The Stingy News Weekly (07/11/2010)
"'The true debate in economics is - between economists who care about the productivity of resource allocation and those who only pay lip service.' That is harsh, but not wrong. I'd draw the lines a bit more mildly, and say that the core argument is between people who think we are in a financial crisis that has engendered an economic crisis, and others (like me) who think that the financial crisis is the outgrowth of longstanding and continuing economic mistakes."
On business competition
"'A funny thing happens when you begin to capture competitive differences on paper', says Harvard Professor Youngme Moon in her book Different, 'there is a natural inclination for folks in the competitive set to focus on eliminating differences rather than accentuating them.'"
What fresh hell is this?
"Somewhere along the way an enterprising employee of mine made coffee in our new (not yet legal) office for the early morning fishermen, but we soon found that to continue to provide coffee would require the installation of a triple cleanup sink, which in turn would add marginally to the load on the current septic system, which in turn would trigger a county requirement for us to build a new $2.5 million sewage treatment facility. Uh, never mind on that coffee."
Buffett's best advice
"What's the best advice Warren Buffett has ever received? You might be surprised: It has nothing to do with money."
Fractals and the art of roughness
"At TED2010, mathematics legend Benoit Mandelbrot develops a theme he first discussed at TED in 1984 -- the extreme complexity of roughness, and the way that fractal math can find order within patterns that seem unknowably complicated."
Barbie does economics
"Economics starts from a far worse place. It isn't a science, and often seems more interested in twisting the facts to fit a theory rather than the other way around. In fact, as Nassim Taleb has pointed out, economics is more akin to medieval medicine than its current practice, 'Medicine used to kill more patients than it saved - just as financial economics endangers the system by creating, not reducing, risk.'"
Montier resource page
"The essence of investment was to seek out value; to buy what was cheap with a margin of safety. Investors could move up and down the capital structure (from bonds to equities) as they saw fit. If nothing fit the criteria for investing, then cash was the default option. But that changed with the rise of modern portfolio theory and, not coincidentally, the rise of 'professional investment managers' and consultants."
Applying the equity risk premium
"It's simply not true that growth outperforms value, or certain stock sectors have higher returns, even countries do not have obviously higher returns, or that more volatile stocks have higher returns than low volatility stocks. A beautiful theory killed by data, it happens all the time."
Down with doom
"By the time I was 21 years old I realized that nobody had ever said anything optimistic to me - in a lecture, a television program or even a conversation in a bar - about the future of the planet and its people, at least not that I could recall. Doom was certain."
The true cost of pensions
"But the present value of future liabilities is around 1.1 trillion, even after the government slipped in a reduction in index-linking in the recent budget. That is around 80% of GDP, a figure that of course is on top of the national debt numbers normally calculated. if the British government were to pay interest on this liability each year, the bill would be larger than the cost of servicing the official debt."
Sticking to what works
"This month Sequoia Fund marks its 40th anniversary. It's a milestone rarely achieved in an industry where three years is considered long term. Even more remarkable is that Sequoia is being run pretty much the same as it was when Warren Buffett's friend and stockbroker, the late Bill Ruane, launched the fund in 1970. It's still a concentrated portfolio with two or three dozen stocks, all heavily researched and bought with the idea that the market is valuing them at less than their true worth. Co-managing the fund is Robert Goldfarb, whose tenure at the New York firm dates back to 1971."
Times must charge for news
"Why content creators, in particular newspapers, ever succumbed to the notion that they should forever give away their product online seems one of those odd, lemming-like phenomena akin to the 'irrational exuberance' that preceded the dot-com stock market crash. Lured by the siren song of having an infinite audience via electronic distribution, publishers forgot that it meant infinite ad inventories whose price is rapidly approaching zero."
The confidence game
"There really are loans that so safe that they can be written with a zero-loss standard and levered 150 times - but they are only that safe if you have removed the possibility of fraud - and you can only really do that by getting your fingers dirty. You cannot do that with a mathematical model."
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