John Bogle thinks the investing and business world could benefit from more exposure to history and the classics. In this The Atlantic article, he explains why:
"I'm skeptical about the narrowness of the business school curriculum. I happen to believe it should have a much greater liberal arts emphasis, and even a much greater emphasis on the classics. The Odyssey will tell you an awful lot about human nature and life, and therefore about business, and societal values. Read the Odyssey. Read Dante's Inferno. You can also learn a lot by reading Seneca's essay on the shortness of life or Montaigne's essay on vanity."
What makes a study of history and the Classics so important for business?
"It involves critical thinking," Bogle explained. "It involves some kind of perspective, it involves some ability to think 'you know, this has happened before and it could be happening again now.'"
Bogle goes on to say that we've essentially gone from an ownership society to a situation where agents manage most of the money. Fifty or sixty years ago institutions owned something like eight percent of all stocks. They now own roughly 75 percent. Well, according to him, these agents need to change their emphasis.
"These are pension funds, pension managers, mutual fund managers, but they're agents for others, and they're not honoring their agency. They're not putting their clients first, their principles first. They've ignored their principles, focusing on speculation, rather than investment."
Bogle points out that speculation in aggregate can, especially when frictional costs are taken into account, potentially be worse than a zero sum outcome. In the article he refers to a speech that Ben Graham gave back in 1958. It's pretty clear that Graham would not have thought very highly of the quants.
In fact, it seems he would have consigned them to a rather low level of Dante's Inferno.
Bogle added the following later in the article:
"Somebody ought to spend a little time thinking," he said, "and this gets back to the classics, about the role of business in society. It should add value. But the financial business does not add value. By definition the financial business subtracts value. In round numbers, it takes something like $600 billion out of the pockets of investors every year. That's $6 trillion dollars in 10 years."
Charlie Munger, Paul Volcker, and Warren Buffett have, give or take, articulated similar views on the corrosive effects of short-termism and speculation in the financial system.* They have each generally argued for policies that reduce it over the years. Last September, Buffett and Bogle signed along with 25 others a letter titled Overcoming Short-termism that argued for policies that reduce speculation and encourage patient capital.
So there has been a fair amount of material (new and old) generated on this subject by some pretty good thinkers.
As of now, it appears their views and recommendations will not become policy in any meaningful way.
It will be a fairly unfortunate prospect if that's what happens. A hugely important missed opportunity. At the end of the article, Bogle also paraphrases a quote by Upton Sinclair:
"It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."
Check out the full article.
Adam
Related post:
When Genius Failed...Again
* Based upon what they wrote in their own time, it seems likely that John Maynard Keynes or John Kenneth Galbraith wouldn't disagree much if at all.
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This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Friday, February 26, 2010
Thursday, February 25, 2010
Employment
The weekly report on unemployment claims was disappointing today (The more detailed monthly employment report is available next week). Check out this chart from a post earlier this month on calculatedriskblog.com.
Employment came back much more quickly during the 9 recessions that happened from 1948 to 1990. In all of those cases employment was restored to the previous peak level in 30 months or less.
The characteristics of employment in the two recessions we've had this past decade are much different.
The 2001 recession, even though it was not a very deep one, still took 46 months or so restore employment to previous levels. The current much deeper recession is still bumping along at employment levels more than 6% below the previous peak after 25 months and counting. Post WWII recession have NEVER been 6% below the previous peak for even 1 month...we have now been there for 4 months in a row.
So something much different is going on.
Keep in mind the last time we had 10%+ unemployment (1981-82) it only took a total a 27 months to fully restore employment to previous levels.
Why have the dynamics changed so much? I think at least part of the problem is a decade of misallocated capital (i.e. from internet stocks to real estate bubbles) but it's likely more complex than that.
No matter what, some fresh thinking to get at the root of this problem seems needed.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Employment came back much more quickly during the 9 recessions that happened from 1948 to 1990. In all of those cases employment was restored to the previous peak level in 30 months or less.
The characteristics of employment in the two recessions we've had this past decade are much different.
The 2001 recession, even though it was not a very deep one, still took 46 months or so restore employment to previous levels. The current much deeper recession is still bumping along at employment levels more than 6% below the previous peak after 25 months and counting. Post WWII recession have NEVER been 6% below the previous peak for even 1 month...we have now been there for 4 months in a row.
So something much different is going on.
Keep in mind the last time we had 10%+ unemployment (1981-82) it only took a total a 27 months to fully restore employment to previous levels.
Why have the dynamics changed so much? I think at least part of the problem is a decade of misallocated capital (i.e. from internet stocks to real estate bubbles) but it's likely more complex than that.
No matter what, some fresh thinking to get at the root of this problem seems needed.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Tuesday, February 23, 2010
Munger's Parable
Charlie Munger recently wrote a parable that was published in Slate. It starts by describing a fictitious place called "Basicland". Historically, this fictional place encouraged trade, strongly enforced property rights, had a sound currency, and a rather simple banking system.
Unfortunately, "Basicland" ends up morphing into something altogether different over time.
A parable about how one nation came to financial ruin
Here are a couple of short excerpts from the parable:
"So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called 'financial derivatives.'"
Basicland's politicians, dealing with the mostly self-inflicted hardship, asked for suggestions from the "Good Father"* (even though they historically didn't pay much attention to him since he didn't contribute to their campaigns).
What did he suggest?
"...he suggested that Basicland change its laws. It should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees—and former casino patrons—to produce and sell items that foreigners were willing to buy."
Munger says that while these suggestions drew some approval but prominent economists had strong objections because of intense faith in free markets (i.e. all forms of casino gambling were considered by them to be useful activities).
Somehow, enough were convinced that placing this kind of hyperactive casino activity right in the middle of a financial system made sense.
Munger references a quote by what he calls a "long-dead economist" who knew the most about the ill-effects of hyperspeculation, John Maynard Keynes.
"When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done." - John Maynard Keynes
Read the whole article. In parable form it sums up much of what is, and has been, of real concern to the likes of John Bogle, Paul Volcker, and Warren Buffett among others. The current state of affairs would likely have troubled John Maynard Keynes and John Kenneth Galbraith as well. This obviously does not fall down political party lines. There is a good mix of Democrats and Republicans here.
What they seem to have in common is an awareness of financial history and how much the same kinds of mistakes seem to get repeated.
The tools and schemes just have new names. From John Kenneth Galbraith's book, A Short History of Financial Euphoria:
"...for practical purposes, the financial memory should be assumed to last, at a maximum, no more than 20 years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to enter the scene, impressed, as had been its predecessors, with its own innovative genius." - John Kenneth Galbraith
I have heard more than one pundit and policymaker discount Volcker's thinking as being out of touch with today's realities.
I am sure this parable will be pretty much be ignored or discounted much the same way.
It's also likely, sooner or later, we will regret doing so.
Adam
* Named Benfranklin Leekwanyou Vokker in the parable.
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Unfortunately, "Basicland" ends up morphing into something altogether different over time.
A parable about how one nation came to financial ruin
Here are a couple of short excerpts from the parable:
"So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called 'financial derivatives.'"
Basicland's politicians, dealing with the mostly self-inflicted hardship, asked for suggestions from the "Good Father"* (even though they historically didn't pay much attention to him since he didn't contribute to their campaigns).
What did he suggest?
"...he suggested that Basicland change its laws. It should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees—and former casino patrons—to produce and sell items that foreigners were willing to buy."
Munger says that while these suggestions drew some approval but prominent economists had strong objections because of intense faith in free markets (i.e. all forms of casino gambling were considered by them to be useful activities).
Somehow, enough were convinced that placing this kind of hyperactive casino activity right in the middle of a financial system made sense.
Munger references a quote by what he calls a "long-dead economist" who knew the most about the ill-effects of hyperspeculation, John Maynard Keynes.
"When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done." - John Maynard Keynes
Read the whole article. In parable form it sums up much of what is, and has been, of real concern to the likes of John Bogle, Paul Volcker, and Warren Buffett among others. The current state of affairs would likely have troubled John Maynard Keynes and John Kenneth Galbraith as well. This obviously does not fall down political party lines. There is a good mix of Democrats and Republicans here.
What they seem to have in common is an awareness of financial history and how much the same kinds of mistakes seem to get repeated.
The tools and schemes just have new names. From John Kenneth Galbraith's book, A Short History of Financial Euphoria:
"...for practical purposes, the financial memory should be assumed to last, at a maximum, no more than 20 years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to enter the scene, impressed, as had been its predecessors, with its own innovative genius." - John Kenneth Galbraith
I have heard more than one pundit and policymaker discount Volcker's thinking as being out of touch with today's realities.
I am sure this parable will be pretty much be ignored or discounted much the same way.
It's also likely, sooner or later, we will regret doing so.
Adam
* Named Benfranklin Leekwanyou Vokker in the parable.
---
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Wednesday, February 17, 2010
Berkshire Hathaway 4th Quarter 2009 13F-HR
Based upon the most recent 13F-HR filing released yesterday, Berkshire Hathaway (BRKa) reduced its holdings in the following stocks:
Johnson & Johnson - reduced 26%, from 36.9 to 27.1 million shares
(even with this sale, remains a top ten position worth over $ 1.7 billion)
ConocoPhillips - reduced 34%, from 57.4 to 37.7 million shares
(remains a top ten position worth over $ 1.8 billion)
Procter & Gamble - reduced by 9%, from 96.3 to 87.5 million shares
(after sale, PG remains the 4th largest position worth $ 5.5 billion)
Exxon - reduced 67%, from 1.3 million to 422 thousand shares
Carmax - reduced 11%, from 9 to 8 million shares
Ingersol Rand - reduced 27%, from 7.8 to 5.6 million shares
Gannett - reduced 36%, from 3.4 to 2.2 million shares
Suntrust - reduced 22%, from 3.1 to 2.4 million shares
United Health - reduced 65%, from 3.4 to 1.2 million shares
Wellpoint - reduced 60%, from 3.4 to 1.3 million shares
Also, as expected he sold out of his other railroad holdings. In total, Buffett sold approximately $ 2 billion worth of stock.
Some of these stocks, specifically United Health (UNH) and ConocoPhillips (COP) were sold at fairly significant losses. Procter & Gamble (PG) was sold but remains a large position. In the 4Q of 2008 Buffett sold approximately half his stake in Johnson & Johnson (JNJ) to help finance the purchase of Goldman Sachs (GS). After that, he began rebuilding that position. So it is plausible that some of these sales have occurred to help with the purchase of by far the largest acquisition in Berkshire Hathaway's history: Burlington Northern Santa Fe. Who knows.
While Buffett did more selling than buying, he continued to add to his already huge stake in Wells Fargo (WFC). It now makes up 17% of the Berkshire Hathway equity portfolio, 2nd biggest position after Coca-Cola (KO). The additional purchases of shares in WFC was the biggest change on a dollar basis. Here is a list of all the increases:
Wal-Mart Stores - increased 3.2%, from 37.8 to 39.0 million shares
Wells Fargo - increased 2.1%, from 313.4 to 320.1 million shares
Becton Dickinson - increased 25%, from 1.2 to 1.5 million shares
Iron Mountain - Increased 107%, from 3.4 to 7.0 million shares
Republic Services - increased 128%, from 3.6 to 8.3 million shares
Value of all purchases was less than $ 500 million.
Iron Mountain (IRM) has fallen below the lowest prices that were available in the 4th quarter so those new shares are underwater for now. The current Berkshire Hathway's equity portfolio is worth approximately $ 50 billion excluding the preferred shares he holds in the likes of General Electric (GE), Goldman Sachs (GS), and Mars-Wrigley etc.
Adam
Long positions in BRKb, KO, WFC, PG, COP, GE, and JNJ.
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This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Johnson & Johnson - reduced 26%, from 36.9 to 27.1 million shares
(even with this sale, remains a top ten position worth over $ 1.7 billion)
ConocoPhillips - reduced 34%, from 57.4 to 37.7 million shares
(remains a top ten position worth over $ 1.8 billion)
Procter & Gamble - reduced by 9%, from 96.3 to 87.5 million shares
(after sale, PG remains the 4th largest position worth $ 5.5 billion)
Exxon - reduced 67%, from 1.3 million to 422 thousand shares
Carmax - reduced 11%, from 9 to 8 million shares
Ingersol Rand - reduced 27%, from 7.8 to 5.6 million shares
Gannett - reduced 36%, from 3.4 to 2.2 million shares
Suntrust - reduced 22%, from 3.1 to 2.4 million shares
United Health - reduced 65%, from 3.4 to 1.2 million shares
Wellpoint - reduced 60%, from 3.4 to 1.3 million shares
Also, as expected he sold out of his other railroad holdings. In total, Buffett sold approximately $ 2 billion worth of stock.
Some of these stocks, specifically United Health (UNH) and ConocoPhillips (COP) were sold at fairly significant losses. Procter & Gamble (PG) was sold but remains a large position. In the 4Q of 2008 Buffett sold approximately half his stake in Johnson & Johnson (JNJ) to help finance the purchase of Goldman Sachs (GS). After that, he began rebuilding that position. So it is plausible that some of these sales have occurred to help with the purchase of by far the largest acquisition in Berkshire Hathaway's history: Burlington Northern Santa Fe. Who knows.
While Buffett did more selling than buying, he continued to add to his already huge stake in Wells Fargo (WFC). It now makes up 17% of the Berkshire Hathway equity portfolio, 2nd biggest position after Coca-Cola (KO). The additional purchases of shares in WFC was the biggest change on a dollar basis. Here is a list of all the increases:
Wal-Mart Stores - increased 3.2%, from 37.8 to 39.0 million shares
Wells Fargo - increased 2.1%, from 313.4 to 320.1 million shares
Becton Dickinson - increased 25%, from 1.2 to 1.5 million shares
Iron Mountain - Increased 107%, from 3.4 to 7.0 million shares
Republic Services - increased 128%, from 3.6 to 8.3 million shares
Value of all purchases was less than $ 500 million.
Iron Mountain (IRM) has fallen below the lowest prices that were available in the 4th quarter so those new shares are underwater for now. The current Berkshire Hathway's equity portfolio is worth approximately $ 50 billion excluding the preferred shares he holds in the likes of General Electric (GE), Goldman Sachs (GS), and Mars-Wrigley etc.
Adam
Long positions in BRKb, KO, WFC, PG, COP, GE, and JNJ.
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This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Tuesday, February 16, 2010
Failure of Common Sense
So I guess the following practice somehow made perfect sense to Lehman at the time.
The following is from an article on proprietary trading:
Back in 2006, Lawrence McDonald, a former Lehman Brothers bond trader, remembers, he asked an intern what he was doing during the winter break at the now bankrupt investment bank. The intern, who was a junior in college, said he was trading derivatives for the firm. Surprised, McDonald asked the intern the size of his pad — Wall Street–speak for how much of the firm's money he was able to trade — figuring it couldn't be much.
The intern's response: $150 million.
"It was one of the most amazing things," says McDonald, who has since written a book about his time at Lehman, titled A Colossal Failure of Common Sense. "This kid didn't even have a college degree."
This anecdote might make it a bit less of a mystery how Lehman got into trouble.
Trading derivatives is obviously not as simple as trading stocks. Much more tricky and potentially dangerous. Difficult to know how much exposure there was for Lehman here but, whatever it was, it was in the hands of an intern over winter break.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
The following is from an article on proprietary trading:
Back in 2006, Lawrence McDonald, a former Lehman Brothers bond trader, remembers, he asked an intern what he was doing during the winter break at the now bankrupt investment bank. The intern, who was a junior in college, said he was trading derivatives for the firm. Surprised, McDonald asked the intern the size of his pad — Wall Street–speak for how much of the firm's money he was able to trade — figuring it couldn't be much.
The intern's response: $150 million.
"It was one of the most amazing things," says McDonald, who has since written a book about his time at Lehman, titled A Colossal Failure of Common Sense. "This kid didn't even have a college degree."
This anecdote might make it a bit less of a mystery how Lehman got into trouble.
Trading derivatives is obviously not as simple as trading stocks. Much more tricky and potentially dangerous. Difficult to know how much exposure there was for Lehman here but, whatever it was, it was in the hands of an intern over winter break.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Successful Investing
To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. - Warren Buffett
Friday, February 12, 2010
Berkshire Hathaway Joins the S&P 500 Today
Today, Berkshire Hathaway (BRKa) will be added to the S&P 500 as a company now worth over $ 180 billion.*
One of the five most valuable companies in the US.
In 1970, Berkshire Hathaway was earning ~$ 5 million/year. Roughly 40 years later the company earns over $ 9 billion/year and has more than $ 140 billion in investments (common stocks, bonds, and cash equivalents).
A total transformation.
That's investing. Turning a fragile business producing less than $ 5 million in earnings/year into the modern Berkshire Hathaway through smart allocation of capital over time.
Adam
Long BRKb
* A market value that is arguably lower than its intrinsic value at this time.
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This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
One of the five most valuable companies in the US.
In 1970, Berkshire Hathaway was earning ~$ 5 million/year. Roughly 40 years later the company earns over $ 9 billion/year and has more than $ 140 billion in investments (common stocks, bonds, and cash equivalents).
A total transformation.
That's investing. Turning a fragile business producing less than $ 5 million in earnings/year into the modern Berkshire Hathaway through smart allocation of capital over time.
Adam
Long BRKb
* A market value that is arguably lower than its intrinsic value at this time.
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This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Thursday, February 11, 2010
Tilson: Berkshire Hathaway Analysis
Here is an analysis of Berkshire Hathaway (BRKa) by Whitney Tilson that is updated from time to time.
Whether you agree with the valuation or not, Tilson's analysis is an easy way to get more familiar with an increasingly complex company.
Adam
Long BRKb
Link to Whitney Tilson's Analysis
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Adam
Long BRKb
Link to Whitney Tilson's Analysis
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Wednesday, February 10, 2010
Book Review: How to Read a Financial Report
I haven't read How to Read a Financial Report but this review of it is favorable. Sounds like it may provide a convenient way to learn accounting in general and how to interpret financial statements.
One weakness of the book may be that it only spends a small amount of time on managerial accounting.
From the review:
John Tracy discusses at length the connection between the balance sheet and the income statement. He believes many accountants do not appreciate the connection between the two. He devotes a large segment of the book to the relationship between operating expenses and accounts payable, inventory and accounts payable, cost of good sold and inventory and other interconnections between the two financial reports.
Dr. Tracy devotes a short segment of the book to managerial accounting, I especially enjoyed this segment. Although, as Dr Tracy himself notes he could write a separate book regarding managerial accounting alone, in the few pages he writes about managerial account he provides readers some valuable insights. He asks what is better a 5% sales increase or a 5% price increase. In the fictional company used by Dr. Tracy a 5% price increases profit before fixed expenses by 22.3% whereas a 5% sales would increase the number by only 5%. This is because there are variable expenses that rise with increases in sales volume i.e. sales commission, cost of goods sold. Many managers will focus on increasing sales just to gain market share even if it would be more profitable to simply raise prices.
Maybe Dr. Tracy will write a good book on managerial accounting at some point. This one's probably still worth checking out.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
One weakness of the book may be that it only spends a small amount of time on managerial accounting.
From the review:
John Tracy discusses at length the connection between the balance sheet and the income statement. He believes many accountants do not appreciate the connection between the two. He devotes a large segment of the book to the relationship between operating expenses and accounts payable, inventory and accounts payable, cost of good sold and inventory and other interconnections between the two financial reports.
Dr. Tracy devotes a short segment of the book to managerial accounting, I especially enjoyed this segment. Although, as Dr Tracy himself notes he could write a separate book regarding managerial accounting alone, in the few pages he writes about managerial account he provides readers some valuable insights. He asks what is better a 5% sales increase or a 5% price increase. In the fictional company used by Dr. Tracy a 5% price increases profit before fixed expenses by 22.3% whereas a 5% sales would increase the number by only 5%. This is because there are variable expenses that rise with increases in sales volume i.e. sales commission, cost of goods sold. Many managers will focus on increasing sales just to gain market share even if it would be more profitable to simply raise prices.
Maybe Dr. Tracy will write a good book on managerial accounting at some point. This one's probably still worth checking out.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
Tuesday, February 9, 2010
'Black Swan' Author: Buffett May Just Be Lucky
Just luck?
From this CNBC article:
Nassim Taleb says there isn't enough evidence to show that Warren Buffett's skill, and not his good luck, is responsible for the billionaire's enormous investing success over the decades.
No surprise but I'm gonna take a different view. Here's how Taleb explains his thinking:
"I am not saying Buffett doesn't have skill — I'm just saying we don't have enough evidence to say Buffett isn't doing it by chance."
Late last year he also said:
I Can't Believe I Live In A World Where Bernanke Could Be Reappointed
What I am seeing and hearing on the news -- the reappointment of Bernanke -- is too hard for me to bear. I cannot believe that we, in the 21st century, can accept living in such a society. I am not blaming Bernanke (he doesn't even know he doesn't understand how things work or that the tools he uses are not empirical); it is the Senators appointing him who are totally irresponsible - as if we promoted every doctor who caused malpractice.
Taleb added...
No news, no press, no Davos, no suit-and-tie fraudsters, no fools. I need to withdraw as immediately as possible into the Platonic tranquility of my library, work on my next book, find solace in science and philosophy, and mull the next step. I will also structure trades with my Universa friends to bet on the next mistake by Bernanke, Summers, and Geithner. I will only (briefly) emerge from my hiatus when the publishers force me to do so upon the publication of the paperback edition of The Black Swan.
So not much respect for Buffett or Bernanke...to say the least!
Now that's self-confidence.
Right or wrong the self-imposed silence equals loss of entertainment.
Adam
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
From this CNBC article:
Nassim Taleb says there isn't enough evidence to show that Warren Buffett's skill, and not his good luck, is responsible for the billionaire's enormous investing success over the decades.
No surprise but I'm gonna take a different view. Here's how Taleb explains his thinking:
"I am not saying Buffett doesn't have skill — I'm just saying we don't have enough evidence to say Buffett isn't doing it by chance."
Late last year he also said:
I Can't Believe I Live In A World Where Bernanke Could Be Reappointed
What I am seeing and hearing on the news -- the reappointment of Bernanke -- is too hard for me to bear. I cannot believe that we, in the 21st century, can accept living in such a society. I am not blaming Bernanke (he doesn't even know he doesn't understand how things work or that the tools he uses are not empirical); it is the Senators appointing him who are totally irresponsible - as if we promoted every doctor who caused malpractice.
Taleb added...
No news, no press, no Davos, no suit-and-tie fraudsters, no fools. I need to withdraw as immediately as possible into the Platonic tranquility of my library, work on my next book, find solace in science and philosophy, and mull the next step. I will also structure trades with my Universa friends to bet on the next mistake by Bernanke, Summers, and Geithner. I will only (briefly) emerge from my hiatus when the publishers force me to do so upon the publication of the paperback edition of The Black Swan.
So not much respect for Buffett or Bernanke...to say the least!
Now that's self-confidence.
Right or wrong the self-imposed silence equals loss of entertainment.
Adam
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