“All of the iffy securities that are weighing down the banking system represents money already spent on real projects or consumption. When the government purchases a security, it is taking the place of the party that originally fronted money for that expenditure. Every penny of government “investment” is retroactive expenditure on housing, real-estate, consumer credit, whatever.”
“If a government were to borrow funds in order to build a new stadium, we’d call that an “expenditure”, even if we fully expect use fees and incremental tax revenues to eventually turn a profit for the fisc. Politicians supporting the project would call it an “investment”, quite justifiably. But the project would still count as government spending.”
“So, in economic substance, the government is currently spending through a financial time machine on the exurban subdivisions and auto loans of several years past. We are retroactively turning in the entire mid-decade “boom” into a gigantic Keynesian stimulus project.”
“But if a power grid counts as an expenditure on government books, so should a security derived from a mortgage or credit card loan made two years ago.”
In On Being Certain, neurologist Robert Burton challenges his readers to ask one of the most basic—and crucial—of questions: how do we know what we know?With an engaging, conversational style, he tackles the neuropsychological underpinnings of belief and certainty, carefully examining these ubiquitous dynamics in light of what is known about how the mind works. Garnering excellent reviews from Scientific American Mind, The Wall Street Journal, and Seed Magazine, to name a few, the book has struck a deeply resonant chord. To quote from the Scientific American Mind review, “On Being Certain challenges our understanding of the very nature of thought.”
Article Excerpts (Via NeuroNarrative)
“I’ve always been fascinated by why some people seem so certain of their opinions, while I seem plagued by a persistent, overriding sense of doubt that my opinions are definitely correct”
“I am quite cynical about the value of presidential debates as they are presently held. You’d never interview someone for an important job and ask such open-ended questions and accept such evasive, non-committal or tangential answers.”
Buffett says to “be greedy when others are fearful and fearful when others are greedy.” Clearly, Buffett understands the importance of keeping emotions in check to maximize investment returns. So in the spirit of understanding emotions, today’s article is for investors and business people who would like to learn more about keeping calm, particularly during times of high volatility and uncertainty. Click Here To Continue Reading About Balancing Anxiety With Calmness
Article Introduction (Via NYT)
The economy jolts and stumbles, wars slog on in Afghanistan and Iraq, and the horrors of a new terrorist attack blanket the news and draw frayed attention yet again to our precarious alliances in the world. The watchword for the holidays is subdued; certainly not much inspires celebration.
Perhaps it is no coincidence, then, that to lead us in crisis, Americans elected a man repeatedly recognized for his uncommon calmness. More than ever, we crave stability, a steady hand, the reassuring face on television.
We even elevate such equilibrium to the superhuman: calm, as applied to No Drama Obama, often comes linked to the modifier “preternatural.” But the calm temperament is not so superhuman, nor is it entirely the gift of the chosen few. It can be cultivated, even as the world cleaves around us.
Article Excerpts (Via NYTs)
“People we might colloquially describe as calm are classified as low on the scale of neuroticism — a scale everyone is measured on, to a greater or lesser degree.”
““What studies have shown us is that there’s great plasticity, even though people are genetically built in ways that make them respond anxiously or not,” said James J. Gross”
I’m an avid reader of Sanjay Bakshi he writes elegantly and profoundly on value investing. This piece is on the concept liquidity, which given our current environment I would say is a must read. Click Here To Read The Full Article On Liquidity
Article Introduction (Via Sanjay Bakshi)
Real-estate markets all over the world have one common characteristic; they are highly illiquid. It takes, on average, many weeks to buy or sell a piece of real estate and in many cases several months. Yet, the illiquidity of real-estate markets world-wide has not prevented long-term investors from becoming very wealthy. If illiquid, but sound, real-estate investments have made people rich, should the same rule not apply to the stock market? Why is it that when it comes to investing in the stockmarket, most investors give undue importance to liquidity?
Article Excerpts (Via Sanjay Bakshi)
“Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investors to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole…. The actual, private object of the most skilled investment today is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half crown to the other fellow.”
“As Keynes said, there is no such thing as liquidity for the community as a whole. When everyone lines up on the same side of a trade, the liquidity that many had relied upon in making their investments proves to be an illusion.”
“The specific question is whether the investor should avoid an otherwise attractive issue because it is relatively illiquid. The logical answer is no. Extraordinary bargains are more likely to arise in relatively illiquid stocks than in highly liquid stocks. If, at any given point of time, millions of investors and speculators are focusing their attention on a handful of heavily traded securities, chances are low that an investor with a long-term focus will find value.”
Thanks To Tong Kook Hooi For Posting This Video At The Mispricing Blog!
If you haven’t heard of Prem Watsa here’s an opportunity to listen to him talk about Benjamin Graham.
Video Introduction (Wikipedia)
Prem Watsa born in 1950 in Hyderabad, India and is the founder, chairman, and chief executive of Fairfax Financial Holdings, based in Toronto, Ontario. He has been called the “Canadian Warren Buffett” by some during successful periods of investing in the past. He is a Chartered Financial Analyst, a graduate of the Indian Institute of Technology with a degree in Chemical Engineering and a holder of an MBA from the Richard Ivey School of Business of the University of Western Ontario. He is a member of the Board of Trustees of the Hospital for Children, a member of the Advisory Board for the Richard Ivey School of Business, a member of the Board of Directors of the Royal Ontario Museum Foundation and as well as Chairman of the Investment Committee of St. Paul’s Anglican Church.
Thanks to Todd Sullivan at Value Plays for posting these 3 videos!
Francis Chou Background (Via Barel Karsan)
Francis Chou is of a different background than the other value investors we’ve profiled here. He didn’t have a lot of money to invest, and didn’t have the chance to get a university education. As an immigrant to Canada from India, he had a Grade 12 education and was working as a telephone repair man when he discovered Security Analysis by Graham and Dodd. He started an investment club with 6 others and turned $50K into $1.5 million in the next five years. He has since gone on to turn that fund into a mutual fund and achieve %14 annual returns over the following 20 years.
What’s most amazing about this record is that at most times, Chou isn’t afraid to keep a great deal of his portfolio in cash. Like other value investors, Chou focuses on capital preservation, and at the same time wants to be able to take advantage of opportunities when they become available. Again like other value investors, Chou won’t invest in commodities, likely because the future prices of these companies’ products are too difficult to determine.
Unlike standard mutual fund companies, which seem to be more like marketing companies than investment companies, Chou relies on word of mouth to find clients. That probably suits him just fine, as growing too large would probably hurt his returns.
Today we had a major internet service provider difficulty. So, I apologize for posting our first article so late. Thanks for your understanding.
-Miguel
Article Introduction (Via Geary Behavior Center)
Here is an article & video explaining the economics of internet search. The presenter is Hal Varian co writer of the famous book Information Rules. Which I highly recommend you have read by yesterday! Mr. Varian is the chief economist at Google. (Click Here To Read The Article)
Video Introduction (Via Geary Behavior Center)
“For decades, many of the brightest graduates in economics sought their fortune in finance. In coming years, they will seek it in marketing, as the Internet gives all companies the information-rich environment once available only in financial markets.” That’s the prediction of Hal Varian, Chief Economist at Google, and economist at the University of California at Berkeley. Varian discusses why marketing is the new finance in this Wall Street Journal article from last year. Below, Varian gives a lecture on the “Economics of Internet Search”, from this year’s Calit2-sponsored series, “Behavioral, Social, and Computer Sciences Seminar Series” - Friday, May 23, 2008. Following on from the last post about ‘The Weather and Work’, apparently “it’s good for Google if the weather is bad, but not too bad…”
Here are some links to articles that didn’t make our front page. Several of the articles are very insightful I highly recommend reading them. As always, the articles are from different fields but should make you a more well rounded investor. Take Care. (Click on the titles to access the articles)
1. The Moral Stage Of Wall St - Via The New Yorker- Swiss bankers are not known as paragons of transparency and moral accountability, so it’s a nice surprise to read that the top officials of UBS, the foundering financial institution recently bailed out by the Swiss government, will forgo twenty-seven million dollars in compensation and bonuses. It appears that these Swiss bankers have a faint pulse of shame.
2. What is Experimental Philosophy - Via What Sorts Of People - In this short video, Eugene Mirman gives an answer to this question that takes you through one of the best-known “experiments” in the newly developing field of experimental philosophy–one developed by Josh Knobe, whom you can see at Bloggingheads.TV at length in conversation with John Horgan about experimental philosophy back in February
3. How Google Censors The Internet: Google’s Gatekeepers- Via NYT - In 2006, Thailand announced it was blocking access to YouTube for anyone with a Thai I.P address, and then identified 20 offensive videos for Google to remove as a condition of unblocking the site.‘If your whole game is to increase market share,’ says Lawrence Lessig, speaking of Google, ‘it’s hard to . . . gather data in ways that don’t raise privacy concerns or in ways that might help repressive governments to block controversial content.’
4. Delayed Gratification - Via NYT Magainze - Kmart has offered its customers the option of buying products on layaway for much of its 46-year history. What it has not done during that time, however, was make the layaway plan a central focus of an advertising campaign — until this year. Maybe you associate the layaway with low-income consumers who have few other options. But in October, Kmart television spots and direct-mail ads positioned it as a savvy and exciting way to shop “Kmart smart.” Indeed, the TV spot depicts a distinctly middle-class couple; she piles goods in a shopping basket while he stays home to rake the lush yard. The chain is evidently pleased with the results; in November, the Sears Holdings Corporation, which owns Kmart, announced that Sears itself would follow suit.
5. What Will We Buy To Help Us Through The Rough Times - Via FT - Anyone wondering how consumers behave in a recession need simply trawl the tabloids for inspiration. According to The Sun, sales of aphrodisiacs are up and so are sales of maternity dresses: not everything turns down in tough times, it seems. Elle Macpherson’s underwear is said to be doing well; so too is the budget store Poundland. Some stories seem contradictory: one newspaper claims that Ryanair is set to make a profit, while another reports that weekend breaks to European cities are no longer in demand. Other stories are frankly bizarre: the crunch is alleged to have given a fillip to sales of cake, wooden “gravestones”, West End musicals and tickets to see the film Mamma Mia!
6. Should Monetary Policy Target Asset Prices- Via Mostly Economics - In sum, I am not convinced that the events of the past few years and the current crisis demonstrate that central banks should switch to trying to check speculative activity through tighter monetary policy whenever they perceive a bubble forming. The recent experience may have made us a bit more confident about detecting bubbles, but it has not resolved the problem of doing so in a timely manner. Nor has it shown that small-to-modest policy actions will reliably and materially damp speculation. For these reasons, the case for extra action still remains questionable, despite our having learned that the aftermath of a bubble can be far more painful than we imagined.
7. Reading Keynes & Fisher- Via Mostly Economics - It is back to basics. There are 2 problems which are taking us back to the Great Depression times- Slumping economy and possibility of deflation. I came across original pieces by economists who researched on these 2 problems- Keynes and Irving Fisher.
8. Neuropsychology Of Paranormal Experiences- Via Mind Hacks - The cognitive science journal Cortex has just released a special issue on the neuropsychology of paranormal experiences and belief, and contains a fantastic article on hallucinations induced by the Ganzfeld procedure. The Ganzfeld procedure exposes the participant to ‘unstructured’ sensations usually by placing half ping-pong balls over the eyes so they can only see diffuse white light and by playing white noise through headphones.
