms the average mutual fund. The average investor in mutual funds changes funds too often, chases what is hot, etc. And the problem here, again, is that sometimes it works, at least for a while. As Yusko wrote: 

Klarman's response to this phenomenon is, "while no one wishes to incur losses, you couldn't prove it from an examination of the behavior of most investors. The speculative urge that lies within most of us is strong; the prospect of a free lunch can be compelling, especially when others have already seemingly partaken." That speculative urge is a psychological characteristic in all of us that we must fight in order to reach our full potential as great investors. B.F. Skinner did a great deal of work on trying to discern why human beings seemed hard-wired to want to speculate (gamble), and found that the behavior was linked to a concept called "sporadic reinforcement." In essence, by winning only occasionally, the desire to participate in that activity actually increases.

And to tie this idea back to some source material from B.F. Skinner himself, here are a couple of paragraphs from his book About Behaviorism:

All gambling systems are based on variable-ratio schedules, although their effects are usually attributed to feelings. It is frequently said, for example, that people gamble because of the excitement, but the excitement is clearly a collateral product. It is also sometimes said that people gamble "to satisfy their sense of mastery, to dominate, to win" — in spite of the fact that gamblers almost always eventually lose. The inconsistency is explained by calling the gambler who ruins himself and his family "compulsive" or "pathological," his "irrational" behavior thus being attributed to an illness. His behavior is "abnormal" in the sense that not everyone responds with similar dedication to the prevailing contingencies, but the fact is simply that not everyone has been exposed to a program through which a highly unfavorable ratio is made effective. The same variable ratio schedule affects those who explore, prospect, invent, conduct scientific research, and compose works of art, music, or literature, and in these fields a high level of activity is usually attributed to dedication rather than compulsion or irrationality.  

It is characteristic of intermittent reinforcement that behavior may be sustained over long periods of time with very little return. This has been explained by saying "Human beings are creatures of hope and are not genetically designed to resign themselves," but there is nothing essentially human about the effects, and it is not hope or resignation but the contingencies which are the conspicuous and accessible cause.

Clayton Christensen and Charlie Munger on theory

In his recent Talk at Google, Clayton Christensen said the following near the beginning of his presentation: 

"The word theories gets a bum rap with managers because the word theory is associated with the word theoretical which connotes impractical. But a theory is a statement of causality. It's a statement of what causes what and why. And when you think about it in those terms, you as technologists or managers are voracious consumers of theory. Because every time you take an action it's predicated upon a belief that if you do this, you'll get the result that you want. And every time you put a plan into place it's predicated upon a set of theories which tells you that if you do these things, you'll be successful. But most of the people aren't even aware of the theories they use. And many times the theories that you use are destructive rather than productive."

That mention of theory reminded me of the below quote from Charlie Munger, which I mentioned a couple of years ago as essentially being the underlying reason for my practice of Memortation: 

"I could see that I was not going to cope as well as I wished with life unless I could acquire a better theory-structure on which to hang my observations and experiences. By then, my craving for more theory had a long history. Partly, I had always loved theory as an aid in puzzle solving and as a means of satisfying my monkey-like-curiosity. And, partly, I had found that theory-structure was a superpower in helping one get what one wanted. As I had early discovered in school wherein I had excelled without labor, guided by theory, while many others, without mastery of theory failed despite monstrous effort. Better theory I thought had always worked for me and, if now available could make me acquire capital and independence faster and better assist everything I loved."

Links

Howard Marks on What Politics Means for Investors (video) [H/T ValueWalk] (LINK)

Related previous post: Howard Marks Memo: Political Reality

Howard Marks: Oaktree Has 'Amped Up' Caution, Selectivity (video) (LINK)

It’s Getting Scarily Quiet in the Stock Market [H/T @jasonzweigwsj] (LINK)

Calm has descended on the U.S. stock market. 

The past 30 days have been the least volatile of any 30-day period in more than two decades. Only five days during the most recent stretch saw the S&P 500 move by more than 0.5% in either direction, the lowest since the fall of 1995. 

Back then, the Federal Reserve was paused between rate cuts. This time around, a combination of the summer lull in trading and super-easy global monetary policy has helped drive volatility to levels seen only a dozen times in the past half-century. 

...Faith in how far central banks will protect against losses comes and goes, though. In market-speak, the Yellen put is less out of the money if a smaller price fall pushes the Fed to act. At the moment, investors seem to think the put is barely out of the money at all. 

The danger, then, is not so much complacency about markets, but complacency about central banks. The lesson of the past seven years is that policy makers will step in every time disaster strikes. But investors tempted to rely on the central banks should note that disasters did still strike, and markets had big falls before help arrived. The time to buy insurance is when it is cheap, and for the U.S. stock market, that is now.

Temperament is a skill - by Seth Godin (LINK)

Farnam Street: The Fundamental Attribution Error, or Why Predicting Behavior is So Hard (LINK)

Related book (also recommended highly by Nassim Taleb): Explaining Social Behavior

Investing quote of the day (which I've posted before, but am thinking about again today): 

“…what I have observed about the really great investors is the simple decisions that they end up having to make by virtue of focusing on what’s important and what’s unknowable.” -Tom Russo

Links

1977 WSJ article on Warren Buffett – "Investor Who Piled Up $100 Million in the ‘60’s Piles Up Firms Today" [H/T @iancassel] (LINK)

25iq: A Dozen Things Learned from Naval Ravikant about Investing, Business and Startups (LINK)

Jeff Gramm talks with  Barry Ritholtz on the Masters in Business podcast (LINK)

Related book: Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism

The Brooklyn Investor blog: 13F Fun (LINK)

Latticework of Mental Models: The Zero Price Effect (LINK)

FASB Proposed Modifications to Hedge Accounting: Good Thing, Bad Thing, or Just a Thing? (LINK)

Seller’s Paradise: Companies Build Bonds for European Central Bank to Buy [H/T @jasonzweigwsj] (LINK)

The European Central Bank’s corporate-bond-buying program has stirred so much action in credit markets that some investment banks and companies are creating new debt especially for the central bank to buy. 

In two instances, the ECB has bought bonds directly from European companies through so-called private placements, in which debt is sold to a tight circle of buyers without the formality of a wider auction.

Pensions Play With Puts for Protection (LINK)

Some pension funds are seeking to profit from others’ fear. 

Pension funds in Hawaii and South Carolina are plying an arcane options strategy called cash-secured put writing. In a typical trade, the investor sells a contract, known as a put, to someone who owns stocks and is willing to pay up for protection in case they decline. If, within a certain time, the shares fall below a given price, the investor buys the stocks at that price, or covers their lost value.

The Spectrum Auction: How Economists Saved the Day (LINK)

The Bonfire of Venture Capital: The Good, Bad and Ugly Side of Cash Burn! - by Aswath Damodaran (LINK)

Uber’s CEO doesn’t think self-driving cars will cost jobs, and he might be right (LINK)

E-commerce is still really hard — even after Jet and Dollar Shave Club fetched $4 billion (LINK)

Ed Catmull on the This Week In Startups podcast (video) (Part 1, Part 2) [H/T Mike Dariano, who posted some great notes from Part 1 HERE.]

Related book: Creativity, Inc.

Trends in — and the Future of — Infrastructure (video) (LINK)

“Infrastructure is dead”, some say, thanks to cloud computing — and a couple large incumbents sucking out all the profits in this space. Er… not really. We’re actually entering a renaissance of sorts — a “golden era of infrastructure” — and it’s one that is biased towards startups. They’re the ones who have the unfair advantage, argues a16z general partner (and former Nicira co-founder/CTO) Martin Casado in this talk.

a16z Podcast: Pricing Free (LINK)

Email is Most Useful When Improving a Process that Existed Before Email (LINK)

Related book: Deep Work: Rules for Focused Success in a Distracted World

The Power of Writing About the Things You Read [H/T Abnormal Returns] (LINK)

Greek Buddha - by Massimo Pigliucci (Part 1, Part 2)

Related book: Greek Buddha: Pyrrho's Encounter with Early Buddhism in Central Asia

Epictetus: 254 Selected Quotes - by Massimo Pigliucci (LINK)

This is my personal collection of favorite quotes from Epictetus, covering all four extant volumes of the Discourses, the Enchiridion, and the known Fragments. Use them for inspiration and meditation. The pdf is searchable so that you can look for specific keywords, and if you’d like you can come up with your own selection of preferred citations, arranged by topics.

Entropy Explained, With Sheep [H/T @TimHarford] (LINK)

Book of the day: Beyond the Box: B.F. Skinner's Technology of Behaviour from Laboratory to Life, 1950s-1970s

Seth Klarman quote

"[Ben] Graham's wonderful sentence is, an investor needs only two things: Cash and Courage. Having only one of them is not enough. Courage is a function of process." -Seth Klarman


[H/T @MarkYusko, via his excellent commentary on Klarman in the Morgan Creek Q2 Letter]

..........

The quote from Klarman also brought to mind: Charlie Munger on the balance between competency and gumption...

Michel de Montaigne quote

From A Calendar of Wisdom (via Brain Pickings):

A sage is not afraid of lack of knowledge: he is not afraid of hesitations, or hard work, but he is afraid of only one thing — to pretend to know the things which he does not know. 

You should study more to understand that you know little.

Links

Made in China: The World’s Most Expensive Market [H/T @jasonzweigwsj] (LINK)

Deutsche Bank whistleblower spurns share of $16.5m SEC award [H/T Matt] (LINK)

Ben-Artzi, who exposed false accounting, declines share of payout after executives go unpunished

Eleven Reasons To Be Excited About The Future of Technology (LINK)

The Bandwidth Bottleneck That Is Throttling the Internet (LINK)

Related books: 1) Tubes: A Journey to the Center of the Internet; 2) Computer Networks

Seafloor Miners Poised to Cut into an Invisible Frontier (LINK)

Episode 10 of Malcolm Gladwell's Revisionist History podcast (LINK) [This is the last episode of Season 01. Overall, the first season was a mixed bag for me, but my favorite episode was probably Episode 07, “Hallelujah”.]

Howard Marks Memo: Political Reality

Link to: Political Reality

My last memo, in May, was on the subject of “Economic Reality.”  Its goal was to describe the realities imposed by economics and point out the many ways in which governments and, especially, candidates for elected office ignore and promise to override them.  Since then I have been struck by the way developments have moved economic reality to center stage.  Of course, foremost among them has been the affirmative vote of June 23 on Brexit: whether the United Kingdom should leave the European Union. 

I have no interest in writing a memo about Brexit itself.  There’s a huge number of moving parts, too little past experience, too many varying opinions, and zero clarity on how the departure will be handled.  There are many pundits out there telling us what the consequences of Brexit will be.  The only thing I’m sure of is that most of them are wrong, and if I were to join their ranks, I’d probably be wrong, too. 

Links

A Teacher Who Changed My Life - by Bill Gates (LINK)

Special Situations Ideas Forum - Robert Robotti [and others that join in later] on Subsea 7 (video) (LINK) [A big thanks to Vishal for setting this up and passing it along.]

Related link: Chris Bloomstran interview and Subsea 7 thesis (Chris is also in the video above)

Broyhill Asset Management's mid-year letter to investors (LINK)

How to find undervalued businesses, and why you should ignore management (LINK)

Ford plans to have a fleet of fully autonomous cars operating in a ride-hail service by 2021 (LINK)

Gino Blefari: "Real Estate Investing" | Talks at Google (video) (LINK)

Gino Blefari is the chief executive officer for HSF Affiliates LLC, which operates the real estate brokerage networks of Berkshire Hathaway HomeServices, Prudential Real Estate and Real Living Real Estate (Warren Buffett’s real estate franchise business).

The meaning of trust in the age of Airbnb - by Tim Harford (LINK)

Charlie Munger: This is the way you win big in the world...

One of the many excerpts I've saved from Peter Bevelin's excellent All I Want To Know Is Where I'm Going To Die So I'll Never Go There, and a great addition to a checklist or compilation of mental models:

Munger   "Really big effects, lollapalooza effects, will often come only from large combinations of factors. For instance, tuberculosis was tamed, at least for a long time, only by routine combined use in each case of three different drugs." 

"This is the way you win big in the world -- by getting two or three forces working together in the same direction." 

Seeker   "Since I have lost big, tell me more about how I can win big." 

Munger   "Extreme success is likely to be caused by some combination of the following factors:

a) Extreme maximization or minimization of one or two variables. 

b) Adding success factors so that a bigger combination drives success, often in non-linear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little bit more mass, and you get a lollapalooza result. 

c) An extreme of good performance over many factors. 

d) Catching and riding some sort of big wave."

Seeker   "What do you mean with 'big wave'?" 

Munger   "When...new businesses come in, there are huge advantages for the early birds. And when you're an early bird, there's a model that I call 'surfing' -- when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows...But people get long runs when they're right on the edge of the wave -- whether it's Microsoft or Intel or all kinds of people, including National Cash Register in the early days."

Links

Sam Altman sits down with Mark Zuckerberg to talk about how to build the future (video) (LINK)

Farnam Street Mental Model: Multiplicative Systems (LINK)

Investing and Valuation Lessons from the Renaissance - by Aswath Damodaran (LINK)

Grant's Interest Rate Observer - Interview with Murray Stahl (LINK)

Research Perspective: Generals and Specials (LINK)

The Perfect Pitch - by Ian Cassel (LINK)

Economic Slump Sends Big Ships to Scrap Heap (LINK) [While I don't have any insight as to when the industry may turn, it seems that the shipping industry may be worth paying close attention to these days from a capital cycle point of view.]

In the past, recycling a ship has typically generated about one-quarter of the price of a new vessel of the same type and size. But owners say a sharp drop in the price of steel has cut the rate of return to an average of 10% to 15% of the price of a new ship. 

Two years ago, in India, Pakistan and Bangladesh were paying about $460 a ton of steel. Last year it was $300 and it is now roughly $250, shipowners say. Officials at the Alang scrapyard—one of the world’s biggest, on India’s West Coast—said prices were likely to stay low through the rest of the year, as China is flooding the market with recycled steel. 

Braemar ACM expects about 550 dry-bulk ships to be recycled this year, 29% more than last year and 48% more than in 2014. About 170 container ships are likely to be scrapped this year, compared with 85 last year and 164 in 2014. The scrapping of other ship types, such tankers, car carriers, general cargo ships and fishing boats, bring the year’s total to about 1,000 vessels.

Don’t blame Brexit – we’re long overdue a fall in London property prices -- by Merryn Somerset Webb (LINK)

The war Microsoft should have won [H/T @BenedictEvans] (LINK)

The Sports Linchpin - by Ben Thompson (LINK)

Scott Anderson on Charlie Rose discussing his most recent piece, “Fractured Lands: How the Arab World Came Apart” (video) (LINK)

Book of the day: Anglo Republic: Inside the bank that broke Ireland

Links

Michael Mauboussin talks with Barry Ritholtz on the MiB podcast (LINK)

Related books: HERE

25iq: A Dozen Ways Michael Bloomberg Thinks Like Charlie Munger (LINK)

Preferred Stock: This Crazy Market Warps Another Asset - by Jason Zweig (LINK)

In investing as in life, popularity has its price. 

Investors in preferred stocks may learn that lesson before long. With stocks hitting record highs in lockstep this week and bonds providing income you can’t find without a microscope, preferred stocks have been one of the trendiest investments around. But this market shows some signs of overheating.

Negative Rates for the People Arrive as German Bank Gives In [H/T Matt] (LINK)

When the European Central Bank introduced a negative interest rate on lenders’ deposits two years ago, few thought things would ever go this far. 

This week, a German cooperative savings bank in the Bavarian village of Gmund am Tegernsee -- population 5,767 -- said it’ll start charging retail customers to hold their cash. From September, for savings in excess of 100,000 euros ($111,710), the community’s Raiffeisen bank will take back 0.4 percent. That’s a direct pass through of the current level of the ECB’s negative deposit rate.

William Green talks to The Successful Pitch podcast (LINK)

Related book: The Great Minds of Investing

The Most Successful Investments Have Two Things in Common - by Chris Mayer (LINK)

Related book: Quality Investing: Owning the best companies for the long term

What managers misunderstand about shareholder value - by Alfred Rappaport [H/T @mjmauboussin] (LINK)

Related book: Creating Shareholder Value

Recode: We read that 10,000-word interview with Apple CEO Tim Cook so you don’t have to (LINK)

The Most Intolerant Wins: The Dictatorship of the Small Minority - by Nassim Nicholas Taleb (LINK)

The 10,000 Kidnapped Boys of Boko Haram (LINK)

The militant group has forced thousands to become child jihadists. As many escape, Nigeria wonders what to do with them.

Why Are Bananas So Cheap? (LINK)

Related books: 1) Banana: The Fate of the Fruit That Changed the World; 2) Bitter Fruit: The Story of the American Coup in Guatemala

First Americans May Have Arrived by Coastal, Not Inland, Route (LINK)

Beginners Guide to Stoicism (LINK)

Related previous post: Stoicism quotes, thoughts, and readings

Book of the day [also included as one of the choices in Audible's latest 2-for-1 sale]: Skunk Works: A Personal Memoir of My Years of Lockheed

Links

The Playbook Interview: Warren Buffett [H/T @RajeevThakkar] (LINK)

The Buffett/Munger Investment Checklist (LINK)

Related previous posts: 1) Key Checklist Items; 2) An Investing Principles Checklist from Poor Charlie; 3) Warren Buffett on growth and value...

Latticework of Mental Models: Deliberate Practice (LINK)

Related previous posts: 1)  Bill Gates on Expertise: 10,000 Hours and a Lifetime of Fanaticism; 2) How Do You Get to Carnegie Hall? Talent; 3) Seth Klarman quote and some thoughts on deliberate practice in investing

Related books: The first 5 listed HERE. 

Related quote: “Talent is the desire to practice. Right? It is that you love something so much that you are willing to make an enormous sacrifice and an enormous commitment to that, whatever it is -- task, game, sport, what have you.” -Malcolm Gladwell

Related to the above previous post on deliberate practice and investing, I was reminded [H/T @uncapwisdom] of the quote below from a 2007 Charlie Munger speech in Poor Charlie's Almanack (a video of that speech is HERE, and some notes are HERE) that is especially relevant to the topic:

"The skill that got Berkshire through one decade would not have sufficed to get it through the next decade, with comparable levels of achievement. Warren Buffett had to be a continuous-learning machine. The same requirement exists in lower walks of life. I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines. They go to bed every night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you."

The Eccentric Billionaire Who Ignores Investors to Get Them Rich [H/T Matt] (LINK)

The Brooklyn Investor blog: Scary Chart Part III: Missing the Trees for the Forest (LINK)

How one family is sending 13 kids to college, living debt free — and still plans to retire early [H/T @mercenaryjack] (LINK)

ORION. Holy Wow, Orion. (LINK)

Fractured Lands: How the Arab World Came Apart (LINK)

This is a story unlike any we have previously published. It is much longer than the typical New York Times Magazine feature story; in print, it occupies an entire issue. The product of some 18 months of reporting, it tells the story of the catastrophe that has fractured the Arab world since the invasion of Iraq 13 years ago, leading to the rise of ISIS and the global refugee crisis. The geography of this catastrophe is broad and its causes are many, but its consequences — war and uncertainty throughout the world — are familiar to us all. 

Gaining real knowledge...

The quotes below are from A Calendar of Wisdom:

"Knowledge is real knowledge only when it is acquired by the efforts of your intellect, not by memory." -Leo Tolstoy 

"Only when we forget what we were taught do we start to have real knowledge." -Henry David Thoreau 

"Read less, study less, but think more. Learn, both from your teachers and the books which you read, only those things which you really need and which you really want to know." -Leo Tolstoy

Links

1997 paper from Michael Mauboussin: "Thoughts on Valuation" [H/T @BrattleStCap] (LINK)

This underscores the important point that P/E multiples are not a determinant of value, but rather a function of value. On Wall Street, the typical valuation formula is EPS x P/E = value. We just talked about earnings and how they can be misleading. Now we go to this thing called the P/E multiple. We are asking the P/E multiple to reflect growth, capital intensity, risk, quality of management, and competitive advantage. We are heaping a lot of responsibility on one number and we argue that it is practically impossible to know what that right number is. So we try to break value down into components. We believe that value is determined by the present value of a stream of future cash flows, and the P/E falls out of that equation.

15 interviews to read this summer [H/T @FourFilters] (LINK)

This former EMC exec says Amazon ate his old business and it will never recover [H/T @chr1sa] (LINK)

The Brooklyn Investor blog: Scary Chart Part II (LINK)

Books recommended in post: 1) The Money Masters; 2) The New Money Masters

FPA Crescent Fund's Q2 Webcast (LINK)

Veteran Stockpicker Bill Miller Parts Ways With Legg Mason (LINK)

Veteran mutual-fund manager Bill Miller has reached a deal to buy out Legg Mason Inc.’s stake in the entity that houses his funds, formally severing ties with the firm where he built his fame and fortune. 

Mr. Miller is buying out Legg Mason’s 50% interest in LMM LLC, the entity that houses the funds he manages, including the Legg Mason Opportunity Trust and the Miller Income Opportunity Trust. Financial terms of the deal weren’t disclosed. Mr. Miller already owned the other 50% of LMM.

In praise of failure - by Benedict Evans (LINK)

Episode 09 of Malcolm Gladwell's Revisionist History podcast (LINK)

The Overview Effect - by Jonah Lehrer (LINK)

Why Self-Help Guru James Altucher Only Owns 15 Things [H/T Abnormal Returns] (LINK)

Links

Horizon Kinetics: Under the Hood - 5000 Years of Interest Rates (Part I) (LINK)

Whistleblowers Are Poised to Collect $100 Million (LINK)

After his warnings about Bernard Madoff’s Ponzi scheme went ignored for years, Harry Markopolos urged U.S. regulators to encourage tipsters. Now, the forensic accountant and a team he put together are in position to benefit from those new incentives. 

U.S. government settlements with State Street Corp. and Bank of New York Mellon Corp. could produce a windfall for three former employees who blew the whistle on the banks’ alleged mistreatment of foreign-currency-trading clients. Mr. Markopolos, who assembled the group and advised them, could reap a slice of any payouts awarded to the whistleblowers, according to people familiar with the matter.

Nassim Taleb Q&A with Yahoo Finance [H/T @valuewalk] (LINK)

Q&A with Ed Catmull (LINK)

One year later, Alphabet is a tale of two Googles (LINK)

John Irving Bloom: "Eccentric Orbits: The Iridium Story" | Talks at Google (LINK)

Related book: Eccentric Orbits: The Iridium Story 

Related article (linked to a couple of days ago): Iridium: story of a communications solution no one listened to

TED Talk - Martin Reeves: How to build a business that lasts 100 years (LINK)

Tony Robbins with another appearance on Tim Ferriss' podcast (LINK)

Last year, I had linked to a blog post from Leo Babauta after his friend Scott Dinsmore, creator of Live Your Legend, died after a rockfall occurred while he and his wife Chelsea were hiking Mount Kilimanjaro. National Geographic has an article up from a photographer that was also on the mountain that day, telling the heart-wrenching story: Tragedy on Kilimanjaro

Book of the day [H/T @AlexRubalcava]: American Colonies: The Settling of North America, Vol. 1

Links

Clayton Christensen: "Where does Growth come from?" | Talks at Google (LINK)

Related books: HERE

1970 article on Colonel Sanders and Kentucky Fried Chicken [H/T @uncapwisdom] (LINK)

Walmart and the Multichannel Trap - by Ben Thompson (LINK)

Dancing with an 8,000-Pound Cyborg: Navigating Amazon for E-Commerce Businesses [H/T @BrattleStCap] (LINK)

An Updated Version of the “Peak Oil” Story (LINK)

Chinese Traders Roil Commodity Markets (LINK)

The Seven-Year Short [H/T Santangel's Review] (LINK)

Mark Hart of Corriente Advisors has been betting that China’s currency will collapse. He’s not about to give up now.

Books:

Today's Audible Daily Deal ($3.95) looks interesting: The 4 Percent Universe: Dark Matter, Dark Energy, and the Race to Discover the Rest of Reality

Released today: I Contain Multitudes: The Microbes Within Us and a Grander View of Life

Released next week (an expanded edition of George Cooper's previous book): Fixing Economics: The story of how the dismal science was broken - and how it could be rebuilt

Leo Tolstoy quote

From A Calendar of Wisdom:

“The difference between real material poison and intellectual poison is that most material poison is disgusting to the taste, but intellectual poison, which takes the form of cheap newspapers or bad books, can unfortunately sometimes be attractive.” ―Leo Tolstoy

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

Related links:

Stop Reading the News

Avoid News - By Rolf Dobelli

Avoid News: FAQs - By Rolf Dobelli

Links

The Latticework blog has posted some excerpts from the Boyles Q2 letter, where we discussed Brexit as well as our new Greek holding.

Mental Model: Bias from Envy and Jealousy (LINK)

The Insurance Industry Has Been Turned Upside Down by Catastrophe Bonds (LINK)

Without Freddie and Fannie, could 30-year mortgage be a thing of the past? [H/T ValueWalk] (LINK)

Miamian Bruce Berkowitz has taken on a fight few would dare: He’s suing Uncle Sam. 

Berkowitz — whose mutual fund Fairholme Fund owns 14 percent of Fannie Mae and Freddie Mac preferred stock — is among a group of investors suing the U.S. government over the two government-backed mortgage insurance giants. They claim the U.S. Treasury Department illegally confiscated the companies’ earnings after their bailout, gutting the firms when it was supposed to rehabilitate them and setting a dangerous precedent for shareholders’ rights.

Mark Zuckerberg on the next 10 years of Facebook [H/T Barry Ritholtz] (LINK)

Jim Koch: "Quench Your Own Thirst" | Talks at Google (LINK)

Related book: Quench Your Own Thirst

Barry Ritholtz interviews Daniel Kahneman (podcast) (LINK)

Related book: Thinking, Fast and Slow

TED Talk - Anthony Goldbloom: The jobs we'll lose to machines — and the ones we won't (LINK)

Iridium: story of a communications solution no one listened to (LINK)

Related book: Eccentric Orbits: The Iridium Story

New Hardcore History podcast: Episode 58 – Kings of Kings III (LINK)

Long on Epictetus (Part 1, Part 2)

Related book: Epictetus: A Stoic and Socratic Guide to Life

Links

The latest from Michael Mauboussin et al. - Thirty Years: Reflections on the Ten Attributes of Great Investors (LINK)

A good complement to the above might be a reading (or re-reading) of James Montier's 2011 piece "The Seven Immutable Laws of Investing" (LINK)

How the Hunt Brothers Cornered the Silver Market and Then Lost it All (LINK)

Latticework of Mental Models: Antifragility (LINK)

Related book: Antifragile: Things That Gain from Disorder

Links

Seth Klarman slams Trump, vows to work for Clinton (LINK) [Speaking of Klarman, it may be an interesting time to go back and review his real-time thoughts on the financial crisis back in 2008 and 2009, via THIS video from March 2009 and via THESE comments at the Graham & Dodd Breakfast in early October 2008. The Breakfast comments are from an OID sample and it appears there is more not included in this sample. So if anyone has the whole thing, I'd be greatly appreciative if you wouldn't mind passing it along. Thanks.]

Jet.com Eyes an Exit Short of Its Audacious Goal (LINK)

Jet.com Inc. told investors last summer that the company would be worth $40 billion in five years. 

Now the e-commerce startup that had aspired to rival Amazon.com Inc. is in talks to sell itself to Wal-Mart Stores Inc. for far less, the latest sign that Jet couldn’t live up to founder Marc Lore’s grandest ambitions.

Episode 08 of Malcolm Gladwell's Revisionist History podcast (LINK)

Book of the day: Value Creation Thinking

I just received the book Inside the Investments of Warren Buffett: Twenty Cases in the mail and am looking forward to reading it. Especially after seeing the excerpt from @HurriCap on Twitter that is pasted below. It touches on two pet peeves of mine when it comes to investment commentary: 1) Simply defining a good business as one with a high return on capital, without regard to whether or not reinvestment is also occurring at a high rate of return; and 2) Missing the forest for the trees. Now, from the book: 

When it comes to compounders and current earnings (which many investors will devote disproportionate time to calculate precisely to the nth degree), the argument is even more straightforward. Determining current earnings is important; it gives an investor a sense of what the valuation of the business is. And understanding the return on capital of a business is important as well; without a return on capital that is significantly higher than the cost of capital, a business cannot compound. However, the true value of a business is the aggregate of its future earnings. It does not matter so much if an investor gets current earnings exactly right at $80 or $82 or $79—it matters much more if the future earnings in five years are around $700 or $15 or $3000. Similarly, while having a high return on capital is one requirement for compounding, if the future prospects of a company are unclear, then having a high return on capital is clearly insufficient. A business that has a wonderful 50 percent return on capital employed but that grows its revenues or earnings zero percent has exactly zero benefit from its high return on capital compared to a company with lessor returns, since it will not be able to reinvest its earnings into growing the business.  

Given this, I now believe that rather than spending 80 percent of one's research time determining with extreme accuracy what current earnings in the last year were or establishing a precise return on capital for a business, one should spend significantly more time looking for businesses with great consistency in earnings growth and finding quality data that support a clear rationale why this growth is occurring. One should not fall victim to the phenomenon of being precise but wrong.

That excerpt also reminded me of a few more of my favorite quotes:

"There's no use running if you're on the wrong road." -Warren Buffett 

"We use a lot of experience and do it [investment returns] in our heads. We don’t like complexity and we distrust other systems and think it many times leads to false confidence. The harder you work, the more confidence you get. But you may be working hard on something that is false. We’re so afraid of that process so we don’t do it." -Charlie Munger 

"Considering the downside is the single most important thing an investor must do. This task must be dealt with before any consideration can be made for gains. The problem is that people nowadays think they’re pretty smart because they can do something quite rapidly. You can make the horse gallop. But are you on the right path? Can you see where you’re going?" -Irving Kahn

Links

Warren Buffett Made a Big Bet On an 'In-Your-Face' CEO (LINK)

a16z Podcast: Not all Network Effects Are Created Equal (LINK)

The Worst ETFs You Can Own - by Ben Carlson (LINK)

Bill Gross' August 2016 Investment Outlook  (LINK)

Fossil fuels have had an aeon’s head start - by Tim Harford (LINK)

The Audacity of Copying Well - by Ben Thompson (LINK)

Naval Ravikant on the Venture Studio podcast (Part 1, Part 2)

Scholars Talk Writing: Steven Pinker (LINK)

What Babies Know About Physics and Foreign Languages [H/T @AdamMGrant] (LINK)

Tim Ferriss: "How to Cage the Monkey Mind" | Talks at Google [H/T ValueWalk] (LINK)

Seth Godin answers some questions for Tim Ferriss' podcast (LINK)

A Guide to NOT Speed Reading - by Ryan Holiday (LINK)

Links

Warren Buffett Endorses Hillary Clinton in Omaha (Full Speech) (video) (LINK)

Microcap Activism is a Hard Road to Travel - by Jeff Gramm (LINK)

Related book: Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism

The Activist and Herbalife: Just Maybe Ackman’s Right - by Andrew Ross Sorkin (LINK)

Theranos Makes Case to Laboratory Experts (LINK)

Horizon Asia Opportunity: Q2 2016 Commentary (LINK)

The Brooklyn Investor blog with some scary (and not-so scary) charts (LINK)

Peter Thiel on the Characteristics of Monopoly (LINK)

Related book: Zero to One

Button Salesman Discovers Most of Life on Earth: True Story (LINK)

Related books: 1) I Contain Multitudes: The Microbes Within Us and a Grander View of Life; 2) The Upright Thinkers: The Human Journey from Living in Trees to Understanding the Cosmos

How the DNA Revolution Is Changing Us (LINK)