“Admittedly, drilling rigs, grain terminals, polyethylene and beer do not sound as seductive as a Mark Rothko painting, a Hampton’s beachfront property or a Chinese solar stock, but I believe through our purchases this quarter they ought to represent the seeds of healthy future harvests for the Fund.”
Saturday, June 30, 2007
Friday, June 29, 2007
Seth Klarman: Raising Funds for Charity
With Seth Klarman as a co-chair...
More on Combined Jewish Philanthropies:
“This is the greatest campaign in Boston’s history,” said CJP President Barry Shrage in his remarks at the event, which was held at the Museum of Science. This year’s campaign broke fundraising records...
...Dr. Nathan Birnbaum of Newton, whose stint as a CJP campaigner is now reaching the 35-year mark, said that he has witnessed a significant increase in commitment over the last few years. “This year, nearly every single person I approached increased their donation,” Birnbaum said.
More on Combined Jewish Philanthropies:
Combined Jewish Philanthropies is the country's oldest Federated Jewish philanthropy. Our history shows the growth of the Boston Jewish community and the many ways in which we have come together over generations to take care of people in need, both here in Boston and around the world.
Thursday, June 28, 2007
Reuters UK: Bloomsbury looks to Buffett for bestseller
Bloomsbury Chairman Nigel Newton told Reuters in an interview the company secured in the last few days the rights to publish "The Snowball," a book on the U.S. billionaire investor being written by Alice Schroeder.
"Our expectation is that it could become the No.1 bestseller in the UK and Australia because you get Buffett's condensed wisdom on investing," Newton said.
He added that the book was not a biography but based on extensive conversations with the so-called Sage of Omaha.
The book on the legendary Omaha investor is scheduled to be published in early May, 2008, during the weekend of the annual shareholders' meeting held by Berkshire Hathaway Inc. that Buffett chairs.
"Our expectation is that it could become the No.1 bestseller in the UK and Australia because you get Buffett's condensed wisdom on investing," Newton said.
He added that the book was not a biography but based on extensive conversations with the so-called Sage of Omaha.
The book on the legendary Omaha investor is scheduled to be published in early May, 2008, during the weekend of the annual shareholders' meeting held by Berkshire Hathaway Inc. that Buffett chairs.
Full Story
And, an interesting take from Financial Times - relayed courtesy of Lincoln Minor:
One parallel between Mr Buffett, 76, and Master Potter, 17, could serve as a morbid marketing peg: in each case, fans are obsessed with their hero’s mortality. But having paid “a significant sum” for most of the rights outside the US, Bloomsbury’s Mr Newton will have to work hard to sell the book to non-American readers, who are generally less familiar with the sage of Omaha.
Wednesday, June 27, 2007
TimesOnline: Buffett blasts system that lets him pay less tax than secretary
Mr. Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.
Value vs. Glamour
Research from Brandes Institute found that value stocks outperformce remained substantial, even when the study's samples was adjusted to include Nasdaq stocks and exclude micro caps. For example, annualized five-year returns for the lowest price-to-book (value) stocks in Nasdaq-inclusinve, cap-screened sample averaged 17.9% over the 1968 to 2006 period, while returns for the highest price-to-book (glamour) stocks average 10.45.
Source: GuruFocus
Tuesday, June 26, 2007
Consortium Including Berkshire Hathaway Drops Multi-Billion-Dollar Bid
This is surprising, since Warren Buffett said at the Berkshire AGM that they were not looking to partner on any deals. Market participants pegged the deal in the $4 to $5.5 billion range.
General Motors’ Allison Transmission business is said to have received its highest bid from the private equity consortium consisting of Carlyle Group and Onex Corporation, according to sources tracking the auction.
...Various private equity consortia were in the running for Allison, both sources said. A tandem of Greenbriar Equity, Clayton Dubilier & Rice, and Berkshire Hathaway dropped out of the bidding, leaving the winners as Carlyle and Onex, they said.
...Allison’s price-tag, according to the banker, would likely surpass 10x EBITDA. This news service previously reported that Allison’s projected 2007 EBITDA was roughly USD 550m, and that a source without direct knowledge of Carlyle’s bid said it was his understanding the firm had bid around 10x EBITDA.
However, a market investor said he heard the unit might get sold for USD 4bn implying a 7.2X valuation on its projected FY07 EBITDA of USD 550m.
Hedonic Treadmill
What role does progress and adaptation play in our pursuit towards happiness? This is one of the important questions discussed in the following articles.
Daniel Kahneman - Toward a Science of Wellbeing:
Daniel Gilbert - The Science of Happiness:
Daniel Kahneman - Toward a Science of Wellbeing:
The very famous paper by Brickman and Campbell, they call this the Hedonic Treadmill and the idea is that you are marching on that treadmill, you keep progressing but you’re not getting anywhere, that was their idea, rather pessimistic idea of what economic progress is likely to do for us. That is we’re not getting anywhere because we’re adapting to things as they are improving.
Daniel Gilbert - The Science of Happiness:
We are often quite poor at predicting what will make us happy in the future for two reasons. First, we have been given a lot of disinformation about happiness by two sources: Genes and culture. Both genes and cultures are self-perpetuating entities that need us to do things for them so that they can survive. Because we are interested in our own happiness and not theirs, both entities fool us into believing that's what is good for them is also good for us.
Graham: "In the short run, the market is a voting machine..."
As Benjamin Graham explained in The Intelligent Investor:
In the short-run, the market is a voting machine;
In the long-run, the market is a weighing machine.
...seems like the short-term voting of Mr. Market has started before the market exchange has even opened!
See also:
In the short-run, the market is a voting machine;
In the long-run, the market is a weighing machine.
Will iPhone live up to the expectations of today’s tech-savvy consumers? Here’s what BetUS.com is betting:
Apple’s stock jumps at least 10% in value in regards to the price on 6/30/07 --- 1:2 Odds (!)
...seems like the short-term voting of Mr. Market has started before the market exchange has even opened!
See also:
- Charles MacKay's Extraordinary Popular Delusions and the Madness of Crowds
- James Surowiecki's The Wisdom of Crowds
Monday, June 25, 2007
Bloomberg TV: Buffett suggests wealthy "making big plans" for charity
Warren Buffett appeared today on In Focus with Brian Sullivan:
Buffett told Bloomberg Television that the wealthy are "making big plans" for philanthropy. The billionaire investor who pledged most of his fortune to charity last year, predicted the world will become increasingly philanthropic as the wealthy donate more of their assets. "I have heard from a lot of people since last year that are making big plans," Buffett said in the noon interview today.
Helzberg Diamonds: Recognizing Honesty.
From Forbes via The Associated Press:
Warren Buffett wants management who is "honest and able" - seems like the Helzberg team recognizes such virtues in others, as well:
Story was even reported in the Israel Diamond Industry Portal
"They could have just told me, 'Thank you,' and walked away," he said, "so I truly appreciate this."
Warren Buffett wants management who is "honest and able" - seems like the Helzberg team recognizes such virtues in others, as well:
“Robert Lewis is a hometown hero,” Helzberg CEO Marvin Beasley said as he handed the check to Lewis.
Helzberg also donated $5,000 to Jackson County Court Appointed Special Advocates in Lewis’ honor. The agency provides support for abused and neglected children.
Lewis, 36, was driving home after working a 17-hour day at his two jobs on June 11 when he discovered the bag at Paris Street and Brasilia Avenue.
The jewelry had been picked up earlier that day by a Brinks Inc. armored vehicle for delivery to the New York area.
Officials don’t know how the bag ended up in the road.
Lewis said Brinks has contacted him and told him the company would match the reward with another $10,000. A Brinks official confirmed the reward Tuesday.
Amid a throng of television news cameras, the soft-spoken Lewis said Tuesday that he will buy a laptop computer and a ceiling fan for his Northland condominium with some of the money and that his wife will put the rest in their savings account.
Lewis said the attention he has received for his actions has been “kind of crazy,” but said he would never think twice about whether he did the right thing.
“That jewelry belonged to someone,” he said. “Even if it belonged to some big corporation, it still wouldn’t be right. Someone who is about to get married could have been left waiting to get their ring.”
Story was even reported in the Israel Diamond Industry Portal
The Patel Story: From Rags to Riches
Stanley Turkel, guest columnist at Hotel Interactive, explains the amazing story of the Patels:
While some of us were sleeping, a remarkable revolution has taken place. In the past 25 years, members of the Asian American Hotel Owners Association (AAHOA) acquired more than 20,000 hotels with more than one million rooms. This represents more than 50 percent of the economy lodging properties in the U.S. and 40 percent of all hotel properties including many upscale hotels. If you bear in mind that Indian Americans constitute less than one percent of America's population, the achievement appears extraordinary. The market value of these hotels totals about $40 billion. It is estimated that the hotels employ almost 800,000 people and annually pay some $700 million in real estate taxes annually. Incidentally, there may be an additional 4,000 hotels owned by Indian Americans who are not AAHOA members.
How did this happen under our noses?
Sunday, June 24, 2007
Video: Columbia Business School Professor Bruce Greenwald
Interestingly, Greenwald discusses two of the three positions currently held by fellow Columbia Professor Joel Greenblatt, and he pans one of them! We'd love to see the lively discussions they must have in the halls of academe.
June 15 (Bloomberg) -- Bruce Greenwald, a professor of finance and asset management at Columbia Business School, talks with Bloomberg's Brian Sullivan in New York about growth versus value stocks, and his evaluation of American Express Co., Wal-Mart Stores Inc. and Gannett Co.
Mr. Sandwich says stock punter's beware
It's wishful thinking to believe you can be a millionaire speculating in stocks," Sirivat told Reuters in an interview. "You will end up bankrupt like me."
Sirivat, known in Thailand as "Mr. Sandwich", was a classic riches-to-rags story in 1997 when Thailand's crash wiped out his estimated $8.7 million assets and threw him onto the streets where he began selling sandwiches to survive.
Sirivat, now wary of relying on bank loans to speed up his business growth, said he cannot afford to make another mistake.
Friday, June 22, 2007
Value Line Raises Its Cash Position
For the first time since February 2005, Value Line Inc. (VALU) has altered its recommended stock allocation in equity-oriented portfolios. Since that date more than two years ago, Value Line's recommended asset allocation has unwaveringly been to be 80% invested in equities. As of Thursday, however, the firm reduced that recommended allocation to 75%.
Thursday, June 21, 2007
Amar Bhide on "Influence: The Psychology of Persuasion"
To quote Amar Bhide:
“Most entrepreneurs don’t start with breakthrough ideas. They have to persuade others that their slightly better idea is worth taking a chance on. Robert B. Cialdini’s brilliant exposition of the theory and practice of persuasion in Influence: The Psychology of Persuasion is aimed at protecting gullible consumers. But I think it has terrific insights for entrepreneurs who want to persuade.”
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And, in the words of USC Clinical Entrepreneurship Professor Thomas O’Malia:
“Companies that are innovators have to educate people of the benefit that will come. The Innovator’s Dilemma: The Revolutionary Book that Will Change the Way You Do Business by Clayton M. Christensen and The Innovators’ Solution: Creating and Sustaining Successful Growth by Christensen and Michael E. Raynor do a better job than any other books around on recognizing the challenges in educating the market about something new.”
Evolution at Work: Watching Bacteria Grow Drug Resistant
Every time the patient took his medicine, the antibiotics killed the weakest bacteria in his bloodstream. Any cell that had developed a protective mutation to defend itself against the drug survived, passing on its special trait to descendants. With every round of treatment, the cells refined their defenses through the trial and error of survival. "It means that during a normal course of treatment there is an evolutionary revolution going on in your body," said Stanford University biologist Stephen Plaumbi, author of "The Evolution Explosion: How Humans Cause Rapid Evolutionary Change."
"When you talk about the evolution of an arm or an eye or a species, you might be talking about millions of years. You can get bacteria resistant in a week," Dr. Mwangi said.
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To be a successful investor, one must "evolve" like the bacteria.
As Charlie Munger said during 2007 Berkshire Shareholder Meeting:"I would argue that it started with a young man reading everything when he was 10 years old, becoming a learning machine. He started this long run early. Had he not been learning all this time, our record would be a mere shadow of what it is. And he’s actually improved since he passed the age at which most other people retire."
Wednesday, June 20, 2007
What we can learn from Phil Fisher
Philip Fisher was interviewed in Forbes just before its October 19, 1987, publication date (otherwise known as Black Monday).
Fisher on his perception of the pre-crash market:
Rarely interviewed, he sat for a long chat with FORBES. He is one of the seminal figures of modern investment thinking--one of the first, if not the first, to develop the thesis that growth stocks have identifiable characteristics that make them different from ordinary stocks...Warren Buffett, perhaps the most successful investor of the present era, calls Fisher a 'giant.'
Fisher on his perception of the pre-crash market:
I see new issues of companies that don't look all that outstanding coming at maybe five and six times sales, and things that look totally prosaic coming at three and four times sales. I think this is always the sign of potential danger. I am not calling doom within the next month. I just don't know. But it's a time to be cautious.
...Timing these things is so damnably difficult. I don't want to be the smart guy with too much cash because I think a big break is coming. Nor do I want, once it comes, to spend too long getting myself ready. When you're not sure, you hedge. Very roughly, I have between 65% and 68% in the four stocks I really like, between 20% and 25% in cash and equivalents, and the balance in the five stocks that are in the grooming stage.
Fisher on what he looked for in a core stock:
They are all low-cost producers; they are all either world leaders in their fields or can fully measure up to another of my yardsticks, the Japanese competition. They all now have promising new products, and they all have managements of above-average capabilities by a wide margin.
...When I have to argue strongly with [clients] to like something, and they say, 'Well, all right, if you say so, we'll do it,' I'm much more apt to be right than when, as sometimes happens, I say, 'Let's buy 10,000 shares,' and they say, 'Why don't we buy 50,000?' That's usually a warning signal that it's too late to buy.
Rakesh Jhunjhunwala: An Indian Warren Buffett
An excellent compilation of materials on Rakesh Jhunjhunwala, generously shared by Toughiee
And, an equally impressive collection of materials about Warren Buffett, from the same friend.
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And, an equally impressive collection of materials about Warren Buffett, from the same friend.
Full archive
If you haven't yet read "The World is Flat" - no need. This is the power of the Internet and Globalization at it's best:
Toughiee is in India.
I'm in The United States.
...And there are readers of this site in Sweden, Greece, El Salvador, Honduras, Portugal, and Malaysia (!)
Toughiee is in India.
I'm in The United States.
...And there are readers of this site in Sweden, Greece, El Salvador, Honduras, Portugal, and Malaysia (!)
Tuesday, June 19, 2007
Most Respected CEOs: Triangulating Various Sources of Data
Straight from the 1980 Berkshire Hathaway Letter to Shareholders:
There's no shortage of "Top CEO" lists; some of the more interesting reports come from DeMarche Associates and Barron's:
We have written in past reports about the disappointments that usually result from purchase and operation of “turnaround” businesses. Literally hundreds of turnaround possibilities in dozens of industries have been described to us over the years and, either as participants or as observers, we have tracked performance against expectations. Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.
Based on proprietary research and analysis of each company's fundamentals, these 100 organizations are recognized as the best companies - categorized by industry - for achieving regular performance within the top three percent of all major U.S. corporations. This status also recognizes the highly successful management of growth and risk factors, as measured by DeMarche's exclusive migration technique to attain consistency in fundamental shareholder value.
Six companies have been recognized in the "Top 100" each of the program's four years. Those companies are: Anheuser-Busch Inc., Johnson & Johnson, Landstar System Inc., SEI Investments Co., Walgreen Co., and Wal-Mart Stores.
... Taking a listing of 6,000 companies and narrowing it to Anheuser-Busch, Johnson & Johnson, Walgreen, and Wal-Mart - sounds familiar...
There's no shortage of "Top CEO" lists; some of the more interesting reports come from DeMarche Associates and Barron's:
Overland Park-based DeMarche Associates, an investment research and financial consulting firm, said in a release that it named 163 CEOs as the nation's best from a field of 6,700. The honorees generated the most shareholder value per unit of CEO compensation in the past three years.
We're taking a cut at the CEO debate for the second straight year by identifying 30 top corporate leaders from around the world. Our list includes 20 from the U.S. and 10 from abroad. Call it a Barron's Hall of Fame.
GEICO's Cavemen: Soon-to-be a standalone TV Show
America's Most-Loved Spokescreatures (June 18, 2007)
ABC's ‘Cavemen’: Cro-Mags, Julie White, and Wild Neanderthal Sex (May 23, 2007)
In a Cluttered Mediaverse, Some Ads Stand Out (May 22, 2007)
Geico's prehistoric pitchmen have taken over the ad world, and they've made it look so easy that even a caveman could do it.
Now the characters, created by the Richmond, Va.-based Martin Agency, will make the leap from advertising to entertainment when they debut this fall on Cavemen, ABC's aptly titled sitcom. But whether the prime-time gig will prove advantageous for the Berkshire Hathaway brand will depend on both the direction of the story and the success of the show.
ABC's ‘Cavemen’: Cro-Mags, Julie White, and Wild Neanderthal Sex (May 23, 2007)
The pitch: Do you find the Geico Cavemen funny in 30-second installments? Well, then, it stands to reason that 22 minutes of the Geico Cavemen would be 44 times as funny!
In a Cluttered Mediaverse, Some Ads Stand Out (May 22, 2007)
"Every once in a while, a client will come along and say, 'I don't want to be like everybody else,' and that too is a wise decision," Sullivan says.
The Geico cavemen are a good example. Steve Bassett is a creative director with The Martin Agency, which produces Geico's ads. He calls commercials for most car-insurance companies "kind of dark and scary." So copywriters at The Martin Agency decided to use humor. The ads were first used to sell consumers on the idea of using Geico's new Web site.
"Geico wanted people to know that Geico.com was easy to use," Bassett explains. "Our copywriters started thinking, 'If it's so easy to use, somebody really dumb can use it. So who's dumb who we can use and not get in trouble?' Well, historically, cavemen are dumb."
Then, Bassett says, the writers "took it to another level," and a quirky campaign was born, built around the amusing, post-modern idea that Geico did get in trouble for making fun of cavemen—because a few cavemen who were still around were offended. Three years later, Geico's cavemen are so popular that they'll soon star in their own half-hour ABC sitcom.
Sunday, June 17, 2007
Magna cum corporate
Do your portfolio companies operate corporate universities? These days, they are increasingly being used to educate management and rank-and-file employees; to increase the corporate bottom line; and to hammer home or even change the corporate culture.
Across the country, corporate universities have increased by 25 percent to 2,000 in recent years. From McDonald’s’ Hamburger University to Motorola University, local corporate universities vary in scope but often can mimic traditional universities. They can feature campuses, hotels/dorms, graduation ceremonies, valedictorians, professors, deans and sometimes tough admission standards. Some corporate universities believe they can educate their students better than traditional universities.
...The hot classes at corporate universities include executive leadership, bookkeeping, machining, restaurant management, ethics and a quality control program called Six Sigma.
...When hedge fund billionaire Edward Lampert engineered Kmart’s takeover of Sears in 2004, he wanted to change the corporate culture so he began with Sears University. Classes include Sears’ nine organizational values, financial statements and "How to make money." Full-day classes called "Sowing the seeds of our culture" are taught to employees of Sears and Kmart at store sites.
Tragedy of the Commons
Charlie Munger advocates learning multiple models from various disciplines as an antidote to 'Man with a Hammer' tendency. A model from economics, which deserves a place in our reportoire of mental models, is 'Tragedy of the Commons.' This was introduced by Garrett Hardin and is sometimes also referred as 'Invisible Foot.'
The rebuttal to the invisible hand in population control is to be found in a scenario first sketched in a little-known Pamphlet in 1833 by a mathematical amateur named William Forster Lloyd (1794-1852). We may well call it "the tragedy of the commons," using the word "tragedy" as the philosopher Whitehead used it: "The essence of dramatic tragedy is not unhappiness. It resides in the solemnity of the remorseless working of things." He then goes on to say, "This inevitableness of destiny can only be illustrated in terms of human life by incidents which in fact involve unhappiness. For it is only by them that the futility of escape can be made evident in the drama."An Example: Pollution Problem
The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.
The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of "fouling our own nest," so long as we behave only as independent, rational, free enterprisers.
Saturday, June 16, 2007
An afternoon with Charlie Munger
Opportunity Cost
"There is this company in an emerging market that was presented to Warren. His response was, 'I don't feel more comfortable buying that than I do of adding to Wells Fargo.' He was using that as his opportunity cost. No one can tell me why I shouldn't buy more Wells Fargo. Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better."
When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions: (1) Do I understand the investment as well or better than one I already own? (2) Is the risk and reward profile of the investment superior to all other alternatives? If the answer is "no" to either questions, it is probably best to stay away.
Rationality
"Rationality is not just something you do so that you can make more money, it is a binding principle. Rationality is a really good idea. You must avoid the nonsense that is conventional in one's own time. It requires developing systems of thought that improve your batting average over time."
Munger is an evangelist for the virtues of rationality and his outstanding investment record is testimony to a lifetime of disciplined thought. To succeed as an investor, one has to make good decisions that are anchored in reality and free from emotional and cognitive distractions. At GrowthInvestor, we are searching for companies with significant market potential, rising demand, an economic moat, and growth-oriented management for purchase in the portfolio. This is not merely a checklist, but a research process focused on helping us make the most-rational decisions. If we make enough rational decisions, we will eventually have the returns to show for it.
Thursday, June 14, 2007
Buffett's (ad)ventures in commodities - and the implications under an inflationary period
With the recent commodities related speculation it's interesting to step back and re-explore Berkshire Hathaway's venture into the silver market.
How it started: "Mid-1997"
How it ended: "Mid-2007"
How it started: "Mid-1997"
In recent years, widely-published reports have shown that bullion inventories have fallen very materially, because of an excess of user-demand over mine production and reclamation. Therefore, last summer Mr. Buffett and Mr. Munger, Vice Chairman of Berkshire, concluded that equilibrium between supply and demand was only likely to be established by a somewhat higher price.
Direct link to Official Press Release, Dated February 3, 1998
How it ended: "Mid-2007"
Investing in Silver
Buffett:
I’m not sure who we sold our silver too, but whoever bought it was a lot smarter than I was. I bought it too early and sold it too early, but other than that it was a perfect investment. [Laughter] Charlie had nothing to do with it – it was all me.
Munger:
I think we demonstrated how much we know about silver. [Laughter]
Buffett:
When we bought it, we got a lot of letters about conspiracy theories of one sort or another. Silver responds to supply and demand, like any commodity, which is what determines its price (although the Hunt brothers changed that for a short while and regretted it).
Have you considered investing in metals to protect the company against inflation?
We would not necessarily view metals investing as protection against inflation. The best protection is your own earnings power, whether the currency is in seashells or paper money. A first-class surgeon or teacher will do alright in terms of commanding the earning power of other people. The second best protection is owning a wonderful business, not metals or raw materials or minerals.
The truth is, if you own Coca-Cola or Snickers bars or anything that people are going to want to give a portion of their current income to keep getting, and it has low capital-investment requirements, that’s the best investment you can possibly have in an inflationary world.
Nassim Nicholas Taleb Audio Interview & Transcript
On the Tavis Smiley TV show; original air date: June 12, 2007.
A former derivatives trader and researcher, Nassim Nicholas Taleb specializes in the risks of unpredicted rare events. His book, Fooled by Randomness, became a cult 'must read' on Wall Street and has been published in 19 languages. Taleb has a Ph.D. from the University of Paris and is the founder of Empirica LLC, a trading firm and risk research lab. On break as Dean's Professor in the Sciences of Uncertainty at the University of Massachusetts at Amherst, his latest book is The Black Swan....
Tavis: What do you hold fast? What do you have faith in? What do you believe in, given your profound belief in the black swan formulation, the notion of improbability?
Taleb: I believe that I don't understand the world myself, okay? But that I do best when I know that, because then I know what it is that I understand better.
Tavis: You know what you don't know.
Taleb: I know what I don't know, and most people focus on what they know, and I try to focus on what I don't know, and it requires mental effort. Along with it came this idea that we should resist making theories because this whole idea is not to be (unintelligible). Typically, we are the agents of our own troubles, because we tend to make theories, okay, when we should learn to withhold judgment. We should learn to say, "I don't know." That's my main idea.
Wednesday, June 13, 2007
A New Way to Listen to the Music: ROIC
Traditionally, guided by security analysts and the financial press, investors have focused on reported earnings as the single most important investment criteria in evaluating a corporation’s operating performance and investment merit. In recent years, an increasing number of academic scholars, analysts and investment managers have turned to free cash flow as a more accurate analytical tool to assess operating performance and to project future stock prices. We believe, however, that both of these measures have serious shortcomings as effective investment guides.
We instead propose that over an intermediate to long-term horizon an investor’s principal investment criteria should be value creation—more specifically, how much economic value is being and will be created from the funds currently and prospectively invested in and deployed by a company. We believe that the key driver of intermediate to long-term value creation is Return On Invested Capital (ROIC).
Source: Rick Konrad
Tuesday, June 12, 2007
International Diamond Exchange Evaluates Berkshire Hathaway's Jewelry Holdings
The jewelry industry is not on most investors’ lists of “Most Favored Industries”. Outsiders, including venture capital funds, private equity groups, and Wall Street analysts have difficulty understanding the industry. From a high level, its financials are not compelling. It is a closed industry, “veiled in secrecy”, as Lazare Kaplan chairman Maurice Tempelsman described it a few years ago...
Frankly, we were surprised that Buffett made an investment in jewelry suppliers. Traditionally, the profits are made at each end of the pipeline – mining and retail – with little profitability in the middle of the distribution pipeline. However, the financial return on capital invested can be handsome, if properly positioned and understood. Most banks don’t understand the returns, and Wall Street is still generally in the dark.
Monday, June 11, 2007
Fear vs. Greed: Berkshire Hathaway
Every few years someone writes an article questioning why Mr. Buffett isn't swinging for the fences, with the multi-billion dollar Berkshire portfolio:
Why isn't he swinging for the fences? Maybe...because he's still waiting waiting for a fat pitch before swinging.
In the past Buffett has said, "Wait for a fat pitch and then swing for the fences." Why isn't he doing that? Considering the investment possibilities Berkshire has, his recent investing record is one of bunts, not big swings. He has also said in the past "if you would not buy the whole company, why would you buy a single share"? Using his own logic, I have to ask, "Warren, if you are going to invest $160 million in Home Depot, why not $1 billion?" The theory still holds, if you would not buy 100 shares why buy one share and if you would buy one share, why not a hundred of them? An investment of 4% of his available cash is not "swinging for the fences."
Why isn't he swinging for the fences? Maybe...because he's still waiting waiting for a fat pitch before swinging.
Full Story
The full context of Mr. Buffett's "fat pitch" analogy, excerpted from the November 1, 1974 Forbes interview is particularly interesting:
It looks like this is a case-in-point of a "problem" Mr. Buffett predicted a few decades ago.
"I call investing the greatest business in the world," he says, "because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it."
But pity the pros at the investment institutions. They're the victims of impossible "performance" measurements. Says Buffett, continuing his baseball imagery, "It's like Babe Ruth at bat with 50,000 fans and the club owner yelling, 'Swing, you bum!' and some guy is trying to pitch him an intentional walk. They know if they don't take a swing at the next pitch, the guy will say, 'Turn in your uniform.'" Buffett claims he set up his partnership to avoid these pressures.
It looks like this is a case-in-point of a "problem" Mr. Buffett predicted a few decades ago.
Sunday, June 10, 2007
Saturday, June 9, 2007
Commencement Address at Harvard by Bill Gates
Text of the speech given by Microsoft chairman Bill Gates at Harvard University on June 7, 2007.
A call to action...
...humanity's greatest advances are not in its discoveries - but in how those discoveries are applied to reduce inequity. Whether through democracy, strong public education, quality health care, or broad economic opportunity - reducing inequity is the highest human achievement.
...If we can find approaches that meet the needs of the poor in ways that generate profits for business and votes for politicians, we will have found a sustainable way to reduce inequity in the world. This task is open-ended. It can never be finished. But a conscious effort to answer this challenge will change the world.
...and a blueprint for success
To turn caring into action, we need to see a problem, see a solution, and see the impact. But complexity blocks all three steps.
...Cutting through complexity to find a solution runs through four predictable stages: determine a goal, find the highest-leverage approach, discover the ideal technology for that approach, and in the meantime, make the smartest application of the technology that you already have - whether it's something sophisticated, like a drug, or something simpler, like a bed net.
Plus a little probabilistic humor to add some levity
Radcliffe was a great place to live. There were more women up there, and most of the guys were science-math types. That combination offered me the best odds, if you know what I mean. This is where I learned the sad lesson that improving your odds doesn't guarantee success.
Tuesday, June 5, 2007
Michael Lewis on the Fall of the Newspaper Business
There's still some intrinsic value left in this old dog, but it may not be monetary.
But the decline of the newspaper business is a lot more interesting than your ordinary industrial creative destruction because newspapers aren't ordinary investments. They're also status goods. People want to own them for reasons other than their discounted future cash flows.
Amazingly, even rich people occasionally need to believe that their lives have meaning. Even more amazingly, owning a newspaper is still seen as one way to achieve that belief. And so the right price to pay for a newspaper company is a bit like the right price for a sports team or a work of art: whatever some rich person is willing to pay. And as profits dwindle, that rich person is paying less and less for the cash flows, and more and more for the cachet.
Buffett Seeks Tips from Spain's Francisco Parames
Parames wrote Buffett three months ago to offer him a stock tip on a company outside Spain. Parames declined to disclose his reply, saying that Buffett may still act on it. In any event, Buffett, chairman of Berkshire Hathaway Inc., responded to the letter. Buffett confirmed through an assistant that he has corresponded with Parames.
"He actually answered me in a hand-written letter,'' says Parames. "He thanked me for the idea and also asked me a favor, if I could find very good private companies in Spain big enough for him to buy. So that's what I'm doing now.''
The Fisherman Story...
Readers of the Warren Buffett's Berkshire Hathaway shareholder letters surely can recall various "tap dance to work everyday" references, such as the conclusion to the 2004 report.
Over the years I've heard various permutations of the parable below. The last version I read was set in Italy. This version takes place in Mexico. Ultimately, all versions conclude with the same punchline. The recollection below is courtesy of Dah Hui Lau. Thanks, David!
Charlie and I are lucky. We have jobs that we love and are helped every day in a myriad of ways by talented and cheerful associates. No wonder we tap-dance to work.
Over the years I've heard various permutations of the parable below. The last version I read was set in Italy. This version takes place in Mexico. Ultimately, all versions conclude with the same punchline. The recollection below is courtesy of Dah Hui Lau. Thanks, David!
There was once an American businessman who was sitting by the beach in a small Mexican village. As he sat, he saw a Mexican fisherman rowing a small boat towards the shore and noticed that the fisherman has caught a quite number of big fishes that is known to be a delicacy.
The American was really impressed and ask the fisherman, "How long does it take you to catch so many fishes?"
The fisherman reply; "Oh, just a short while."
"Then why don't you stay longer at sea and you could catch even more?"
The businessman was astonished.
The fisherman simply does not agree, "This is enough to feed my whole family" he says.
The businessman then asked: "So, what do you do for the rest of the day then?"
The fisherman reply; "Well, I usually wake up early in the morning, go out to sea and catch a few fishes, then I would go back and play with my kids. In the afternoon, I will take a nap with my wife, and evening comes, I will join my buddies in the village for a drink, we played guitar, sing and dance throughout the night. My day was ever so complete and carefree."
The businessman does not agree with his way of life and offered a suggestion to the fisherman.
"I am a PhD holder graduated from Harvard University, specializes in business management. I could help you to become a more successful person.
From now on, you have to spend more time at sea and try to catch as many fishes as possible. And when you have saved enough money, you could buy a bigger boat and catch even more fishes. As you go on, you will be able to afford to buy more boats, recruit more fishermen and lead a team of your own. Soon you will be able to set-up your own company, your very own production plant for canned food and do direct selling to your distributors. At that time, you will have moved out of this village and to Mexico City, and then expand your operation to LA, and finally to New York City, where you can set-up your HQ to manage all your other branches."
The fisherman asks, "So, how long would that take?"
The businessman reply: "About 15 to 20 years."
The fisherman continued, "And after that?"
The businessman laugh heartily, "After that, you can live like a king in your own house, and when the time is right, you can go public and float your shares in the Stock Exchange, by then you will be rich, your income will be coming in by the millions!"
The fisherman ask, "And after that?"
The businessman says "After that, you can finally retire, you can move to a house by the fishing village, wake up early in the morning and catch a few fishes, then return home to play with the kids, have a nice afternoon nap with your wife, and when evening comes, you can join your buddies for a drink, play the guitar, sing and dance throughout the night! "
The fisherman was puzzled, "Isn't that what I am doing now?"
Sunday, June 3, 2007
Corporate Action Updates
A nice resource for those following or looking for Special Situations.
American Stock Transfer & Trust Company: Our clients often announce mergers, tender offers, exchanges or other corporate actions that affect the interests of shareholders. In many cases, the terms of the corporate action are very technical and/or confusing. We have designed this section to provide detailed information and instructions in a concise, plain-English format. Moreover, these pages provide access to copies of documents that may be applicable to these corporate actions (e.g., letters of transmittal, tax allocation documents, etc.)
Saturday, June 2, 2007
Joel Greenblatt Video: Columbia Reunion 2006
Joel Greenblatt spoke about magic formula investing and Gotham Capital's method of investing .
Source: Ray Lin
Friday, June 1, 2007
Capital Ideas Online: An Interview with MDI Professor Sanjay Bakshi
CapitalIdeasOnline.com shares an interview with Professor Sanjay Bakshi from MDI-Gurgaon.
And more...
It's a pleasure to meet you here in my office. We are meeting after more than four years and I remember very fondly what happened on the previous occasion! Indeed I still get fan mails from people about the talk I delivered at your invitation at the Oxford Bookstore in 2002. I don't talk to the media. I talk to my students in the classroom at MDI (six months in a year) and I frequently talk to some value-oriented friends. You are the only one whom I have met from the media in the last four years!
And more...
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