racemize

Maybe I'm not understanding, but if you are going to give away 100% anyway, does it matter if you compounded it all and then gave it away or gave away your whole life? Aren't we just choosing who benefits--people now or people later? Is there a big difference between now-people and later-people? I'm not sure I particularly care which time period of people I'm helping, but perhaps there is some reason for preference for now-people. I guess you could argue affecting people now is better since they can influence more people, but isn't that similar to the lost-compounding of money that you have given away? (In other words, does the helping of people now help more over the long term than waiting and giving more away? That seems very hard to answer, and would dramatically depend on what you were giving to.)

sorry, I meant by "pushing his book" more as pushing his viewpoint (I guess that is a local saying from where I'm from).

Anyone else think Hussman is really pushing his book a lot? He's either right or he's wrong and should act accordingly, why all the fuss? I guess it is all marketing? http://advisorperspectives.com/newsletters13/pdfs/Second-Level_Thinking.pdf

Well, speaking for me personally, I'm just not sure I care about the labels of what period we are in. When I attempted to answer this question, I had to go look up the definitions to determine what the question even meant, so I'm sure my answer is mostly useless. Or said another way, I think it could be either, and we will have to wait a while to find out. Given the 50-50 split, it seems clear that the answer isn't clear! Gio and I have already discussed this some, but, in my opinion, forecasts are only useful if 1) they are accurate and have been accurate repeatedly (most fail at this point) and 2) if you can actually act on them and outperform the market. I am unconvinced that these 10 year predictions fulfill 1) or 2) above. It would seem to me that you would have to skip entire decade periods to act on them--if you have a shorter period (i.e., you are unwilling to wait for 5-10 years in the sidelines, while inflation/opportunity cost eats away), then they do not seem useful. Has there been any studies where these long term predictors would have outperformed the market if you acted on them? e.g., where an investor only bought when the 10 year prediction was high and stayed out at other times? Perhaps there is. Let's take CAPE/Shiller PE--what level is the buy area? If it is below 15, then one wouldn't have been in stocks from 1987-current. Perhaps that will have been correct, but we have to recognize that that level of patience is pretty incredible and 2009 appears to only have touched 15 (perhaps because of data point averaging though). There were certainly bargains during that period (the easy answer and out). Saying all that yet another way--how do we use these predictions to outperform the market? This is a genuine question--if you have an answer, has it been verified with data? Moreover, with respect to corporate margins, both Buffett and Marks are somewhat ambivalent on this subject, so to me, that means it isn't as obvious as Hussman makes it out to be. e.g., consider Marks' response to the question where he indicates that it will come down when more capital is spent on growth, as opposed to the relentless focus on cost cutting. When that happens, the margin shrinkage would be offset with the results of the growth spending. This seems reasonable to me (and also why stock price growth probably won't be particularly high, since revenue gorwth may be offset with margin compression). Edit: here is a link to Shiller PE for readers: http://www.multpl.com/shiller-pe/

Look at the relative headwind coming from the US Treasury this year. They were injecting $1.3 trillion into the economy in 2011, and this year roughly 1/2 that much. On absolute terms, it's still a deficit. But I look at the relative change -- it has to be growing from year to year in order to be boosting the economy relative to the prior year, no? Instead, it's drastically shrinking which (relative to prior year) is a big punch in the gut. http://www.usgovernmentspending.com/federal_deficit_chart.html FY 2013: $680 billion FY 2012: $1,087 billion FY 2011: $1,300 billion FY 2010: $1,294 billion Note that it will start increasing again due to structural issues (at least according to CBO): http://www.calculatedriskblog.com/2013/08/update-shrinking-deficit.html

Congratulations! What's Keith's handle, if he doesn't mind?

wasn't the main issue that Sokol didn't disclose it? Also, Weschler has owned this for almost a decade in various vehicles, so it seems a bit different than front running.

anyone who wants to learn is also welcome. I know a fair amount of SAYC and am willing to teach (at least how I understand it).

My information is all public. You can find anything you need with Google. Since you may not be able to post it, I will (presuming I'm right): http://www.remickcapital.com/perf.html Out of curiosity, how are you allowed to post performance online? Is it because you are an advisor and not running a fund?

I'm on the side of the Kraven advice here (though perhaps not so bluntly!). If it is a move up, take it, and learn something new. If you like equities, keep doing it for yourself! Knowing another aspect to investing can't hurt and it isn't like corporate high yield debt isn't similar to analyzing equities.

I'm interested in the response to both this, and a related question, what's the AUM point where the fund will pay the bills as well, say a $100k salary? Well, this is mostly just a mathematical relationship. A good estimate of start up costs (in the US) is ~25k. Run-rate for very cheap fund (including Audit, Administrator, and whatnot) is 15-20k. So then multiply expected returns after those costs by fee structure and AUM and get your result!

There really does not appear to be much substance here, and I didn't find their last report all that convincing either. Perhaps one of our BAM experts would care to comment?

I have heard him say that there's no taste memory for soda (applied to KO) whereas there is taste memory for burgers (applied to MCD). Not sure how much that is really influencing the decision though.

I believe that section indicates that the previous structures were 1, 2, or 3, and that he was consolidating into the 6%/25% structure.

So, I guess we should look for value investors that haven't succeeded--anyone know of a good set to look at? I presume leverage will be one of the downfalls...

In Tap Dancing to Work, there is a quote: "Historians might do well to observe the parallels between [buffett's 1999 stock market] article and the warning Bernard Baruch famously gave in the 1920s" Does anyone know what this is? I couldn't find it, but it sounds interesting. TIA.

I wonder how much time it would take--selling for 2-3x pre-tax earnings seems pretty cheap (assuming his is pre-tax, never heard of "SDE").

Same thing has happened in Austin. I have an uncle that just invests in real estate and likely thinks he's a genius financially. In reality, he was just lucky to be living in this particular city...

I would expect that removing the owner operators from the S&P 500 isn't going to have a huge impact on the performance. Owner operators are - I think - just a small part of the S&P 500, and if they outperform on average 2.7% you have to figure that the average S&P performance is reduced by a percentage substantially less than 2.7%. Would love to see some to do the real math though, but not easy to get access to the right data. So there's a couple of interesting questions: 1) How much effect should we assume is happening from shifting from market cap to market cap float adjusted index returns? One answer, is that since 2005, there's has been a 1% effect (27% versus 28%), so it is not substantial. However, it may be larger in a different time period, e.g., because of the large correlation we have had over the recession and recovery. Overall, I get the impression that the change isn't good, but isn't devastating either. 2) How much would the returns be affected historically if the S&P 500 did not include the owner operators? We don't have a good answer for this, but they do state this (not terribly satisfying, however): "We have not performed the exercise of calculating the S&P as if those companies never existed but we are confident that the return would be dramatically lower than what it has been, and would not have been an attractive investment." There's an implication of perhaps 2% loss in returns, per annum here, I would assume. i.e., for it to become not attractive, it would need to be significantly less than ~9% returns. 7% is still decent, compared to bond yields say, so I wonder if they are implying more than that. That's a very large implication. I wonder if it has to do with the particular companies in the past, e.g., Wal Mart, MSFT, etc? versus the ones we have now? Generally, hard to reconcile.

I read this article a while back and found it pretty interesting. Has to do with how a teacher in Mexico changed the way he taught, with good success: http://www.wired.com/business/2013/10/free-thinkers/

I am in Texas, just outside of Houston. Believe me, this is a VERY low cost area. You can get nice houses for $150k. You can get big, very nice houses for $250K, and I'm talking with a pool. Not every teacher is well paid of course, but they are in a LOT of places. I know several teachers/admins back home in Michigan that are getting close to $80k, one of them WELL over $100k. Of course, these guys have a good amount of time & experience in. Tenured university professors generally are making WELL over $100k and are incredibly well paid. I know for a fact that teachers in North Carolina are paid less than the average... So of course, it depends somewhat on where you are at, but there are large areas of the country that compensate teachers, very, very well. Both of these states are not high cost areas. Well, my parents work in The Woodlands Area--are you sure about normal teachers starting at 50k and ending at 100k? That is way out of line from my experience, and I've been around a lot of teachers. Certainly Vice Principals or administrators can get to that range.

Teaching is not a respected profession in the USA? Teachers are not well paid in the USA? I live in a low cost of living area. The school district next to me is hiring kindergarten teachers. Teachers with NO experience get $54k to start. If they have a Masters degree, they get several thousand more. If they have various certifications/specialties, they get several thousand a year more on top of that. They get benefits that are simply not seen in most private sector jobs. Namely, they have 3 months off in the summer. They have Christmas break, and other various days off. They could theoretically retire in their mid 40's if they start teaching right after graduating college. I play poker with a vice principal who is going to be 45, and he is seriously considering retiring in a year. He will get a reduced pension (65%?), but the guy has 21 years in, and thus can take retirement.... What is the lesson plan for kindergarten? Don't bite anyone, don't soil yourself, and behave yourself? Perhaps it is more than that, but I can't see a kindergarten teacher doing heavy research at the library every weekend to come up with their lesson plan... These teachers also get raises at regular intervals and can wind up making $100k at the end of their career. I don't have any problem with somebody making a living, but these people are VERY well compensated for what they do. I think there is a popular misconception that teachers are very poorly paid. That simply is not the case in a lot of areas of the USA. Both of my parents are teachers, and they are retiring at 54k a year (with a lot of experience), and started at the 25-30k range, as I recall, so it seems like your numbers are very very high. Is it in CA or somewhere? I will say though, that teachers get truly excellent benefits--hard to imagine having summer's off and 65% of income at retirement. I wouldn't trade with them though.

Interesting post James. Since you are a long term holder, I'm curious how it affects your investment in FFH going forward--I presume you still hold? How do you think about its future, using this model?

Well, personally, I view individual outcomes as not that meaningful. If the actual probability (based on a many worlds/many possible outcomes universe) is 90-10, and the 10% outcome occurs, we cannot infer anything about the original probability was, we just have one data point. Thus, IMO, placing a greater weight on the actual outcome for a single event is logically flawed, unless there is a logical reason to believe in the process behind the result. You can begin to infer something about underlying probabilities when the same process consistently yields positive results, since you are effectively rolling the same dice, or flipping the same coin repeatedly, which let's you begin to have a statistically significant set of events to measure. If we only have two events for Bilgari, then I would be extremely cautious, particularly if the process had significant probabilities of failure, which seems like the case, given Sanjeev's comments above.

Thanks for the responses guys. I also got one from HK. Here's what they said, with attachments: Hi Joel, Thanks very much for your thoughtful email. Attached please find further information on our Wealth Index. If I may recommend a next step, I think you will find speaking with one of the co-portfolio managers on our Wealth Index useful in addressing your thoughts/questions. Please let me know if there is a particular time that would work best for you and I’d be happy to coordinate. In the interim, please feel free to give me a call should you have any questions or need any additional information. The Index Liquidity Riddle: More Is Less By JUSTIN LAHART You would think that the whole point of a stock index is to be, well, an index of the stock market's performance. But thanks to the popularity of exchange-traded funds, or ETFs, stock indexes have in recent years been doing double duty as investment vehicles. At the same time, there have been subtle but important changes in the way indexes are constructed. Bottom line: The indexes aren't measuring exactly what they used to. It is a lot easier to manage an ETF if the stocks that underlie it are easily traded. If, instead, the stocks are illiquid, there is a risk their prices will get artificially inflated when money flows into the ETF. The opposite can happen when money flows out. One step index providers have taken to bolster liquidity has been to move from capitalization-based indexes, where the weight of each member is determined by the value of its total shares outstanding, to float-adjusted indexes. In the latter, shares that are unavailable to the public (such as stock held by company directors) don't count toward a company's weighting. Britain's FTSE Group made the move to float-adjusted indexes in 2000, followed by MSCI in 2002 and Standard & Poor's in 2005. But while switching float adjustment may improve an index's liquidity profile, argue researchers at New York money manager Horizon Kinetics, it may also cut into its ability to generate returns. That is because many of the companies that have added oomph to indexes like the S&P 500 in the past did so at a time when a great many of the shares were held by insiders. For example, when Microsoft entered the S&P 500 in June 1994, the combined holdings of co-founders Bill Gates and Paul Allen, along with then-Vice President (and now chief executive) Steve Ballmer, represented about 40% of the company's shares outstanding. By the end of 1999, the three had whittled their stakes down to a still-substantial 22% of the company. From the end of 1994 to the end of 1999, Microsoft's market capitalization swelled from $35.5 billion to $604.4 billion, a gain of about 1,600%. That accounted for about one-sixteenth of the S&P 500's 267% increase in market capitalization over the period. If the S&P had been float-adjusted back then, Microsoft's weight would have been lower, and it wouldn't have helped lift the index as much as it did. It wasn't just Microsoft. Several S&P 500 companies with limited floats, including Wal-Mart Stores, Oracle and Gap, served up outsize gains in the 1990s. Indeed, Horizon Kinetics has constructed an index composed of companies whose wealthy insiders hold substantial stakes. This has beaten the S&P 500 by 2.7% annually on average over the past 20 years One reason could be simply that company founders hanging on to big chunks of their companies do so for a reason. So, by curtailing the S&P 500 weighting of companies whose executives have substantial skin in the game, Standard & Poor's may have also limited the index's future gains. David Blitzer, who heads S&P's index committee, points out that at the time the S&P 500 made the switch to float adjustment, most of the stocks in it had high floats. He said that under an informal rule dating back to at least the 1970s, stocks whose floats counted for less than half of their capitalization weren't included in the index. That said, while the S&P 500 has risen 26% since it completed its transition to float adjustment in 2005, it would be a percentage point higher if it was still a market-cap-weighted index. And this was a fallow period in the annals of corporate America. If the U.S. enters a more dynamic phase, and recently minted companies flourish again, the S&P 500 may leave gains on the table. The same is true for investors in ETFs and other funds that track the index. Owner_Op_Paper_March_2013.pdf Horizon_Kinetics_Wealth_Strategy_11052013_CALL.PDF