west

That is an exercise I'll leave to the reader :). It isn't hard to take the average return, multiply by the number of companies in the computation, and then divide by the total number of companies in the original selection set. To do this myself would be to misrepresent the data, which isn't fair to the Magic Formula selections in the slightest. Especially since there were far more buyouts than bankruptcies...

Hey dudes and (allegedly) dudettes. I have updated my Magic Formula data website, including making the design not plain painful to look at! Please find it here: www.dusthimer.net/MF-DATA/ Enjoy!

Hey kfh. Can you give us some background on what you did, investing-wise, before you took your year off? Was it just reading? (There's no problem with this. We just need to know where you're coming from.)

I think this sums up my thinking nicely. There is rational argument that can be made that we're nearing satisfying bandwidth demand based on current needs. However, when it comes to technology, it's very dangerous to assume that tomorrow's current needs will be the same as today's. ("This time is different" anyone?) While it may end up being true, I wouldn't bet on it (and I'm guessing if I had to put a bet on one side of the argument or the other, my bet would probably be on the other side). Two potential reasons why bandwidth demands could increase: 1. IPv6 allows the following number of devices to exist on the internet: 340,282,366,920,938,463,463,374,607,431,768,211,456 That is, 667 sextillion devices per square meter on earth. The world is upgrading to IPv6 because the 3.7 billion addresses provided IPv4 wasn't enough. And those are just the addresses for the public network. If device density increases, the bandwidth demanded per consumer location will increase, which will increase the demand for more bandwidth on broadband networks. 2. Holographic (not just 3d) video chatting. Maybe not now, or in ten years, but I have a hunch it will exist in most of our lifetimes. This may sound like it's straight from out of Star Trek, but honestly it's not that complex on top of what we already can do (video encoding, 3D scanning, etc). It wasn't too long ago that having a device in your pocket that let you talk to anyone in the world at the touch of a button (let alone have access to pretty much the entirety of the world's knowledge) would have been considered sci-fi as well... Maybe neither of the two things mentioned above will drive future demand for bandwidth that much. However, I bet there will be something.

Recently ItsAValueTrap posted a great article on his blog about future demand for different technologies (e.g., CPU power, network bandwidth, etc.) Please read it here: http://glennchan.wordpress.com/2014/10/04/what-happens-when-technology-is-good-enough/ I would summarize, but by summarizing it I think I would skew what he says in a way that more reflects what my perspective is. So I'll leave it for you to read instead of summarizing. :D One of the things he talks about is how he thinks that the future demand for bandwidth will decrease once there is full 4K penetration in the cable and other video delivery businesses in the US. I disagreed with him on this, or at least I felt that assuming demand for more speed/bandwidth would taper off is a dangerous assumption. My feeling on the matter is that there always seems to be something new in technology that creates demand for more. While this isn't true in the realm of CPU power (most people have enough CPU power at this point to meet their needs) or in say sound cards (when's the last time anyone here worried about what sound card is in their computer?), it is true for almost every other domain in technology. For example, the more hard drive space is available to consumers, the more people seem to need more hard drive space. My feeling is that while there is a chance that demand could taper off at some level, we are a long ways away from that point. There could be more devices on the network, whether at home or at work. There could be more applications, some of which we haven't even heard or thought of. (Holographic video calls anyone?) Who knows. I just think we're a long, long way off from satisfying any current or future complete bandwidth demand. I think Glenn's thinking goes something along the line of: Most internet traffic is driven by video and most people don't care too much about 4K video (let alone 8K video). Even if they do care about 4K video, most networks will be able to handle it within a few years. Then what's left to drive bandwidth? (Correct me if I'm wrong on this Glenn.) What do you guys (preferably you guys who have knowledge on the matter) think?

Thanks for this. As a white dude (albeit one of a not-so-priveledged upbringing) and as a biker, this article definitely had a bit of... resonance to it.

I haven't read all the details, but after skimming a bit I'm inclined to agree with ItsAValueTrap. Looks like this may be just some more Icahn style hit and run capitalism...

Wow. Perhaps it's my engineering mindset where I love "just the facts" and no elaboration, along with lots of structure and organization, but so far this book is just great. I wish all books would get to the core points as quickly as this one does! (And now I kind of want to meet Frederick. I think he and I would get along just well.) The Springer-esque binding is a nice touch as well. Thanks for recommending Packer!

Thanks for your help everyone!

The understanding that indexing is the best option for them despite what so many other people will tell them, the understanding that the market will go down eventually and that they need to be mentally prepared for it, and the understanding that they will do better than most if they have a long enough time horizon. It's all about understanding what the person is getting into, even though it's a passive vehicle.

What do you guys think about about The Little Book of Common Sense Investing? I was leaning toward recommending The Bogleheads Guide, but I looked at its contents on Amazon and, even though it looks pretty to the point, I still think it might be information overload for this person (and then it might never get read...)

I recently was asked by a friend of one of my family members about what they should do as far as investing goes? I talked a little with them and based on their personality and the amount of money they had, I think an index fund is the best option for them. I want to recommend a book to them about index funds so they have some grounding if the market ever goes down. I figure recommending one of Bogle's many books is probably the way to go, but I have no idea which one is the best. Plus, I've read some of Bogle's non-indexing related books, and they have a tendency to be hard to chew. Does anyone know of one of his books that's easy enough to read that your typical, let's say, People magazine reader could read it? Thanks in advance! PS- To stop the argument before it begins, I pick my own investments myself (as I'm sure many of you know). So I understand that the market is inefficient in places and you can take advantage of it. However, after assessing my family's friend's personality and financial sophistication, they will be best served by an index fund. So please don't tell me they should be in individual stocks. Sorry to be blunt.

Bruce Greenwald's Competition Demystified book has excess cash defined as All Cash - 1% of Sales. This is what I use when doing valuations, but it's a grossly simplified estimate. What Packer recommends is probably the best approach.

Stone19, just curious, but what does your company do?

I'm sure people are starting to get sick and tired of me yammering on about Japan, but please don't say that Japanese stocks deserved to be depressed because they're based in Japan, like Russian stocks deserve to be depressed because they're in Russia or Chinese stocks deserved to be depressed because they're in China. There is next to no political risk in Japan (unlike Russia or China) and it's my understanding that things like fraud and other financial shenanigens are more severely punished in Japan than in the US! I'm not 100% sure you meant to lump Japan, Russia, and China together, but I just wanted to clarify. Beyond being below the US in terms of corporate governance, I really see no reason why Japanese stocks "deserve" to be depressed. I think they're depressed due to investor psychology, and nothing more. west, I never said I feel they deserved to be depressed, I am saying some third person generic third party retail investor can argue that when I push my Japanese holdings on them maybe you've forgotten me but we discussed Japanese holdings many a time in another thread, I have a sizeable position in Japan, plus a small position in Russian, but honestly I am staying away from China...... Nah, I haven't forgotten. I just wanted to clarify to make sure people knew that the risk of investing in Japan doesn't come close to the risk of investing in Russia or China. Not. Even. Close. Sorry if it came off as attacking...

I'm sure people are starting to get sick and tired of me yammering on about Japan, but please don't say that Japanese stocks deserved to be depressed because they're based in Japan, like Russian stocks deserve to be depressed because they're in Russia or Chinese stocks deserved to be depressed because they're in China. There is next to no political risk in Japan (unlike Russia or China) and it's my understanding that things like fraud and other financial shenanigens are more severely punished in Japan than in the US! I'm not 100% sure you meant to lump Japan, Russia, and China together, but I just wanted to clarify. Beyond being below the US in terms of corporate governance, I really see no reason why Japanese stocks "deserve" to be depressed. I think they're depressed due to investor psychology, and nothing more.

Obligatory self promotion! There's some crazy cheap stuff in Japan if you don't mind looking abroad. This post contains all the ideas I've posted so far (except Sapporo Labs): http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/1782-jp-joban-kaihatsu-co-ltd/msg188645/#msg188645 The Sapporo Labs thread can be found here: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/9776-jp-sapporo-clinical-laboratory-inc/ EV/EBIT of 0.5x despite a historic ROIC of 27% anyone?

EV/IC is pretty awesome imho, but it takes a lot of work to get to the right value for it. I thought it was a misleading title that was created to get people to read it. (In terms of the internet: "click bait".) A decent read though, and not difficult to get through. Good luck with the Damodaran stuff. If you're interested, he also publishes his classes online and through iTunes. You can get his 2014 Spring class webcasts from here: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/webcasteqspr14.htm He just started the fall 2014 session. I think you might be able to join in online if you're really dedicated to it.

I figured his directness was due to him being Dutch, but it looks as if he is not! I'm with Spier here though. What do I lose by telling you about how I feel about things without mincing words? Unless I'm in a Machevellian situation, probably not much (if I remove the emotion which, for me at least, is almost my default mode). And you can probably gain from me sharing, so I might as well share, perhaps thinking that you might also share your thoughts, honestly, on something down the road, where I benefit from it. The world would end up a more informed place with less broken down communication. I'm guessing this is largely a cultural thing though...

Since I'm not sure when I'm going to get in tomorrow, I'll also just pass on dinner tomorrow. A bummer, since the place sounded pretty good... That being said, I'll see you all for lunch! Do we want to convene somewhere and then head out from there?

I'd be down for both. I've never been to LA (except once... I was at an Amtrak bus stop for 45 minutes...), but for lunch I hear Philippe french dip is pretty good. And it's very close by to where the DJCO meeting is happening.

Was the Mr. King versus Mr. Mulliner reservation issue for tomorrow night resolved?

While I agree to some degree (I might bump your threshold to $500m), if we're talking about mom and pop investors, who don't want to look at their portfolio and see a potential fraud in it, why risk it? I should clarify. When I say a potential fraud, I mean a basket of potential frauds, as was the case in late 2010 with the Chinese reverse mergers. And I re-looked at the data, and some of them were above a $100m market cap.

While I agree to some degree (I might bump your threshold to $500m), if we're talking about mom and pop investors, who don't want to look at their portfolio and see a potential fraud in it, why risk it? I agree here as well. I'm pretty sure large caps outperforming over the last four years (for the MF selections) is not going to be persistent for every year in future going forward. There's some time period stuff involved.

For what it's worth, for investors who don't know how to do *real* financial analysis and qualitative analysis (99.99% of the "investors" out there, to make a number up) but still want to use the Magic Formula should stick with large cap selections. There's too much potential for bombs to pop up in the small cap selections. I mean, think about Herbalife. It's pretty small as far as big companies go. But as of today it wouldn't even qualify for the $5b+ market cap selection cutoff through the MF website. And yet still look at how much press coverage it's getting for being a potential fraud. With large caps, the big players are keeping companies honest. This, plus, in my experience the large cap threshold selections have done as well if not better than the small cap threshold selections from the Magic Formula website.