Archive for September, 2009
Whitney Tilson On Charlie Munger
On Sept 8, 2009 Phil Terry interviewed Whitney Tilson. The focus is on Tilson’s understanding of Charlie Munger. This is the first of a 4 part series on that interview.
Whitney Tilson is an influential investor. He is the founder and managing partner at T2 Partners. Co-founder, chairman and co-editor of Value Investor and Insight). His resume goes on and on and on. More relevant to this article, he is a contributing author to Poor Charlie’s Almanack.
Charlie Munger is best known as Warren Buffett’s right hand man. More specific to Berkshire Hathaway, he is the acting Vice-Chairman of Berkshire Hathaway. Munger is also the chairman of Wesco Financial Corporation, an 80.1%-owned subsidiary of Berkshire Hathaway. Munger has an estimated net worth of several billion.
The audio from the interview can be streamed here:
And can be downloaded here:
Complete Text
Source: Gurufocus
- More on Charlie Munger
Black swan now elephant in the room
Nassim Taleb is exceedingly anxious: he has a flight to catch, and is not calmed by assurances that in efficient Hong Kong, he will make it to the airport with plenty of time to spare.
“I don’t want to cut it too fine,” he says, getting fidgety by the minute. “I want to give allowance for ‘black swan’ events”: a road accident or a traffic jam that might delay him and upset his travel schedule. “That’s how you can apply the ‘black swan’ principle in your daily life.”
‘Black swan’ events, of which the risk analyst wrote in his bestselling book The Black Swan: The Impact of the Highly Improbable, are rare, unpredictable events, the possibility or importance of which it is folly to ignore.
Taleb, a former derivatives trader, used that theory to frame last year’s collapse of the financial system, under the weight of the excessive risks that banks took invoking specious probability matrices.
Click here for the full story.
Livin’ on the Edge
October 2008 – October 2009
There's somethin' wrong with the world todayI don't know what it is
Something's wrong with our eyes We're seeing things in a different way
And God knows it ain't His
It sure ain't no surprise We're livin' on the edge
We're livin' on the edge
We're livin' on the edge
We're livin' on the edge There's somethin' wrong with the world today
The light bulb's gettin' dim
There's meltdown in the sky If you can judge a wise man
By the color of his skin
Then mister you're a better man that I We're livin' on the edge
You can't help yourself from fallin'
Livin' on the edge
You can't help yourself at all
Livin' on the edge
You can't stop yourself from fallin'
Livin' on the edge Tell me what you think about your sit-u-a-tion
Complication – aggravation
Is getting to you If chicken little tells you that the sky is fallin'
Even if it wasn't would you still come crawlin'
Back again?
I bet you would my friend
Again & again & again & again & again There's something right with the world today
And everybody knows it's wrong
But we can tell 'em no or we could let it go
But I would rather be a hanging on - by Aerosmith
What did we really learn from the economic crisis?
Source: FT
The height of sentimentality about the financial crisis may have passed with the morbid first anniversary of the collapse of Lehman Brothers, but that does not mean we should stop reflecting on the worst financial calamity of our time.
Of course, the world will never be the same. Yes, new economic powers have emerged and will reshape the global economy. We can say we all “learnt our lesson”. We have heard it all before. But what have we really learnt?
As the saga of platitudes on the financial crisis comes to an end, hard questions now lie on the hands of world leaders. And the number of hands has expanded, with the Group of 20 leading nations set to replace the G7 and G8 as the hub of global economic co-operation. Economic giants, such as China, India and Brazil, will now have a voice in shaping world finance. This, of course, illustrates that decentralisation of economic power in the new world order is an unstoppable development, which may prove to be a positive one if the newcomers behave as responsible stakeholders.
Click here for the full story.
Making the Fluctuations Pay
Warren Buffett has continuously given credit for his approach to stock investing to his mentor and friend, Ben Graham. To be more specific, Buffett points to Graham’s The Intelligent Investor, the book Buffett read in 1950, when he was 19-years old. And for more than 50 years, Buffett’s approach hasn’t changed.
When Buffett wrote the preface to the 4 th edition (1973), he said,If you follow the behavioral and business principles that Graham advocates—and if you pay special attention to the invaluable advice in Chapters 8 and 20—you will not get a poor result from your investments. (That represents more of an accomplishment than you might think.)
I find myself reading Chapter 8 (“The Investor and Market Fluctuations”) and Chapter 20 (“‘Margin of Safety’ as the Central Concept of Investment”) several times a year. In Chapter 8, Graham introduces the reader to his famous “Mr. Market” metaphor to explain how and why stock prices fluctuate. More than 50 years later, there is no better way of understanding how stocks are priced than by using Graham’s Mr. Market.
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10 Year Asset Class Returns for U.S.
Source: The Big Picture
More in the Article
Mathematician Says All Investors Are Liars
by John Paulos
First, let me note that the hypothesis comes in various strengths, depending on what information is assumed to be reflected in the stock price. The weakest form maintains that all information about past market prices is already reflected in the stock price. A consequence of this is that all of the rules and charts of technical analysis are useless. A stronger version maintains that all publicly available information about a company is already reflected in its stock price. A consequence of this version is that the earnings, interest and other elements of fundamental analysis are useless. The strongest version maintains that all information of all sorts is already reflected in the stock price. A consequence of this is that even inside information is useless.
So to what degree is the hypothesis true? The answer is surprising. The hypothesis, it turns out, has a rather anomalous logical status reminiscent of Epimenides the Cretan, who exclaimed, “All Cretans are liars.” More specifically, the Efficient Market Hypothesis is true to the extent that a sufficient number (sometimes relatively small) of investors believe it to be false.
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Are we all Keynesians, again?
The theories of John Maynard Keynes have made a resounding comeback. But they, like a new book by his biographer Robert Skidelsky, leave much unresolved
by N. Gregory Mankiw – WSJ
John Maynard Keynes. The name, by itself, is something of a Rorschach test for economists. More than half a century after the death of this famed Cambridge University professor, he remains among the most controversial figures in the field. The recent economic crisis has raised Keynes’ profile yet again and further stoked the debate over his contributions.
Most macroeconomists—that is, those who study the ups and downs of the overall economy—fall into one of two broad camps: Keynes admirers or Keynes detractors. When these groups cross paths, the result is the ivory tower equivalent of a spitball fight.
Click here for the full story.
Thoughts on Margin of Safety and Value Investing
by Nadav Manham
Fortune profiles Chris Flowers, one of the best-known private equity investors in financial services companies.
My working hypothesis, as I try to expand my manager selection skills from stockpickers to other platforms like real estate investing and private equity investing, is that these other platforms can and should also be viewed through the lens of value investing. Simply put, you evaluate a private equity fund manager the same way you evaluate a hedge fund manager: by trying to predict that individual’s ability to generate superior risk-adjusted returns over time.
“Risk-adjusted,” in the value investor’s dictionary, simply means the combination of the probability of permanent (as opposed to quotational) capital loss and the magnitude of that loss when it occurs. In private equity, adjusting for risk in this way is especially important because private equity relies on leverage. In private equity investing in banks, it’s even more important because banks themselves are highly leveraged businesses. Small mistakes in predicting the future by managers become big mistakes to limited partners.
Click here for article.
