Can Turtles Fly?

Writing for The Globe & Mail, Preet Banerjee has a good column pointing out how different ways of measuring returns produces different results : Time-weighted returns v dollar-weighted returns Let's assume that a portfolio has three years of 20-per-cent annual returns, followed by three years of 0-per-cent annual returns. The time-weighted return is 10 per cent on average for those six years. But this is not accurate if you only invested $1 at the beginning, and then added $100,000 at the start of year four. The end value of this portfolio after six years would be less than $100,002, because while the $1 grew at 20 per cent per year for three years, the $100,000 didn't grow at all. The dollar-weighted return in this case would be virtually nothing. That's in stark contrast to the time-weighted average return of 10 per cent a year. Time-weighted returns can help you figure out whether the investment was a good one in hindsight, but dollar-weighted returns will h...

The scene is a cocktail party high above the Shanghai skyline on a summer night a few months ago. Our host is a Master of the Hedge Fund Universe, one who doesn't want to be identified in the press. We'll call him Pete. Pete comes to China at least twice a year to stay abreast of what's happening in the world's most dynamic economy. He has said, in fact, that if he didn't have kids in school in the U.S., he would consider moving here, so bright is the future. In attendance are other hedge fund investors, venture capitalists, and fund managers, China bulls all. If there is one sure-fire way to ruin the atmosphere on such a pleasant evening, it is this: Ask the crowd what they think of the legendary short-seller James Chanos, CEO of Manhattan-based Kynikos Associates. So that's what I do. "Hey," I say to a cluster of people surrounding Pete. "Did you guys see what Jim Chanos said about China on Charlie Rose the other night?" "No,...

It'll be interesting to see how the stock market finishes off the year. The US markets are hovering close to +10% right now. I don't find the stock market attractive and probably won't do anything for a while. Anyway, here are some articles I ran across that you may be interested in...Still have to figure out a better way to quote long text in these link posts I do. If you have any suggestions, feel free to leave your thoughts. Anyway, hope you find some of the articles and essays useful...credit goes to the original authors.

(source: " Book Review: All the Devils Are Here ," Ian McGugan. Bloomberg Businessweek, November 24, 2010. Image credits: Andrew Harrer/Bloomberg; David Karp/Bloomberg; Karen Bleier/Afp/Getty Images; Steven Puetzer/Getty Images; Frances Twitty/Getty Images)

(This post is not related to investing) I ran across an interesting article by Jay Goltz for New York Times' You're the Boss blog. It covers the emerging online coupon marketing channel and the author suggests that such schemes be considered as an advertising strategy rather than a sales strategy. The author covers Groupon but I like to generalize and think about his comments as they apply to any of the emerging coupon internet services. I'm only excerpting a small portion and leaving out some key assumptions so read the full article if you are interested in this topic. (I bolded some items I thought were important in the quote below.)

I've bearish on commodities for years but as long time readers know, I like to cover dissenting views that contradict me. This post is one such case. I ran across a Globe & Mail interview with the author of The Little Book of Commodity Investing,  John Stephenson,   covering commodities. I don't know anything about this author or how good his record is but sometimes it doesn't matter what the track record of someone is; what matters is their ideas. Here is an excerpt of some of the key questions, along with my thoughts. Since I'm bearish I'll be challenging the author's points (most of you have heard my arguments before so skip to the article directly if you are not interested in that):

If you are already feeling information overload, let me make it worse and offer you the following articles ;) As usual, not in any particular order... GM changes its logo on its HQ building (The New York Times): Subtle but changes like this are important to motivate the employees and project a new brand image. The IPO was successful; the company has reduced its costs; new leadership; betting big on the Volt... Let's see if it re-invent itself, a la IBM in the 90's, or if it will continue its long decline into oblivion. Consulo Mack's Wealthtrack interview with David Einhorn (Wealthtrack; via Gurufocus): David Einhorn is a sharp, up-and-coming, value investor. If I'm not mistaken, he hails from the midwest and is kind of like a young Warren Buffett (less proven than Buffett though; also seems more shorter-term-oriented and doesn't employ strategies of 'Buffett Prime' i.e. 1970's+). He rarely gives interviews worth talking about but I thought I would l...

The Hope in America... This measure is based on the Current Population Statistics survey, which among other things asks respondents the question "Do you have a business?" Dr. Fairlie matches this response with the response in the previous month to identify the number of new businesses created (subject to meeting criteria, such as devoting at least 15 hours per week to this business, and restrictions, such as the exclusion of adults over age 65). Importantly, Fairlie's measure of new businesses picks up new nonemployer businesses, many of which are not incorporated. What is particularly interesting about Fairlie's research is that he shows not only that this measure of entrepreneurial activity has surged, but that it is closely related to movements in local unemployment rates. That is, he has potentially uncovered an "entrepreneur of necessity" effect caused by high unemployment. For many unemployed workers, the benefits of starting a business during a we...

GM just re-emerged from bankruptcy and the IPO looks to have been quite successful. From The Globe & Mail (comments in square brackets by me): They all contributed to what was perhaps the most successful sale in the 102-year history of the company as its new shares began trading Thursday. Investors snapped up 452.6 million shares in the reborn auto maker, none of which carried a rebate, an interest-free loan or even a set of floor mats. The shares rose 4 per cent, or $1.19, to $34.19 on the New York exchange [IPO price was $33]. ... The U.S., Canadian and Ontario governments and the United Auto Workers will all retain a stake in GM for now, but the U.S. government reduced its ownership to a little more than one-third through IPO. The three governments bailed out GM with about $60-billion worth of taxpayers’ money in 2009, with Canada and Ontario providing $9.5-billion of that. Chris Liddell, who was appointed GM’s chief financial officer after it emerged from Chapter 11 ba...

I think he is deserving of it—some won't agree—but it looks like Warren Buffett will receive the Presidential Medal of Freedom . Although awards of any sort are always controversial, given questionable recipients in the past, this is an important one. This is the highest civilian honour in the United States of America (the highest civilian award in Canada is the Order of Canada , although some seem to suggest it is the Order of Merit). You can't get anything higher unless you are in the military. Warren Buffett will be receiving the medal along with several other prominent individuals such as Yo-Yo Ma (artist), Bill Russell (basketball player), George H. W. Bush (former president), Angela Merkel (German chancellor), and a few others. Although some may disagree with awarding it to Warren Bufffett, I think it is an appropriate choice. If America represents capitalism, it is only fitting the greatest capitalist of modern times, Warren Buffett, receive the highest civilian hono...

I lean towards deflation, although I don't expect outright deflation* in a country like USA, so I always pay attention to one of the few deflationists around: Gary Shilling. Writing for MarketWatch, Paul Farrell, summarizes Gary Shilling's thoughts in his new book, The Age of Deleveraging. I haven't read any of Shilling's books but I do plan to get to them eventually—at the rate I'm going, it might take 249 years ;) Shilling has been somewhat of a deflationist for almost a decade and his call in the late 90's turned out to be wrong. Needless to say, no one can predict the future precisely. However, some of his correct calls were very significant calls, such as the bullish call on US Treasuries in the 80's. With that said, you will find below a Farrell's summary of Shilling's key calls. Most of the calls are similar to what Shilling has said in the past and as should be expected with a deflationist, it goes against the consensus (big time!). As ...

I was browsing Advisor Perspectives and I ran across a very insightful, long, article by Christian Thwaithes of Sentinel Asset Management . The author presents some observations of what he sees on the ground in China. I highly recommend it for anyone interested in China. What I find most useful about this article is that the author ties in basic observations into how business differs in China. Anecdotal stories can always be misleading but there are a lot of insightful tidbits in there. The author is clearly a China bull—reminds me of Jim Rogers or those fund managers you read in history books who were gushing over Japan in the 80's—but he does address some of the issues brought up by China bears.

source: " Citigroup Proclaims `Cult of Equity' Has Died: Chart of the Day ," David Wilson for Bloomberg. September 3, 2010

I ran across an article at 24/7 Wall St predicting 7 emerging, American, monopolies . I don't necessarily think they are all monopolies; neither do I think they are worth investing in right now. However, it may be worth thinking about these companies and consider investing in them during a stock market crash or a hard sell-off. Here are the companies they list along with some of author's comment. My thoughts are in square brackets in green: Netflix (NFLX): "Netflix is expected to have more than 19 million subscribers at the end of 2010. Its growth may explode in the coming years Back in April, Trefis Research predicted that it would eventually reach as many as 47 million subscribers. That represents 39% of US households with DVD players. Where Netflix wins is with its library of more than 20,000 titles and its flexible business model that accommodates streaming or DVD by mail." [Mail-order movie rental company poised to dominate the online movie rental market. This...

Thanks to The Big Picture for bringing this Jeremy Grantham interview to my attention. For those not familiar, Grantham is the founder and key strategist at institutional fund advisor, GMO, and I consider him to be a macro-oriented value investor. Jeremy Grantham is the only value investor that I have run into who is also macro-oriented. A good interview, I would say. You may want to read his quarterly letter released recently which is a good companion piece to this interview. Grantham thinks the market is overvalued and urges caution. He is bullish on commodities in the long run (10 to 20 years) whereas I'm bearish on them. He favours high-quality blue-chip companies and prefers emerging markets over developed markets in the medium term (around 7 years). He isn't a fan of the Quantitative Easing II that is being undertaken by the FedRes and thinks fiscal stimulus is the best solution right now. Unfortunately the US government is now likely to cancel any sort of stimu...

Autozone Ascent Edward Lampert hit a rough patch a few years ago but Autozone (AZO) seems to be doing well (I still don't understand their business strategy, especially their use of a high debtload in a cyclical business). I'm not sure if it is company share buybacks or accumulation by Lampert (or someone else) that is driving the price but it's an amazing sight. The price has continuously risen with barely any dip. It sort of reminds of Warren Buffett's Washington Post in the late-70's/early-80's.

There is a popular perception that entrepreneurs need to take on a lot of risk. Many successful entrepreneurs are perceived as having succeeded due to bold gambits. Yet, even in seemingly obvious cases, the reality is anything but. Richard Branson, the founder of Virgin Group, is often portrayed as one that takes a lot of risk. Perhaps that is true when it comes to his recreational activities but his business strategy is very risk averse. Writing for Entrepreneur , in " Art of Calculated Risk ," he says (bolds by me): But while, to all appearances, we do have an unusually high tolerance for risk, our actions always spring from another principle: Always protect the downside. I think it should be a guideline for every entrepreneur -- or anyone involved in business ventures. For example, when we made the bold move of expanding from the music industry to the airline business, I set myself one condition: in our negotiations with Boeing, I stipulated that we could hand the...