Monthly Archives: May 2013

Simon Sinek: How great leaders inspire action

I’ve been periodically watching this video for a few years and I’ve been meaning to blog about it for quite a while.  This 20 minute talk is well worth your time – the concept is simple but resonates incredibly well.

The punchline: why you do something is more important than what you do or how you do it.  That’s not to say the “how” or “what” aren’t important but it’s the “why” that ranks supreme.  People don’t buy what you do, they buy why you do it.

There are leaders and there are those who lead.  Leaders are people with power and authority, we follow them because we have to.  Those who lead inspire us, we follow them because we want to.

The Golden Circle


Interesting NYT article about some new crowdfunding platforms that let smaller investors invest in commercial real estate projects.  Not a lot of detail about the finer points of the investment are offered up (like can you sell your interest and get your money back?  When?) but it seems like an elegant way to invest in real estate.  I’ve been a long time investor through Lending Club and this is basically the same model but with different underlying investment characteristics.

The democratization of community development was one aspect of the article that really struck me.  This would be a cool mechanism to allow people to invest locally in real estate and have some influence in shaping their community (as opposed to REITs or PE shops based elsewhere).

I’m not sure it pays to be one of the earliest adopters of these real estate platforms but I think they’re worth keeping an eye on / studying further.

The platforms: Fundrise and Realty Mogul

After that last post about famous speculators and their speculations I have to balance things out a bit…

“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips… The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place. There are no safeguards that can protect the emotional investor from himself.”

– J. Paul Getty

Found via Hussman

Naturally, Hussman’s broader market commentary is equally as thought provoking as the introductory quote above.  He identifies two aspects of QE that are driving the stock market: (1) the pain of zero interest cash and (2) the superstition that QE removes downside risk.

This got me thinking about all the folks out there who feel they are “forced into equities” because they can’t find adequate returns elsewhere.  Yes, thus far the outcome has been quite nice for those “forced” into the stock market but at some point there will be a correction.  And at some further point the Fed is going to take the punch bowl away.  So rather than sulk about cash’s paltry return, why not recognize the option value embedded in cash?  It is essentially a put option on every asset in the world with no expiration.  Yes it won’t feel very valuable when the stock market is setting records but it will when the market changes course.  I would gladly accept a year or two of 0% to slightly negative real returns (cash today) if in a few years time I can safely find double digit annualized returns elsewhere; ESPECIALLY if the only other offer on the table carries such considerable downside risk (i.e. stocks & bonds today).  Today this thinking / approach is as unpopular as it is boring: very.

Let’s end this post with the money shot from Hussman’s commentary (and please keep in mind price value):

In short, there is no transmission mechanism by which QE has any large and beneficial effect on the value of equities. There has certainly been an effect on price – but this effect is driven by the willingness of investors to abandon their demand for a risk premium that will actually compensate them for the risk they are taking.

One of the big topics in finance these days is when / how will the Fed will dial back Quantitative Easing.  In short, no one is really sure but there is no shortage of theories.

One of the better pieces I’ve read on the matter is from the blog The Reformed Broker, in his piece The End is Where We Start From.  As much as I’d like to copy the whole piece here and claim it as my own I’m not going to do that, so go check it out.

Great excerpt from Jim Rogers’ book Adventure Capitalist highlighted by The Jim Rogers Blog

“It may have been Meyer Rothschild, the German banker and patriarch of the legendary House of Rothschild who, when asked how he got so rich, attributed his success to two things. He said he always bought when there was blood in the streets – panic, chaos – when despondency gripped the markets. (in old man Rothschild case, investing amid the turbulence of the Napoleonic wars, the blood was as likely to be literal as it was to be figurative.) And he always sold “too soon”. He did not wait for the enthusiasm to peak. He always knew when to get out, and he got out in time with all his money.”

A treasure trove of good Buffett quotes.  Found via The Big Picture

“To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses
-How to Value a Business, and How to Think About Market Prices.”
Source: Chairman’s Letter, 1996

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”
Source: Businessweek, 1999

“None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What’s required is thinking rather than polling. Unfortunately, Bertrand Russell’s observation about life in general applies with unusual force in the financial world: “Most men would rather die than think. Many do.”
Source: Chairman’s Letter, 1990

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
Source: The New York Times, October 16, 2008

“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities ¾ that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future ¾ will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”
Source: Letter to shareholders, 2000

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
Source: Warren Buffet Speaks, via msnbc.msn

“I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”
Source: Letter to shareholders, 2008

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
Source: Chairman’s Letter, 1996

“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Source: Letter to shareholders, 1988

“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
Source: Letter to shareholders, 2004

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Source: Letter to shareholders, 1989

“The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’”
Source: The Tao of Warren Buffett via

“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.
“But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.
Source: Chairman’s Letter, 1994

“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”
Source: Letters to shareholders, 2005

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Source: Letter to shareholders, 2008

“After all, you only find out who is swimming naked when the tide goes out.”
Source: Letter to shareholders, 2001

“Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome).
“Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn’t count. If you are right about a business whole value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analyzed an investment alternative characterized by many constantly shifting and complex variables.”
Source: Chairman’s Letter, 1994

“I am a better investor because I am a businessman, and a better businessman because I am an investor.”
Source: – Thoughts On The Business Life

“SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”
Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.”
Source: New York Times

“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the Internet. That’s the kind of business I like.”
Source: Businessweek, 1999

“Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1″
Source: The Tao of Warren Buffett

“Time is the friend of the wonderful business, the enemy of the mediocre.”
Source: Letters to shareholders 1989

“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.”
Source: The Tao of Warren Buffett

Excellent quote from Graham and Dodd’s famous text Security Analysis.

“Undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by overenthusiasm or artificial stimulants. The particular danger to the analyst is that, because of such delay, new determining factors may supervene before the market price adjusts itself to the value as he found it. In other words, by the time the price finally does reflect the value, this value may have changed considerably and the facts and reasoning on which his decision was based may no longer be applicable.

The analyst must seek to guard himself against this danger as best he can: in part, by dealing with those situations preferably which are not subject to sudden change; in part, by favoring securities in which the popular interest is keen enough to promise a fairly swift response to value elements which he is the first to recognize; in part, by tempering his activities to the general financial situation—laying more emphasis on the discovery of undervalued securities when business and market conditions are on a fairly even keel, and proceeding with greater caution in times of abnormal stress and uncertainty.

The Relationship of Intrinsic Value to Market Price. The general question of the relation of intrinsic value to the market quotation may be made clearer by the following chart, which traces the various steps culminating in the market price. It will be evident from the chart that the influence of what we call analytical factors over the market price is both partial and indirect—partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and indirect, because it acts through the intermediary of people’s sentiments and decisions. In other words, the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

Found via Value Investing World.

BREAKING NEWS: stock analysts are not necessarily working in your best interest (unless you’re a hedge fund)!

WSJ: Stock Analysts Tell All!

Interesting report highlighted by the Wall Street Journal that basically quantifies something you probably already knew…

  • Asked who was their most important group of clients, 81.5% of analysts picked “hedge funds.” Only 13.3% chose “retail brokerage clients.”
  • Fewer than a quarter of the analysts said that the “accuracy and timeliness” of their earnings forecasts were very important to their compensation. Only 35% said that the profitability of their stock recommendations was crucial in determining how much they earned. Their “standing in analyst rankings or broker votes,” however – essentially how they score in media surveys, “broker votes” and other annual popularity contests among clients – was very important in shaping compensation for 67% of the analysts.
  • Approximately one in four analysts has been pressured by a supervisor to lower earnings forecasts, presumably because that makes the forecasts easier for companies to beat – thereby pleasing investors and companies alike.
  • Only half of analysts said that primary research, like discussions with customers and suppliers, was very useful in forecasting earnings or recommending stocks.
  • Nearly 40% of analysts said that it was very likely that they would lose access to management or be “frozen out” of question-and-answer sessions on conference calls if they issued an earnings forecast well below the Wall Street average.
  • More than two thirds said that private phone calls with management were far and away the most important factor in their work.
  • It’s customary for analysts to have private phone discussions – one-on-one – with a company’s chief financial officer shortly after the company’s public conference call to discuss its quarterly earnings.