Kraven

Ugh, such a scummy business. Yes, not sure of the reputation for this in Holland, but in the US it's a gutter business. Someone who runs a local strip club is going to garner more respect than someone doing traded life interests. There's also some question as to the legality of this in the US. The person running the local strip club is like a pillar of the community compared to someone in the life settlements business. If I had to choose who would watch my kids (assuming a gun was put to my head and I had to choose) between the 2, I'd take the strip club guy over the life settlements guy.

Ugh, such a scummy business.

Good post. I agree. The key is to know thyself. Graham talks about this. He doesn't say that his method is the only way. I'm paraphrasing, but he says something to the effect that if you can invest because you are good at predicting the future, do that. If technical indicators lead you to the promised land, more power to you. He just says that it doesn't work for him and his way does. Mike Burry also talks about this. He said that as much as everyone wants to be Buffett they have to do what works for them. He also says for all the time spent on attempting to copy Buffett that there aren't any mini Buffetts running around, but there are many successful Grahamites. What I find interesting is the dichotomy if you will between the Graham/Schloss crowd and the Buffett crowd. The former usually seem to say people should do whatever works for them while the latter are highly critical of anyone not beating the bushes for moats. My main concern with Graham/Schloss in the modern day is the advent of cheap computing and the quantitative firepower it unleashes. By definition, there will always be a cheapest decile of the market unless we are in Lake Wobegon where all of the kids are above average. But that doesn't mean that the cheapest decile is underpriced! I can pretty easily concoct a scenario in which the rise of value ETFs and fairly naive quantitative strategies such as those employed by DFA, LSV, and even AQR and a host of other quant funds, systematically buy the cheapest stuff in the market to the point where any excess return to value no longer exists. That wasn't an issue for Graham. Stated more succinctly, the ability to fairly easily arbitrage the historical value premium is much greater now than it was in Graham's day or even 20 years ago. Now its true that this isn't as much of a problem in the microcaps where a lot of board members play, due primarily to liquidity constraints. But it is an issue for larger funds that practice value investing and I think its shown up in a big way for firms like Longleaf over the past 10 years or so. If you buy this argument, then how does one confront the rise of the machines? My view is that bargains now require greater 'judgment,' the special asset which quant strategies completely lack. The judgment stocks are in the quality businesses. And that means being able to distinguish between fundamentals and expectations for stocks that are priced closer to the market. Look at a stock like Ecolab. You could have purchased Ecolab for about 20x earnings towards the end of the tech bubble in 2000. Anyone on this board could spend half a day with Ecolab's financials, conference calls, and an investor day presentation or two, and know that it is a great business with a very long growth runway. Even though you paid 20x earnings, you would have compounded at 16.5% annually over the last 13 years in a very tax-efficient manner (this is the other huge advantage of quality v value, the tax benefit of lower turnover) while the S&P returned 2%. But it isn't so easy for a computer to distinguish between, say, an Ecolab and something else that was selling at 20x in mid 2000, say pets.com or whatever. Now you could rightly say that it's harder or requires more work to become good at developing such judgment v just buying 'cheap' stocks, and I wouldn't argue. But after having a strong value bent for many years, I now believe that it isn't heretical to question whether Graham's strategies are as effective today due to the explosion of data and computational efficiency we've seen over the past 10-15 years. And if that's true, then those who manage institutional capital don't have a choice but to 'adapt or die' as the saying goes. You make some good points. However, I think you are confusing a Graham/Schloss methodology with buying anything and everything that shows up in a screen. I am not sure why there is a supposition that investing a la Graham and Schloss does not require judgment. Also, there needs to be a distinction between early Graham and later Graham where he did change his stripes, or evolve or whatever you want to call it to essentially be a proponent of investing on the basis of screens. This goes back to what I was saying though. It's fine to be critical (in the sense of asking questions, etc), but there is a overriding sense that it's fine to be a nice little Graham/Schloss guy when you're little, but when you grow up you realize you need to be a big Buffett guy. I would fully reject that argument. I would say that it depends on the capital one has. Graham/Schloss works in my view until somewhere in the $50-100 mil mark, so no, it won't work for institutional funds. But for most individuals, that should work just fine. I don't think the machines take the bat out of my hands at least. I am not fishing with a net, I fish with a pole. I fish primarily in certain ponds however and that is the difference.

Good post. I agree. The key is to know thyself. Graham talks about this. He doesn't say that his method is the only way. I'm paraphrasing, but he says something to the effect that if you can invest because you are good at predicting the future, do that. If technical indicators lead you to the promised land, more power to you. He just says that it doesn't work for him and his way does. Mike Burry also talks about this. He said that as much as everyone wants to be Buffett they have to do what works for them. He also says for all the time spent on attempting to copy Buffett that there aren't any mini Buffetts running around, but there are many successful Grahamites. What I find interesting is the dichotomy if you will between the Graham/Schloss crowd and the Buffett crowd. The former usually seem to say people should do whatever works for them while the latter are highly critical of anyone not beating the bushes for moats.

This was a very good post. Should be required reading for new (and not so new) investors.

How is Neil Young a better songwriter than Lennon and McCartney? Keith Moon and John Bonham are definitely contenders for the crown. Both had that crazy drummer thing going on.

Best Drummer: Obviously Neil Peart Best Guitarist: Jimi, Living: Alex Lifeson; Best Songwriter: Neil Young All Canadian Line-up. Only a loser would disagree. Best drummer - agreed on Peart Best guitarist - gotta be Eddie, although I have a soft spot somewhere down deep for Michael Schenker and his Flying V. The cool pick back in the day was the "fastest" guitarist, Sweden's favorite son, Yngwie Malmsteen. The songs sucked, but he played fast! Best songwriter(s) - Lennon and McCartney of course! All Canadian line up? Jimi wasn't Canadian, was he? I thought he was born in Seattle, but can't remember. You can't have an all Canadian line up without including Triumph and, um, Aldo Nova?

These discussions remind me of when I was in high school. Depending on what type of music you liked you were labeled and god forbid once you were in a group you crossed the line. For example, if you liked heavy metal you were a "rocker" and to admit that a Duran Duran song was catchy would be to risk being permanently banned from the group. There used to be arguments on what genre a certain band fell in and for some reason this mattered greatly. I remember people arguing vehemently that the Police were really a reggae group and this seemed to be an important point. Certain groups like Madness were really ska and not new wave and this mattered very much. Then there were the sub discussions like who was the best drummer (Alex Van Halen or Neil Peart?) or guitarist (Eddie Van Halen or, for some reason, Michael Schenker?). It wasn't about what was good music or what anyone liked, it was about labels. In terms of investing who gives a crap what it's called. I can't stand the holier than thou attitude some have as to whether investing is done in a pure manner. Is a person Buffett enough for them? Do they think about the proper latticework a la Munger? Graham said it best. If you can invest by forecasting, do it. If squiggly lines tell you what you need to know, more power to you. It just didn't work for him. There are multiple ways to get to heaven. It's all about making money by buying something worth more than what you paid for it, however you get there and whether it's heavy metal, I mean, value investing or whatever.

I thought it was a great interview. He is a fascinating guy and I would be interested in reading more about him.

Congratulations, what an awesome story, from poor to a millionaire in 16 years. I think one lesson from your posts is patience, you didn't become a millionaire overnight, it took a while, but you persevered through two tough market downturns and are the better for it. I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me. I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time. It's important to enjoy the journey as much as the destination because it isn't something instant. Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind. I've enjoyed reading your posts, and it's clear you've enjoyed the journey, which is something so many people miss. seconded - thanks uccmal. its a good point - just using compound interest and saving rguarly will get us all rich - but maybe not as quick as we'd like - or worst still - doing it along a path wher the target of being rich is all consuming. I could have been much better of by now - maybe even retired but - I have a wife aqnd three kids.. they can be damn expensive!!! we try to visit various places around the USA and the world. My youngest is 11 (got the first house just after she was born!). She's been to 14 different countries and way more states. We see travel as a means of education (hopefully while having fun) and have taken many trips. Allof this was using money that I could have invested in order to reach the end goal of being rich. However life is a journey and for all of us to have taken those trips and seen those places is an investment that cannot be measured in dollars. The true worth of them may have a payoff in the long term. Hopefully the payoff will be forever for the kids in terms of memories of trips that can never be replicated regardless of how much money you have. In twenty years there is no chance that my kids can spend a month visiting their Grandparents - so the real cost of those trips has value that can be measured purely in dollars. Each to their own but I truly believe that there has to be a wider goal than accumulation of money. +1 all around. I couldn't agree more that these stories are great. I think too many people are focused on money as an end rather than as a means to an end. Too many people see every expense as "Buffett's Folly", that the hot dog and coke they got at the game with their kid could be worth a gazillion dollars if they just invested it and drank water instead. I have made choices in my life as well that have cost me and will continue to cost me a lot of money. However, that has been traded off against a happier life and one where my kids know me and where I'm not some guy they see in the house for 2 min on Saturday.

Any number of reasons. To state the obvious, the 2 major ones are (1) it's more lucrative and (2) avoid the prohibitions placed on mutual funds. He may not have a specific thing in mind right now (although he might), but just want to put things in place for the next opportunity that he would have been unable to do as a mutual fund manager. So in a non-exclusive list this would include leverage, shorting, hedging, position sizes, secrecy, etc. It is also easier to manage funds that are locked up for a period of time instead of having to provide liquidity to holders at all times. Will be interesting to see what Bruce does with this new toy. Frankly, I'm surprised it's taken him so long to do it.

I usually order each new value investing book. I skim it quickly and toss it aside irritated I wasted the time and money. I expected something similar here and was very pleasantly surprised to be wrong. This book is a definite cut above the usual investing book. I would liken it to a graduate level survey course in that it covers a lot of topics, but don't take that to mean it isn't entertaining. It's sophisticated and an enjoyable read. I think that any investor interested in the topic, whether a novice or experienced, would get something out of the book. Recommended highly.

Of course Kraven, you know who owns Seattle's best? No idea. I will take a wild guess. Starbucks? Ha ha, just looked it up. Starbucks it is. Well, I still say their coffee was much better! And on top of that who wants to go to some nice, hip place with music playing and good looking baristas when they can stand in line with the great unwashed masses? For better coffee, I will choose the latter!

I think people have it right about the whole convenience factor, the vibe, etc. That being said, I think Starbucks coffee is very average and if I have any other choice I will take it. I used to walk each day to get coffee and there was a Starbucks and a Burger King right next to each other. The Burger King had better coffee (I think they used Seattle's Best) and it was about half the price.

Liberty, nothing in particular… it is just the general tone of the article… something like: “it might be true: markets are overvalued, and are at risk of coming down abruptly… anyway, disregard this piece of information, because it is not actionable.” Just give me the information, and let me be the one to decide what to do with it! The relevance of the same piece of information might be very different for me than for you. Simply because my situation is different from yours. That’s my point! But, of course, I might have misunderstood the general tone of the article. :) giofranchi I thought that the author (Brooklyn Investor) made a very good point in the comments to that blog piece. He says that according to the CAPE 10 the market looks 50% overvalued, yet when he looks at individual stocks he likes they don't appear 50% overvalued to him. He gives an example of JPM selling around BV. Is it worth 66% of BV? Just goes to the point that the market in the aggregate may be overvalued, yet any number of individual stocks are not. In a market dislocation correlation may close in on 1, but there is nothing one can really do about that. He makes a further great point in the article itself by looking at what Schloss, Tweedy and Ruane (Sequoia Fund) did during periods where the market was seemingly overvalued. Here's the original comment I referred to: "This is the problem with these 'macro' figures. The CAPE 10 makes it look like the market is 50% overvalued, but for example, I really like JPM and they are trading near book value. I don't think JPM is only worth 66% of book value. I like other financials and I don't think any of them are only worth 0.66x where they are trading now. KO is 20x trailing p/e, and I don't think they are only worth 13x p/e. I think they are trading at 16x next year's earnings, and I don't think they are worth only 11x p/e."

I love that quote! It explains why the suicide rate is so high and I suspect that raising a generation of self entitled little brats who, not only have no experience losing, but think that it isn't okay to lose, can only raise it. Joshua Greetings, Professor Falken Would you like to play a game?

I love that quote! It explains why the suicide rate is so high and I suspect that raising a generation of self entitled little brats who, not only have no experience losing, but think that it isn't okay to lose, can only raise it. Joshua

No clue. But for point of reference, there is still Exxon Valdez litigation going on. That incident was I believe in 1989. There is still asbestos litigation and that has been going on for 30-40 years. I'm not saying this has anything to do with those things or even that it's similar. But litigation can sometimes go on endlessly if the parties want it too (i.e. can't reach any kind of agreement).

I was also recently approached by someone I used to work with many years ago. I also did not like it. I guess I don't understand it at all really. I mean it's just asking people for money. It's not like you get a piece of the business or even that it's a loan, it's just a "donation". What irritates me is that it would be one thing if the guy was down on his luck or something like that, but he made decent money and comes from a well off family. I don't get it.

I think it depends on the situation. I used to feel the way that some do who posted above, but changed my views somewhat with kids. I think it depends on their ages and the overall skill level. In a beginners league like t-ball for example, I don't see a problem with something like a participation trophy. No score is kept and couldn't be anyway with how the game is played. So I don't see a problem celebrating finishing the season with a trophy that just tells a kid that his hard work is recognized. I think too as kids get older they certainly are aware that a participation trophy isn't really an award, but perhaps it can be viewed in a different way. Not as a trophy per se, but as a memento of the season. Just something to remember that when you were 8 you were on the Sharks or something.

The location probably makes a difference, I grew up on the east coast in a lower-middle class (at best) area, so we kind of knew that wearing OP meant that we were just following what was going on out west. That, and there were many kids who couldn't afford it, not just one or two. Same thing with Nike, it was cool to have it if you did, but most kids didn't because it was expensive, so no one got made fun of. Yes they do start young and it isn't always with clothes. In my daughters elementary school, this had to be 3rd grade, they had a big problem with a group of girls calling themselves the "3CG Club" harassing girls at recess to tears over the fact that they lived in a house with a 2 (or fewer) car garage. My daughter didn't get harassed because we have 3, but some of her friends did. This certainly would never have happened in the town I grew up in. It's a shame that kind of thing occurs.

Who, me? Ha. Sure, they do and I think have for a long time. I don't know why, but it reminded me of something from when I was a kid in California. I don't know if people remember the "OP" brand (Ocean Pacific). It was huge back in the day (probably late 70s). That and Lightning Bolt. I can still remember their terrycloth shirts that I loved. But I digress. The big thing was having OP shorts. There was this one kid who in retrospect probably came from a family that wasn't well off. He used to get a very hard time because he didn't have OP stuff. I remember once he came into school very proud and showing everyone his OP shorts. Only, it was clear that his mother had taken a regular pair of shorts and sewed in the OP stitching (trademark infringement, I know). It was misshapen and didn't look anything like the regular one. Kids gave him a very hard time over that and I think he really suffered. So yes, I do believe 12 year olds have brand knowledge. That story actually surprises me a little. I wore OP in the early 80's, but I also had cheap shorts and no one made fun of me for them. Even today my son has no problem wearing anything, he's perfectly okay with wearing an Aero t-shirt or sweatshirt even if he likes A&F better. Him and his friends seem much more concerned with electronics than clothes. Girls however are brutal with each other about this kind of stuff, absolutely brutal to a shocking extent. You wouldn't be able to get my daughter out of the house wearing something that said Aero, if I said "wear that or your punished for a year" that wouldn't do it. There is nothing I could do that would be worse than the wrath of the other girls in school. I get the sense that like you said things like electronics are more important now than clothes with the boys. I think too that ever since the grunge days that being disheveled is ok. I remember a friend of mine with older kids telling me a year or 2 back that most boys had adopted the Vince from Entourage look, which made me laugh. In terms of my story, it wasn't like everyone was a bunch of fashionistas, but there were certain brands that were important. I grew up in So Cal so maybe it was different, I don't know. I do recall that OP and Lightning Bolt were good, Hang Ten was not. My parents put me in Stride Rite shoes and that was a no no. Nike was just getting big and that was good, along with Adidas (remember the Stan Smith ones) and Thom McAn. In terms of the Mean Girls thing, my wife told me that she heard there was a mean girl in training in one of the kindergarten classes who was telling certain girls to wear something specific (like red shoes) so they could have the same thing on. It starts early. Not easy being young sometimes.

Who, me? Ha. Sure, they do and I think have for a long time. I don't know why, but it reminded me of something from when I was a kid in California. I don't know if people remember the "OP" brand (Ocean Pacific). It was huge back in the day (probably late 70s). That and Lightning Bolt. I can still remember their terrycloth shirts that I loved. But I digress. The big thing was having OP shorts. There was this one kid who in retrospect probably came from a family that wasn't well off. He used to get a very hard time because he didn't have OP stuff. I remember once he came into school very proud and showing everyone his OP shorts. Only, it was clear that his mother had taken a regular pair of shorts and sewed in the OP stitching (trademark infringement, I know). It was misshapen and didn't look anything like the regular one. Kids gave him a very hard time over that and I think he really suffered. So yes, I do believe 12 year olds have brand knowledge.

That's interesting. Obviously it doesn't mean all that much, but provides some info.

Thanks for the insights. Did you ask what it means to be popular? No, sorry I didn't.