LongHaul

This was very interesting. WSJ journalist John Carreyrou shares year-long Theranos investigation & breaks latest, stunning news

Some of you are commenting on Hillary's staying with Bill. That is a complex personal decision and I would not be quick to judge her on that. I dated a girl and her mom was an intern at the whitehouse when Bill Clinton cheated on Hillary. On the day when Hillary apparently heard the news she cried a lot and was very shaken and upset. I was surprised to learn later in life that some marriages actually do quite well after 1 spouse cheats and the couple stays together. Not an easy decision to ditch the father of your child and divorce is almost always a mess.

I am independent politically. I still need to research Hillary Clinton but am coming out against Trump. The race is deadly serious as I think there is increased risk of WW3 with a Trump in power. Hundreds of millions could die so this is not to be taken lightly. He actually reminds me of Hitler as a charismatic leader selling things to an upset/angry population. Angry people can be easy to con. It could be Trump vs. Putin as a battle of Egos that we all pay the price for. Trump is an interesting extreme person who is a fascinating case study. Contrast Trump with a Mike Bloomberg, Romney or a George Washington and the contrast is about as enormous as ever. Trumps skills are in marketing, public relations and sales - basically persuasion. And he is charismatic, rich, powerful - which means one has to be even more on guard. But he is really just a human being if you look past the facade. Good Points: 1. Blunt 2. No need to pander to anyone 3. Knows about real estate and some about business 4. Has some good ideas Bad points 1. Egomaniac 2. Narcissist 3. Liar 4. Untrustworthy 5. Racist 6. Sexist 7. Elitist 8. Bully 9. Self Delusional 10. Massively overconfident even in areas with little experience that have complex systems. 11. Not humble at all (even after his early 90's bust) 12. Megalomaniac Bottom line - the guy seems very dangerous as president. "How to Identify the Symptoms of Megalomania Megalomania is a psychopathological disorder where in the person experiences delusional fantasies of greatness, wealth, grandeur, omnipotence and superiority. The person with this type of mental illness will be obsessed with doing extravagant things, will think only about themselves, will not have any concern for others and will have lust for power and money. A megalomaniac person will also exaggerate his/her talent in an unrealistic egoistic way, consider them as unique and will be self- centered. According to the experts, this mental disorder is related to Narcissistic personality disorder (NPD) which means self-love. How and why this type of illness develops may be because of different behavioral characteristics, childhood and nature of parenting during childhood days. One of the best examples of a megalomaniac in history was Adolf Hitler."

I think it is a good idea to generally have an idea about defamation laws and specifically libel if writing. https://en.wikipedia.org/wiki/Defamation If you are writing about shorts then you better know them cold and be very careful. If mgmt is fraudulent then their life is their fraudulent company. You are attacking their gravy train, reputation, etc. See this case as an example. There are many others. http://seekingalpha.com/article/2298195-seeking-alpha-strikes-a-victory-for-free-speech

Just for curiousity, if American - who will you vote for?

How can one lose money investing in distressed debt excluding being wrong on the value of the business? For example, if you buy sub bonds and think the company is worth X and the senior secured lenders convince the judge it is worth .5X (real value is still 1x though) and the senior secured take all the equity in the company, you could lose a lot of money.

+1 and the resources could go to saving human lives today. Environmentalism has become like a religion with its own ideology.

The H20 Diet Many studies show drinking ~16 ounces of water from 0-30 minutes prior to eating meals fills your stomach and suppresses your appetite. Weight loss ranged from ~1-3 lbs per month. This really surprised me. I had heard of drinking water before meals but didn't realize many studies showed clear evidence of its effectiveness. Although I do remember reading a story about some starving African kid who would fill his tummy to lessen his hunger. If effective I think many people can lose weight fairly easily just by drinking a lot of water (no beer!) before meals. 2 lbs per month would be 24 lbs per year. I think it is a powerful long term solution. Cheap too. Water before meals helps lose weight. https://en.wikipedia.org/wiki/Weight_loss_effects_of_water Another study found the same thing not mentioned in the wikipedia summary. http://www.webmd.com/diet/obesity/20150828/water-weight-meals-obesity

LongHaul, Your math is so wrong that I want to correct it. I invest in property a little but have no direct development experience, so if I am way off in my post I will apologize and correct myself. I gather you are not in the property business, and you don't know New York well. The $1,200 land price cited in the article is per buildable square foot. It's the unit land price based on the total floor area of the building, not the unit price based on the size of the plot. Put in another way, the Soho parking lot sold for $50mn does not have 0.84 acre - it's likely a fraction of that size. In fact, if you did read the article you provided, the facts are crystal clear. "If a unit sells for $2,500 a square foot, Von Ancken said the developer needs to subtract $900 for hard and soft costs, like construction and advertising campaigns, and about $375 for the cost of common spaces, like lobbies and hallways. Once that’s done, he said, a developer is left with about $1,200 for the land. So the margin, often 10 to 15 percent, is dangerously thin." In this example, the land cost is 48% of the final selling price. Let me know if you disagree. JBTC - Excellent correction. You are totally right and I was wrong. Nice catch. Good to learn from someone who knows real estate. The chart I saw must of been price per buildable square foot in Manhattan and not price per sft of land. So for 2014 I see the average as price per buildable SFT as $579 and new condo prices at ~$1851 or 31% of the price of a new unit as land. Very interesting. It seems like the constraint may also be how much SFT one can put up on the raw land. If it was much larger across the board then the land/unit price should be less, but of course it is very constrained in Manhattan. I view land as just another input into the construction of new units. You have some land to put up a building and earn a return. If the return is low the land is over priced. If the price of apartments goes way up the land prices will go up at a much faster rate. The land/apartment unit price ration should be dependent on the price of the apartment. The higher the price of the apartment the higher the land price embedded in the apartment (All else equal - construction costs, site, etc.) I personally think NY is in a bubble with low cap rates so the land is inflated in price. Perhaps a more normalized ratio is 15% or so. Thanks again for the correction.

Edit: ignore the below analysis as it is incorrect. There is a big difference between buildable square foot and price per square foot of raw land. Here is an article about Manhattan Land. One price listed is $1,200 a foot but then the chart shows $579 per foot. I am not sure of difference. $1000 per SFT is $44m per acre. Depends on how many units you can put on there. If there are 500 units then it works out to $100k of land per unit. At $1.9m per unit would be 5.3% of the total price. Construction costs are super expensive in Manhattan. I originally thought the high apartment prices were from high land values but it seems like it is more construction costs. Land http://therealdeal.com/issues_articles/486631/ Apartment prices http://www.bloomberg.com/news/articles/2015-07-01/manhattan-apartment-prices-reach-record-amid-bidding-wars

Very helpful thanks. This is fascinating. Any other people who have cap rates feel free to post. Paying 50 P/E for a home, a home is beyond crazy. But like rolling in poison ivy some things can only be learned through experience. So much for a long history of bubbles to instruct people. Who knows when it tops out. I guess it could go to 60 or more. Why would condo's be at a lower cap rate than landed homes? Also - another interesting exercise. A condo really has 2 components - land value and replacement value of the improvement. When I did the math (with rough numbers) of the land portion of a condo apartment in Manhattan, NY the land may have been 5-10% of the overall price. I may be somewhat off in my math and assumptions but when one divides $50m for an acre by 1k units it only works out to $50k per unit. The unit might go for $1m USD so that would be 5%. The point is that although Manhattan land is very scarce the land component of the condo is small and you can build more condo's in NY over time. So only 5-10% of the price people were paying in Manhattan might be land. Depends on units, price etc but I think you get the overall gist. Be curious if it similar in Vancouver and Toronto. Also Ireland is an interesting example. After it busted I think the population stated declining. Replacement value of the improvement can also be cyclical. Didn't realize India has topped.

Alert - is than in Vancouver? Any other cap rates on residential in different cities in Canada? 2% = a P/E of 50!!!! That is totally insane and far above and fundamental long term value. Seems like it could easily go down 50%+ in real terms. The bigger the boom the bigger the bust. Might be worth 15-20x to me. Good luck if you are long this stuff and gambling without even realizing it. In Finland I heard 1.5% cap rate for residential. That was totally out of my frame of reference. Just Bonkers. I live outside of Houston and cap rates might be 5-6% or so. Vancouver and Canada are small parts of the overall boom. China has an enormous housing bubble so do many other places - BRAZIL, Nordics, Australia, India, London, NY, San Fran, etc. I think China busts and interest rates rise - (not sure of the timing) and then the whole party is over. The anecdotal stories are great and symptomatic of manic buying in a bubble. Easy lending, buyers fighting each other, everyone afraid of missing out, historically increasing prices, funny rationalizations etc. Peoples brains melt in these things. BTW - if you are frustrated - I know I used to be frustrated at waiting, etc. Don't be. What is ultimately tragedy is really comedy in the end. It took me awhile but I realized that the bubbles will just happen again and again and again. Same mistakes and patterns over and over and over. It is so ridiculous that it is nuts. I just laugh now. It is just a crazy show. If you think the Canada housing bubble is new or unique - there are similar rationalizations regarding Australia right now and in the Florida Land bubble in the 1920's people made all types of population arguments. A little warning for those true believers in high Canadian prices. I heard a story of a guy who thought Arizona real estate would go up forever. When prices started to dip ~06/07 he bought more because he had faith, then he bought more as prices continued down. Then he basically went broke as the bust continued.

I had to comment on this - in every bubble because the timing is unknown those who warn of the bust look stupid because the timing is unknowable. Speculators get more and more confident as the price signal confirms their hypothesis. In reality the price has absolutely nothing to do with value. Many thought Buffett was on old fool in the 1999/2000 internet bubble because he avoided tech. If you are going nuts because it has been 15 yrs - hang in there. Ireland was the same until it blew to smitherines. And the crash will likely be much more rapid and harsh. I am still doing research but Canada seems like a classic real estate bubble with low cap rates in many places. Key question- what are the rough owner cap rates of your city? I define owner cap rate as rent minus all expenses a tenant would not pay (real estate tax, insurance, etc excluding broker commission to rent the place out) in the numerator and in the denominator the unlevered home price. I am trying to get a sense of the unlevered return an owner is making by buying a home excluding appreciation depreciation. San Diego was ~2% at the peak in 2006 for an average apartment. Totally insane. Now we have centuries low interest rates and people think that is normal.

Not sure what will come out of this question but sometimes strong performing employees end up at well run organizations because of cause and effect. Which operating businesses do the most capable people you know work at? Please DO NOT include investment funds.

I am not fully sure why inflation has not picked up - this has surprised me. Although it may be picking up a bit now if you look at the CPI ex food and energy. http://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=CU_cpibrief Demand for homes and cars has picked up a lot of since 09. GDP has grown. Interest rates are low but productivity growth has been low (too much facebook and twitter!). Last I heard standards for home loans had tightened a lot since the 08 so this has probably constrained home credit growth. Ehh forget all this macro stuff - just find a really cheap company that is recession proof!

Here is how I see the long term effect of low interest rates. I think of interest as the price of money. 1. More demand for money for cars, homes, furniture, etc. With interest rates low things become cheaper when financed. 2. Less incentive to save and pay down debt because it is so cheap. What if interest rates were 20% (with similar inflation). It would kill demand for cars, homes, etc. Just like the early 80's. 3. The central bank is another lender willing to lend at super low rates. Potentially a cause of higher inflation. 4. So eventually the price of money should correct and increase. Who knows when. I am sure this is too simplistic - thoughts?

Interest rates are negative in some countries which is totally out of my frame of reference/understanding. I can't think of any period with negative rates like this for this duration. And one can do back over 500 years on the history of interest rates. Even longer with other data. Even in Roman times interest rates were positive positive from what I have read. But there have to be long run consequences- demand, supply, inflation. What do you think are long run consequences of negative interest rates?

That is great!

Do you have concrete examples of this or are we talking completely abstractly? Without examples, my reaction is that it might be obvious to you what x is, but it is not necessarily obvious to everyone and especially not necessarily at the time when stock is bought or sold. Assuming that x is obvious, people would not buy it at 2x, but they might sell at 0.5x if they believe that price is going to 0.2x or if they are scared or they see other opportunities at 0.3y or they need money for something else (like covering margin, paying mortgage, etc.). One example is just the entire S&P 500 - think late 2008 when Buffett said to buy and people kept selling. The S&P 500 is super safe and in early 09 was cheap. Clearly a lot of people sold at less than X. 2000 is another example where good safe businesses were available cheap while internet companies sold for 20x+. I am trying to better understand why people sell when stuff is actually cheap - for the irrational reasons.

It is not a mistake to sell because one has made an error in analysis and realizes something is overvalued or has a ton of risk. If you haven't lost money in stocks you haven't played the game. What is interesting to me is people will buy at 2x and then sell at .5x, x being intrinsic value. I am trying to learn a bit more about the psychology of sellers as I am curious.

Remind us what it's like in a deep bear market when people are selling just because their pain threshholds are being met while ignoring fundamentals. It has been a while since there was a real scare and many of us (including me) have forgotten. I am really talking about the market or even a stock being down 20-30%. What drives people to sell when stocks are cheap? Stories appreciated.

Excellent blog I agree. There is a lot more there than being cheap. It is really a practical philosophy blog as well. His brain works right and he isn't the typical writer who seems to pander to excuses and self pity.

Agreed, I'd hate a cold calculated rational world devoid of emotion. The best things in my life looked at through a calculating rational financial lens would be considered mistakes, but without them I couldn't imagine life. For example, getting married, having kids, spending money on hobbies, vacations, taking days off to relax etc. Rationally I'm better off maximizing my time, working, getting more money etc. I'd rather enjoy life. The grocery bills have exploded with three boys, the time I get with them is invaluable. Rationally I'm better with my nose in a book learning wisdom or something..no thanks. I'll take a beer with friends any day over sitting alone in a library. And I like to read! From my understanding, Buffett and Munger are not suggesting to always do the most financially beneficial thing when they say to be rational. I don't think either of them regret getting married (at least with their 2nd marriage), or having kids, or taking time off to play bridge. The advice is rather geared towards not letting your emotions clog your judgment - having the right temperament in investing, or willing to change your decision if the facts change, focusing on your inner scorecard rather than living someone else's life. All these things are obvious and logical but often times people don't do what's right. In terms of spending money to live and enjoy your life - that is arguably the rational thing to do over collecting as much as cash as humanly possible, because if you're not having fun then what's the point of earning in the first place? Working away just to grow your bank account is rather irrational imo! +1 Well said. Some people go to the extremes on these emotions and can ruin their lives.

Benjamin Graham, The Father of Financial Analysis Kindle Edition Short read but was great.

Wonderful writeup on the book. I appreciate it. Anything new has a number of assumptions and until proven in the real world is risky.