cobafdek

Anyone else remember this differently? I think Graham mentioned in Security Analysis that unprofitable net-nets often did better than profitable net-nets No need to rely on memory. I have the book and Jurgis is correct. Graham steers investors towards net-nets that are decent companies as an example of an egregious mis-valuation. Now I hate to argue with someone who's publicly stated that they've read Security Analysis four times, but I don't believe Graham had any problems with money-losing net-nets. I remember that one of the examples he gave in the liquidation value chapter was a net-net that had loss years but a history of profitability. I'd agree that he suggests decent companies and he even gives a list of characteristics that the companies might have, but I don't believe an earning history without a loss year was a problem-he would be more concerned if a company had a big reduction in liquidation value instead. We might just be disagreeing about what money-losing means, if it's just one bad year or a bad earnings record over a number of years. You may be thinking of Tobias Carlisle's paper, in which the basket of net-nets that posted a loss in the most recent TTM beat the basket with net-nets that were profitable in all recent years. http://greenbackd.com/category/about/net-current-asset-value-about/ The specific word Graham uses in Security Analysis was to be "discriminating," by which he means the net-net should have some other quality statistical features, or have a catalyst, such as about to undergo some positive management change, declare dividends, or undergo liquidation. So you might be right that an unprofitable net-net imminently about to be liquidated might be o.k. by Graham, but I do not think he explicitly uses such words for a general strategy. The two approaches are probably mutually exclusive. Graham says to be selective and discriminatory. Gray and Carlisle in Quantitative Value say that one should strictly stick with the results of your screen. They say that cherry-picking introduces the hazard of unconscious mental biases, for example when they tried to pick and choose "better-looking" stocks within the screen, these picks underperformed. I think either approach will work, but the caveat may be to be consistent for the long term through thick and thin. Sticking to a consistent strategy is one of the hardest traits for investors, even value-investors.

Nate's blog is accumulating a bunch of non-stock-related, insightful posts. We his readers are benefiting from his self-described slacker mentality during his high school and college years. I for one am glad he wasn't an academic stand-out, where he would have been indoctrinated in the ho-hum conventional ideas. Looks to me like he is a self-educated late-bloomer, thus the oddball, off-beat perspectives, not to mention leveraging this independence with his various start-ups. Nate's latest post could be a kind of counterpoint, on the macro-, country level, to James Grant's history of American finance, Money of the Mind (which I just read twice this past month). Grant candidly admits his book was like an account of the interstate highway system written from the point of view of the accidents. An opposite case could be made that the system of American finance, in which credit was expanded to the masses, and risks were increasingly socialized, played a large part is the success of the American economy. But along with all the financial leverage, we Americans also have more laissez-faire entrepreneurialism, better bankruptcy laws, a system of government, and rule of law. And, taking off from Jared Diamond's Guns Germs and Steel, a lucky geography. All of which we have leveraged into what is the most successful society ever. A lallapalooza, as per Munger. If QE turns out to be successful for the U.S., and unsuccessful in Japan and Europe, it may partly be because in those other places, QE alone is not enough. They lack many of the fiscal and structural advantages of the U.S. Of course, it's a whole different debate whether we have the appropriate amount of debt and stimulus, and whether we are in the sweet-spot with regard to the non-leverage factors. Regardless, some level of leverage seems essential.

[amazonsearch]Money of the Mind: How The 1980's Got That Way[/amazonsearch] One of the best history books I've ever read - in all history categories, not just financial. The spectacle of the credit markets can hold its own with the better-known stock market history. With this book, you also get the author's talent for finding appropriate quirky anecdotes and citing contemporaneous quotations, all delivered with Grant's idiosyncratic and subtle but wickedly funny and ironic prose. Students of banking history will get the beginnings of Citibank, as National City Bank, one of the first nationally chartered banks. To qualify as a customer, you had to have at least a six-figure account, therefore, only companies and corporations, not the hoi polloi. Deposits were non-interest bearing. Accounting policy was so conservative that loans were charged off if 24 hours delinquent. Real estate lending was forbidden. Stockholders were subject to "double liability," meaning they were also personally liable for depositors' losses up to the par value of their stock. Leading banks in the late 1800s repeatedly rescued the government, the most vexing of their large borrowers. Any of these features recognizable today? All the major events are covered from the mid-1850s, including the devolution of the gold standard, the panics, the establishment of the Fed, wartime inflations and post-war deflations, up to the junk bond era and S&L disaster of the 1980s. The American credit system evolved with the democratization of credit and the socialization of risk, but the occurence of booms and busts was a constant. If only all this history were a reliable guide to the future results of today's widespread quantitative easing. Grant: "History repeats itself, but not so literally as to enrich historians." What we can count on is "Knowing the past, one reads the morning newspapers with a sense of fatalism. One believes in the powers of markets and reason, but not in the perfectability of lenders and borrowers."

Anyone here subscribe to any points made in this contrarian take on this year's letter? http://www.economist.com/news/business/21645746-warren-buffetts-50th-annual-missive-his-companys-shareholders-obfuscates-rather I thought their analysis was marred by some cheap shots, such calling attention to BRK's share price performance is goalpost-moving, or saying that Munger posits rather than proves that the Berkshire system will endure.

Good idea. Just revised the poll options. Feel free to re-vote.

I'm going to assume that folks here will not see Buffett's leaving as a positive, hence no voting option for "Increase in intrinsic value." For about the past 10 years, Buffett has assisted us shareholders in calculating a rough estimate of BRK's intrinsic value. Since the 2010 letter and in annual reports since, he speaks of the Three Pillars. Pillar #1 is float/investments. Pillar #2 is non-insurance operating results, where you can apply some appropriate multiple to aggregate pre-tax earnings. Adding these two pillars gives you a quantitative estimate. Finally, there is Pillar #3, which is qualitative, subjective, and forward-looking: how well will future retained earnings be deployed. This factor is the management intangible. Some of you might use Pillar #3 as a buttress to your confidence in your quantitative calculation using Pillars #1 and #2. Others might consider Pillar #3 as a Buffett Premium, and actually add some "X" dollar amount to the quantitative IV estimate. Regardless, Pillar #3 is Buffett. What happens to Pillar #3 (and, by extension, BRK's intrinsic value), when Buffett is gone? 1. Option 1 implies that Buffett is unique by having solved the succession problem. I really liked his discussion this year of how BRK's conglomerate form will actually enhance corporate performance compared to run-of-the-mill conglomerates. The culture will remain intact. Buffett has engineered a kind of DNA that will be self-replicating and self-sustaining without him. BRK's genetic structure is resilient (or, if you prefer, antifragile), and Berkshire's "practice evolution" (Munger's words) will continue for the next 50 years. OR, do you believe: 3. Option 3 implies that Buffett is unique because Buffett is Berkshire, and Berkshire is Buffett. If Buffett is gone, you are gone. When the jockey is gone, the horse is just another horse. Or something in between?

Found an old Barron's clipping I tore out from 2005, available on the web (http://online.barrons.com/articles/SB113478045592625309?tesla=y): from 12-31-1994 through 9-30-2005, Kahn Brothers 16.6% annualized, S&P500 11.5%, Russell 2000 9.6. But I think you and I and others would like his 87-year record, if available.

Maybe Charlie Rose will rebroadcast some of his interview with Keough. I remember one hilarious segment. Keough lived across the street from Buffett in the 1950s. He said the neighborhood kids reported Buffett stays home all day, whereas Keough left home every morning for work. They would occasionally chat at the end of their driveways while checking their mailboxes. He humorously recounts Buffett saying he should give him some of his money to invest. Keough: "I turned him down." Rose: "Why did you turn him down?" Keough: "Why would I want to give money to someone who doesn't work?"

I remember Schloss's point with a somewhat different nuance (can't find the particular interview with the exact words right now). As you know, he frequently bought a baby position just from the Value Line data, and only AFTER buying, he would order the 10K annual reports to look a little deeper. If he liked it and understood it better, he might buy more. I recall his words to the effect that you pay better attention when you own the stock. But this method suggests Value Line-type of data is sufficient, when combined with wide diversification. (He may also somewhere else have made the point about knowing a business per se, as opposed to it's stock.)

92 years old means he grew up during the Great Depression. We've all heard stories of how that generation, and their children, can be frugal to a fault (slicing off the moldy parts of a bread loaf, etc.) That said, I wonder how much confirmation bias might be operating here. Maybe someone is aware of a survey study out there, showing what proportion of Depression-era folks have the opposite reaction and go for the opulent lifestyle when good times return.

I'm not sure how seriously we should accept these researchers's interpretations. Negative correlations in the 0.03 to 0.32 ranges would be laughed at by physicists, chemists, and engineers. These are extremely small and weak correlations. You've all seen random scatterplot diagrams in which some statistician draws a line through the mist and says there's a correlation. Generally speaking, correlations of at least 0.70 - 0.80 are considered strong in the social sciences. Moreover, the P-value in Ritter's paper was 0.16, i.e., not statistically significant. If I remember my probability/statistics classes correctly, the statisticians square the correlation coefficients ® to come up with an R-square number, which represents how much of the variance in one variable explains the variance in the other. So GDP growth "explains" only 0.09% - 10% of the subsequent stock returns. Another illustration of the gulf between the physical science and economic/social science. I think the most that can be made of this is that economic growth is not meaningfully associated with equity returns. In the quote, he is pretty clear that it seems unrelated for all the reasons you mentioned. The potential country level dataset is too small to have any definitive conclusions, Yup, yet they seem to like to publicize statements like this (from the abstract of Ritter's paper): ". . . the cross-country correlation of real stock returns and per-capita GDP growth over 1900-2002 is negative." It's these bald-faced assertions that get the headlines, and sticks in people's memories.

I'm not sure how seriously we should accept these researchers's interpretations. Negative correlations in the 0.03 to 0.32 ranges would be laughed at by physicists, chemists, and engineers. These are extremely small and weak correlations. You've all seen random scatterplot diagrams in which some statistician draws a line through the mist and says there's a correlation. Generally speaking, correlations of at least 0.70 - 0.80 are considered strong in the social sciences. Moreover, the P-value in Ritter's paper was 0.16, i.e., not statistically significant. If I remember my probability/statistics classes correctly, the statisticians square the correlation coefficients ® to come up with an R-square number, which represents how much of the variance in one variable explains the variance in the other. So GDP growth "explains" only 0.09% - 10% of the subsequent stock returns. Another illustration of the gulf between the physical science and economic/social science. I think the most that can be made of this is that economic growth, by itself, is not meaningfully associated with equity returns.

I can appreciate this, but not the excessively negative connotations in the words you've chosen to describe what is my investment process also! It's gratuitous self-deprecation. It takes years of study and hard-won experience, not to mention uncanny savvy and wisdom, to settle on this sound investment policy! (emoticon/emoji)

I'm eager to watch this, and thanks for bringing it up. Breaking Bad was certainly the greatest. I'm scratching my head here: is there anything more than a loose connection here with The Men Who Built America? I get that it's intertwined, riveting, and highly prone to compulsive binge-watching, but are there other parallels? I watched Breaking Bad with my 15 year old son, and now he wants to be a chemical engineer. Will Men Who Built America be "an equally wholesome influence"(!) on him?

Like you, I plan primarily to read and learn. I've had James Grant's Money of the Mind and Minding Mr. Market on my pile of books to read for years (?decades). I'll start on them soon. On the investment side, I'll resist buying gold. Possibly a mistake. How do you think about gold?

To me, the best part of O'Shaugnessey's methodology was the rolling 12-month basis. My portfolio currently has about 60 stocks, built up over a period of time, so by his study's definition, I can actually call it a 5-stock portfolio! (Actually, even smaller, since the investments were made over the past 4-5 years.) Am I concentrated, or over-diversified?

This is tremendous - thanks. Which editions did you use, and do you have a preference for any single one? Do you see yourself re-reading any particular edition in the future, or will you just refer to your notes? It might be interesting to see how your notes might be revised on a re-reading!

Looks like we're both afflicted with the same crazy book collecting compulsion. And when you say all the editions, do you mean both the 2nd and the 6th (since, as you know, the 6th is just the 2nd + fillers)? A true certified nut-case will have hard copies of both the 2nd and the 6th. This biography might be an interesting counterbalance to Graham's emphasis on examining the historical record. You probably know Satchel Paige's famous quote "Don't look back; something may be gaining on you."

Since you already have the 1st, why not read it now, then wait a few years and go on to re-read the 2nd? I'm planning to do this myself, to be followed by the 3rd, and then the 4th editions over the next decade. I like getting historical perspectives and seeing how a classic book itself evolves with time: I might learn something useful in making comparisons. Plus it's a little surreal to read Graham's concerns and perspectives in the wake of the unprecedented 1929-1932 market, and seeing parallels and contrasts with today's. Sure, reading all the Graham editions sequentially may be cult-like behavior, but who cares? It's all part of a good education.

The Classic 1934 1st Edition of Security Analysis. I first read Security Analysis more than 20 years ago. Alas, it was the 5th edition. At the time, it was the only edition in print, so I'm grateful McGraw-Hill decided to re-publish the first three editions. I learned a lot reading the 5th, but it was deathly dull, dull, dull. Graham was dead 12 years when the new 5th edition came out, so his voice and style were gone. The 1934 1st edition is a truly refreshing read, having Graham's learned but distinctively beautiful prose. It's really a different book from the 5th, so I should consider this my first reading of the classic. As a New Year's resolution, I decided to stop logging in to CoBF first thing in the morning, and replace it with reading Security Analysis 1934 edition. I read a chapter or two before going to the office, and I'm about a quarter of the way through. It feels great being in a rational, level-headed frame of mind before seeing patients. (I think I'm a better doctor this year because of this!) This board is terrifically educational and entertaining, but first thing in the morning is not the best time to meet you guys (some of you feel free mentally to place an emoticon/emoji here).

Consider this a companion poll to the one Liberty started yesterday. This poll might provide a meaningful, interesting interpretation to the raw numbers in Liberty's poll, and give folks a rough benchmark on how close you are to retirement, or, if you prefer, financial independence. Income is defined as take-home, after-tax. Then, refer to the chart below (from mrmoneymustache.com): SAVINGS RATE (%) WORKING YEARS UNTIL RETIREMENT 5 66 10 51 15 43 20 37 25 32 30 28 35 25 40 22 45 19 50 17 55 14.5 60 12.5 65 10.5 70 8.5 75 7 80 5.5 85 4 90 <3 95 <2 100 0 The chart assumes 5% annual investment returns after-inflation during savings years, i.e., this could be achieved or exceeded with index funds, never mind value-investing. Also assumes a 4% withdrawal rate after retirement, i.e., a stash that lives forever. Board members in their 20s might be able to adjust expenses. Older folks with partial nest eggs can gauge if they're on-track.

Yet another example - David Lowery of Camper Van Beethoven and Cracker (early alternative rock, ca. 1990s): Lowery is a trained mathematician who has worked as a "quant" (a derivatives trader and financial analyst) and has started a number of music-related businesses, including a studio, a record company and a publishing company.[3] Lowery's extensive experience in business led to his appointment as a lecturer in the University of Georgia's music business program. http://en.wikipedia.org/wiki/David_Lowery_(musician)

yadayada, you might be interested in this: http://www.raptitude.com/2015/01/how-to-disappear-completely/ Have you tried it? $45-60 for 90 minutes.

It's pretty cool to contrast the thinking of an EMH indexer (Zweig): http://blogs.wsj.com/moneybeat/2014/02/28/emerging-markets-look-appetizing-again/ with the thinking of a value guy (Stahl): http://frmocorp.com/_content/essays/EmergingMarketsasanAssetClassJuly2014.pdf Both of these articles were written earlier last year. Lots of index investors annually rotate out of sectors/markets and move funds into those that underperformed. They should not fool themselves that they are getting a better "value" just because of relative underperformance, because all they are looking at is market prices. To state the obvious on this board, value investors know that price does not equal value, even if prices fall a lot. Still, it's humbling for most active managers to see the indexers outperform.

Here's a wonderful idea, from last Saturday's Wall St Journal: http://www.wsj.com/articles/paula-marantz-cohen-a-year-of-15-minute-daily-doses-from-the-harvard-classics-1419637070 You don't even have to scrounge the used bookstores for all 50 volumes. It's all free here: http://www.mensetmanus.net/inspiration/fifteen_minutes_a_day/ Fifteen minutes a day. Edit: unfortunately, the page links on the mensetmanus.net site don't take you to the actual pages. You'll need to use a site that has the volumes in PDF like http://www.myharvardclassics.com/categories/20120212