LongHaul

Cancer risk from drinking alcohol https://www.cancer.gov/about-cancer/causes-prevention/risk/alcohol/alcohol-fact-sheet

Guess how many people are estimated to die each year from Alcohol in the US: 88,000 https://www.cdc.gov/alcohol/fact-sheets/alcohol-use.htm Much more than I would have guessed. Pass the carbonated water

This is a great Question. At one point it looks like they had a great track record - IIRC in the 2014 annual letter ~18% CAGR in per share value for ~20 years. Then it all fell off a cliff. In the ~50 page annual letter it seemed to lack clear insight about the nature of the current operations. I did see that almost all the major listed businesses were losing money. They seemed like very risky startups with a lot of assumptions. New business ventures have a ton of risk as there are many assumptions. One example was the Blue Goose Organic beef. It looked like it was losing a ton of money. I have heard that established cattle ranches sell for .5% cap rates. Yes that is 1/2 of 1% as everyone wants to be a cowboy after the Westerns came out. So to go into a risky startup where the payoff might be .5% seems nuts. I did not take a deep dive but noticed a few things. 1. IIRC there were 400 people in the corporate office. What is the cost of that $50m per year? They are still spending $16m per year I believe - which is waaaaay too high. (I can lose money for a lot less!) 2. Many investments in risky startups. 3. Certainty of inflation so put money in gold and other "hedges" like natural resources. I thought this was faulty thinking as real estate or good businesses would likely be better inflation hedges if bought cheaply. 4. Perhaps they got luck in a long natural resource/gold boom and the bust was the unluck. I passed on investing because if the current CEO is focusing on Junior mining companies, I have read that is one of the riskiest areas to invest. Count me out. Not sure what the odds are Dundee is a 0 but it is a lot more than 0% with this mgmt team in place.

I like Klarman but very much disagree with him not putting more copies of his book out there or putting it on Kindle. If you write a book to share knowledge then publish it, let people have access to it. Perhaps he doesn't want the competition or just likes the book to be $2,500. Seems like an ego issue to me. Contrast that with Buffett, Munger and Graham who have been very generous with helping to educate people.

I wrote this up because I have been noticing an increase in companies cooking the books. Perhaps just a coincidence. And if auditors are taking millions in fees and not doing a key part of their job (finding fraud) then the auditors are like leeches to an extent. Auditors no doubt keep sleazy mgmt in line to some degree and that is worthwhile. The best solution I can think of is to have the SEC hire the auditors. That way the auditors would not have to answer to mgmt for their paycheck. Citizens don't pay police directly. Perhaps prorating fraud penalties for each auditors audit in a given year of fraud would help. Any other ideas? After Sox came out I noticed a lot less cooking the books so I think it was effective. Of course the stock bubble had burst and Enron and Worldcom shook people up. Arthur Anderson had failed, which may have jolted the other auditors. Anderson was particularly bad in my opinion and deserved to fail. If one wants to learn about fraud you need to learn about forensic accounting. What are all the ways mgmt can cook the books. If you were mgmt what are all the levers of this business you could use to pump up earnings? I would have young auditors look at 20+ case studies. Learn the patterns. There is the quantitative side and the qualitative side. And there are tons and tons of ways to cheat. Catching this stuff can be very hard at times. But Chanos and Hempton do it from the outside. The really good fraud spotters that I have seen are generally people who are a bit eccentric and non conformists. Not the type that fit well in big audit firms. And you have to care deeply enough and put in the time and effort (ie not be lazy) to figure out the puzzle. I give a lot of credit to people that out frauds at firms (like the internal auditors at Worldcom) etc and the public shorts. Perhaps my expectations are just too high though. Sometimes I can just skim the financial statements and pick off something as a high probability cooking the books or doesn't smell right. I am then surprised that other investors don't see it and get caught in these disasters. When I was in college I got caught in a few frauds and learned the hard way. Perhaps it is just reality that many humans are just gullible and auditors are only human.

https://www.wsj.com/articles/kpmg-was-key-witness-as-abraaj-unraveled-1530610201?mod=hp_lead_pos6 This is an example of KPMG's incompetence, etc. But as I get older I think back to how many frauds have been uncovered by the highly paid Auditors. And I literally can't think of one! Which is crazy because there are armies of auditors in these fraudulent companies spending a lot of time combing the books with detailed inside information and they still don't catch squat. I view the auditors as decent for lining up the debits and credits but utterly useless for catching fraud. If you are relying on big brand name audit firms to vet books of investments, you are making a huge mistake. You have to do this yourself. This is a quote from a Coso report on Fraudulent Financial reporting involving 347 alleged frauds (from 1998 - 2007). “Virtually all of the fraud firms received an unqualified opinion on the last set of fraudulently misstated financial statements.” Page 5 https://www.coso.org/Documents/COSO-Fraud-Study-2010-001.pdf Also Page 5: "The rate of auditor changes for fraud firms was double the rate of auditor changes for the similar set of no-fraud firms. Twenty-six percent of the fraud firms versus 12 percent of the no-fraud firms changed auditors between the period that the company issued the last clean financial statements and the period the company issued the last set of fraudulent financial statements. " So basically if the Auditors catch it they just leave. Someone asked Chanos who the auditor was on a company and he said "Who cares?" Perhaps I am harsh or perhaps not harsh enough but if you are paid to audit books then you should make sure they are clean and if not disclose what you found to the world. Auditors (read partners of the firms who are humans) lack courage and moral clarity. As I have gotten older the reputation on Auditors in my mind has gone into the toilet from a higher place. Such is human condition with tremendous incentives to keep quiet and not admit the fraud. Caveat Emptor

Audiobook: Icarus Syndrome by Peter Beinart A+ book in my opinion on why/how the US gets overconfident in going to war and then ended up losing. Fascinating history of the people, times, and historical context in how they are making the decisions. https://www.amazon.com/Icarus-Syndrome-History-American-Hubris/dp/0061456470/ref=sr_1_1?ie=UTF8&qid=1530545103&sr=8-1&keywords=icarus+syndrome

Interesting Question: I think you can separate out the 2 components. 1. The value of the business on an unlevered basis vs the price. 2. The benefit of below normal interest rates. If you pay 2x for a business but then save .2x for the next 5 years in low interest rates the purchase is still net negative -.8x, so it is a dumb deal probably. It is impossible to predict interest rates but the current period is the outlier for recorded history. Probably a dumb bond bubble. The CEO's probably just want to do deals and justify things on an accretive basis in the short term. But the overpaying and debt binges generally end badly. Investors generally don't know any better either and seem to encourage them. If the debt matures in 5 years and the world changes - lower prices, higher interest rates, cautious lenders they may even file for bankruptcy.

High probability WeWork's investors are totally insane. $35b for what - losses? No competitive advantage, likely long term leases and dependent on stupid VC funding bubble. Tesla is similar. Insane market cap for losses with Icarus at the helm. It is a totally insane time in so many areas. Irrationality rules and the craziest part is that people think this is now normal. It is like a blackhole of thinking.

Good article about David Tepper http://nymag.com/nymag/rss/business/68513/ He seems to do a lot well, independent, contrarian, huge brass balls (on his desk), distressed. I am curious how he has done so well and if anyone can elaborate on his investments. Looking through the 13-f's some of the stocks seem risky but we can't see international or debt.

Good article. Thanks for posting. The book sounds good too. Positive proof is difficult but there are patterns that we can learn from. There can be massive blowback when you tell someone negative things about their stocks.

If you are really hungry and creative you can get into the industry. I would highly recommend doing research reports. A hundred people seem to want to get in but not many actually are willing to the hard work to get in. Ideas are the currency of the industry so a great idea is worth a lot and high quality analysis that has insights can be rare. Also - take risks. Snail mail portfolio managers your ideas, call them, do other stuff to get your name out there - perhaps send your resume and idea on a pizza box. Network. These are all essentially no risk ideas that some people never do because of fear. But there is really no downside. I and a few others I know got jobs this way. It not easy, expect a lot of rejections, but you will also learn a ton along the way.

I think that was a fascinating comment by Munger and he will probably be right over time. The US may be the only large 1st world country without universal healthcare. If Single payer becomes a reality, the US govt will put the screws to a huge swath of the US healthcare system. Profits will be massively squeezed at tons of companies. Then what .. . Probably cheaper healthcare for everyone per capita but utilization up. I am very against socialized medicine of the European pricing type. For sure in the US there is a ton of waste but once you get low prices for all types of healthcare, innovation will plummet. With little incentive companies, investors and innovators, etc. wont make super important R&D investments and then a big part of the beneficial innovation of the US and world healthcare R&D system will be gutted. All types of innovations wont happen and end up killing and reducing healthspans vs what they would of been. A sad 2nd order effect.

How could someone have spotted Theranos as being a fraud prior to this becoming publicly known? One Idea I had was getting your blood tested by Theranos and actually watching the machine give the test results and comparing those results with proven test machines. I had read that investors got test results at Theranos (but out of sight and from other proven test machines) and not the Edison machines. Any other ideas?

Dude - you forgot about Taco Bell!

Very sorry to hear about the divorce. Super tough and stressful. I have learned a bit about this as my wife's cousin is a divorce attorney. My 2 cents. Just delete if not helpful. Investing Should be easily less than 10 hours per week if super focused portfolio and do minimal research. I am sure you know this but lawyers have massive incentives to string cases along and increase their fees. I just read that one of the key reasons for increased time for a company in bankruptcy was the numbers of lawyers involved (iirc), greater than complexity of the case, financial advisors or any other factors. My wife's cousin had a law firm and charged ~$600 total, no contest law fee and got the job done. Now the firm he works at charges as much as they can and probably do about the same job with much more stress and time and money for the parents. The head lawyer and the other lawyers just string it along for more money. Pretty sick if you ask me. I would just sit down with your wife (without the leech lawyers) and work something rational out. Joint custody would probably be best for the kids if both parents are good. You sound like a great Dad so that would help them. And as far at the money as someone else mentioned - your future stock picks would be worth a lot to her. As Ben Franklin said/wrote: "If you would persuade, you must appeal to interest rather than intellect"

I am not sure of this but perhaps the frequency of massive bubbles (in the US) is increasing. That is my current hypothesis. 1999 - internet bubble 2006 - Housing bubble 2007 - stock market bubble 2017 - bitcoin 2018 - stock market bubble In less than 20 years humans have gone totally nuts in the US 4-5 times. Some of you will disagree with some of what I have classified as bubbles and the current ones may only be seen in hindsight. The question is, why is this likely happening with increasing frequency? And this is when: 1. There is more information available (internet, books, etc) than ever before. Some likely explanations: 1. Increasing Social pressures from increased exposure to the internet (news, quotes, facebook, etc) 2. More information but less deep learning and thinking. Smart phones and the internet are distracting us and overfilling our brains. 3. Less patience because we are used to things happening fast, so conditions us to be less patient. These are just some of my thoughts. Curious of what others think. Feel free to post on this after a few days reflection.

Liberty - Keep up the great work posting wonderful articles. I really appreciate it and I am sure others do also. Thanks for some great quotes guys. I have index cards I call Daily Mental Tuning and Mental Tools. It is a list of quotes and ideas and mental tools to help me in life. I use similarly to how a violinist tunes his instruments frequently only it for the mind.

https://en.wikipedia.org/wiki/History_of_opium_in_China Under Mao The Mao Zedong government is generally credited with eradicating both consumption and production of opium during the 1950s using unrestrained repression and social reform.[citation needed] Ten million addicts were forced into compulsory treatment, dealers were executed, and opium-producing regions were planted with new crops. Remaining opium production shifted south of the Chinese border into the Golden Triangle region.[38] The remnant opium trade primarily served Southeast Asia, but spread to American soldiers during the Vietnam War, with 20 percent of soldiers regarding themselves as addicted during the peak of the epidemic in 1971. In 2003, China was estimated to have four million regular drug users and one million registered drug addicts.[39]

Pretty sad thread to read. ~64k deaths from drug overdoses in 2016. https://www.drugabuse.gov/related-topics/trends-statistics/overdose-death-rates Something from Charlie's Almanack that stuck me the other week. "One should stay far away from any conduct at all likely to drift into chemical dependency. Even a small chance of suffering so great a damage should be avoided." I completely agree with this. As I get older I see more people die and ruin their lives with drugs, alcohol etc. When I was young I only had a vague sense of it.

Interesting post Cigarbutt. Thanks for the data points.

It is about Chinese Frauds Trailer

Liberty, Thanks for mentioning Rocket Financial. Much faster than Morningstar. Any other site anyone likes? I use: FT.com for some screening. Google quotes in excel The old morningstar for some numbers.

I partially agree with this but the dealer is really in a crucial role. Often the dealer owns the relationship and the choice whether to make a loan with their own money or sell the loan. So if you have done all the work getting the customer, etc. why would a dealer just sell the loan and allow someone else to make ~20% per year after provisions. I wouldn't. The dealer are very street smart types. My point being that CACC doesn't deserve to make 20% just because the dealer can charge 20% on the loan, Unless the dealer is desperate for cash. And a lot of the underwriting is meeting the person and following up on them and working with the borrower. Someone comes in and throws a wrapper on your desk and want to borrow money - how do you put that in a loan app? Super specialized, tough business. I wouldn't touch it. The point is that the dealer is really the lender, if it a good loan the dealer would keep it. Bad loan - stuff the lender if he is being stupid. There are a lot of floorplan lenders and other lenders who will charge much less than 20%. To me the 20% is fantasy land stuff for CACC. Also - as a side point. CACC is growing the loan book very fast while defaults are rising. That is the opposite of what a disciplined lender would do.

That it is fairly easy and interesting to read and learn but much harder to actually implement certain changes in oneself for a complete habit change (mental or physical). Rewiring oneself can be really hard. They say if you really know something, you do it.