Links for Thought -- October 18th, 2013

What Happens When you Don't Buy Quality? (Fundoo Professor) -- This is a great presentation on the investment benefits of buying so-called "quality" companies (in contrast to pure "value"). Quality companies are those with high returns on invested capital and a sustainable business model. This post is replete with great quotes from Warren Buffett and anecdotes from Fundoo's own investments. A true must read.

Millennials: Coming of Age in Retail (Goldman Sachs) -- h/t to @montoyan for sharing this great piece on the brand affinities and trends amongst millennial shoppers. As we know, the retail landscape is changing dramatically with the transition from big boxes to the web. This report takes it to the next step by highlighting the concurrent impact of this huge demographic shift on the retail industry. 

You're Probably Overpaying to Invest (Jason Gilbert CPA) -- My partner at RGA Investment Advisors wrote this great piece explaining how people who invest in what they think are "low-fee" endeavors are really just missing exactly when/where/how many levels of fees are taken from their account each year. People really need to pay more attention to the fees embedded within investments on top of those they pay to advisors.

The Economic Implications of Corporate Financial Reporting (NBER) -- h/t to @jesse_livermore for the find. It was shocking to learn that "55% of managers would avoid initiating a very positive NPV project if it meant falling short of the current quarter's consensus earnings." Positive NPV projects by definition increase the intrinsic value of a business and yet the majority of managers who are entrusted with a fiducuary duty to do just that will turn down projects for what? Meeting BS analyst estimates. What an outrage!

Look for Price Signals? (Capital Spectator) -- It's amazing how closely 5 year rolling returns track the inverse CAPE. This is a point Antti Ilmanen made very effectively in his lecture at this year's Santa Fe Institute Risk Conference (see my notes on it here). Here is another good look at this same effect, also analyzing the role that value and momentum play in returns.

Taxes Raise Bar for a Hedge-Fund Bet (Bloomberg) -- Matthew Klein takes a great look at how comparing hedge fund returns is not really an apples to apples kind of thing. I wrote about this very same topic in my recent "Buffet, Soros and Uncle Sam" post, and it's great to see one of the better writers in the mainstream financial media pick up on this topic. After-tax returns are what most investors really make, so why is more emphasis not placed on this reality? Probably because a lot of people make a lot of money off of limiting our awareness to the topic.

Vox's New Mega-Round Puts a Bow on Content's "Holy Shit" Moment (Pando Daily) -- An interesting look at the massive sums some young web-based content companies are raising. We are definitely seeing the rise of new media, though this reeks of froth to me. How is it that new companies garnering the same, or even fewer eyeballs than traditional media stalwarts are raising money at valuations in excess of some profitable old guys? 

Horizon Kinetics Q3 Commentary (Horizon Kinetics) -- These guys write some of the best commentaries. Here is a really important look at how indexing and ETFs lead investors into investments they simply are not aware of. For example, when you buy EWP you're not really buying Spain, you're actually making a big investment in Latin America. Take a look at some other areas where what you buy is not what meets the eye.

The Soaring Cost of a Simple Breath (NY Times) -- This one hits home, as I was a childhood asthmatic who luckily outgrew the problem. The last time I was using inhalers, they were generics. Fast forward a decade, I now have an asthmatic cat (Freckles) whose inhalers cost about $300 a pop. I never realized how/why this all happened until reading this article covering some big catalysts for our cost problems here in the US.

10 Years Later, Steve Bartman Remains a Tragedy (Deadspin) -- I really feel bad for the guy. Seriously, there were players in the game, with a role in controlling the outcome who messed up far worse than Bartman (looking at you Alex Gonzalez), yet the young fan ended up the goat. How is it that not one player stepped up to take responsibility for the team's collapse in order to protect what really is just an innocent fan?

I've been loving the band Little Feat lately and can't believe I didn't listen to more of them until now. Here is a great version of Dixie Chicken, until next week, enjoy:

Links for Thought -- October 11th, 2013

The Secrets of Shopping (Chicago Booth, Capital Ideas) -- This is one of the more interesting reads I've come across in a while. Nielson, in conjunction with Booth collected years of household purchase data on products ranging from groceries to painkillers. Some of the early analysis clearly demonstrates that without the proper knowledgebase, consumers are easily steered astray from rational decisions for behavioral reasons. This piece is amazingly informative for investors and shoppers alike.

Mogul's Plan to kill Netflix (Quartz) -- John Malone earned his fortune building a cable empire and made plenty more money dabbling in content. Now Malone is trying to use some of these lessons in order to empower the cable companies to unite (um collude) to drive down content costs and squeeze Netflix out from its successful niche as a low-cost distributor in its own right.

Eurozone debt crisis: Timeline (The Telegraph) -- Why is this timeline from 2011 relevant today? I was trying to avoid any mention of the debt ceiling this week, but here goes: today people speak of the Summer of 2011 as if the market's turmoil was entirely based on "The Debt Ceiling Crisis" when in fact, the market's gyrations were far more attuned to the very real (as opposed to manufactured) crisis that was unfolding in Europe. 

Guy Spier - Build your life in a way that suits you (Graham & Doddsville) -- Skip the needlessly apologetic feature on Koch Industries and their value and read Guy Spier's interview. Guy is one of the most self-aware investors out there in explaining how his investment process, and his role in the investment industry fits with his personality.  Many of us young up-and-comers in the industry can learn so much from someone like Guy, and we should be thankful he is open to sharing these insights as he is.

How the feds took down the Dread Pirate Roberts (ArsTechnica) -- Fascinating feature on how the FBI tracked down and built a case against the man behind Silk Road, a Bitcoin exchange often used for selling drugs. The Austrian econ/libertarian/anarchist connection to the Bitcoin story makes this even more interesting and goes to show that even in a pseudo-economy founded on the principles of fragmentation and individuality, some kind of centralization of power is inescapable 

The FBI and the legitimation of the bitcoinverse (Felix Salmon) -- Have I told you I'm fascinated by Bitcoin yet? There are so many interesting elements, ranging from crime drama to econ experiment. Here Felix talks about how the aforementioned FBI bustup of Silk Road helps legitimize Bitcoin and I cannot help but agree.  With this cleanup, and venture capitalists like Fred Wilson and Marc Andreesen taking interest, there is now a clearer path to a digital economy built on the currency. This all has great potential, until the inevitable deflationary collapse comes crashing in, but until then... (I'll have to expand on this entire theme into a blog post soon).

Bobby Orr is focused on doing good -- quietly (The Boston Globe) -- Today, when even B-listers are Twitter heroes, there is something to be said about a quiet, understated humility. Bobby Orr is one of the all-time great hockey players (and many would argue he's the single greatest), yet because he pursues his charitable and humanist endeavors in such a quiet manner, we rarely hear about his important contributions to society. Simply put, he's a great guy.

Speaking of hockey, here is Tomas Hertl, who some are calling "The Next Great One" scoring what just might stand as the goal of the season when all is said and done.


Links for Thought -- April 27, 2012

Pixar Story Rules (The Pixar Touch, h/t to Ritholtz) -- This is a great list of the "rules" that shape Pixar's stories.  No matter what our age, we all know (and I'm sure love) the great stories from Steve Job's computer animation studio.  While these rules are about how to structure a great animated film, they are deeper life lessons with broader implications.  Definitely worth a read.

Logical Fallacies Poster (Boing Boing) -- Ah remember the good 'ole days as a philosophy major in college memorizing the long list of all the fallacies.  Each day as I peruse the financial news, I'm pretty sure I encounter at least a handful.  Slippery slopes, strawmans and appeals to emotion are RAMPANT throughout today's 24-hour news cycle.  Which others do you see regularly?

Lonesome Dove (Free Exchange) -- The Economist's economics blog looks at Ben Bernanke's maneuvering and posturing through the financial crisis.  In particular, this post looks at how Bernanke has positioned himself between those like Paul Krugman saying the academic Bernanke would do more to fend off deflation, and the inflationistas who at every step of the way insist that hyperinflation is right around the corner.  This is a must read for those interested in macroeconomics.

Don't Cripple Innovation for the Sake of this Quarter's Numbers (Harvard Business Review) -- This article touches on a point I will get back to time and again.  Companies need to manage their business to maximize the long-term value, and not for meeting quarterly numbers.  Too often we see companies doing precisely the wrong thing.  Many of today's managerial challenges on this end are driven by increasingly fickle shareholders looking to make a quick buck on a trade, rather than building wealth through long-term investment.  The tide does seem to be shifting though.

Bullish Sentiment At Lowest Level Since Last September (Pragmatic Capitalism) -- I usually try to focus on pieces that are not pegged in time, but this I just found so damn interesting.  Right now as the market sits within spitting distance of multi-year highs, investor sentiment is much nearer levels consistent with a bottom.  This is a pretty consistent contrarian indicator, where the preponderance of market participants tend to be wrong.  It's also a great counterpoint to those talking heads who keep speaking of excessive bullishness.

People are Figuring Out Austerity is Stupid (Ritholtz) -- It's about freaking time! Austerity has never worked throughout history and it sure as hell won't work now.  Don't be fooled by all the appeals to emotion and slippery slopes (go check out those logical fallacies from above).  The austerity argument is stooped in moralism far more than sound economics, and in reality the morality is all wrong anyway.  There is a sound empirical explanation for why austerity not only doesn't work, but is also in fact counterproductive and a force which increases (not decreases) an aggregate debt burden.  It's all about thinking of things in terms of their relative levels (i.e. debt to GDP) instead of gross levels.

David Wright: Greatest Met Ever? (Fangraphs) -- Well just 3 years ago I think every Mets fan would've agreed Wright had a clear shot at being the greatest Met ever.  Today many would beg to differ.  Reality, as it often does, lies somewhere in the middle.  He had some all-time great Mets years, with a couple of injury riddled ones we'd rather forget.  Looks like things are getting back to normal though for D. Wright.  The most shocking surprise from the Fangraphs analysis is that Edgardo Alfonzo is way higher than I thought he'd be statistically speaking.  I was a HUGE fan back in the day.

Typically I leave off with a great nature shot, but today I will again diverge and end with the 3 best photos I took at today's flyby from the Enterprise Space Shuttle.  What a cool site that was flying first up the Hudson from downtown, and then back towards the city, past the Hudson cliffs and over the George Washington Bridge.  While the space shuttle is old and headed for retirement, I still couldn't help but laugh at the contrast with my recent post on New York City pre-concrete junge.  Just an awesome site to see! 

Links for Thought -- April 13, 2012

Speech Notes: Howard Marks at NYSSA (Distressed Debt Investing) -- Hunter from DDI gives us a great summation of a recent Howard Marks speech.  Marks' highly successful Oaktree Capital recently IPO'd on the NYSE and in this speech, Marks shares some of the wisdom that underlies his success.  One of the key points to take is that contrarianism is essential for long term investment success, but it ain't easy.  In order to be a contrarian investor, one must master both analysis and emotional management.

The Tail Wagging the Dog (the JETS blog) -- The Jets Blog digs in to the fact that Woody Johnson is running the Jets for profit first, football second, whereby economic concerns are driving football decisions.  There's an important message here to extrapolate to investment and corporate management: it's a good product that drives good business, not good business that drives a good product.  If the Jets want to make more money, the answer is simple: get better at on the damn football field!

Craft Beers Get Ahead (The Daily) -- Craft brews enjoyed a 15% jump in revenues during 2011, and in my opinion, this trend is only beginning.  Even the big boys are getting into the action, with Budweiser having bought Goose Island in the past year.  I've been thoroughly enjoying the proliferation of high quality craft brews, and look forward to the acceleration of this trend.  In fact, I will be enjoying a fine craft brew (or two, or three...) this evening.

Lunch with the FT: Larry David (Financial Times) -- Larry David gives in and gives us a good little interview, with a couple of humorous quips.  He also gives a pretty thorough answer to the representation of George Costanza and Larry on Curbed in relation to his real life personality.  Hint:people can think certain things but should never say them (you hear that Ozzie Guillen???)

Why a Housing Recovery Could Happen Sooner than You Think (Washington Post) -- Evidence is growing on multiple fronts that a housing recovery is either underway already, or very near.  This particular link takes a look at the mortgage applications and loan-to-value element.  I have spoken much of the rent-buy equilibrium lately, and here is a look from Calculated Risk that adds further conviction to my belief that renters are being forced into buying.  Even the homebuilders are enjoying a huge sales spike.  

One Big Reason to go Public that Nobody Ever Talks About (Business Insider) -- These days many young tech companies are foregoing the IPO while enjoying increasingly liquid private markets and staying away from the macrovolatility that plagues stock picking amongst public market equities.  Here is a compelling argument for why young tech companies should ignore the concerns about volatility and use the platform (or bully pulpit) of the public equity forum to grow their business.


Links for Thought -- April 6, 2012

Disruptive Innovation: Can Health Care Learn from Other Industries? ( -- This is a great conversation with Clayton Christensen on the impact that disruptive innovation can have on the health care industry.  Christensen gave us THE essential mental model for understanding innovation, and it's important to understand how this model will impact health care over the coming years.  One of my biggest critiques over the health care cost concern is that the entire conversation assumes the past growth rate will continue forward in perpetuity.  Meanwhile, right now there are rapid deflationary innovations sweeping through the industry that I think will not just mitigate, but realistically will drive down the cost of medical treatment over time.  In order to understand this, one needs to know the distinction between something that is merely an innovation, and something that is a DISRUPTIVE innovation.

Important Read on Franchise Investing and Investing "Gurus" (CS Investing) -- Important read is definitely the best way to describe this post.  Here CS Investing gives us a look at what a competitive moat is and what the concept means.  Plus we get a great glimpse into how some of the most prominent investment gurus, including Warren Buffett, analyze moats when making their own investments.

Keynes: One Mean Money Manager (Wall Street Journal) -- Jason Zweig takes a look at the investment track record John Maynard Keynes and wow was it fantastic.  Despite Keynes being a macroeconomist, his successes in investment were primarily driven on the micro level, combined with an understanding of the behavioral element to investing.  This closely aligns with the value investing school of thought on markets, that alpha is possible with scrupulous fundamental analysis.  

Climate Change Isn't Liberal or Conservative: It's Reality (Boing Boing) -- In all seriousness, the title of this article should go without saying.  I first learned that climate change was real when the family swimming pool, which had frozen every summer as a child for me to play hockey on, just stopped freezing enough to skate on.  This started happening in the late 1990s, but now things have been taken to a whole new level.  I am increasingly frustrated and sickened by the "questions" raised over this very real issue.

Cutting A Star Out of the Picture (Wall Street Journal) -- Speaking of my childhood days playing hockey, this article is about the Islanders severing ties to Pat LaFontaine.  I grew up a rabid Isles fan, and even bigger Pat LaFontaine fan.  Pat is one of the all-time great Islanders and a model citizen.  Charles Wang once again demonstrates why he is a despicable person.  While we're on the topic of Pat LaFontaine, go check out his Companions in Courage website to learn about (and perhaps contribute to) some of his charitable initiatives.

Commodities Supercycle or Bursting Bubble? (Pragmatic Capitalism) -- This has been my question of the week, and led to today's post on our country's subsidy for commodity speculation.  It's an important question, because the answer has serious implications for the global economy.  Give this a read to help prepare for a conversation on this blog in the coming months as to whether the commodities bull is a monetary policy phenomenon or an emerging market growth story (or a little bit of both).  

I typically conclude this weekly links post with a nature picture, but for a second week in a row I will depart with a twist.  Here is Van Morrison with The Band performing Caravan at The Last Waltz, rock out for the long weekend, and happy holidays to all: