Morgan Housel: The Thrill of Uncertainty

Excellent blog post by Morgan Housel on incentives, markets, and addictive behavior.

  • Three types of incentives:
    • Fixed.
  • Changing.
  • Variable interval

Variable interval rewards flood your brain with dopamine because that high is evolutionarily necessary to survive the hellish world of hunting and famine.

So, we have a pretty good idea that stocks will reward us over time. But we have no idea when, or how, or what it will make us endure in the meantime.

It is a variable interval reward. Which is a hell of a drug.

 

Read the full blog post: Morgan Housel: The Thrill of Uncertainty

Morgan Housel on Incentives 1-13-2018.jpg

The case for buying Greek bank equities and why Greece is turning the corner

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

Interesting blog post with the bull case for Greek bank stocks. This is not a recommendation to buy Greek bank stocks. How bad of an investment have they been to date?

The share prices of Greek banks are down over 90% (in some cases 99%) from the highs in 2007

Full blog post: The case for buying Greek bank equities and why Greece is turning the corner

 

Michael Mauboussin: How Well Do You Compare?

Michael Mauboussin now writes for Blue Mountain Research. His latest piece explores how we make comparisons. He explores the mistakes we make in comparing and looking for analogies. For example, an analyst may consider her own experience when evaluating a deal with familiar characteristics. That would be a "lack of breadth" mistake because the comparison fails to consider the larger sample of similar deals.

Mauboussin also focuses on a common valuation tool, the comparable company or peer group analysis. He explores several 

When researchers examined how analysts actually select companies for comparison, they found that analysts pick peers with high valuations when they want to argue that a stock is cheap. It appears that the comparable company analysis is less an exercise in objectivity and more an exercise in persuasion.

Link to the full paper:
Michael Mauboussin: How Well Do You Compare?

Comparing, essential to effective decision making, comes naturally to humans. But our basic approach of relying on analogy can limit our ability to compare effectively. In particular, we fail to incorporate sufficient breadth and depth into our comparisons, and we can be easily swayed by the presentation of information or the allocation of our attention. 

 

Mauboussin Methods of Comparison.jpg

2017 Capital Link Invest in Greece Forum - Panel with Kyle Bass

If you're interested in Greece check out this 47 minute panel with Kyle Bass. At minutes 4, 8, 25, 35, and 45 Kyle outlines his bullish thesis on Greece and the Greek banks.

Hat tip to DennyCrane who found this video.

The panelists:

Greece Capital Panel 1-8-2018.jpg

Jeremy Grantham (GMO): Bracing Yourself for a Possible Near-Term Melt-Up

Jeremy Grantham's latest piece set off a lot of discussions this past week. Grantham examines how the market could perform if it followed a similar trajectory to historic bubbles. A key characteristic would be further price acceleration - an increasingly faster melt-up. Of course one could argue that this was already the case in 2017.

You can find the full GMO piece here:
Jeremy Grantham (GMO): Bracing Yourself for a Possible Near-Term Melt-Up

Grantham's personal view:

Grantham Bubble 1-7-2018.jpg

 

 

Jim Simons, The Numbers King (New Yorker)

My final recommendation for holiday reading: the New Yorker article about Renaissance Technologies founder Jim Simons.

Simons, a noted mathematician, is also the founder of Renaissance Technologies, one of the world’s largest hedge funds. His income last year was $1.6 billion, the highest in the hedge-fund industry. You might assume that he had to show up every day at Renaissance in order to make that kind of money, but Simons, who is seventy-nine, retired eight years ago from the firm, which he started in the late seventies.

The article focuses on Simons' Flatiron Institute:

At the Flatiron, a nonprofit enterprise, the goal is to apply Renaissance’s analytical strategies to projects dedicated to expanding knowledge and helping humanity. The institute has three active divisions—computational biology, computational astronomy, and computational quantum physics—and has plans to add a fourth.

Full article: Jim Simons, The Numbers King (New Yorker)

Fortune Magazine: Elliott Management: How Paul Singer’s Hedge Fund Always Wins

Take some time over the holidays to read this Fortune article on Paul Singer's activist strategy.

To get you started:

“The Elliott book of deals is probably the most instructive, and it’s also one of the most far, far reaching,” says Marty Lipton, founding partner of the law firm Wachtell Lipton Rosen & Katz and inventor of the poison-pill corporate defense strategy, who has lately faced Elliott more frequently and on more fronts than ever before. “They’ve been enormously successful, and they are a major factor in activism today.”

Full article here: Inside Elliott Management: How Paul Singer’s Hedge Fund Always Wins

 

Elliott Management Activism Fortune.png

What it was like: using the Wayback Machine to go back to 2007

An interesting little exercise: review headlines at the time of a major market inflection. For recent history we can do this using the Wayback machine (archived versions of websites).

Take a look at the Bloomberg headlines in April 2007. The stock market was still doing well but you didn't have to look far to see trouble brewing.

Bloomberg Headlines April 2007

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Bill Miller on WealthTrack on Bitcoin: Currency of the Future or Investment Mania?

Bill Miller is one of the few high profile Wall Street investors who has been vocal about investing in Bitcoin and cryptocurrencies (Mike Novogratz being another).

Listen to Bill make his case for Bitcoin on WealthTrack. Full video (really audio of a call) here:

Bill Miller on WealthTrack on Bitcoin: Currency of the Future or Investment Mania?

IHL Slide Deck on the Changing US Retail Landscape

Check out this analysis of the changing US retail landscape. IHL pulled the numbers on the US consumer, store growth and decline by category, and much more.

IHL: Debunking the Retail Apocalypse

Overall, retail is still growing. But notice how much of the growth is coming from food service and convenience stores.

IHL Retail Apocalypse Growth by Category.jpg

Dollar stores, convenience stores and new entrants (like Aldi and Lidl) are driving store growth.

IHL Retail Apocalypse Growth.jpg

One of IHL's conclusions: the laggards severely underspend on IT. They lack the will or funds to tackle ecommerce.

IHL Retail Apocalypse IT Spend.jpg

Boston Consulting Group: Boston Consulting Group: Lessons from Successful Turnarounds

For all of you interested in corporate strategy, restructurings, and distressed investing, check out this BCG report on lessons from recent corporate turnarounds.

BCG: Lessons from Successful Turnarounds

Perhaps unsurprisingly, these successful turnarounds outperformed the market.

BCG Comeback Kids Performance.jpg

These are the key elements BCG identified among these situations.

BCG Comeback Kids Critical Elements.jpg

Financial Times interview with Neil Woodford "There are so many lights flashing red that I am losing count"

Check out this FT interview with PM Neil Woodford whose fund has been struggling this year.

“Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations. Whether it’s bitcoin going through $10,000, European junk bonds yielding less than US Treasuries, historic low levels of volatility or triple-leveraged exchange traded funds attracting gigantic inflows — there are so many lights flashing red that I am losing count.”

FT: Neil Woodford: Will investors keep the faith? ("there are so many lights flashing red that I am losing count")

Woodford focuses on domestic businesses as well as young technology companies.

He said this was why he was staying out of a host of expensive “zeitgeist” stocks, instead buying UK-focused housebuilders, retailers and banks whose share prices are discounting “economic Armageddon for the UK economy” following the Brexit vote.


Yet, at the same time, he insists there are “profoundly undervalued businesses”, ranging from domestic blue-chips to unlisted knowledge-intensive growth companies seeking early-stage capital which, given time and patience, will deliver a better performance for his investors.

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!