Monthly Archives: June 2013

Although he’s usually very open about his thoughts, its not often that you get to see a detailed investment analysis authored by Warren Buffett.  In fact, talking about the stock(s) he thinks are attractive is generally off limits when interviewing The Oracle of Omaha.  That’s why the write up below is such a gem – not only is this a pretty cool artifact of Berkshire Hathaway’s history (GEICO is one of their core businesses) – we get a detailed look at how Buffett thought about the business and why he invested.

Reading this assessment from 1951 about a company that is now an insurance powerhouse is a testament to Buffett’s strategy: find good businesses with a durable competitive advantage, good management, and buy them at a cheap price.


From Security Analysis, 1940 edition:

“Analysis is concerned primarily with values which are supported by the facts and not with those which depend largely upon expectations. In this respect the analyst’s approach is diametrically opposed to that of the speculator, meaning thereby one whose success turns upon his ability to forecast or to guess future developments. Needless to say, the analyst must take possible future changes into account, but his primary aim is not so much to profit from them as to guard against them. Broadly speaking, he views the business future as a hazard which his conclusions must encounter rather than as the source of his vindication.”Source: Value Investing World

Great Reuters article about an incredibly common practice in the world of PE (and VC) – funds sitting on assets for the sole purpose of collecting fees.

Generally these funds have a 5 year period to make investments, after that period comes to pass a fund generally switches into “harvesting” mode where the GPs work to realize (sell) the assets and return money to LPs (investors).  But because of the way GPs are compensated they actually have the perverse incentive NOT to return your money or realize many of the investments.

You see if the fund has a 10 year life and the GP is paid 2% per year on the dollar value of the investments then why give that up?  Sure it will piss off the LPs but the GPs will likely be on to their next fund before that happens.  Money for nothing and fees for free.

The article is more enjoyable if read while listening to this.

Reuters: More than $100 billion trapped in ‘zombie funds:’ industry data

From Margin of Safety (Source):

Some investors insist on trying to obtain perfect knowledge about their impending investments, researching companies until they think they know everything there is to know about them. They study the industry and the competition, contact former employees, industry consultants, and analysts, and become personally acquainted with top management. They analyze financial statements for the past decade and stock price trends for even longer.

This diligence is admirable, but it has two shortcomings. First, no matter how much research is performed, some information always remains elusive; investors have to learn to live with less than complete information. Second, even if an investor could know all the facts about an investment, he or she would not necessarily profit.  This is not to say that fundamental analysis is not useful. It certainly is.

But information generally follows the well-known 80/20 rule: the first 80 percent of the available information is gathered in the first 20 percent of the time spent. The value of in-depth fundamental analysis is subject to diminishing marginal returns.

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen.

Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty.  The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information.

You don’t have to follow this blog very closely to know I’m a big fan of Barry Ritholtz and his blog The Big Picture.  Over the weekend he gave the following presentation, Romancing Alpha, Forsaking Beta at the Trustee Leadership Forum for Retirement Security.

It’s a great presentation that shows how our wetware (to borrow a term from Barry) leads to poor investment decisions – particularly when it comes to the mythical creatures of Wall Street: alpha generating hedge funds.  Check it out:

If you can’t laugh at the subversion of our basic liberties what can you laugh at?  The recent leak of the NSA’s secret PRISM program has elicited quite a response – especially the poor presentation value of their “pitch” slides.  Seriously, if you’re asking for $20M a year of taxpayer money at least jazz up your powerpoint a bit.


In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.

Declaration of Independence In Congress, July 4, 1776

I think the news breaking about the NSA’s PRISM program is pretty scary.  This type of abuse is truly the biggest threat to the country and the liberties we hold dear that I can think of.  It seems like everyone kind of expected this type of surveillance was taking place but now that we’ve been confronted with some hard evidence it becomes harder to just write it off.  This is truly an Orwellian nightmare come true.

Obama – what part of “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized” do you not understand?

I was thinking about this yesterday and I was trying to come up with an analogous 1776 version of this story.  It would basically involve the British having a central processing center for all written communications and papers (kind of like the postal service but you can’t avoid it).  But instead of just receiving and distributing the mail it made a copy of every document that passed through and kept that document on file forever – for the king or his agents to review at their pleasure.  Images of red coats sitting in a row reading and transcribing letters with their feather pens should be coming to mind.  Wouldn’t that have been outrageous?  Do you think the founding fathers would have listed that as one of their grievances in the Declaration of Independence?  I digress…

There is a great op-ed piece in the Guardian by Daniel Ellsberg that is worth a read – below is an excerpt.  It’s also worth nothing that Ellsberg thinks this is the most important leak in American history; even more important than the Pentagon Papers that were leaked 40 years ago.  (side note: at least the UK’s free press is looking out for our rights and liberties – thanks, we owe you one)

“But what is not legitimate is to use a secrecy system to hide programs that are blatantly unconstitutional in their breadth and potential abuse. Neither the president nor Congress as a whole may by themselves revoke the fourth amendment – and that’s why what Snowden has revealed so far was secret from the American people.

In 1975, Senator Frank Church spoke of the National Security Agency in these terms:

“I know the capacity that is there to make tyranny total in America, and we must see to it that this agency and all agencies that possess this technology operate within the law and under proper supervision, so that we never cross over that abyss. That is the abyss from which there is no return.”

The dangerous prospect of which he warned was that America’s intelligence gathering capability – which is today beyond any comparison with what existed in his pre-digital era – “at any time could be turned around on the American people and no American would have any privacy left.”

That has now happened. That is what Snowden has exposed, with official, secret documents. The NSAFBI and CIA have, with the new digital technology, surveillance powers over our own citizens that the Stasi – the secret police in the former “democratic republic” of East Germany – could scarcely have dreamed of. Snowden reveals that the so-called intelligence community has become the United Stasi of America.”

Scary stuff indeed.  Hang on… someone’s at the door.


Today is June 6, 2013 – sixty nine years ago today the Allied Forces stormed the beaches of Normandy in what was perhaps the boldest military invasion in history.  160,000 American, British, and Canadian soldiers landed on the beaches of France to begin the long, bloody battle to liberate France and the rest of Nazi occupied Europe.

On this day I find myself reflecting on the daunting task they faced.  Reflecting on their courage, their strength, and their ultimate accomplishment.  Reflecting on the uncertainty they faced and what must have been going through their minds as they waded through that water.  Reflecting on the perspective their situation, their efforts, and their triumph provides.  

I find their strength inspires strength in me; for I know my problems are trivial compared to not only theirs, but anyone living through that period.  It makes today’s problems seem small and conquerable.  And it reminds me that we have some very big shoes to fill.