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Monthly Archives: February 2010
The Simon/Ehrlich Bet
Paul Kedrosky wrote a blog post on his Infectious Greed site on the famous Simon/Ehrlich bet. Here is a snippet:
“After a decade of soaring commodity prices, plus related worries about resource scarcity, in 1980, Paul Ehrlich, a dour population ecologist, took up Julian Simon, a cornucopian economist, on a bet. Ehrlich (on paper) put equal mounts of money into five commodities (he selected chromium, copper, nickel, tin and tungsten) whose prices would, he thought, be higher a decade later. Higher prices meant Ehrlich won; lower prices meant Simon won. The loser paid the winner the difference.
Ehrlich lost. A decade later, in 1990, all five commodities’ prices were lower than they were in 1980. Unhappy at the outcome, Ehrlich complained that he hadn’t really wanted to bet on commodities in the first place. He offered Simon a new and more complex series of decadal bets – including things like carbon dioxide, AIDS prevalence, area of viable farmland, and so on. Simon turned that bet down, comparing it to betting on a football field’s condition rather than on the game’s outcome. There never was a second Simon/Ehrlich bet, and Julian Simon died in 1998.”
I highly encourage you to read the whole thing as it is excellent. Here is the link:Kedrosky post on Simon/Ehrlich Bet
Jamie Oliver’s TED talk
Best quote from the video: “We spend $150 billion a year on healthcare costs related to obesity.”
Moishe House in the NY Times
As I have written before I’m on the board of Moishe House foundation. The New York Times just profiled them in a wonderful write-up. Here is a snippet:
REBECCA KARP, Brian Cohen, Danielle Hardoon and Alissa Worly, all of whom are in their 20s, share a spacious red-brick house in Philadelphia. It rents for $3,200 a month.
Brian Cohen, Rebecca Karp and Alissa Worly, from left, three of the four roommates of Moishe House Philadelphia, share kitchen duties during a dinner at their home for other young Jewish adults. But they pay only a fourth of that. Every month, an organization in California sends a check for the lion’s share of the rent — $2,400 — directly to their landlord.Their benefactor is Moishe House, a nonprofit group founded in 2006 to help Jewish 20-somethings create communities. Its model is simple: Moishe House subsidizes the rent of groups of three to six residents, in exchange for their promise to organize events for other Jews in their 20s. Just four years old, it now has outposts in 29 cities, including Beijing, Cape Town and Warsaw.
Picture “Real World” — the MTV series — with challah.
Moishe House is run out of a rented office in Oakland, Calif. Its founder and executive director, David Cygielman, who is 28, said that its budget, provided through donations, is now about $1.35 million, or “about that of a medium-sized synagogue, and for that we do about 225 programs a month.”
Here is the link to the article: Moishe House NY Times article
Investor A.D.D.
From 1940 to 1980, the average holding period that investors held on to stocks was as high as 10 years to as low as 4 years. Then in the 1980s, the holding period started to fall to as low as 1.5 years in the late 1980s, before a brief bounce to two years in the mid 1990s, and then it started to fall yet again. The average holding period for stocks now is 6 months.
Let me repeat that, in 2009 the average holding period that the average investor held stocks was a mere 6 months. With a time horizon of 6 months you are not an investor, you are a gambler. Because if you are holding a stock for just six months, you are betting not on a company’s fundamentals but on investor psychology and on prevailing market moods and trends.
I’m not here to moralize about this, but to present this as a tremendous opportunity. Investor A.D.D. and impatience is an opportunity of fantastic proportions as investors trade with the market, but not according to individual companies’ fundamentals. Let me give you an example.
I am building a new position in a cash cow of a company with a highly valuable recurring revenue business growing at 40%, with no debt and a lot of cash. In fact, the company is generating so much cash; they aren’t sure what to do with it. When the market started to weaken in mid-January, this company’s stock price suddenly fell 20% in a week on larger than normal volume. The company then released excellent earnings, higher than expected cash generation and increased guidance. The stock immediately recovered its losses and then some. Why was there so much selling before earnings? Investors or should I say “market gamblers” were moving with the market, not the company.
I continue to look to the long term and think there is a tremendous opportunity to arbitrage time and take advantage of the short-term thinking that so many “investors” are afflicted with. Cash doesn’t lie and accumulating a portfolio of cash generating companies at very attractive valuations will win out in the end.
Roundtable Investment Video
Run to watch this investment roundtable from Russia with Marc Faber, Hugh Hendry and Nassim Taleb. It is fantastic.
I cannot recommend this hour long video enough.
The First Tycoon: Cornelius Vanderbilt
“The First Tycoon: The Epic Life of Cornelius Vanderbilt” written by T.J. Stiles is one of the finest biographies I have ever read. Not only is the Cornelius Vanderbilt’s life an amazing and exciting one to follow, but the level of research and the way that Mr. Stiles narrates the story, makes this clear why it won the National Book Award.
Born in 1794, Cornelius Vanderbilt was a part of not only a great nation forming, but saw the emergence of New York City as the financial capital of the U.S., the emergence of Steam ships, the war of 1812, railroads, how California and San Francisco came to be and the Civi War. He took advantage of the new entity of the corporation and actually built companies, instead of using them as tools for his own personal wealth (which they became anyway). He was a principled man and took revenge on those who tried to cross him. In fact, one of the big themes of the book is that Vanderbilt grew his wealth and empire precisely because so many people tried to cheat and screw him. His revenge against those people is the primary reason he became so rich. His wealth was so staggering, that at his death it is estimated that if he liquidated all of his stock holdings, he would own $1 out of $20 dollars in circulation. Compare that Bill Gates, the current richest man in the world, who would take only $1 out of every $138.
Here is what I specifically learned from the life of Cornelius Vanderbilt:
1)Whenever he found someone who was capable, who he could trust and was a hard worker, he remembered that person, so that when an opportunity came around he could place that person in charge of a company or investment. This method of attracting subordinates and delegating power and authority was critical to him.
2)He embraced technological change. Once steam ships came, he got out of sailing sail boats. Once railroads came he eventually disposed of steam ships.
3)He was principled and built companies in a time when many “robber barons” and other tycoons ransacked companies and used them to generate wealth for themselves at any means.
4)He avoided politics and rarely if ever took sides.
5)He made sure that any business he was in had a cost advantage and he relentlessly focused on lowering costs for every company he ran or took over.
I think there are many life, history and business lessons in this wonderful biography and I highly recommend it.
China’s Property Bubble
This is a must watch video from Jim Chanos on the property bubble in China. My favorite line:
“There is roughly 30 billion square feet of non-residential property under construction in China. This means that there is enough office space being built to have a 5 by 5 foot cubicle for every man, woman and child in China.”
Here is the video: