Cigarbutt

As with many phenomena, there are fundamental and sentimental aspects. There is an underlying core of real disease activity and potential outcomes with, in the early stages, a potentially significant amount of uncertainty. The role of public authority is paramount but difficult. Vigilance needs to be raised but mass hysteria is just around the corner. The most relevant comparable is the SARS episode (2002-3). It's interesting to remember that the 'crisis' had revealed weak aspects of China's governance resulting in a significant turnover in high level officials. China then was criticized for hesitations and lack of transparency. I wonder if they are not doing too much in a way (massive quarantine orders, building a hospital in a few days). It's also interesting to remember that, during the SARS epidemic, Vietnam had done much better than Canada, in terms of handling the fundamental and sentimental aspects of the problem, despite allocating much less ressources. If you have a personal connection somehow, some part of the information-gathering exercise should perhaps involve periodic checks on official sites (CDC-like etc) and a review of the SARS episode may provide some perspective. https://www.who.int/whr/2003/en/Chapter5.pdf If you don't have a personal connection and feel anxiety, nonspecific internet exposure may not be the best way to alleviate concerns.

^There's one insight I just came up with (last few weeks). Looking back, use of margin debt spiked ++ in 2002 and in 2009, not because of a 'macro' derived posture but because of a different risk-reward profile on the limited things I can do. https://www.gurufocus.com/economic_indicators/4266/finra-investor-margin-debt-relative-to-gdp Painfully, from the cognitive point of view, I've come to the conclusion that the extent of leverage used the last time around was both unnecessary and reckless and don't ever plan to use margin debt to any significant degree going forward. It seems that writing it will make it more likely that I keep a level head but who really knows?

^For the inter-island service, history has shown that there is room only for one significant carrier although that won't prevent others from trying. Even when 'tacit collusion' was allowed in the early 2000s, both HA (2003-5) and Aloha (2004-5) failed and Aloha definitely shut down in 2008. Others have come and gone and, mostly, in the last few years, HA held +/- 90% market share (up to 98% in early 2019). It feels like a newspaper business (when those had sustainable business models) in towns of certain sizes giving rise to economies of scale and quasi-monopoly effects. LUV is a strong competitor but HA is also a lean operator with comparable leverage. I would bet there could be a struggle but a one-airline dominance will somehow persist and it is hard to see HA not winning this battle. For the international part, total passengers coming in and out of Hawaii was about 30M in 2009 and went up to about 37M now, with about 70% coming from continental US. There seems to be excess capacity in this space and this would likely hurt if one believes that the cycle is not broken. Fortunately for HA, who bet on Airbus planes, in 2017, LUV based its international foray to Hawaii on the purchase of Boeing 737MAX planes...For the international part, I think that the to-be-revealed-excessive excess capacity is more likely to hurt than new entrants although the latter will not help the former. @LC In Kauai, I like most places but especially the south shore (Poipu area etc).

A supreme thank you for the above bolded part (I'm not bright enough to start to begin to understand the other names mentioned). In retrospect (potential survivorship bias here), it appears that there was an opportunity. I would say though that the inter-island dominance was (and remains: Island Air went out of business in 2017) an underlying strength and significant moat in a way (if an airline can have a moat) but the main reason for the significant rise in revenues and especially profitability after 2012 was the international expansion (especially to and from Asia) when the cyclical winds were favorable. From 2011 to 2016, interisland flights went from 67405 to 76946 and international flights went from 2567 to 4481, with a disproportionate effects on miles travelled (and associated margin) on long routes. Timing of these cyclical investments is an issue as refraining from an exit in 2016 would have meant that, comparing returns from early 2014 to now, holding Southwest would have resulted in about the same outcome. Looking at the usual metrics (EV/EBITDAR, PE or whatever), HA has become relatively cheap once again and its leverage (even accounting for capitalized operating leases on planes) has remained low (relatively). I think their fleet is 'young' compared to the industry. Cyclicality aside, it seems that the market perceives more competition internationally and even within the inter-island foothold. The airline industry has changed but my opinion about general 'investability' in it has not, although I've put HA on a watchlist to consider buying in a time of maximum pessimism, if there's nothing else lying around. Disclosure: I really like Hawaii (people, climate), have used HA on many occasions and hope/plan to spend time in Kauai on a +/- yearly basis at some point.

^Before, there were two steps: 1-capitalize the value of operating leases (many ways) , add to invested capital and 2-add back the imputed interest. Now, due to the new standard, step one has been capitalized already and still needs to be added to invested capital and imputed interest still needs to be added back to EBIT.

The Japanese market is for trading not investing. I have had decent results doing just that. In all that dreariness, there seem to be blurbs of euphoria or momentum trading or whatever it is that can be used to exit. It’s just a matter of when usually. Actually, it seems that the Japanese market has entered (until proven otherwise) a moving sideways kind of market. https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data Those log and long-term graphs sometimes give an artificial and disconnected picture compared to the habit of looking at prices several times a day. Interesting to decompose: Total return, annualized, in yen. from December 1989 to April 2003: -10.5% -----) if you achieved "decent" absolute results then, I am more than impressed. Total return, annualized, in yen. from April 2003 to August 2019: 8.0% To compare: Total return S&P 500, annualized, in USD. from April 2003 to August 2019: 9.6% If you invest in Japan, you may be interested in the following: https://www.burgundyasset.com/wp-content/uploads/Is-Japan-Our-Future-July-2012.pdf For fun, given the article was written in July 2012: Total return Nikkei, annualized, in yen. from July 2012 to August 2019: 15.3% Total return S&P 500, annualized, in USD. from July 2012 to August 2019: 13.5% A potential conclusion would be to simply look at individual names and to stop fighting the Fed?

^The Japanese cycle reference is interesting. If used as a benchmark, then it's possible that US markets could double overnight and reach Nikkei 89's height. On top of earnings decline and margin compression, Japan has had to deal with a triple whammy as they sort of went (are going?) through some kind of paradigm shift. From Dec. 1989 to somewhere in 2019, total annual return in yen: -0.8%. https://dqydj.com/nikkei-return-calculator-dividend-reinvestment/ Tell me where I'm going to die so I don't go there.

I don't want to enter a debate here but I find the 'message' of your post (and related link) to be incomplete. Unaudited numbers and some approximations for 2019, US investors. I estimate the rise in value of equity holdings by households, held through funds (pension adjusted) to be about 2.4T (2400B) in 2019. So, the total net outflows from funds (41.3B) represent about 2% of the increase in equity values in 2019. You can form an opinion about what this means in terms of investors' perception of the market. A recent well-done survey of investors in general reveals that a majority expects a recession in 2020 and a majority simultaneously expects to obtain good returns (both majorities being possibly constituted of the same people :) ). Household surveys of allocation to equities tend to be pro-cyclical and may be reaching highs again. There are graphs circulating but it's not necessary to show them here; they have the same pattern compared to what RuleNumberOne typically posts on this 'peak' topic. This is soft evidence and should probably not be used for timing purposes but one of the reasons that there are net outflows from equity funds is that people, in general, seem to have difficulty keeping up with rebalancing which explains the last section of your link (the author wonders if there is dry powder accumulating in money market funds). A possibly related topic is that 'funds' are reaching lows in terms of their own % to cash allocation.

Thanks for sharing some wise words. On my part, real concerns with this conundrum are relatively recent and I will try to come around. -3 lingering concerns 1) In the last two to three cycles, easing has become more significant and unconventional and tightening (taking the punchbowl away in central bank ivory tower talk) has become more timid and incomplete. https://fred.stlouisfed.org/series/BOGMBASE which prompted the following central comment in 2009: "The epitaph to this curious case of monetary base expansion is yet to be written." https://www.stlouisfed.org/publications/regional-economist/july-2009/the-curious-case-of-the-us-monetary-base 2) In this last part of the cycle, corporates have accumulated significant debt, not because they needed to but because they could. Isn't that weird? 3) Fiat money is now taken for granted as a concept but the whole thing has a troubled history. I'm told that two significant changes contributed to public acceptance of fiat money: accountable government and an independent central bank. Even if you read the above, there is no need to respond. FWIW, I think I understand your devil's den comment and I just want to say that I visited the 'real' devil's den a few years ago, in Gettysburg. The den area is quite unremarkable even if it may have hidden a snake but the whole Gettysburg site is fascinating from a strategic point of view and something tells me that you would like it.

^So you probably looked at the PWC March 2019 report: http://www.steinhoffinternational.com/downloads/2019/overview-of-forensic-investigation.pdf Sometimes more can be learned from failures than from successes. There are many parallels with Enron, a company I was following (and appreciating to some degree). The red flags were confirmed mostly though after the fact. There was this report published in 2018 which is potentially useful: https://www.usb.ac.za/wp-content/uploads/2018/06/USB-Management-Report-Steinhoff-Saga.pdf Contrary to the Enron saga, I haven't looked deeply at Steinhoff's financial statements but I don't think I could have spotted red flags in real time, although regulators had been making some noise for some time. The main 'culprit' appears to be the superhuman and charismatic CEO. We love CEOs who push the limit but, at some point, the limit becomes a slippery slope. For those who may want to draw criticism at the Board, it must have been very difficult (as the report nicely puts it) for specific individuals to stand up against a very much ingrained consensus view which included a crowd populated by very bright and influencial lights. As a sidenote, another cenacle of wise minds, the ECB, lost a lot of socialized money when they saw the light and sold the bonds. Final point: This is only a red flag type of comment but, while reviewing Steinhoff's failure, I couldn't help making a connection with another star CEO who shows a similar type of arrogance..

Corporate debt/ Pretax ratio would be a better measure since interest is paid from $. Since the tax rates are at a historic low, using post tax numbers does skew the ratio a bit. but overall, the point is valid. In fact, at all levels (gross and operating margins, interest, tax, generous EBITDA "add-ons"), some may suggest that this as good as it gets. I work with the assumption that wabuffo is right but can't help remembering what Mr. Buffett suggested, in 1999, (one of the very rare occasions when he talked more specifically about the 'market' in general) that expectations that net profit margins could go higher than 6% for any sustainable time.. https://fred.stlouisfed.org/graph/?g=gt9 were not reasonable and, in the event that it would occur, this would likely trigger the modern monetary theory (he did not exactly say that but that's a 'final value' (in 2020) that can be inferred from the comments. Where is Jim Bowerman when you need him to explain that debt doesn't matter? (The following is not meant to be snarky, it's just relaying a state of mind) In 1945, (if my numbers are correct), corporate debt to GDP was about 10 to 15% and this number has crept up pretty much linearly (if you forget some bumps and note that interest rates have been low before). Apologies for going back in history but I'm reading these days about the early banking merchants in city states in Northern Italy. A message form many history books touching on debt and interest rates (at least the books that were printed before the rise of central banks) implies that using higher leverage is a sign of sophistication and keeping interest rates low, a sign of collective intelligence. I guess we'll find out how far this can go. Anyways, why worry as the corporate debt, in the event that profitability suffers in a reflexive way, could always end up social debt. All for one and one for all. So, in the unlikely event that we go down this path, I suggest that we just skip the step (others are doing it already) where the Fed would buy corporate bonds (top S&P quality, fallen angels and toxic) and, instead of being a lender of last resort, simply becomes The Lender to the corporate world, its populace and, why not, The World and finally achieves the ability to match its assets with virtual book entry liabilities. Enough time spent (wasted?) on this topic. FWIW, I need to spend time on REV and AMC and, apparently, need to understand that, fiduciary duty notwithstanding, these free cash flow generating entities are smartly using leverage and need to stop worrying that their incremental return on additional debt has been on the decline. 8)

That was very helpful. A potential counter-argument is that looking under the hood may reveal more "vulnerability" and using the EBITDA to debt ratio comes with certain assumptions for the EBITDA part. The debt part tends to be more sticky. Of course, relatively optimistic assumptions may hold for long enough to negate any potential gain from an inability to climb the wall of worry for many specific names. Some suggest that a conclusion from the debt to GDP graph found in the Dallas Fed link provided by RuleNumberOne is that high corporate leverage can induce recessions which, obviously is an over-stretched conclusion. A clear message though is that the relationship tends to be positive in good times and negative in bad times, whatever causes and whenever the recessionary transition occurs. If interested, here are two links that discuss the corporate issue in a balanced way (except for the title of the first). The first link describes the increasing net debt to EBITDA for the largest 2000 companies and contains many other useful data points and analysis. The second link is a blog I regularly follow and the specific link discussed the Dallas Fed report, contemporary to its release. The author is not a "doom and gloom" type and, even if macro factors are considered, multiple sources from many angles are considered. In the blog, many interesting aspects of the corporate debt dynamics are discussed: debt to EBITDA for largest 2000 companies, interest coverage ratios etc. https://www.whitehelmcapital.com/wp-content/uploads/2019/07/Thought-Leadership-June-2019-US-Corporat-Debt-1-1.pdf https://www.edgeandodds.com/smart-investing/in-gods-we-trust/ As you mention, a receding tide may actually strengthen the survivors and, timing aside, the easiest way to deal with this is to pick the survivors. I just want to add though that all transitions have different flavors and the next one may be interesting from a liquidity point of view for the huge BBB tranche that exists now and the related spill-over effects on the market in general. As a final note, I will use an example (possibly not relevant or useful for you or anybody in fact) that I think is a reflection of the relative complacency that has made its way into the corporate debt market (global). Recently, in the context of a specific name analysis, I came across a company that is an airline and that went to the debt market in order to buy back a minority interest in a loyalty business (contrary to the airline business, loyalty units are capital-lite, have high margins and are sources of free cash flows even during downturns). The purchase consideration was funded by debt and the free cash flow yield was below the interest coupon and the result is an extremely levered capital intensive airline. The coupon was 8% and the issue was massively oversubscribed. Maybe I look at the wrong places but covenants and terms that I see point to the possibility of complacency and wonder if credit spreads tell the whole story.

^This is not a black or white topic (corporate leverage) and a fundamental reflex is to reflect on individual holdings in one’s portfolio and not ‘worry’ about aggregate numbers. Despite the above, this may be relevant. First step, strengthen the opposing view’s argument. Yes, banks are in a much better shape and, for corporate debt, bond issues have taken the lead and depository institutions have not really participated in the rising ‘loan’ presence (especially leveraged loans, CLOs etc). Yes, averages, in a way, don’t tell much but (according to S&P sources), of the about 2000 issuers that are graded in the US, 25 firms hold about 50% of the cash and smaller firms tend to show increasingly poor coverage ratios. Also, if one focuses on the average debt service ratios, historical norms are respected and, of course, that’s an input used to justify also the real estate market dynamics in Canada (and other countries), the public debt levels etc. However, in balance, the corporate debt level has reached very unusual levels and for this level to be maintained requires a relatively unusual set of assumptions. ----- Personal anecdote (so extremely limited value) When I graduated in the 90’s, for various reasons, most of my ‘colleagues’ went back or decided to go to the US and I kept contact. This was also a fundamental source of ‘bottom’ sentiment when, for instance, I became interested in the US real estate phenomenon in the years 2000s. These acquaintances and ‘friends’ had strong earning power, strong debt-service ratios and basically signaled that averages didn’t really matter. This group was exposed to real estate (sometimes in more ways than one) and they really hurt when prices came down and, in fact, have barely recovered. When I spoke to them around the holidays (most are doing reasonably well, average for their group I guess), it was mentioned that the relief had come in part from the booming equity markets. It would have been inappropriate to discuss corporate leverage during those conversations and, because of social conventions and the always present uncertainty, I did not tell them that, maybe, again, I may end up buying what they’re selling. Most of the times, I just shut up but anonymity alters conventions. FWIW, I think thepupil will do very well whatever the circumstances but that may not be true for the average (corporate or not) citizen.

I don't necessarily disagree but, if you have time, can you provide evidence backing this up? Proof (I assume you mean the empirical kind) for something such as that will always be indirect at best since it's impossible to isolate the variable under study. An example of indirect evidence of what he's saying is in fact the lackluster return of the index discussed in this thread (but it can never be proof as so many other factors are present and can't be controlled pr compensated for). The reason why his statement is obviously true is simple logic. However I won't delve into that as not to derail the thread into a political one. Thanks. That's a fair answer and let's not waste time (and residual reciprocal sympathy :) ) discussing politics. Long term wise, some countries, such as the US have done relatively well compared to others and there may be 'obvious' reasons for that. https://engineeredportfolio.com/2017/07/30/which-country-has-the-best-stock-market/ However, going back to the idea of this thread, it seems to me that European stocks, in general, showed a comparable performance to US stocks, from the end of the 1990s to around 2010. What happened since then is quite a significant divergence and that raises some questions (some of them perhaps not worth discussing on an investment board): -Are the countries part of Europe doing OK and it's the European project falling apart? -With the divergence in the banking sector explaining most of the total divergence, is the US 'winning' or is Europe acting as a leading indicator? http://thecorner.eu/world-economy/european-versus-us-stockmarkets-european-banks-against-us-technology-firms/76071/ Note: The article was written in October 2018 and the author felt that things would "normalize". So are things normalizing or becoming more absurd?

-The social acceptance and access. You may be interested to know that IVFs are only partially covered by our Canadian medicare-for-all system and provincial coverage varies. There doesn't seem to be a terrible amount of social stigma for infertile couples looking for alternatives (in fact, it could be the opposite with generalized sympathy) but access remains a key issue. In my jurisdiction, in 2010, there was a decision to publicly fund open access to IVF for both medical and social infertility (the story behind this is interesting but not relevant for you although it involved a local celebrity). Interestingly, this was followed by a huge demand in services, a significant improvement in results including a drop in rates of multiples births and... an explosion in costs, so much so that the program was severely curtailed in 2014 (due to 'fairness' reasons). This post is not to compare both systems, it is to underline that when coverage will be more widespread (private, public, hybrid or whatever), there will be a realization that there is a huge unmet demand that will stretch from medical to social reasons. I'm note sure what you mean by commodity lite-AI (the first basic applications?) but I agree that this could benefit railroads. The industry has achieved a huge reduction in employment and corresponding improvement in 'productivity', and the employment levels have stabilized but there appears to be some incremental room for further downsizing related to more efficient management of inputs. Just in case you don't get access to the Post article, they discuss lower employment in 2019 due to cyclical factors but the renewed productivity phenomenon is also described. https://www.railserve.com/employment.html https://www.washingtonpost.com/business/economy/railroads-are-slashing-workers-cheered-on-by-wall-street-to-stay-profitable-amid-trumps-trade-war/2020/01/02/dc757ed4-1603-11ea-a659-7d69641c6ff7_story.html

^I agree with IVF. Interesting tidbit linking autism, IVF and parental age (for those interested). Risk factors for autism remain largely ill-defined but parental age appears to be a significant factor as similar and significant findings have been replicated in multiple and very well designed studies. Take a look at the following cool 3-D graph coming from a recent study saying the same thing and possibly adding more color and relevant perspective. https://www.nature.com/articles/mp201570/figures/3 RR is relative risk and is just a way to measure the strength of an association between an exposure (parental age) and an outcome (autism in children). A proposed theory is that parents (both) would accumulate genetic mutations and then become at risk of transmitting 'deranged' genes. This would make sense for men who are described to produce newer batches of progressively lower sperm count and quality but women's eggs form (all of them) when lying in their mother's uterus and the eggs then simply wait to be called into play. Anyways, other factors may come into play (such as the socio-economic status) and, in a fascinating way, it is thought by many that the thought process should go the other way around and maybe parents holding a certain pool of genes may simply have traits (autistic type) not sufficient enough to reach a formal 'diagnosis' but this predisposition may explain why they may have difficulty matching or why somehow the decision to have babies is delayed, suggesting that the age may not be a causal factor in itself. This last theory is relevant for IVF as it has been reported by some (level of evidence fairly low) that IVF is associated with a higher incidence of autism and learning difficulties in IVF children (the CDC has some public info on this). However it may be that it's not the IVF procedure itself that would induce cognitive deficits but more that the parents seeking IVF treatments may already carry the genetic background leading them to use IVF and have children with cognitive deficits. So, for IVF, we ain't seen nothing yet. Disclosure: both my parents conceived me at an advanced age and I've never come across data or analysis that would explain or corroborate the high rate of autistic children (as mentioned above by BG2008) from parents working in finance, PE or similar jobs.

^I guess it's back to the basics. Here's a recently updated link that needs further updating, as far as the 2010 reference is concerned: https://fastlifehacks.com/matthew-walker-12-tips-for-good-sleep/ What works incredibly well for me is to go through an intense 3-hr outside aerobic training routine in the afternoon, something which I'm seconds away from. :)

Humble contribution. Disclosure: 1- This is an investment board but the topic is interesting and the methodology, fascinating. 2- Mr. Walker's work is interesting and worth discussing (debating). 3- I've appreciated better sleeping hygiene in the last 10 years and one of this year's resolution is to fine-tune it. 4- I have relevant experience in evaluating the soundness of conclusions such as those mentioned by Mr. Walker (evaluation of evidence, cause and effect analysis, statistical methodology etc) A major potential pitfall is the handling of statistical correlations into relative risks and, eventually into a cause and effect framework. Mr. Walker appears to be very well aware of this but the pitfalls are significant and most of the studies mentioned are correlation-type studies which constitute a starting point for the thought process but replication of findings, complementary analysis with using specific criteria and formal experiments are essential foundational steps for sound and robust conclusions. This is not a formal and detailed review of everything, but here are some comments. A) The graph showing the relationship between sleep duration and diabetes and related study (studies) share significant potential pitfalls: 1-In order to show a significant correlation or to consider a cause and effect relationship, one needs to rely on an underlying coherent mechanism. The scenarios mentioned are possible but do not fit easily into built knowledge and best evidence (at least up to now). 2-There could simply be a correlation with another independent confounding variable explaining the correlation. These studies use statistical tools to control for confounding variables but these tools are very crude and meta-analyses often include poorly designed studies. For instance, obesity may explain better poor sleeping patterns and higher incidence of diabetes (through very well described mechanisms) and this hypothesis would constitute, from a coherence point of view, a better explanation than poor sleeping causing obesity and diabetes. 3-When trying to move from correlation to causation, a classical tool to use is the dose-response relationship which should be relatively proportional and coherent. In this case, the inverse J-shaped curve (which is really U-shaped) is hard to reconcile with a coherent explanation. If reducing sleep duration causes an increased incidence of diabetes, why would increasing sleep duration also cause an increased incidence of diabetes? B) The relationship between sleep or disturbance in the circadian rhythm and cancer is controversial. However, much of present conclusions rely on poor foundations. There was a 'landmark' study (in Denmark) published around 2012 showing a "clear" link between working night shifts and the occurrence of breast cancer. In fact, many European jurisdictions have adopted rules to compensate women developing breast cancer using night shift exposure criteria. However, further studies have been less convincing and more recent work, including reviews and meta-analyses, have shown that the correlation likely is not significant under most circumstances. The reason for this updated conclusion is related to the fact that 'correlation' results that had been published were not replicated and did not survive well to more rigorous trials or analyses. https://www.nature.com/articles/s41416-019-0485-7 My humble message is that one should tread carefully here before jumping to conclusions but this will be interesting to follow. BTW, this line of work is interesting and may be helpful in evaluating investment targets such as JNJ, Bayer etc where legal potential liabilities are significant and need to be discounted.

I don't necessarily disagree but, if you have time, can you provide evidence backing this up?

by Maurice A. Finocchiaro. https://www.amazon.com/trial-reason-Science-Religion-Culture/dp/0198797923/ref=sr_1_1?keywords=on+trial+for+reason&qid=1577982118&sr=8-1 This is a book which was mentioned in another thread during 2019. As with many books, this may be somehow linked to investing but that could be too much of a stretch for many. The book deals with the Galileo controversy(ies). The author is a ‘scholar’ and an ‘authority’ on the subject. The book is basically an updated summary of previous publications (which were also very good but perhaps too granular and detailed). The book may also interest readers who like to explore the intersection (clash?) between science and religion. Some may also see a parallel with today’s controversy about climate change (something the author does in other publications, using a balanced approach). The geostatic and geocentric side had some merits and some fundamental flaws. That was not (and, to this day, is not) a binary question. The author does an excellent job at trying to distill Galileo’s intimate, personal and evolving position concerning the different hypotheses. It is interesting to see how Galileo, initially, on an evidence-based framework, rejected the Copernican view only to adopt it, based on the same framework, once direct observations with the telescope (1609) became available. Galileo was a fascinating human being: rational thinker, science foundational father, philosopher and a great writer. Like the author says, Galileo played a key part in defining the truth of nature and the nature of truth. Galileo was not only a precursor in scientific findings but also in the “method”. In retrospect, even if the controversies persist to some degree on many levels, it can be said that Galileo was on the right side of the argument for the scientific hypotheses and for the method. A takeaway from the book and Galileo’s story is that it must have been exceedingly difficult to stand against the crowd and various leaders of dogma opinions. I have incredible respect for the individual for what he accomplished but, in the grand scheme of things, I wonder if he shouldn’t have adopted the “strategy” used by Copernicus. In my view, the cognitive path leading Copernicus to describe the new world was even more impressive given the lack of direct observations available during his time on Earth. Copernicus was perhaps wise enough to have his major work opportunistically published right before his death. Despite a persisting myth, Galileo was not physically tortured but the mental torture must have been awful and I would say that he suffered unnecessarily. The book does not cover the “And yet it moves” controversy, the famous words that may have been muttered around the recantation. Much can learned from the book and the 2020 message (resolution?) may be that there is little to gain from yelling in the wind. Eppur si muove.

Do you invest on margin hasilp? If you do, you may have a framework whereby you 'discount' the market value of individual securities that you own, according to a certain risk profile, in order to avoid being 'surprised' by a margin call. In a way, this is the way regulators have evolved versus the asset risk of P+C insurers, with the additional key component that they aim to ultimately protect the policyholders from moral hazard embedded in the multiple layers of the business. You may want to look at some stuff on risk-based capital tools that regulators use. Conceptually, the idea for them is to balance being involved too much versus not enough and history shows that they have done both but they tend to be conservative. They look at the fixed income side (grade, duration and interest rate risk) and they look at the equity or 'alternative' side, deducting capital 'charges' in correlation to the level of perceived risk. They also qualitatively look at asset risk when investments are affiliated or concentrated. So, if you run an insurance company, it's basically like running a leveraged portfolio. You have to make sure you don't bring it into the ground and the regulators are there to draw a line before this occurs, if possible. Overall, they've been quite good at it. Some would say they're a pain but most participants would agree that the price to pay to protect from extremely foolish behavior is worth it. Obviously, being over-capitalized will help you to sleep better as an insurer and, as a bonus, will allow you to harvest hard market fruits when many others need to hibernate or build capital.

Devo anche dire che non capisco and that's one of the reasons why investing can be fun. You may (probably? :) ) have developed an informational/analytical edge that is not available to me, at least up to now. The last time I looked more seriously into this (two links below), it seemed that the determinant variables may be indeed correlated and key building blocks (most? all?) had been put in place. However, even if, as always, there is unsophisticated money involved, I find there is a lot of educated competition and the timeline could be extended. The odds may reflect the outcome if you see this investment through a bettor prism, which you should IMO at least to a degree. Enough said on a topic that is being well covered elsewhere. This is worth watching but I may end up being simply a witness of an eventual cheery consensus and that's fine. Good luck. https://www.jchs.harvard.edu/sites/default/files/harvard_jchs_gse_reform_none_or_done_layton_2019_0.pdf https://www.investmentbank.barclays.com/content/dam/barclaysmicrosites/ibpublic/documents/our-insights/gse/gse-reform.pdf Reading Fortuna's Formula, you likely met Mr. Claude Shannon. In a related way and through his 'collaboration' with Mr. Thorpe, one of the informational theory insights that Mr. Shannon identified is that, from a Kelly criteria perspective, you have to stay in the game long enough (avoiding "gambler's ruin") to harvest the eventual gain related to the area of the curve within the calculated risk zone, given numerous 'transactions' and the law of large numbers. Events that occurred rarely or over long periods of time required an unusual confluence of assumptions. In a related way perhaps, I took into consideration the comments that you provided in the potential PG&E bankruptcy thread. Less than a year ago, you mentioned (in relation to a seekingalpha article detailing potential outcomes): "this is a good discussion of possibilities, and they range from some equity value to some debt value to don't touch with a 10 foot pole. this will be a firestorm is bk court as well, and until we know what California wants to do, I don't think this case is investable". I thought this was interesting (warning: limited value because anecdotal) since I felt that an absence of clear vision from the government was actually a favourable factor in the delineation of an entry and exit point during the fall of 2019 (with the help of Kelly criteria for position sizing). Sometimes, there is a difference between what a government wants to do and what is eventually done and the timeline can occasionally be challenging. I'll be looking forward to learn. -----)Back to the spirit of the thread

1-On the quantitative side of the equation(s) Fancy math may give a false sense of precision and the idea is it to incorporate all potential outcomes (good and bad). The same principle applies in weighted scenarios analysis in certain circumstances when it will take some time to see the outcome (ie launching a new product, change of strategy, what happens if interest rates rise, who will get elected etc). In Mr. Hagstrom's The Essential Buffett, there is a nice little section on the Kelly Optimization Model and the simplified equation is 2p-1=x, with p being the probability of 'winning' and x the allocation that should be devoted to the specific investment. It is then only a simplified tool to evaluate how one is confortable with the potential outcome (expected value) and the standard deviation of the outcome and how this can be incorporated into one's portfolio. In the 3-page section, the author describes how one may decide to use a fraction of x, as in the half-Kelly or fractional-Kelly model (more on that in 3-). 2-On the mysterious investment If the investment is GSE-related, an area I consider myself too stupid to make a reasonable assessment, when I tried to come up with a range of potential outcomes, I used a series of critical steps and put a reasonable % of being right for each step. If one establishes five or six critical steps, even if one uses an 80% chance of a positive outcome for each step in the sequence, one ends up with a very low % of a positive outcome (and a low weighted expected value) after all steps, an analysis that, given my significant analytical limitations, resulted in putting the investment thesis in the too hard pile. I'm looking to be educated here. 3-Going back to the initial spirit of the thread and position sizing Both Mr. Mayweather and Mr. McGregor had obvious comparative edges. 1)The bestial factor. Anybody who had watched an ultimate octogonal fight would be impressed with the importance of raw power and grit. Advantage McGregor. 2)The age factor. A lot of 'fans' felt that this was a fundamental factor. Mr. Mayweather was quite old for a professional boxer and the typical scenario involves an exponential decline of ability when the time has come. Advantage McGregor. 3)The you play my game factor. The fundamental factor had to do with the fact that Mr. McGregor had to play according to Mr. Mayweather's rules. This would be like forcing a hedge fund, or hedge funds or funds of funds to enter a value contest where they would play the value game for a pre-defined long-enough period against an older (and apparently) declining old-style competitor. Of course, we know how this ended and the Master likely put only limited effort into the contest. However, even if, especially in retrospect :), this appears to be all too clear, Mr. Sigsbee, who appears to be a master at his own game and who felt that he possessed an edge for both evaluating the handicap and the unsophisticated millennial 'fan' factor, only made a relatively small bet on his friend, suggesting that he likely uses quite a fractionated Kelly model.

Fun read, recommended. There are other ways to make money besides value investing. Null hypothesis here: I'm stupid (possibly more than 99% of the times). I disagree on the premise that professional bettors (ie smart money) are fundamentally different from value investors and wonder if Mr. Ben Graham did not do the value crowd a disservice when he drew a line between investment and speculation when, in fact, it should perhaps be appreciated through a spectrum. If you dissect the simple part (analytical or handicap part) from the easy part (temperament or crowd part), professional bettors focus a lot more on the easy part and typically have a short term horizon on individual bets. It is interesting to note that sharp money often ends up with the "losers" in a contrarian way as the bet decision is based on a perceived mispricing of the odds. It seems to me that most value "investors" aim to beat the house more than 52.4% of the times and changing emphasis on the simple or easy part (just as reducing the strike price zone with the baseball analogy with its effect on the simple part) may move you along the spectrum. Moving the handicap bar higher may require more 'concentrated' bets and comes with the risk of looking stupid much more often but that's OK. Disclosure: Part of me would love to avoid watching box or ultimate fights but the other part loves to watch even more. I am not a bettor kind of person and will not volunteer my preference since this is a first post in the thread but the Mayweather-McGregor encounter was certainly interesting from a sentimental point of view. The following may be interesting: https://www.valuewalk.com/2016/09/steven-crist-value/

Thanks for the article. I hate driving and can't wait for the autonomous solution but fail to build enthusiasm for the driverless solution, as exemplified by your link, as a revolution. It seems evolutionary, at best. It is ironic that butter is chosen in this efficiency maximizing example. Looking back at the true revolution that railroads (especially its network and transcontinental aspect) brought with them, in terms of the food supply and distribution chain, people's lives were truly and deeply changed. Ordinary people could get a relatively affordable array of food items (including from California) and the radical change of diet and the food industry dynamics on American soil that happened then has only been marginally improved since. What the link is suggesting is that there could be cost savings by reducing employee expense and by bringing down delivery time from about three days to about 42 to 44 hours (also the possibility of reduced road accidents?). I have watched and have been impressed with (and have made money investing in third party logistics operators) the evolution of the food supply chain logistics in the US and a reasonable criticism of the article is that it would have been simpler for the producer to send butter from their Ohio operation or to establish a production facility in the state that has the #1 spot for dairy production (Wisconsin) and which is much closer than Tulare, California. Also, the butter industry now 1-is based on over-leveraged producers of raw material (in part because of ultra-low and suppressed interest rates), 2-continues to survive in the present truncated form (with many unintended consequences, including the possibility that it makes 'economic' sense to transport a perishable and undifferentiated product across a continent) because of heavy subsidies to compensate for the fact that the end product is sold below cost, 3-does not into account the potentially significant externality on the environment related to unnecessary movement of products across long distances due to poorly designed incentives and 4-suffers from a hostile global trade environment whereby producers ask for (and obtain) government help (very similar exchanges were recorded between the 'industry' and Congressman Hawley (that one) when it was felt that duties were necessary to protect the butter incumbents from dangerous countries such as New Zealand and Denmark who apparently had lower costs of productions {and shipping}). I understand that the government subsidizes research and various pilot projects for the autonomous flow of vehicles and that may be appropriate but it needs to be said that they now also manage the cheese industry and have to store enormous amounts in government warehouses, only to periodically redistribute some of it in a free lunch kind of way when molds start to grow, suggesting that the elected officials may not always attribute 'excess' funds wisely. Finally, the consumption of butter (produced in California or otherwise) has grown at a higher rate than inflation or GDP (it has grown in fact at a similar rate than the S&P 500) and this is not necessarily a healthy phenomenon even if your diet is ketogenic. Sorry for this ranty post in this period of the year. The CEO of my household just asked me to get some butter at the grocery (we are hosting an after-Christmas brunch). I wish that a self-driving option were available. :) Happy Holidays Jurgis. https://www.swdc.org/wp-content/uploads/2015/08/DC-Railways-and-Food-LRSP_compressed.pdf https://www.nass.usda.gov/Charts_and_Maps/Livestock_Cold_Storage/butter.php