What Warren thinks… – Apr. 14, 2008
How do you get your ideas?
I just read. I read all day. I mean, we put $500 million in PetroChina. All I did was read the annual report. [Editor’s note: Berkshire purchased the shares five years ago and sold them in 2007 for $4 billion.]
North Dakota and Montana have an estimated 3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil in an area known as the Bakken Formation.A U.S. Geological Survey assessment, released April 10, shows a 25-fold increase in the amount of oil that can be recovered compared to the agency’s 1995 estimate of 151 million barrels of oil
Most students come to business school for a handful of reasons, (roughly in order of priority):
1) To break into new industries or functional specialities
2) To punch their ticket in order to get a promotion
3) To make connections
4) To re-brand their resumes with a better educational institution
5) To actually learn something
6) For a company sponsored “vacation” (esp. consultants & bankers)
7) To ride out a lousy job market
In almost all cases, the student anticipates compensation increases to make the investment worthwhile. A general curriculum addresses all but the first item, and elective courses can enable learning a new field.
MBA students come with a wide range of expertise and the first year core curriculum is a way to ensure everyone has a grounding in the basics. Also, many of the students that become investment bankers and consultants upon graduation eventually enter and lead operating companies. Those in private equity and VC shops still need to be able to think like managers. While the Master of Finance may be a better course of study for the functional specialist, the MBA will retain its appeal as a generalist degree.
Index, ETF and Funds Data – IndexUniverse: Downloadable
The New Math: Alpha Magazine
On Exactitude in Science
Dreams of a super regulator – TheDeal.com
Engineering Targeted Returns and Risk by Ray Dalio of Bridgewater.
FT Alphaville » Soros – There is a fundamental market misconception (it says so in my book)
Free exchange | Economist.com
Risk is inherent in financial markets. The outcome of many variables can not be perfectly anticipated. The current portfolio models do not, and never have been, intended to enable hedging of every potential outcome. Most are equilibrium models, which means they rely on a set of assumptions that rarely hold in the market. That does not diminish their value. Economic and financial models can be thought of as a map. If a map included every detail in the geography (trees, country roads, etc.) it would be intractable, rendering it useless. Maps do give you a sense of scale and how variables relate. This facilitates your journey, but does not eliminate unforeseen diversions and the potential for accidents.
Finance is a brain for matching labour to capital, for allowing savers and borrowers to defer consumption or bring it forward, for enabling people to share, and trade, risks. The smarter the system is, the better it will do that. A poorly functioning system will back wasteful schemes and shun worthy ones, trap people in the present, heap risk on them and slow economic growth. This puts finance in a dilemma. A sophisticated and innovative financial system is susceptible to destructive booms; but a simple, tightly regulated one will condemn an economy to grow slowly.
Guide to Financial Markets, 4th Edition, Marc Levinson, 2006
Headhunters and How to Use Them, Nancy Garrison Jenn, 2005
Dealing With Financial Risk, David Shirreff, 2004
Guide to Business Modelling, Second Edition, John Tennent and Graham Friend, 2005
Guide to Analysing Companies, Fourth edition, Bob Vause, 2005
Guide to Economic Indicators (6th Edition), 2007
One morning, a blood vessel in Jill Bolte Taylor’s brain exploded. As a brain scientist, she realized she had a ringside seat to her own stroke. She watched as her brain functions shut down one by one: motion, speech, memory, self-awareness …
Four out of top ten billionaires in the world are Indians: Forbes.com
The day and work week dawned quite early. Greenspan’s new book and his interview in FT and WSJ led to millions of raised eyebrows across the financial and political landscape.
Anyway, the financial markets are in a standby mode today. The crucial Fed meeting is tomorrow and the markets have seemed to price in a rate cut of atleast 25 bps already. The action will be very volatile stretching into the rest of the week, due to earnings from many brokers.
Northern Rock Bank, or ‘Northern Wreck’ or ‘Northern Crock’, or whatever it is called in Britain is being run over with a bulldozer. Never imagined I will see a classic bank-run in my living life. I had only read about in financial tomes, by Schumpeter, Friedman and the like. Well, this could foretell future financial troubles in the developed markets in the near term.
I am currently long on GS, AAPL, MRVL, CCJ, CFC and MOT. It is also a options expiry week and if current price action stays within a narrow 10% range, I should be able to cash in the GS and AAPL Sep Put-Spreads.
Implied volatility is highest for stocks in the last three years. It is a good time to write puts and buy calls (both out-of-the-money).
NYT has an long article by Michael Lewis on Catastrophe bonds.
Herbert Simon said it best: “A wealth of information creates a poverty of attention.”
Minyanville – NEWS & VIEWS-Article
It’s not as if the desire for money is breaking news. German philosopher Arthur Schopenhauer, who died in 1860, said, “Wealth is like seawater; the more we drink, the thirstier we become.”
“SBUX: Hot water and filtered dirt for $4.50.”
In a relatively short period of time, barely more than a decade, Indian derivatives have burst on to the international scene. They offer an interesting array of trading opportunities. Unfortunately it is still awkward for international entities to gain access to Indian financial derivates and impossible for them to gain access to physical commodity products. Recently, the FMC has indicated its willingness to allow international futures brokers to broker only domestically originated transactions in India. While we on the outside may be impatient to be invited to participate, the Indian authorities have many considerations to balance.
The Reserve Bank of India (RBI) said on Thursday it would launch an electronic reporting platform for rupee derivative products such as swaps from Aug. 30, a move analysts said would bring more transparency to a fledgling market.Within 30 minutes of a deal, banks and primary dealers will have to report the trade on the platform, which will be managed by the Clearing Corp of India.
Banks and dealers will have to provide all historical trade information by Sept. 15, but they do not have to give details of their clients, the RBI said.
Traders say a reporting platform for interest rate swaps is a precursor to move derivative trading online.
Quantitative investment analysis is one of many indirect outgrowths of the Logical Positivist School of philosophy. Another more direct outgrowth of Logical Positivism is the psychological school of Operationalism. B. F. Skinner stated this approach to research more clearly than I have ever heard an investment quant state it. In the 1945 Psychological Review, Skinner wrote, “Operationalism may be defined as talking about (1) one’s observations, (2) the manipulative and calculational procedures involved in making them, (3) the logical and mathematical steps that intervene between earlier and later statements, and (4) nothing else.”The Logical Positivists wanted to eliminate nonsense from language by restricting what could be done with it. As such, Logical Positivism is at the core of some of the most powerful and successful ideas in human history.
At the end of the day, we would likely all agree – regardless of income – that our standard of living is pretty darn spectacular. Even the “poor” in this country have air conditioned apartments or homes, electricity and plumbing, a television, and often a car. With few exceptions they have a job and with zero exceptions an opportunity. The dramatic increases in standards of living will be in other countries and sadly those “gains” are often viewed as our “losses.” As a trader, nothing is ever good or bad, although I have a hard time not viewing that as good, dare I say great, for a few billion people. Rather, things are simply and always – different. Different makes good debates and even better trades.
Nothing within the current marketplace allows for the hedging of liquidity risk and that is the problem at the moment. Only the central banks can solve this puzzle with their own liquidity infusions and perhaps a series of rate cuts. The markets stand by with apprehension.
Via Skeptic’s Guide:
The Epicurean Dealmaker talks about how leverage affects apparently unrelated markets leading to a contagion.
Well, consider this. A fund with a highly levered balance sheet, and its investment fingers in many pies, is hit with losses in one of its sub-portfolios. Due to the nasty two-edged bite of leverage, its equity drops significantly, and the only way it can restore its risk profile is to raise more equity or liquidate some of its investments. Given the poor market conditions in the affected sub-portfolio, it is often more prudent to liquidate securities in other sub-portfolios. But this, as you can imagine, puts downward price pressure on securities in those previously unrelated markets. Presto, contagion. This is the “common holder” problem which some believe is the primary culprit.
Consider further. What if a substantial portion of our hedge fund’s holdings consisted of loans to other investors—hedge funds, perhaps—whose own portfolios were experiencing losses? Well, then, “liquidating” those positions and reducing its risk exposure would look an awful lot like calling the loans, or reducing their outstanding balances. Finally, add this to the mix. What if our fund had another side to its business, which generated revenues from the origination, market-making, and placement of securities, which revenues were negatively affected by turmoil in some or all of the markets where it also had investments? Well, that would be a triple whammy, and our little hedge fund would look an awful lot like a prime broker investment bank.
Via Bloomberg: Betting on the weather:
Some funds seek to exploit market imperfections. A temperature contract for Philadelphia might be priced lower than one for Baltimore, even though the weather in the two cities is often closely correlated. Others try to predict jet streams, fast-moving air currents in the upper atmosphere that can influence storms and temperature.
A large proportion of trades are tied to bets on other
commodities. If a fund is long on natural gas—betting on
increased prices—it might hedge by buying weather contracts
that pay out in the event the winter is warmer than expected.
