BMW S1000 RR. Dinner for RR.
Posted on 6 March 2010 | Comments
From zero to 100km/h (62 mph) in just 2.9 seconds sounds very nice. Don’t try this at home with your dishes.
Eat food. Not too much. Mostly plants.
Posted on 5 March 2010 | Comments
Eat food. Not too much. Mostly plants.
That, more or
less, is the short answer to the supposedly incredibly complicated and
confusing question of what we humans should eat in order to be
maximally healthy.
Originality
Posted on 4 March 2010 | Comments
Hayek on Economics
Posted on 4 March 2010 | Comments
“The curious task of economics is to demonstrate to
men how little they really know about what they imagine they can
design.” Friedrich Hayek
Seth Klarman describes 20 lessons from the financial crisis
Posted on 4 March 2010 | Comments
Via Value Investor Insight
In this excerpt from his annual letter, investing great Seth Klarman
describes 20 lessons from the financial crisis which, he says, “were
either never learned or else were immediately forgotten by most market
participants.”
One might have expected that the near-death experience of
most investors in 2008 would generate valuable lessons for the future.
We all know about the “depression mentality” of our parents and
grandparents who lived through the Great Depression. Memories of tough
times colored their behavior for more than a generation, leading to
limited risk taking and a sustainable base for healthy growth. Yet one
year after the 2008 collapse, investors have returned to shockingly
speculative behavior. One state investment board recently adopted a
plan to leverage its portfolio – specifically its government and
high-grade bond holdings – in an amount that could grow to 20% of its
assets over the next three years. No one who was paying attention in
2008 would possibly think this is a good idea.Below, we highlight the lessons that we believe could and should have
been learned from the turmoil of 2008. Some of them are unique to the
2008 melt- down; others, which could have been drawn from general
market observation over the past several decades, were certainly
reinforced last year. Shockingly, virtually all of these lessons were
either never learned or else were immediately forgotten by most market
participants.Twenty Investment Lessons of 2008
- Things that have never happened before are bound to occur with
some regularity. You must always be prepared for the unexpected,
including sudden, sharp downward swings in markets and the economy.
Whatever adverse scenario you can contemplate, reality can be far worse.- When excesses such as lax lending standards become widespread and
persist for some time, people are lulled into a false sense of
security, creating an even more dangerous situation. In some cases,
excesses migrate beyond regional or national borders, raising the ante
for investors and governments. These excesses will eventually end,
triggering a crisis at least in proportion to the degree of the
excesses. Correlations between asset classes may be surprisingly high
when leverage rapidly unwinds.- Nowhere does it say that investors should strive to make every last
dollar of potential profit; consideration of risk must never take a
backseat to return. Conservative positioning entering a crisis is
crucial: it enables one to maintain long-term oriented, clear thinking,
and to focus on new opportunities while others are distracted or even
forced to sell. Portfolio hedges must be in place before a crisis hits.
One cannot reliably or affordably increase or replace hedges that are
rolling off during a financial crisis.- Risk is not inherent in an investment; it is always relative to the
price paid. Uncertainty is not the same as risk. Indeed, when great
uncertainty – such as in the fall of 2008 – drives securities prices to
especially low levels, they often become less risky investments.- Do not trust financial market risk models. Reality is always too
complex to be accurately modeled. Attention to risk must be a 24/7/365
obsession, with people – not computers – assessing and reassessing the
risk environment in real time. Despite the predilection of some
analysts to model the financial markets using sophisticated
mathematics, the markets are governed by behavioral science, not
physical science.- Do not accept principal risk while investing short-term cash: the
greedy effort to earn a few extra basis points of yield inevitably
leads to the incurrence of greater risk, which increases the likelihood
of losses and severe illiquidity at precisely the moment when cash is
needed to cover expenses, to meet commitments, or to make compelling
long-term investments.- The latest trade of a security creates a dangerous illusion that
its market price approximates its true value. This mirage is especially
dangerous during periods of market exuberance. The concept of “private
market value” as an anchor to the proper valuation of a business can
also be greatly skewed during ebullient times and should always be
considered with a healthy degree of skepticism.- A broad and flexible investment approach is essential during a
crisis. Opportunities can be vast, ephemeral, and dispersed through
various sectors and markets. Rigid silos can be an enormous
disadvantage at such times.- You must buy on the way down. There is far more volume on the way
down than on the way back up, and far less competition among buyers. It
is almost always better to be too early than too late, but you must be
prepared for price markdowns on what you buy.- Financial innovation can be highly dangerous, though almost no one
will tell you this. New financial products are typically created for
sunny days and are almost never stress-tested for stormy weather.
Securitization is an area that almost perfectly fits this description;
markets for securitized assets such as subprime mortgages completely
collapsed in 2008 and have not fully recovered. Ironically, the
government is eager to restore the securitization markets back to their
pre-collapse stature.- Ratings agencies are highly conflicted, unimaginative dupes. They
are blissfully unaware of adverse selection and moral hazard. Investors
should never trust them.- Be sure that you are well compensated for illiquidity – especially
illiquidity without control – because it can create particularly high
opportunity costs.- At equal returns, public investments are generally superior to
private investments not only because they are more liquid but also
because amidst distress, public markets are more likely than private
ones to offer attractive opportunities to average down.- Beware leverage in all its forms. Borrowers – individual,
corporate, or government – should always match fund their liabilities
against the duration of their assets. Borrowers must always remember
that capital markets can be extremely fickle, and that it is never safe
to assume a maturing loan can be rolled over. Even if you are
unleveraged, the leverage employed by others can drive dramatic price
and valuation swings; sudden unavailability of leverage in the economy
may trigger an economic downturn.- Many LBOs are man-made disasters. When the price paid is excessive,
the equity portion of an LBO is really an out-of-the-money call option.
Many fiduciaries placed large amounts of the capital under their
stewardship into such options in 2006 and 2007.- Financial stocks are particularly risky. Banking, in particular, is
a highly leveraged, extremely competitive, and challenging business. A
major European bank recently announced the goal of achieving a 20%
return on equity (ROE) within several years. Unfortunately, ROE is
highly dependent on absolute yields, yield spreads, maintaining
adequate loan loss reserves, and the amount of leverage used. What is
the bank’s management to do if it cannot readily get to 20%? Leverage
up? Hold riskier assets? Ignore the risk of loss? In some ways, for a
major financial institution even to have a ROE goal is to court
disaster.- Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.
- When a government official says a problem has been “contained,” pay no attention.
- The government – the ultimate short-term-oriented player – cannot
withstand much pain in the economy or the financial markets. Bailouts
and rescues are likely to occur, though not with sufficient
predictability for investors to comfortably take advantage. The
government will take enormous risks in such interventions, especially
if the expenses can be conveniently deferred to the future. Some of the
price-tag is in the form of back- stops and guarantees, whose cost is
almost impossible to determine.- Almost no one will accept responsibility for his or her role in
precipitating a crisis: not leveraged speculators, not willfully blind
leaders of financial institutions, and certainly not regulators,
government officials, ratings agencies or politicians.Below, we itemize some of the quite different lessons investors
seem to have learned as of late 2009 – false lessons, we believe. To
not only learn but also effectively implement investment lessons
requires a disciplined, often contrary, and long-term-oriented
investment approach. It requires a resolute focus on risk aversion
rather than maximizing immediate returns, as well as an understanding
of history, a sense of financial market cycles, and, at times,
extraordinary patience.False Lessons
- There are no long-term lessons – ever.
- Bad things happen, but really bad things do not. Do buy the dips,
especially the lowest quality securities when they come under pressure,
because declines will quickly be reversed.- There is no amount of bad news that the markets cannot see past.
- If you’ve just stared into the abyss, quickly forget it: the lessons of history can only hold you back.
- Excess capacity in people, machines, or property will be quickly absorbed.
- Markets need not be in sync with one another. Simultaneously, the
bond market can be priced for sustained tough times, the equity market
for a strong recovery, and gold for high inflation. Such an apparent
disconnect is indefinitely sustainable.- In a crisis, stocks of financial companies are great investments,
because the tide is bound to turn. Massive losses on bad loans and
soured investments are irrelevant to value; improving trends and future
prospects are what matter, regardless of whether profits will have to
be used to cover loan losses and equity shortfalls for years to come.- The government can reasonably rely on debt ratings when it forms
programs to lend money to buyers of otherwise unattractive debt
instruments.- The government can indefinitely control both short-term and long-term interest rates.
- The government can always rescue the markets or interfere with
contract law whenever it deems convenient with little or no apparent
cost. (Investors believe this now and, worse still, the government
believes it as well. We are probably doomed to a lasting legacy of
government tampering with financial markets and the economy, which is
likely to create the mother of all moral hazards. The government is
blissfully unaware of the wisdom of Friedrich Hayek: “The curious task
of economics is to demonstrate to men how little they really know about
what they imagine they can design.”)
Popular Science archives free
Posted on 4 March 2010 | Comments
Popular Science
Gadget nerds: Prepare to lose the rest of your day to awesomeness. PopSci, the web-wing of Popular Science
magazine, has scanned its entire 137-year archive and put it online for
you to read, absolutely free. The archive, made available in
partnership with Google Books, even has the original period
advertisements.
Desiderata
Posted on 4 March 2010 | Comments
Via Desiderata
Go placidly amid the noise and the haste,
and remember what peace there may be in silence.
As far as possible, without surrender,
be on good terms with all persons.
Speak your truth quietly and clearly;
and listen to others,
even to the dull and the ignorant;
they too have their story.
Avoid loud and aggressive persons;
they are vexatious to the spirit.
If you compare yourself with others,
you may become vain or bitter,
for always there will be greater and lesser persons than yourself.
Enjoy your achievements as well as your plans.
Keep interested in your own career, however humble;
it is a real possession in the changing fortunes of time.
Exercise caution in your business affairs,
for the world is full of trickery.
But let this not blind you to what virtue there is;
many persons strive for high ideals,
and everywhere life is full of heroism.
Be yourself. Especially do not feign affection.
Neither be cynical about love,
for in the face of all aridity and disenchantment,
it is as perennial as the grass.
Take kindly the counsel of the years,
gracefully surrendering the things of youth.
Nurture strength of spirit to shield you in sudden misfortune.
But do not distress yourself with dark imaginings.
Many fears are born of fatigue and loneliness.
Beyond a wholesome discipline,
be gentle with yourself.
You are a child of the universe
no less than the trees and the stars;
you have a right to be here.
And whether or not it is clear to you,
no doubt the universe is unfolding as it should.
Therefore be at peace with God,
whatever you conceive Him to be.
And whatever your labors and aspirations,
in the noisy confusion of life,
keep peace in your soul.
With all its sham, drudgery, and broken dreams,
it is still a beautiful world.
Be cheerful. Strive to be happy.
The Big Short
Posted on 3 March 2010 | Comments
Betting on the Blind Side | Business | Vanity Fair
Michael Burry always saw the world differently—due, he believed, to the childhood loss of one eye. So when the 32-year-old investor spotted the huge bubble in the subprime-mortgage bond market, in 2004, then created a way to bet against it, he wasn’t surprised that no one understood what he was doing. In an excerpt from his new book, The Big Short, the author charts Burry’s oddball maneuvers, his almost comical dealings with Goldman Sachs and other banks as the market collapsed, and the true reason for his visionary obsession.
By the middle of 2005, over a period in which the broad stock-market
index had fallen by 6.84 percent, Burry’s fund was up 242 percent, and
he was turning away investors. To his swelling audience, it didn’t seem
to matter whether the stock market rose or fell; Mike Burry found
places to invest money shrewdly. He used no leverage and avoided
shorting stocks. He was doing nothing more promising than buying common
stocks and nothing more complicated than sitting in a room reading
financial statements. Scion Capital’s decision-making apparatus
consisted of one guy in a room, with the door closed and the shades
down, poring over publicly available information and data on 10-K
Wizard. He went looking for court rulings, deal completions, and
government regulatory changes—anything that might change the value of a
company.
Michael Burry
Posted on 2 March 2010 | Comments
Michael Burry is a value investor notable for being one of the first,
if not the first, to short sub-prime mortgage bonds in his fund, Scion
Capital. He figures prominently in the Gregory Zuckerman’s book, The Greatest Trade Ever, and also in The Big Short, Michael Lewis’s contribution to the sub-prime mortgage bond market crash canon. In Betting on the Blind Side, Lewis excerpts The Big Short,
which describes Burry’s short position in some detail, how he figured
out that the bonds were mispriced, and how he bet against them
A banker’s career cycle
Posted on 2 March 2010 | Comments
Warren Buffett on CNBC
Posted on 1 March 2010 | Comments
CNBC had Warren Buffett on air today for many hours. You can pore over the entire transcript at CNBC or watch the video.
Classic Google
Posted on 1 March 2010 | Comments
Charlie Munger on the economic crisis
Posted on 1 March 2010 | Comments
Charlie Munger discusses the current economic crisis: The clip runs for 25 minutes. Via Stanford University (via YouTube)
Currency trading beckons
Posted on 21 February 2010 | Comments
Currency Trading Is Place to Make Your Fortune: via Bloomberg.com
In any decade, one sector of the financial markets is
usually dominant. There is one corner of the financial universe
where so much new stuff is happening, and it is of such
importance to the rest of the world, that it is far easier for a
young, ambitious person to make their mark than anywhere else.
In the 1980s, it was mergers-and-acquisitions deals.
In the 1990s, it was the venture capitalist who backed
technology companies, and the bankers who arranged initial
public offerings for dot-com companies on the stock market.
In the 2000s, it was hedge funds, along with the
derivatives traders that supplied them with products.
But in the 2010s, it will be currency trading.
Cash flow
Posted on 21 February 2010 | Comments
Hmmm….
Posted on 18 February 2010 | Comments
If I agreed with you we’d both be wrong.
I used to think the brain was the most important organ. Then I thought, look what’s telling me that.
My relationships are like furniture from Ikea: I do all the work and two years later it falls apart.
I find television very educating. Every time somebody turns on the set, I go into the other room and read a book.
Those are my principles. If you don’t like them I have others.
I refuse to join any club that would have me as a member.
I could dance with you ’til the cows came home, but I’d rather dance with the cows ’til you came home.
I read the dictionary yesterday…turns out the zebra did it.
It doesn’t matter what temperature the room is, it is always room temperature.
Hermits have no peer pressure.
I used to be indecisive. Now, I’m not so sure.
The early bird gets the worm, but the second mouse gets the cheese.
polar r=(sin(t)*sqrt(abs(cos(t))))/(sin(t) + 7/5) -2*sin(t) + 2
Posted on 15 February 2010 | Comments
Just Google It
Posted on 12 February 2010 | Comments
Diamonds as an asset class
Posted on 12 February 2010 | Comments
Diamonds Aren’t an Investor’s Best Friend – WSJ.com
Diamonds are a marketing gimmick as much as anything else. Most men feel they have to give a diamond ring when they propose—even though, as anyone knows after a moment’s thought, the only woman worth buying a ring for is the one who doesn’t care how much you spent on her ring. (In Shakespeare’s “Merchant of Venice,” I might add, the successful suitor is the one who picks lead over silver or gold.)
Feather in a cap
Posted on 12 February 2010 | Comments
My team advanced to the final four of Investment Research Challenge competition at the New York Society of Security Analysts (NYSSA). See the announcement in the Johnson School website here. See the official press release here. We beat other top tier teams from Yale, Columbia, NYU Stern etc.
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