Articles for Week Ending March 4, 2017

Various articles I encountered over the last few months that you may find interesting...

  • (Recommended) "When Bankers Started Playing With Other People's Money" by William D. Cohan (The Atlantic, Feb 28 2017) --  (Except from Why Wall Street Matters by William D. Cohan) : When Wall Street investment banks became public: "On April 10, 1970, nearly a year after first filing its IPO prospectus with the SEC, DLJ pulled it off, raising $12 million from the public and as a result fundamentally altering how Wall Street has functioned ever since. “Going public changed Wall Street permanently and forever,” Richard Jenrette (the J in DLJ) told the Times. “If Wall Street had remained in a private mode, it would have acted like a club and been so vastly undercapitalized that someone would have taken it over long ago. There would have been no alternative but to have let the [commercial] banks take over”—something that the Glass-Steagall law, of course, had made illegal."
  • "Toshiba’s Nuclear Reactor Mess Winds Back to a Louisiana Swamp" (Jason Clenfield and Yuji Nakamura, Bloomberg, February 12, 2017) & "How Toshiba Lost $6 Billion" (Jason Clenfield , Yuji Nakamura , Takashi Amano , Pavel Alpeyev , and Stephen Stapczynski, BloombergBusinessWeek, ‎February‎ ‎17‎, ‎2017‎) : Talk about total management incompetence. How could you buy a company and declare billions in losses within an year? Now you end up selling your crow jewels--a lucrative memory chip division--just to keep afloat.
  • On Amazon Echo - "Short Cuts" (John Lancaster, London Review of Books, February 2, 2017, Vol. 39 No. 3): Voice could revolutionize computing, especially when partnered with advanced AI. Not sure how close we are to it.
  • "Retail Has Good Reason to Hate a Border Tax" (Shelly Banjo, Bloomberg, Feb 16 2017): Good article showing how free trade can benefit nations. USA lost its clothing manufacturing capability but offshoring has essentially resulted in clothing prices staying flat (to slightly declining) over 25+ years. Believe it or not, USA has the cheapest clothing (adjusted for purchasing power) than any other country. Workers in manufacturing lost their jobs but I would argue that the country as a whole benefitted even more.
  • "Volatility Trades and Explosive Shorts" (Matt Levine, Bloomberg, Feb 10 2017): Talk about total incompetence -- some dude was trying to profit by bombing retailer, Target, and then buying its stock. LOL. Not only is it a criminal action for very little profit--good things most criminals are dumb or else the world would be worse--it isn't even the proper way to profit from declining prices ;)
  • (Highly Recommended) "Dole Food Had Too Many Shares" (Matt Levine, Bloomberg, Feb 17, 2017): Another great article by Matt Levine. Even if you don't care about mergers or Dole Foods or pineapples--yes I realize this story probably won't help you become a better investor--the article provides a good explanation of how share ownership recordkeeping works.
  • "Number of distressed U.S. retailers at highest level since Great Recession" (Ciara Linnane, Marketwatch, Feb 27 2017): I feel retail is outside my circle of competence but occasionally I do get attracted. I doubt retail is being hurt by online as many assume (online share is still kind of low) and wonder if it is due to a possible long-term secular decline in consumption (American consumers can't continue to spend more than they earn, with debt making up the difference, and wonder if we are seeing a change in trend).
  • (Recommended) "Is the Chicken Industry Rigged?" (Christopher Leonard, BloombergBusinessWeek, February 15, 2017): Apparently Geoff Gannon's favourite business article over the last year or so. Can't go wrong reading anything he recommends. Article delves into the competitive pricing of chickens. Lots of photos of chickens for chicken fans ;)
  • Transcript of Warren Buffett Feb 27 2017 CNBC Interview (CNBC, Feb 27 2017): Current thoughts from Buffett on Apple (thinks it is a sticky consumer product), why they don't like to go over 10% holding (never knew of short-swing rule until now), market valuations (thinks equities attractive if rates don't move up materially), border adjustment tax (not in favour and says it is just a sales tax that will impact average consumer), tax reform (doesn't think anything complex can be implemented quickly), 3G capital (thinks they are the best he has seen in a boardroom), self-driving cars (negative for auto insurers but thinks it will take a long time and doesn't think even 10% of cars will be self-driving in 10 years), Amazon (admires Jeff Bezos but retailing is tough to figure out--gives good history of it), Wells Fargo scandal (incentive system may have been an issue but real problem was not attacking the issue when it first came up; says of any problem, "get it right, get it fast, get it out, get it over"), investment climate (thinks it is much harder than past and only a few will succeed but can post good returns with small amounts of capital)
  • (Highly Recommended) "Financiers Fight Over the American Dream" (Sheelah Kolhatkar, The New Yorker, March 6, 2017 issue): Very good long-form journalism on William Ackman's battle with Herbalife. I have no idea what the truth is but the story provides a look behind the scenes, which can provide important lessons for investors.
  • (Recommended) "Buying a Good Business in a Bad Industry" (Geoff Gannon, GuruFocus, Feb 20, 2017) & "What's a No Growth Business Worth?" (Geoff Gannon, GuruFocus, Mar 6, 2012): Kind of scary and not sure if I'm making a mistake but I have been researching a few declining industries recently. So I have been reading some present and historical articles by Geoff Gannon, whom I consider the top freely accessible investment writer. I love reading Gannon's thoughts since he is very closely aligned with what is ideal for small, amateur, investors. I am presently thinking hard about the radio broadcasting industry and office products retailer, Staples (SPLS). Both are declining and in trouble but are they worth it if they drop a bit more? I also started doing some preliminary research on one of the stocks Gannon mentioned, Western Union (WU), which may sell off if Trump administration cracks down on Mexican migrant money transfers.


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