Bill Ackman: The Keys to Successful Investing

via bigthink.com and Abnormal Returns

What It Takes to Win Le Mans

Hat tip, Barry Ritholtz

I Read the News Today, Oh Boy: The 1% We Really Should Be Concerned About

• Nearly 90% of voters give the current tax system a failing grade
• Stock Market Melt Up: November 1998 or December 2008?
• US Communists at OWS try to explain the wonders of Communism to a former resident of the USSR. Hilarity ensures.
• Mom & Pop Investors: Doing yourself a favor by doing less
• Be wary of advisors who appear on CNBC too much
• Investors seduced-Beware!: 78% of fund-of-fund managers can't beat the market after fees
• What Stocks Do "The Dream Team" Managers Hold?
• Confessions Of An iPhone User Who Recently Switched To Android
• A Tale of 2 Seasonal Investors (WOW)
• Don’t Blink! The Hazards of Confidence
• Condo nation: Why so few Americans are buying homes
• George Washington was also one of the founding fathers of American whiskey 
• Hottest sectors to start a neighborhood small business
• Worth Over $200 Billion, Qaddafi Was By Far The Richest Person In The World

Brilliant Visual Guide to the Euro Crisis

The New York Times has an amazing interactive visual guide to the Euro Crisis up today. Check it out.

Hat tip, Leigh Drogen

Deleveraging and the Banks

Over the weekend I posted an interview with Ray Dalio in which he declared that "deleveraging" was the number one theme he was using as a basis for all of his investing activities. I've been writing about this idea and the "balance sheet recession" for nearly 2 years now.

The chart above demonstrates just how deleveraging is working right now from the banking side of the equation. It shows the ratio of loans to deposits at commercial banks. Clearly, there aren't many loans being made right now relative to the cash customers continue to deposit.

Without this kind of credit creation it's going to be very difficult for the economy to really get going at any kind of consistently healthy clip.

Source: In Cautious Times, Banks Flooded With Cash

SEC Warning: Investment Seminars

The SEC recently issued the following warning regarding fraudulent investment seminars:

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to warn investors of potential scams they may encounter at investment seminars that purport to teach investors trading strategies that will allow them quickly and easily to make money trading securities. In particular, SEC staff warns that fraud promoters may use misleading or untrue statements to lull investors into purchasing expensive products such as trading software or classes. Investors should be prepared to recognize and avoid some of the potential fraudulent conduct they may encounter at any investment seminar that purports to teach investors how to trade securities.

Click here for the rest of the SEC message.

Ray Dalio's "Three Big Themes"

Ray Dalio tells Charlie Rose this week that he's operating under "three big themes":

1. There is a deleveraging going on resulting in economic contraction.
2. Monetary and fiscal policy are greatly overextended. "We're out of ammunition."
3. Political, partisan conflict is certainly not helping and may be exacerbating the situation.

The rest of the conversation is a must watch for investors and traders alike. Click the image below for the video:

My favorite quote from the interview:

"We all should recognize that we could be wrong. The way I get to success, it's not what I know. It's knowing what I don't know or worrying that I'll be wrong that makes me find people to criticize my view. If you can stress test what I'm saying I'll learn."

Hat tip, Paul Kedrosky

The (R)Evolution of Punctuation: The Pilcrow, Interrobang and Snark

If "LOL" and "OMG" can be added to the Oxford English Dictionary I guess nothing's sacred. Actually, I have used the "interrobang" more than a few times. And the "snark" would probably reduce the sheer number of social media misunderstandings. If they make our online communication more effective, I'm all for formally including these new forms of punctuation.

Source: Is This The Future of Punctuation!?

Porsche: THIS Is How We Celebrate

I had the chance to attend Rennsport Reunion IV this year with the High Desert PCA and passed it up. Regretting that decision now:

I Read the News Today, Oh Boy: Occupy Wall Teat

• Why you should be suspicious when your broker changes firms
• Is Apple Losing Its Mojo?
• The Man Who Inspired Steve Jobs
• The Mark Twain Effect: Why October Is An Important Month For The Stock Market
• The wonkiest signs from Occupy Wall Street 
• Google Charts: What Your Taxes Pay For
• Google is in the business of failure
• New study shows more Facebook friends means greater intelligence
• Courageous listening is magic
• Econ Lit Takes a Turn Towards the Dark Side
• How smartphones are helping Amazon kick Best Buy's a$$ 
• 'Positive Contagion' in Golf Performance
• Guy Tries Turning Doodoo Into Gold, Sets Apartment Block On Fire

Stock Market 'Genius' Joel Greenblatt Says Stocks Are Unusually Cheap Right Now

In the following video, Joel Greenblatt, author of one of my favorite investing books "You Can Be a Stock Market Genius," opines on Hedge Funds, passive investing and current stock market valuations. Specifically, he says stocks are currently trading in the 90th percentile in terms of cheapness (90% of the time they have been more expensive than today) and returns going forward should be very attractive.



Hat tip, Abnormal Returns

UPDATE:

This chart from Crossing Wall Street is a great visual accompaniment for Greenblatt's valuation argument. Stocks just aren't keeping up with earnings lately.

David Gilmour on the Keys to Entrepreneurial Success

via Ritholtz

A Better Way To Protest Wall Street

Over the weekend I tweeted:

At the time I was thinking about Occupy Wall Street. I was just wondering how many of those folks that are pissed off at Wall Street just never learned how to manage their own personal finances. Maybe they got behind the 8-ball to some financial institution for one reason or another, fully came to realize their predicament and are pissed off about it.

Don't get me wrong; there are many reasons I sympathize with the Occupy crowd. I'm the last person that would defend Wall Street's crimes but I came across this on Facebook and it got me thinking about all of this:

Clearly this is someone who knows how to keep Wall Street greed at bay in his/her own life. So where did this person learn to live this way? Not in school. Hence my tweet but why didn't they learn it in school?

Sure seems like something that should be taught then as it will be integral to some of the most important decisions you will make in your life after school. And it wouldn't take much at all, really. A reading list including "The Richest Man in Babylon," instruction in the power of compound interest, balancing a check book, monitoring your expenditures versus savings, etc. would do the trick.

However... it occurs to me that this might be against our nation's culture. America is the most consumerist nation in the world. The following interactive graphic is a bit dated but still relevant. It demonstrates this point well. In nearly every category of discretionary spending, Americans lead the way.

Before you respond by saying, 'We're the wealthiest nation in the world. Of course we spend the most!' know that we also have the lowest savings rate in the world, as the next graphic shows:

So it also occurs to me that there must be some underlying factor at work here.

I recently touched upon the fact that our current tax system encourages consumption and discourages savings and investment by taxing the latter much heavier than the former (make more money/pay more taxes - spend more money/pay less taxes via deductions). This is an incentive Americans can't ignore. But where did it come from and who sustains it?

Take a quick look at the Fortune 500. Maybe, just maybe our largest, most powerful corporations have something to do with it: Wal-Mart, Exxon Mobil, General Motors, Bank of America, Citigroup and Proctor & Gamble, for example?

Clearly these companies are motivated to create more and more spending. For some, they want you to buy more of their goods. For the financial institutions, yes, they may make money from your saving and investing activities but they make far, far more money when you borrow money from them, especially these days.

B of A, Citigroup and Wells Fargo can currently borrow money from the Fed at 0% and lend it to you on your credit card at 20%+. Or they can borrow money from you (in your savings account or CDs, etc.) at multiples of their cost at the fed and lend it out in the form of mortgages paying them 4% when they don't default. Which sounds more lucrative?

For the financial industry, it's clearly very attractive to have consumers overspending on their credit cards and then paying astronomical interest rates. It follows then that it's in their interest to have customers that don't quite understand that the "Eighth Wonder of the World" is working for the banks and against them in this relationship.

I come to two conclusions here. First, we probably won't see the tax code change anytime soon or personal finance taught in public schools. Those two things are just not of interest to our country's most powerful companies.

Second, maybe doing what that college kid who created the poster did is the most effective form of protesting a system that's not in our best interest. Shun debt, control your spending and invest in exactly that which makes the most sense for YOU in the long run. Do this as a nation and I can't think of a purer form of democracy.

3 Signs of Economic Optimism

JOBS

Just over a week ago I took the other side of Business Insider's "The Scariest Jobs Chart Ever." Today it looks like recent Gallup Polls are backing up my more optimistic take.

As they measure it, unemployment has declined to 8.3% in mid-October, "down sharply from 8.7% at the end of September and 9.2% at the end of August. A year ago, Gallup's U.S. unemployment rate stood at 10.0%."

REAL ESTATE

This is another area that signals the economy may not be as bad as consumers currently think it is. Housing inventories are shrinking to levels not seen in years and prices are stabilizing or rising in some areas as a result. 

Jim the Realtor, one of the few sober voices in the real estate market in recent years, reports that the San Diego real estate is "abuzz. Action is incredible." 

San Diego has led the national market in the recent past and may be a decent indicator of what this decreasing inventory may lead to in the larger marketplace.

RAIL & SHIPPING TRAFFIC

Rail traffic appears to be picking up suggesting economic activity is increasingly looking healthy. September saw the 12th highest intermodal (using shipping containers) volume on record and the highest since late September of 2007.

On the shipping front, the Baltic Dry Index, a key measure of global shipping demand used by economists as a leading indicator, has now risen over 70% over the past two months and over 100% since its February lows.

All in all, things may be looking up for the economy in the near future. Still, I'm prepared for some continued volatility.

Taxman

If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.
   -George Harrison

How would you feel if you never had to file a tax return ever again? If you never had to try to understand the tax code or worry about preparing your tax documents or being audited? I know I would be ecstatic. I would sing praises to the person responsible for days on end and celebrate them with a blowout party every April 15th.


I just finished preparing two corporate tax returns, federal and state, along with my personal state and federal tax returns and third quarter payroll tax reports for state and fed. I'm fed up (pun intended). That is why we interrupt this blog for the following public service announcement:

The Fair Tax would abolish the income tax altogether replacing it with a progressive, national retail sales tax. Under the Fair Tax you would keep your entire paycheck and never file another tax return again.

What I love about the Fair Tax is that is supports and encourages saving and investing because they are not taxed at all under it. Currently, the tax code encourages consumption (write-offs) and discourages saving and investing (more income equals more taxes). Flipping this paradigm on its head would mean a significant economic boon to both individuals and businesses over the long run. For this reason, any politician that supports it has my ear.

Now back to our regularly scheduled blogging.

Why I Reach First For My Smartphone

Last night I had the urge to get some work done and my first instinct was to grab my mobile phone. (I love my Nexus S - I actually feel naked when it's not in my front left pocket.) Normally I do this without a second thought. My smartphone has been my go-to device for some time now.

This time I stopped and had a mini-epiphany. The reason I love my phone so much is that it works so much better than any other device I've had. For example, I spent two hours this morning running updates on my laptop. Before you scream, "get a mac!" know that I was updating windows and itunes and they are both, equally a pain in my a$$.

My CR-48 eliminates these hassles. It updates in a flash and doesn't really run any software to begin with but this has its drawbacks as well. I can't use it for trading or my stock screener because it won't run Java. It's also not very easy yet to manage files that have to be downloaded before they can be uploaded to the cloud. For these tasks I have to use my HP.

Finally, I currently use 4 separate Google accounts, 3 Facebook pages and 4 Twitter accounts. My smartphone manages these seamlessly. I can switch between accounts easily without having to sign out one and sign into another. Google currently allows you to sign into multiple Gmail accounts in a browser but not across all of their other sites. Google Checkout and Picasa are the two main culprits here. Using one account requires you sign out of others. This is totally inefficient.

I need to be able to work with multiple accounts across all of these platforms with ease - the same sort of ease that my smartphone provides. Currently this is impossible. So for now, I'll keep reaching first for my phone.

Disclosure: Long GOOG

Editorial Cartoonists on "Occupy Wall Street"

Source: EditorialCartoonists.com

Is "The Scariest Jobs Chart Ever" Really That Scary?

For the past couple of years "The Scariest Jobs Chart Ever," has been frightening traders every month it's been updated. Below is today's update:

It's important to note that the chart was actually created by Calculated Risk, a fantastic blog focused on finance and economic data. They didn't, however, give its famous moniker. It was dubbed "The Scariest Jobs Chart Ever" by Business Insider who, through the sensationalized headline and power of their following, is probably responsible for its popularity.

Another interesting fact to note is that this chart marks the percent of job losses since the start of the recession. Indeed, we lost a huge number of jobs during the "Great Recession." But if we look at the percentage change in the number of jobs since the end of the recession, as ChartoftheDay.com does today, it tells is slightly different story:

In fact, while it's still historically weak, job growth over the past two years has been better than the recovery after the prior recession (2001). And from the looks of it, I would wager it's been better than the post-recession period prior to that one, as well (1990).

This doesn't change the fact that the "Great Recession" was a jobs killer like few the country's ever seen but, to be fair, job growth since then has been, relative to recent history, pretty damn good. But that won't help Business Insider boost their pageviews so don't expect to hear it from them.

Thank You, Mr. Jobs

I was surprised last night by how Steve Jobs' passing affected me. Obviously, everyone knew he was very ill. Leaving his role at Apple only six weeks ago was a clear indication of that. He loved his work so much that he wasn't going to leave until he physically wasn't capable any longer. Still, I was shaken when I learned of his death yesterday.

After taking some time to reflect on it, Steve Jobs had an amazing impact on my life. I was probably about seven years old when my dad got our first personal computer, the Apple II Plus (which Steve and Woz developed in Steve's parents garage). Immediately, my dad and I were both fascinated and obsessed with the machine. We spent hours playing "Summer Games," "Wargames," and learning to use the modem we had at the time which now seems absolutely ancient. I fondly remember spending this time together bonding through our common curiosity with this new invention.

At eight years old, I went to computer camp. We spent two weeks learning to program in Logo. We made that turtle draw all kinds of pretty shapes. That's pretty much all I can remember about it but these early experiences with Steve Jobs' inventions shaped my life in ways I am very grateful for. Clearly I owe a good deal of my love for technology to these early days of playing with the Apple II Plus.

Maybe the biggest impression that early pc made on me was through a game called, "Millionaire." It was a stock market simulator that turned me, a snot-nosed, pre-pubescent geek, into a wealthy, Wall Street tycoon! I spent hours upon hours playing that game. Eventually, I subscribed to Barron's and kept a paper portfolio of stocks in an accounting ledger notebook searching the stock tables in the weekly periodical to update the values.

And the rest, as they say...

So I guess Steve had a much bigger impact on my life than I ever realized before he died. Understanding it now, I am both humbled by it and very grateful for it.

Recommended Links:
Steve Jobs' 2005 Stanford Commencement Speech
Think Different
The Pixar Story
For the Love of Technology

The J,B,C's of Social Media

Last week I was honored to present at AdFed's WebCam conference alongside John Dempsey, James Gentes, Brenda Speirs and Cassondra Schindler (J,J,B,C) on the value of social media for business. Below is a recap of my presentation with notes I added afterwards.



Special thanks to Fred Wilson for the Prezi rec.

Just How Cheap Are Stocks? Well, It Depends...

Yesterday, amid the stock market carnage, I tweeted this:

Today I decided to take a closer look at general equity valuations because I believe most investors are currently overlooking a few key stats.

First, I must admit that while stocks may be cheaper (based on trailing 12-months earnings) than any other time during the past twenty or so years they are not as cheap as they have been at epic bottoms such as those seen during the 1974-1982 era:

However, to put this period into context, the yield on long bonds back then was three times higher than it is today. The chart below compares that yield over time to the earnings yield on the S&P 500 Index (the inverse of a price-to-earnings ratio):

It's clear from this chart that these yields have correlated pretty closely over that time. Of course, there are times when they diverge; the first big blue spike there is the 1974 bear market bottom.

Today, we are seeing a similar spike in the earnings yield versus the long bond yield indicating that investors are shunning equity earnings yields in favor of bond yields. In fact, the divergence is just about as wide as it was during that 1974 bottom. 

The chart below plots the difference in the two yields (equity earnings yield - the long bond yield):

As a result, I would expect the managers of large asset allocation funds (such as endowments and public pensions) to be shifting capital from bonds into stocks at current levels. After all, it's clear that's where the value is.

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