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Good Reading -- December 2012


  • “In distressed strategies, like distressed debt and real estate, we’re aiming to make 15 percent gross. The irony is of course that today 15 percent sounds like some herculean task. It’s the lowest yield we’ve ever targeted.” -- Howard Marks in remarks to investors on December 4, 2012

  • Marks also added that "the U.S. economy is decent and the capital markets are generous. We are making decent investments as long as you have expectations which are reasonable."

Facts and Figures

  • 2.3% -- the recent dividend yield on Wal-Mart's common stock.

  • 2.0% -- the recent yield (to worst) on Wal-Mart's unsecured bonds maturing in 2020. (John Deere, Intel and several other blue-chip companies also had dividend yields above their bond yields. Source: Bloomberg)

  • Cash on corporate balance sheets in the U.S. has grown at a compound rate of more than 7.5% since 1990 and now totals more than $1.74 trillion. Cash is now 5.6% of total assets, up from 3.8% in 1990 but below the recent peak above 6% in 2009-10. (Note: excludes financial corporations. Source: Federal Reserve)


My friend Barry is putting together his annual book survey, which is a great idea and I encourage all of you to participate -- it only takes 2-3 minutes. You will also get the opportunity to get the results of the survey via email. The survey closes tomorrow (Friday, December 13).

(All of three of the books listed below were highlighted pre-release, so these are updates now that I've read them)

  • Tap Dancing to Work -- This is the Carol Loomis book I mentioned a month or two ago, before it was released. Now that it's out and I've read it, I want to fully endorse it. Even if you've already read most or all of the articles before, as I had, Loomis provides insightful commentary and updates in the chapter introductions. There is also some interesting commentary from Bill Gates, among others. In any case it's worth having this material all in the same place and taking the time to read it a second (or a third) time. This is a wonderful collection of material and right up there with the other great value investing books. Highly recommended.

  • Buffett and Loomis did a flurry of interviews and appearances to promote the book, but this interview with Charlie Rose was unusually good and actually focused on some aspects of Buffett's investment process that aren't often discussed.

  • The Signal and the Noise -- I read this book before the author rocketed to fame during the November election, so that was interesting to watch. The book covers a range of interesting topics and it's worth reading. (I like the author's PECOTA baseball analysis too, although I like Ron Shandler and Bill James better.) The public adulation he's getting now is over the top, although that's obviously not his fault and he's rightly commented that "you don't want to treat any one person as oracular" (click through for more background in a good recent article). But again, a good if not great book about the always interesting topics of forecasting and judgment under uncertainty.

  • If you haven't had your fill of Bayes' Theorem yet, see "Bayesian Unreason in the Modern World," from the excellent Psy-Fi Blog, for more good material on the topic.

  • Antifragile: Things that Gain from Disorder -- This is the latest book from Nassim Taleb, and for anyone who hasn't read it yet, it is by far the least applicable to investing and finance. It is more of a treatise on his Philosophy of Everything. Predictably, it's getting some love and a lot of hate. For what it's worth, I really liked Fooled by Randomness, I liked The Black Swan, and I liked this one the least. Taleb is still pompous, pretentious, and prone to long digressions, but if you read the first two you'll probably want to read this one too.

  • If you're still on the fence, check out this interview with the author that highlights his, um, eccentricity. Andhere is an excerpt of the book in the WSJ. And here is a very unfavorable review.

  • Interview with Joe Carlen, Author of The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham -- My friend Miguel conducted a great interview with the author of this book (which I have previously recommended).


  • How to Win at Forecasting -- This is a fascinating interview/conversation with Philip Tetlock. And Daniel Kahneman wrote a brief introduction in case you need any more convincing.

  • Bond Switch Signals End of Cult of Equity -- "For the first time in more than 50 years UK pension funds are holding more bonds than equities....A pension trustee at a big UK fund says: 'We have been switching into fixed income for the past 10 years because of a number of reasons. Since 2002, there have been two stock market crashes, which have shaken equities and makes it difficult for funds like ourselves to deal with the volatility. We need stable, fixed returns to match our liabilities and pay our pensioners. There is also growing pressure from regulators to allocate more investments into safer assets such as government bonds.'"

  • Amazon's Jeff Bezos: The Ultimate Disrupter -- Interesting profile on Amazon and Jeff Bezos, the 2012 FortuneBusinessperson of the Year.

  • Why Americans are saving so much -- An insightful interview with Wells Fargo CEO John Stumpf. "We're starting a fourth year of the recovery, but it's a very cautious recovery. People and businesses are spending money on things they need, but they're not investing for the future in many cases. they're putting off decisions. In fact -- this is a surprise to most people -- in half the mortgages that will be made this year, people will either bring money to the closing -- a cash-in refi -- or use the reduced rate to shorten the term and keep the payment the same. They're paying off debt. They're deleveraging -- there's too much uncertainty right now."

  • Grumpy Enough to Retire -- Sadly this is the end of a great blog. But one of the authors left us with a plea to restore truthfulness in accounting along with some proscriptions for his profession.

  • Jeremy Grantham, Starving for Facts -- This is a real battle of heavyweights, as both Jeremy Grantham and this author, Vaclav Smil, have a good and well-deserved following in their fields. I've always enjoyed the work Grantham and his colleagues have done at GMO over the years, although I was fairly surprised at the extreme nature and alarmist tone of Grantham's latest essay ("Be persuasive. Be brave. Be arrested (if necessary)") to which Smil is responding. It's at least worth wading into this debate to evaluate the merits of both sides.

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