Wednesday, June 20, 2012

Howard Marks Oaktree Capital: It's all a Big Mistake

Howard Marks' latest memo: "It's all a Big Mistake" is an excellent read on the psychology of investor sentiment, the tendency to overshoot, or to improperly incorporate information into investment decisions.  Marks expands on a few points as to why investors tend to not buy assets that are cheap - or at least not enough of them:
  • Bias or Close-mindedness
  • Capital Rigidity
  • Psychological Excesses
  • Herd behavior
The link above is to Oaktree's secure website where the memo can be read in full or downloaded.   Marks is a excellent writer who possesses great skill and clarity in his memos which are sought out and read by his investing peers.  His recent book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing)is an excellent read that channels a clairvoyance nearly on par with Mr. Buffett.

"Active Management has to be seen as the search for mistakes."
-Howard Marks

FYI - I added a couple books to the "Worthwhile Investment Reading" page:

How to change a habit.

(click diagram to enlarge)

How to change a habit?  Good question.  The above diagram depicts the brain's internal process for habit formation and execution.  As with many of our reactions, this chain effect is largely on auto pilot.  External cues or triggers come to us unexpectedly throughout the day causing these habits or auto-responses in our brains.  Obviously not all habits are good, and not all habits are bad.  The above diagram can be used as a tool to change those bad habits into good ones.

For more reading about the formation of habits check out The Power of Habit: Why We Do What We Do in Life and Business.

"The chains of habit are too light to be felt until they are too heavy to be broken."
-Warren Buffett

Monday, June 18, 2012

Money, Power, & Public Broadcasting

Money, Power, & Wall St. is a new Frontline mini-series that takes a boots on the ground view of Wall Street.  Episode 1 goes back to the mid-1990's and traces the origins of the creation of CDO's.  That may not sound very interesting at a glance, but when you consider the magnitude and impact that that one synthetic credit 'product' has had on millions of Americans, it should peak one's interest.  It was the trade heard round the world. It was a private market that avoided regulation, and "shifted risk" from the banks to the counter party. 

Hindsight is 20/20, but amazingly, Greenspan sided with the banks on these opaque derivative markets.  It just goes to show that sometimes the smartest minds in the world are blinded by their own self-confidence, the subtle undertow of the crowd, and an inadequate understanding of what they themselves do not know. 

I have only watched the first episode, but it seems like a very promising documentary.  Frankly, I am very tired of 'blaming' the banks, banksters, hedge funds, private equity, and whomever else we can throw in to the pot.  The damage is done.  Now we need to fix it.  In my viewing of EPS 1, it has been explained the how and the why of the CDS's creation, and hopefully the documentary continues its enlightening look behinds the scenes.

As noted above, this has and continues to affect millions of Americans everyday, therefore, I think it important to understand the beginnings and the evolution of our miseries so as to avoid them in the generations to come. 

"Those who cannot remember the past are condemned to repeat it."
-George Santayana

Saturday, June 16, 2012

PBS Wealthtrack - Richard Bernstein and Bill Wilby

Good episode this week with Richard Bernstein and Bill Wilby.  Wilby was Oppenheimer Global Portfolio manager for 10 years, which was the #1 ranked fund in its category for the duration of his tenure.  Bernstein made his name as Merill Lynch's chief investment strategist.  He was ranked in the top investment strategists by his peers for 18 years, 10 of which, he was ranked #1. 

 Wealthtrack is a weekly show on PBS, and for some reason, they consistently get some of the best investing minds around to interview.  They did reruns the previous two weeks, but hopefully they were busy taping new shows and needed some filler. 

Friday, June 15, 2012

Don't Eat Fortune's Cookie

Michael Lewis, best selling author of Liars Poker and Moneyball, examines the role of luck in people's lives, including his own at the beginning of his career.  He urges the fortunate to acknowledge it, and embrace humility.

Thursday, June 14, 2012

The Sazerac, take one

My first attempt at making a Sazerac.  Building the home bar one drink at a time.

Check this famous New Orleans bartender out for step by step instructions on how to make this classic cocktail.

Stop Breakin' Down

As mentioned, this blog is about music as well.  For those about to rock, I present the "Stop Breakin' Down", a Thirdman Records Vault track from the White Stripes last show ever.  This was issued on vinyl only, and only as many copies were printed as there were members of the Thirdman Vault subscription service.

The interesting investment component is that based on law of supply and demand, these records are in limited supply.  That's a fact.  Thirdman guarantees to never print these again (which would be the same as diluting stock holders thru an equity raise).  The market (eBay) has rewarded the quality and scarcity of this record by putting an average auction sale price north of $200 for this "Live in Mississippi" album.

A book and a Berkshire website hack

I just got this bad boy today.  I'm talking about the book, not the Vox amp.  The author Peter Bevelin also wrote the excellent "Seeking Wisdom", so I have pretty high hopes for this book.  "A Few Lessons for Investors and Managers" is a condensed easy-to-read essay version spanning all of Buffett's Berkshire Hathaway annual letters as well ask BRK's  "Owners Manual".

I would have posted a link to the Owners Manual PDF, but it appears that Berkshire's website has been hacked. 

The Vox is about 10 years old.  It is solid state with a pretty decent tremelo section built in.  I've always been a tube purist, but a while back for fun, I put my D*A*M Red Rooster
in front of it.  I had it pushing a mid 1960's 2x12 Fender Bandmaster cabinet.  Clearly this 15 watt 8-inch solid state combo is not designed for that, but man! - that Red Rooster lit up the transistors in the Vox.  Tons o' fuzzy distortion, plenty of volume.  A good time was had by all.

Both books mentioned can be purchased here:

or here thru Amazon:

Bridge over macro water

The link below is to Ray Dalio's Principles which is required reading for all Bridgewater employees.  It lays out his process for problem solving in a step by step method.  I am always impressed at the clarity and conciseness of his penmanship.  Not many folks can make a living betting on the macro picture, and I wouldn't suggest anyone to try it, but at very least, Dalio's approach may be of use to some in drilling down to fully embrace reality, which at its heart, lies in fully embracing and seeking out the truth.

Bridgewater Principles by Ray Dalio
This blog is a blend of two things I'm passionate about - music and finance.  These two disciplines are typically considered to be diametrically opposed.  I beg to differ.  Investing is both an art and a science.  Music is both a science and an art.