Can Turtles Fly?

Corruption Throughout the World       source: 2012 Corruption Perceptions Index , Transparency International

Is College/University Still Worth It?    (source: " Not what it used to be ," The Economist. December 1, 2012)

Life Sorry about the lack up of posts over the last few months. Life had been kind of (crazily) busy. I married recently so the wedding took a lot of time with preparations; and then took a honeymoon trip to South-East Asia (Cambodia, Laos, Vietnam), which was my first major vacation in a few years. I should be settling in to regular rhythm soon and hope to get back to focusing on investing soon :) Painting: "The Tree of Life, Stoclet Frieze" by Gustav Klimt, 1909

Dynamic Pricing of Goods       (source: " Coming Soon: Toilet Paper Priced Like Airline Tickets ," by Julia Angwin and Dana Mattioli, The Wall Street Journal. Infographic. Sept 12, 2012)

Very-Long-Term Silver Price Performance       (source: Charts R Us . Direct link to image here . Original source unknown.)

S&P 500 Sector Changes Over Two Decades The following table and chart from Bespoke Investment Group from January of this year illustrate how the S&P 500 sectors have changed over the last 20+ years. Although the stock market isn't directly correlated with the economy, it does largely reflect the economy. The biggest increases have been in the technology, financial services, and energy sectors and one just needs to think about the number of people employed in those areas compared to what they remember from 1990; in contrast, materials, utilities, and telecom have shrunk and what used to be big employers in the 80's and 90's, such as telecoms, are now shedding jobs.     (source: " S&P 500 Historical Sector Weightings " by Bespoke Investment Group. Published Tuesday, January 17, 2012 at 10:27AM. Downloaded September 3, 2012.)

The Longevity of Various Media (click here for link to original, larger, image) (source: " The Lifespan of Storage Media " by CrashPlan.com. Downloaded August 28, 2012. Originally mentioned by Cool Infographics )

A bit late, oh well...     The Changing Media Landscape in USA     (source: " Wordy goods ," Daily Chart, The Economist. Aug 22nd 2012, 14:07)

When Humans Were a Commodity Image of Brookes, a British slave ship: (source: " An American Time Capsule: Three Centuries of Broadsides and Other Printed Ephemera ," Stowage of the British slave ship "Brookes" under the regulated slave trade act of 1788. [n. p. n. d.]. -- Piece 1 of 1. Library of Congress. Downloaded August 13, 2012. Original mention by Fastcodesign Infographic of the Day .)

NASA's Curiosity Rover Lands on Mars (source: NASA rover lands on Mars , August 6, 2012)

Been busy with some important personal matters but I do keep tabs on the markets. It's hard to believe how the Facebook story has played out. When I took a deep look at Facebook and social networks , I never imagined Facebook (FB) would fall so quickly without any major economic crisis or stock market crash. IPOs are often poor investments but large initial issues tend to be more efficiently priced so it's somewhat surprising to see investors bail—even before we hit the expiry of the lock-up period for insiders. If you believe in Facebook's business model—that's a big 'if' for some—the stock appears to be entering attractive valuations. The following summary from Yahoo! Finance, whose numbers aren't always accurate, compares Facebook to Google.

Olympics & its Benefits (source: " Is Hosting The Olympics Good For A City? " Original by Information Builders. Downloaded via Visual Loop on Pinterest.)

(source: " Graphic: The richest teams in the world ," by Jonathon Rivait, National Post.  Jul 21, 2012 – 2:06 AM ET | Last Updated: Jul 21, 2012 2:16 AM ET)

USA's Electricity Grid (simulated view) (source: " The art of GPS: Secret corpse flights, pizza boy delivery routes and the daily commute revealed in never-before-seen side of America " by Lee Moran. Mail Online. PUBLISHED: 10:22 GMT, 19 June 2012 | UPDATED: 20:17 GMT, 19 June 2012. Original source: America Revealed)

Large Hedge Funds with Good Long-Term Performance This chart isn't very useful since it doesn't show return in percentage-terms (the bar chart shows dollar gains). Nevertheless, I thought it was worth seeing how large funds are behaving. (source: " The Oracle of Boston ," The Economist. July 7, 2012)

How Educated is the World? Education vs Age in the Modern World Competitiveness of countries, and their standard of living, has historically been driven by education. This relationship may not be as strong in the future—my view is that higher education isn't as big of a distinguishing factor as it was in the past—but very-low education still prevents certain countries from competing on the world market. The chart below from McKinsey Global Institute shows education vs age for key countries. It is obvious that the higher-educated countries are older. It's not clear to me if this is due to lower-educated populations having lower lifespans and/or having more kids. Those scoring low on the education scale are, as expected, poorer as well. (click for larger image) (source: " The world at work: Jobs, pay, and skills for 3.5 billion people ," McKinsey Global Institute. June 2012)

I ran across the following presentation by Jim Chanos and thought you will find it insightful. Even if you aren't into short-selling—I am not—it is useful to see what sort of investments you may want to avoid. Value investors tend to ignore macro views but those who are more influenced by macro may want to pay attention to bearish views of any investments they are considering. Back in May, Chanos gave this brief interview to Bloomberg briefly mentioning the topics covered in the presentation. The presentation covers Chanos' bearish thoughts on what he feels are some characteristics of value traps. He goes on to list several investments that he views as value traps. Here are two summary slides from the presentation. I share most of Jim Chanos' views and think investors should be careful with the areas he identified. For instance, I do think traditional PC manufacturers could lose big—he is bearish on HP—as tablets and mobile computing replaces PCs. Even compan...

The Exponential Growth in Photos Oldest Photo of a Person Boulevard du Temple by Daguerre, Paris, France (circa 1838) (source: Scanned from The Photography Book, Phaidon Press, London, 1997. Downloaded from Wikipedia Commons on June 24, 2012) Growth in Photos (source: " How many photos have ever been taken? " By Jonathan Good, 1000memories blog, September 15, 2011.) Largest Photo Libraries (source: " How many photos have ever been taken? " By Jonathan Good, 1000memories blog, September 15, 2011.)

A few days late but oh well... Great graphic by Asymco on the evolution of the computer industry... Evolution of the Computer Industry (source: " The evolution of the computing value chain ," by Horace Deidu, Asymco. June 19 2012)

Stock Buybacks & Dividends 1988 to 2010 Dividend payouts have not increased much over the 20+ years while buybacks have increased significantly. During the bubbly peak in 2007, more than $500 billion worth of shares were bought back—ironically at really high stock prices!!—whereas dividend payouts hit a little over $200 billion. Senior management and financial executives have no clue what they are doing when it comes to buying back shares (their buying is highly correlated with stock prices, which is not what you want). Note that the figures are in millions i.e. In 1988, dividends of $100 billion were paid out while $50 billion worth of shares were bought back. ( I wrote a post on dividend payouts back in 2009 and some of you may be interested in that post as well.) (click on image for larger one; quality isn't great) (source: " Value Investing: Investing for Grown Ups? " by Aswath Damodaran, Stern School of Business, New York University. April 2012...

A Look at Unemployment in America by Sector You can get a feel for employment patterns in various industries in the following infographic. As always, keep in mind that some sectors, like manufacturing, are very large, so a 1% change has a bigger impact on GDP than, say, leisure and hospitality. Some key points that stick out for me include: Manufacturing was underperforming even before the recession (250,000+ job losses in 2004 and 2005, which were boom years. We are basically witnessing a secular decline in manufacturing in USA (and Canada too).) Construction got hit hard during the recession (obviously driven by the real estate bust) Government sector is starting to post job losses during the recovery over the last couple of years (this is likely due to government spending cuts) (click on image for larger pic) (source: " Rising UNemployment ," Glassman Infographic. Design by Elefint. Downloaded from Fast Company, post dated May 23 2012.)

The Modern Theory of Stock Market Investing (source: Dilbert , illustrated by Scott Adams. Image downloaded from Monevator .)

Barron's Top Hedge Funds in America Thought I would post the tables listing the top hedge funds in America from an excellent pice on Ray Dalio (Macro-oriented investors should check out the article). Hedge funds are in a parallel universe from me (for the most part) but it's interesting to see what type of strategies have done well in the recent past. A lot of the hedge funds posting good 3-year returns likely fell off a cliff 3 years ago so it's not clear how good they really are. It looks like the Barron's Top 100 hedge fund index has returned a spectacular 25.55% per year over the last 3 years vs BarclayHedge Fund Index of 9.05% S&P 500's 14.11%. There is likely huge suvivorship bias in the Barron's Top 100 Hedge Fund index. (source: " Ray Dalio's World ," Sandra Ward, Barron's. May 19, 2012. Data sources: BarclayHedge, Morningstar)

Technology Adoption in America It's not easy to measure how quickly technology is adopted. One can come up with numerous methods, and the result can differ depending on how you count the starting point. Sometimes it is also hard to distinguish between devices. For instance, one of the sources below seems to count 'tablets' as something starting with the iPad, when a stricter view may place the starting point back in the late 90's or early 2000's (there were some tablets running Microsoft OS back then). Similarly, some people separate 'smartphones' from mobile 'feature phones' whereas others do not. In any case, the following graphs provide some insight into adoption rates. As to be expected, technologies that required building out huge physical infrastructure (like the electricity grid or the telephone network) took a very long time. Based on the results quoted by The Atlantic , it looks like the 'boom box' had the fastest adoption a...

Macro-economic Drivers of Corporate Profits (source: " What Goes Up, Must Come Down! - March 2012 ," Exhibit 5, James Montier, GMO, March 2012) One of the reason people like me are bearish, and don't trust the trailing and forward P/Es, is because corporate profit margins are quite high. Most of this, as can be seen above, is driven by government "savings" (i.e. deficit spending). IANAE—I Am Not An Economist—and can't say I understand this chart very well or agree with it entirely. For instance, I always thought the fact that consumers (in USA and Canada) were living outside their means and running big deficits was accretive to corporate profits; whereas this chart implies it is a drag. If consumers start increasing their savings (i.e. positive savings), does this mean corporate profits would be even higher? I don't get that — can anyone explain that to me? In any case, this chart does provide a rough view of what may be driving corporate pr...

John Hussman isn't a stock picker—he's more of a macro guy—but he did comment in his April 30th Weekly Market Comment on how high sales growth declines as market share increases, and commented on Apple (AAPL). Kind of obvious but investors, particularly growth investors, often tend to ignore this, often to their peril. [as usual, bold highlights by me] Consider a very large, untapped market for some product. We can model the growth process in terms of how quickly that product is adopted by new users, whether there are any "network" effects where new buyers are attracted to the product because other people already use it, how frequently existing users replace their products, whether late-adopters come in more slowly than early-adopters because of budget constraints, how quickly the untapped market grows , and a variety of other factors. Whether you do this sort of modeling with a spreadsheet or with differential equations, you'll get essentially ...

Marketing Innovations (source: " Eloqua x JESS3: Disruptive Innovations Infographic " by Eloqua and JESS3. Visualizing.org)

20-Year Real Return vs 10-Year P/E Ratio Note that returns are real returns and one should add an inflation (say 3%) to get nominal. I think I've beaten the 10-year p/e to death but this chart is more visually obvious than some other data I have posted in the past. (source: " File:Price-Earnings Ratios as a Predictor of Twenty-Year Returns (Shiller Data).png ," Wikipedia.org. Downloaded on Apr 29 2012. Original data from Robert Shiller)

The Ever-Rising Executive Compensation I've been thinking about writing about the controversy over the rising executive compensation in North America. Here are some graphics that frame the current situation (chart data up to mid-decade). I actually don't think rising executive compensation is as big of an issue as it seems. The rising discrepancy in wealth is caused by society starting to reward talent—not just in business but also in sports, media, and so forth. As you'll note in one of the charts below, a lot of the increase in compensation is from bonuses and equity-linked compensation. Base salaries of executives haven't gone up much; the issue, thus, is whether the "bonus" is deserved. So far, shareholders and owners seem to be satisfied with management performance and are willing to award large discretionary bonuses. Structure of Executive Compensation (source: " Executive Compensation: A New Solution to an Old Problem ," FTI Jo...

(Image source: Vator News ) Some of you may have heard of Peter Thiel; most probably have not. Peter Thiel is a successful Silicon Valley entrepreneur and venture capitalist, who is famous for being a founder of PayPal and being the first outside investor in Facebook. He is somewhat controversial in that he is a libertarian and is influenced by Austrian Economics and has some extreme views (I actually share a lot of the libertarian views but I'm more of a liberal-libertarian and think that pure-libertarians sometimes forget that humans have a heart). If you find him interesting, you may want read this excellent New Yorker profile by George Packer from November of last year . I don't use this word on too many people but he is a brilliant man who seems quite innovative in his thinking. Blake Masters has been writing up the notes from a Computer Science course on entrepreneurship being taught by Peter Thiel. The notes were taken by him ( @bgmasters ) along with some notes...

Extracted from an infographic produced by US Census Bureau is the following graphic depicting employment by industry (Canada should be somewhat similar, especially for Ontario and Quebec): The graphic illustrates how the employment landscape has changed over 60 years. Do keep in mind that the graphic illustrates employment rather than GDP (or economic output). Manufacturing contributes more to output (and wealth) than, say, agriculture or primary resources (like mining). Taxes paid by manufacturing businesses and manufacturing workers was likely far higher than agricultural workers/industry. So, manufacturing was actually way more dominant in 1940 than the chart illustrates. Nevertheless, if we ignore wealth contribution, employment is very important and a key facet of society. A society with high unemployment is a dysfunctional society in my opinion. So, the chart above is quite important.

(click on image for a larger picture) (source: DesignandGeography.com. Image downloaded on Apr 8 2012 3:25 AM from " Mapping the US Housing Bubble: 2000-2010 ," VisualizingEconomics.com)

(click on image for larger image) (source: "On Wall Street today, news of lower interest rates sent the stock market …" Cartoon by Robert Mankoff for The New Yorker . Item #: 8641612. Cartoon can be purchased at the official store, The Cartoon Bank .)

Investing life has been quite boring for the last two years—come to think of it, so has other aspects of life :( I didn't buy anything for several years now and haven't posted much on the blog either. I've been reading quite a bit though, but haven't found any compelling ideas. In any case, I just sold off one of my very first investments—one I made before I started this blog—for a small gain. That investment is a small reinsurance company called Montpelier Re (MRH). I bought it in February 2007 and sold it today (March 2012). Purchase price (approx): US$ 17.96 Sale price: US$ 19.49 Simple return (excl dividends; US$): 8.4% Total return (US$): 14.1% (2.67% annualized)

Rolling 10-Year Stock Market Return vs Starting P/E Ratio (source: " Gazing at the future: why stocks are underperforming ," Crestmont Research. Downloaded March 25, 2012) I think I posted similar, if not the same, charts, a few years ago and I thought it was a good time to revisit. The above chart plots the rolling 10-year S&P 500 return (annualized), along with the starting P/E ratio at the beginning of the 10-year period. The starting P/E ratio—you can think of the P/E ratio as a proxy for valuation—plays a huge role in determining future returns. After all, if you buy something at a high price, your returns are likely to be lower than if you buy the same thing at a lower price. Typically, a high P/E ratio will compress and you'll post weaker returns. The long-term stock market return is 10% per year and the average P/E ratio is around 15 (Crestmont has it pegged at 15.5). In the chart above, you'll notice that the 10 year return tends to be low...