Wednesday, April 30, 2014

Reading Review: Week 13

Bank of America to Acquire Countrywide for $4 Billion

Let's take a walk down memory lane and read the original 2008 news story of the acquisition of Countrywide Financial by Bank of America.  Hundreds of subsequent articles would describe the acquisition as "the worst deal of all time", but it's still informative to read the tone of the initial announcement.  One important lesson is that plenty of things in life have negative value.  So despite the fact that Countrywide had already fallen 85% and could be bought for $4 billion, it was not a bargain.  It's now completely clear that it was worth substantially less than zero, as the tab for Countrywide losses and lawsuits is now approaching $50 billion!  A second lesson is that years of hard work can be ruined by one bad decision.  I don't think it's widely appreciated that Bank of America was actually one of the best positioned banks coming into the mortgage crisis, having jettisoned their subprime business long before the day of reckoning.  Had they not bought Countrywide (and Merrill Lynch), they would have sailed through the storm relatively unharmed.  Instead, it's been a very long road to recovery and the journey is still not finished.

Bears on Stairs

This is a very cool video that combines traditional stop motion animation with 3D printing. 

Microsoft Wants You to Educate Its Virtual Assistant

When LinkedIn first started, I remember thinking it was such a clever business model.  They got all the employees of the world to voluntarily enter their information and build the LinkedIn database for free, which the company then monetized by selling to employers.  Well, Microsoft may finally have topped that with its new virtual assistant, Cortana.  Using artificial intelligence techniques, the program will get much better as it is used.  In other words, Microsoft will derive significant economic value from the millions of users that will train it for free.  Sounds like a profitable business model to me.

The Beauty of Japan's Artistic Manhole Covers

Who knew that manhole covers could be so artistic?  I guess if you're going to make something durable that lots of people will see every day, why not make it beautiful?  So apparently nearly all of the municipalities in Japan now have their very own specially designed manhole covers.  The article shows a number of pictures of these covers.  Some are really quite interesting to look at.

Reading the Minds of the "Dead"

I was profoundly moved by this article.  I realize there are moral and ethical concerns with this entire subject, yet I choose to focus on the amazing insight of one researcher and how he was able to create a yes/no communication system for people who are fully conscious but have no motor control or other possible means of communication.  I don't want to spoil the story, so you'll have to read it for yourself if you have further interest.

Friday, April 25, 2014

Reading Review: Week 12

Presentation on Floats and Moats

This may be one of the most brilliant (and entertaining) finance articles ever written.  Giving us a historical tour of the success of Warren Buffet, the author discusses two important concepts regarding competitive advantage - moats and floats.  More surprisingly, he also ties the two concepts together.  This is an outstanding lecture and we are fortunate to have it available online for free.

Science Reveals the Secret to Making Your Razor Last

So even though I own stock in Procter & Gamble, I am going to mention this frugality tip.  :-)  Apparently you can radically extend the life of your razor by simply rinsing and drying it after each use.

The Genius of Da Vinci

Before reading this article, consider the following quote (not in the article) from Da Vinci that captures his inquisitive spirit:  "I roamed the countryside searching for answers to things I did not understand. Why thunder lasts longer than that which causes it, and why immediately on its creation the lightning becomes visible to the eye while thunder requires time to travel. How the various circles of water form around the spot which has been struck by a stone and why a bird sustains itself in the air. These questions and other strange phenomena engaged my thought throughout my life."


This is the final post for a value investing blog that was terminated last year.  Value Uncovered was a good blog that ran from 2010 through 2013, and this last article was a short reflection on it.  It's interesting to note that the author felt that writing things down was critical to his development as a successful investor.  The entire blog is notable, too, as an example of what can happen when you put your ideas out there.  For you see, a large mutual fund company discovered his work by reading his blog and eventually hired him.  So you never know who is reading your blog and where it might lead.

The Science of Smell: How the Most Direct of Our Senses Works

This article is essentially a review of the olfactory portion of Diane Ackerman's book entitled A Natural History of the Senses.  Ackerman has sometimes been criticized for her extravagantly rich use of words, which you will see in the excerpts.  I must admit, however, that I rather like the style, at least in this context.  Nature is extravagant, and we need to be reminded of that when we read about it - not just with numerical superlatives, but with words that convey a sense of wonder.

Wednesday, April 23, 2014

Corporate Annual Reports As Art

I suppose I've read several hundred annual reports throughout my investing career.  Normally one is looking to understand the financial facts and commentary.  But sometimes you unexpectedly find something else: art.  Corporate annual reports have long been known for slick covers and nice graphic design.  But do some even rise to the level of art?

It sure seems that occasionally there are such reports, and they tend to be clustered around a few companies.  Given that most annual reports are now digitized in pdf form, I can point you to these gems.  (Although frankly, a lot of the photos look better in the original glossy hardcopy form.)  Below are corporate jump pages that have several years of annual reports for their respective companies.


Tejon Ranch

Different years generally have an artistic theme.  In my opinion, the best years are 2005 (maps), 2007 (aerial photos), 2008 (oil paintings), and 2011 (landscape photography).

Stillwater Mining

Good reports include 2000 (photography), 2001 (black & white photos), and perhaps the best, 2005 (line drawings).

California Water Service Group

Most years have a creatively themed presentation of the charts and graphs, but the photos are less compelling.  2006 and 2008 look like the best of the crop to me.

Nabors Industries

Most of these annual reports have a creative presentation of the charts and graphs.  I also like the 2008 and 2009 covers.  The 2007 report is probably the best overall effort from the company.

United Technologies

Years 2005 and 2006 get an honorable mention for some good photos.  Other years are reasonably slick, but don't really feel like art to me.


The IBM reports are only average, but occasionally the covers can be spectacular.  Be sure to check out the 2011 cover.

Monday, April 21, 2014

Reading Review: Week 11

The High Dividend Yield Return Advantage

This 17-page study from value shop Tweedy Browne investigates the importance of dividends and their contribution to attractive long-term investment returns.  Whether your approach is deep value, dividend growth, or something else, it's important to make sure you understand the theory and the historical perspective of the particular approach.  Otherwise, there is a substantial risk that without this grounding, you will panic and abandon the approach during adverse market events.  Unfortunately, this sort of behavior will sabotage any investment approach, no matter how sound in theory.

Labor Shortage Threatens to Bust the Shale Boom

We've seen this movie before, haven't we?  The gold rush accompanying major oil and gas extractions has often pushed up local wages and rents to astronomical levels.  Most recently we've seen this with fracking in the Bakken and bitumen extraction in Alberta.  But going back further, we've seen it with more convention oil extraction in the Alaska North Slope and the North Sea.  Now we're seeing really tight labor markets in the Eagle Ford (Texas) and offshore in Australia.  Be sure to check out the eye-popping wages for offshore workers in Australia right now!

This Miniature Robotic Printer Rolls Across a Sheet of Paper

This is a very creative idea, although I'm not sure how well this will work in the real world, where the paper might be bumped or the surface might not be level.  I'm sure this would be quite entertaining to watch the first few times, but that would fade rather quickly.

Octopus: The Footed Void

This is not the first article I've read that discusses the intelligence of squid and octopuses.  As far as invertebrates go, it's highly unusual to be able to recognize symbols, and exhibit strong short-term and long-term memory.  However, it seems downright creepy to me to learn that octopuses have been known to sneak out of their lab tanks, climb up and down furniture, and slip into other tanks to eat their occupants!

Cloak: The Antisocial-Media App

Well, I suppose it had to happen.  First, we created apps to help us communicate with our friends.  Now, we're creating apps to help us avoid them.  Although I can see the utility of this kind of program in certain targeted circumstances, I do hope this is not going to be the start of a general trend.

Thursday, April 17, 2014

Reading Review: Week 10

4 Things to Know About Dividend Investing

This article is actually a summary of another article, so I don't want to create a summary of a summary!  Instead, I'm going to comment on the excellent third point of the article, which is that "the market is good at sniffing out dividend cuts well ahead of time."  I stress this point because it's a widespread practice of many dividend investors to sell when dividends are cut and/or frozen.  Some investors do this for portfolio style reasons - they want a portfolio of stocks with growing dividends, and when something violates that style, they get rid of it.  Although that isn't strictly my approach, I'm fine with that.  I understand why that's done.  Where I have disagreement is when investors assume they can avoid losses in capital (or at least losses in dividends) by selling on dividend cuts.  As the article points out, this is almost certainly not going to be the case.  Markets invariably predict.  This means the price will fall first.  The options market will also inevitably predict the cut.  Bond ratings (or at least bond prices) of the security in question will often deteriorate.  The actual announcement of the cut is usually the last thing to happen.  By then, it's too late to avoid a loss.

Six Ways the New Panama Canal Will Change the World

Investors should be aware of important world developments, such as the completion of the Panama Canal expansion in 2015.  This project has a lot of positive implications for global supply chain efficiencies.

Lithium: A Metal Than Floats on Water and Power Our Phones

This is a good primer on lithium from the BBC.  The article discusses what it is, where it's located, and why it's valuable.  The importance of lithium has only emerged in our present generation, and due to the basic chemistry involved, it's unlikely there will be convenient substitutes.  (Lithium is actually number 3 on the periodic table.  Only hydrogen and helium are lighter.)  Although best known for batteries now, lithium also has various uses in manufacturing and medicine.  I found it interesting that while we don't know exactly how lithium helps those with bipolar disorder, we suspect that it's related to the same ion flow that is so useful in batteries.

Serious Reading Takes a Hit From Online Scanning and Skimming

At the risk of sounding like a Luddite, I do sometimes worry about how our brains are adapting to the continual skimming of online information.  The article expressing this concern, indicating that "this alternative way of reading is competing with traditional deep reading circuitry developed over several millennia."  If you read the article carefully, the warning is not really about print versus e-reading.  The concern is over the current form of most online media.  You read an article, and there are videos playing in the sidebar, music playing in the background, ads being shown between every paragraph, and hyperlinks on any words that could make a buck for the site.  Now I am the first to admit that those links (and even some of the ads) can be helpful, but if that is the only way we are going to consume information, then I do think something has been lost.  Personally, in addition to my online reading, I have been trying to read three books each month "offline".  This means either reading in traditional print form or if electronic, in some form that does not include distracting ads and hyperlinks.

French Scientists are Working on an Acoustic Earthquake Shield

While I've seen a lot of research about how we might possibly predict earthquakes, this is the first I've read where scientists are actually trying to mitigate the effects of earthquakes.  It seems that the incoming seismic energy can be dampened and reflected by arrays of boreholes.  A more technical article can be found here.  All in all, it's pretty amazing stuff. 

Wednesday, April 9, 2014

Planning versus Doing

"All things are created twice: first, a mental creation; second, a physical creation." 
- Stephen Covey

This past year has been a time of deep introspection for me.  Sometimes I thought the insights I needed would never come.  But eventually they arrived, and usually when I least expected them.  I would like to gradually share some of these insights, especially those that relate to finances in some way.

Planning vs Doing

Some people almost instinctively want to plan.  Others are wired to act.  Yet we all know that the best results are obtained when there is some balance to these forces.

I'm a natural planner, but acting on those plans is much harder for me.  If unchecked, this can lead to a form of procrastination where plans are continually revised and gold plated, yet never acted upon.

The Insight

One key insight to realize is that successful investing requires almost all planning and very little doing.  The most successful investors in the world spend endless hours planning - researching, analyzing, theorizing, tracking.  Yet they may only act a few times a year to change investments.  And this paradigm is not restricted to buy-and-hold investors.  Even the best short-term traders sing the same tune.  They plan, and wait...and wait.  Then when a truly attractive opportunity arises, there may be a burst of activity.  And then they go back to planning and waiting.

The Corollaries

That one insight helped to explain three different things to me.

First, it's very possible that much of the relative success I've had in the area of saving and investing can be attributed to my predispositions regarding planning and doing.  Second, I can see how other areas of my life have been negatively affected by this lack of balance between planning and doing.  Third, and least obvious, the lopsided strategy I employed was being reinforced by my financial successes.  In other words, because my natural approach was successful in the financial realm, I subconsciously (and incorrectly) assumed it would be successful in other areas.  However, as we all know, there are many areas of life that require far less planning and much more doing.

The Correction

It seems to me that if you have a natural bent to significantly favor planning over doing (or vice versa), then you will want to identify which tasks might require just the opposite approach.  You will have to appreciably change your normal efforts for these tasks.  Additionally, you may want to examine why planning (or doing) comes so naturally to you.  For me, the answer to that question yielded a much deeper understanding than I expected.  But that's a topic for another post.