Can Turtles Fly?

Here's a really good video from 2010 of a conversation at Churchill Club between Reed Hastings and Michael Eisner. Michael Eisner is the former CEO of Walt Disney and, although he is a bit past his peak and semi-retired, he is still worth listening for his experienced views.  Reed Hastings is the CEO of Netflix (NFLX) and although considered by some to be the worst CEO of the year (for some strategic blunders), I still think he is one of the top CEOs in Silicon Valley. I am always impressed with Hastings and I think he is sort of like a Bill Gates, in that he is a visionary who understands not just technology but the business environment. A lot of topics are covered in this discussion: technology, media, entrepreneurship, public education, corporate culture, you-name-it. I highly recommend it if you are interested in any of those topics . There are a lot of interesting issues discussed, including, compensation for executives, Netflix's unlimited-vacation policy, how the

If you pursue the value investing framework, one of the key decisions you have to make is whether you want to be a, what I call, classic value investor ; or a Buffett-Prime investor . In my mind, a classic value investor largely follows an asset-oriented strategy influenced by Benjamin Graham; whereas a Buffett-Prime-type investor follows an earnings-power-oriented strategy, influenced by Charlie Munger, Philip Fisher, and Warren Buffett of the 1970's. Some might say Buffett-Prime-type investing is the same as growth investing but I don't like to call it growth investing. The reason is because there is a whole genre of investing called growth investing that appears to be not based on any value investing principles. There are many growth investors, including some successful ones, who don't pay much attention to financial statements (some may call them medium-term traders). For instance, there are many who will form a bullish or bearish opinion of, say, a stock like Google

Credit: " Toronto Christmas Market" by dtstuff9. Edited by Sivaram Velauthapillai Location: Distillery District, Toronto, Canada Downloaded from flickr on December 25, 2011.

I have been researching Netflix (NFLX) lately and checked out some Charlie Rose interviews with Reed Hastings, CEO of Netflix. One of the interviews is from December 27, 2005 and the other one is from earlier this year. Although his star has faded recently, Reed Hastings is one of the visionaries in Silicon Valley. Not only did he build up Netflix, a DVD rental and video streaming service, but he is also very knowledgeable about technology. If you are interested in technology, media, or education—he has some thoughts on education—check out the 2005 interview. I found the 2005 interview quite insightful and it is quite impressive to see him hit the targets his laid out back then. The recent video from May 4, 2011 is more narrow and is probably best for those who are interested in media, online streaming, and technology. Unfortunately, it seems that Charlie Rose doesn't allow recent content to be embedded so click on this link for the 2011 interview . As usual, Charlie Rose, ar

(Copyright Parker Brothers. Download source .) (This post was partially written about two months back so some additional details confirming the story have emerged in the last few weeks. The main story remains the same.) Crime never really pays. Sooner or later, criminals get caught — not all the time, of course, but most of the time (in countries with adequate policing, with "decent" culture and legal system). One big reason criminals don't get away is because it's hard to cover the tracks. There are just too many things that can go wrong when trying to mask a crime's evidence. Such is the case with the Japanese electronics company, Olympus. Readers may recall a post from a while back , pointing out how the CEO of Olympus was fired within 2 weeks of being hired. Things looked puzzling at that time and the story kept getting interesting by the minute — assuming you are not a shareholder of Olympus, of course. Over the last month, the fired CEO revealed

I posted a poll on the right-hand side of this blog at the top. The question is about how well you like the new template. If you typically visit my website for your content, vote. If you have any suggestions, please feel free to e-mail me or leave a comment. Thanks.

Not sure what caused my prior template to fail all of a sudden but whatever it was, it was probably a good thing. I'm one of those who just sits on ideas and need to be pushed sometimes. I upgraded to a new template called Glory . Thanks to the creator for making this template available for free. The upgrade gave me the opportunity to try out some stuff. I decided to go for a cleaner look. It's still not a truly professional look and I didn't want that since they all look similar. Since this is a personal blog, it allows me to experiment. Hope all the readers like it. It should be easier on the eyes. As usual with any technology upgrade (in this case pretty simple), the older posts may be messed up. Also, if you notice any problems let me know.

Logistics of the Holiday Season

Ontario, my home province, is startling to resemble a mini-Greece :( Moody's sends a warning shot by downgrading Ontario's outlook to negative. The Globe & Mail reports , Moody's Investors Services has turned its wary eye from the basket cases of Europe to Ontario, revising its outlook to "negative" from "stable" and issuing a stern warning on the province's hefty debt burden. The decision, Moody's said in a statement, reflects the risks surrounding the province's ability to meet its medium-term fiscal targets. It noted the recent slowing of economic growth. "The negative outlook on the province reflects the softening economic outlook, Ontario's growing debt burden, and the extended time frame to achieving a balanced budget," Moody's analyst Jennifer Wong said. In his November statement, Finance Minister Dwight Duncan revised his forecasts for economic growth for both this year and next, a significant downgr

I have been researching Netflix (NFLX) lately and I ran across a good interview from earlier in the year that described the differences between original content being financed by online streaming providers like Netflix versus traditional television companies. By original content I'm referring to sourcing of content in the first window (i.e. you are the first one to show it). Although online streaming companies are not financing much original content—Netflix is only allocating around 15% of its content budget to original content and Hulu Plus and YouTube have only spent small amounts on original content—I think it may change over time, if streaming customers are willing to pay for original content. So far, judging by the customer backlash over Netflix raising prices earlier in the year, as well as the lack of sizeable deals by YouTube—YouTube has something like 140 million unique viewers and it still hasn't been able to spend $100+ million on original content—it is probably sa

Digital Economy's Shifting Industry Profits (source:  “Profit Migration in the Digital Economy,” by David Standridge and Christopher Pencavel, Booz & Company white paper, August 2011, www.booz.com/profit-migration ) Sorry about the small fonts (I hate extracting from the booz&co reports since they aren't designed for online layouts). In any case, this is an important chart for those interested in the digital economy. Certainly any investor in the various industries that represent the 'digital economy' should pay attention to how the market is developing. Even if you don't invest in these companies, you may find the material interesting since the digital economy will play an integral role in society. The chart from a booz&co report (read the full report for more info) illustrates how the digital economy, which includes numerous different types of industries, ranging from content creators, to service providers to software and hardware

Same old, same old so skip it if you are familiar with the China short thesis... but the following CNBC interview does provide some insight into what happened in China in the past. In particular, Jim Chanos talks about one of his short positions, Agriculture Bank of China, and how its balance sheet is not quite what it seems. Thanks to ValueWalk for bringing this video to my attention (there are an additional two on that site).

(Not sure what's wrong my blog template; it seems to be messed up. Oh well...) Most of you probably already read this but if not, here are some interesting points Jeremy Grantham made in his GMO 4Q 2011 Letter (if you have never heard of Jeremy Grantham and are macro-oriented, you should definitely put his quarterly letters  on your reading list): Well, 15 years ago, Ben Inker and I designed a model to explain (not predict) the ebbs and fl ows of the P/E ratio. It had a surprisingly high explanatory power. We found that everything that made investors feel comfortable worked. That is to say, it was a behavioral model. Fundamentals like growth rates did not work. The two (out of three) most important drivers were profit margins and inflation. The seemingly unsustainable profit margins is what keeps some who are bearish, like me, on the sidelines. Graham (elsewhere in the letter) feels that normal weight in equities is ok but I'm not so sure. The long-term behaviour of

A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt

I have been following Netflix (NFLX) as a potential investment for a few months now and I ran across an audio interview with Reed Hastings that you may be interested in. Anyone interested in the company (or the online-video/television/cable/media markets) should check out the audio broadcast linked below. Unfortunately, it requires free registration and I can't link to it. UBS 39th Annual Global Media and Communications Conference - Discussion with Reed Hastings of Netflix (if link doesn't work, try going here and going through the free registration ) Reed Hastings rarely gives public presentations and, although many people think he is the worst CEO in America right now ;), I think he knows his stuff. Not only did he build up Netflix, but he is also a visionary who is closer to an Internet entrepreneur than 'old media.' He just needs to signficantly improve his capital allocation skills ;) I don't usually post about media stories requiring registration—altho

The Globe & Mail reports on the possibility of Australia slowing down : The boom Down Under may soon be over. Australia’s central bank has cut its benchmark lending rate for the second time in as many months, confirming fears that Europe’s debt crisis and a slowdown in China are threatening the resource-driven economy. The Reserve Bank of Australia lowered its cash rate by 25 basis points to 4.25 per cent, Tuesday. That followed a similar reduction in November. Much like Canada, Australia was a global leader among developed countries in weathering the 2008 financial crisis. A stable banking system, coupled with demand from China and other Asian nations for its commodities such as oil, iron ore and coal, helped Australia endure the downturn. Why is this important? Because it could be an early signal to a potential global slowdown. While about 70 per cent of Australia’s exports are destined for Asia, a struggling Europe and potential collapse of the European Union wa

Steve Jobs on Life (h/t: " The Secret of Life from Steve Jobs in 46 Seconds " by Maria Popova. Brain Pickings)

The year is almost done... hope everyone has had a good year. Now that I'm Twittering , a lot of the articles will be duplicates for any Twitter follower. (Highly Recommended) John Paulson's arbitrage notes (Anh Hoang): John Paulson, before he became popular for short-selling mortgage bonds, was a successful risk arbitrageur. Special situations investing is something that amateur investors should look at. (Recommended) Charlie Rose interviews superinvestor Seth Klarman (CanadianValue for GuruFocus): Arguably the top value investor in the world right now, Seth Klarman rarely gives interviews so you should check this out. However, unfortunately, there isn't anything insightful about investing in the interview. One thing Klarman does point out is that he is still a Graham-type investor whereas Buffett has moved on to a, what I call, 'modern Buffett' investing style. The style that I aspire to is what I call 'Buffett Prime'. Roughly speaking, I would say

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.

Blog updated at 4:31 AM, Nov 27 2011 Sovereign Credit Ratings Interactive Map note: ratings may not be the very latest so double-check official ratings; also note that the Moody's chart has an additional category ("substantial risks") so the colours for the worst categories aren't the same on all three maps. Click here for interactive map from ChartsBin.com Moody's S&P Fitch (source: " How Moody's, S&P and Fitch Rate Each Country's Credit Rating ," ChartsBin. Downloaded November 20, 2011).

Twenty minute Bloomberg video of esteemed short-seller Jim Chanos' latest views on USA, China and the current state of affairs. This is sort of like beating a dead horse—at least on this blog—but I think China is an important story if you aren't bearish like me. NOTE: Bloomberg video has a flaw and the video starts playing automatically for some unexplainable reason.

I just joined Twitter and I can see how people's identities can be co-opted by others. I remember once when Malcolm Gladwell responded to someone asking about a comment of his on Twitter, that he doesn't even have a Twitter account (the point being that whoever that was tweeting using his name was a fake account). It's really hard to tell who is real and who isn't. This isn't a problem for no-name people but it's hard to tell with prominent individuals. Twitter does appear to verify some identities as authentic—for instance, Bill Gates is easy to find and follow —but I'm not sure if the user has to pay for this or not. In any case, it's an interesting world on Twitterland. It is also easy to fall prey to information overload. Having said all that, here are some articles you may find worthwhile reading... " The End of Borders and the Future of Books " (Bloomberg Businessweek): I can't believe William Ackman wanted to merge Borders and B

In my prior post on Bill Miller , a reader, McMath , posted a link to a chart at Economicpicdata that appears to make Bill Miller look worse than he actually was. The author at that blog picked some time around 1986 as the starting point and I feel that it misrepresents Miller's career. Since I'm probably the only remaining fan of Bill Miller ;), I thought I would post what I think is Bill Miller's lifetime performance. I am reproducing below, a Morningstar chart for the Value Trust mutual fund (LMVTX) since 1982. Morningstar is very good with their mutual fund data (unlike, say, Yahoo! Finance) and typically computes real returns properly. I believe Bill Miller started managing the fund in 1982 but it is not clear how much of the stockpicking was solely up to him in the early days. I really don't know and am ascribing all the performance to Miller. Furthermore, I am not sure if the chart below includes expenses (MER). I suspect it does, since Morningstar is very g

I don't have the answer to the question of the blog post, so does anyone have any idea why European companies tend to have higher leverage than American companies? I remember noticing this when I briefly looked at US-listed European companies a few years ago. This is just one example and one should be careful with extrapolating off one example but, just compare a company like Diageo (DEO) to Brown Forman (BF/B). In any case, the leverage issue is starting to pop up in news these days because European banks tend to have higher leverage than American companies. In an opinion piece for Bloomberg, Simon Johnson remarks  (bolds by me), By any measure, Deutsche Bank is a giant. Its assets at the end of September totaled 2.28 trillion euros (according to the bank’s own website ), or $3.08 trillion. In the latest ranking from The Banker, which uses 2010 data, Deutsche was the second-largest bank in the world by assets, behind only BNP Paribas SA. The German bank, however, is thinl

Although I don't post much these days, I do follow business/investment news and Bill Miller, CIO at Legg Mason Capital Management, will retire from managing the main value fund. Legg Mason grew from a no-name Boston shop to one of the largest mutual funds, largely due to Bill Miller. He had a strong streak back in the 90's but ended up performing poorly, with near-catastrophic bets on financials, over the last 5 years. A lot of people don't like Bill Miller—some "value investors" don't consider Miller as a true value investor—but I was, and still am, a fan of him. In addition to Marc Faber, Warren Buffett, Charlie Munger, and David Dreman (at least his book), Bill Miller was one of the key investors who influenced me during my "formative" early years. I suspect what influenced me in the last 5 or so years—good as well as bad habits and knowledge—will probably, permanently, shape my future. Although I was a fan of Miller, I don't think he is

In Defense of Cash Performance during Severe Inflation & Deflation (source: " A Value Investor's Perspective on Tail Risk Protection: An Ode to the Joy of Cash ," James Montier, GMO. June 27, 2011)

(This post is cross-posted on multiple blogs) I finally decided to leave the cave I was living in ;) and decided to join Twitter. When Twitter first showed up on the scene a few years ago, I thought it was some dumb twittering bird that amounted to nothing more than a fad. Who would have thought that short messages, when long messages have near-zero cost on the Internet, would become popular? It also wasn't clear how Twitter would make money and stay in business as it scaled up. Well, needless to say, I was wrong — very wrong! I'm still not sure if anyone will bother to follow anything I say. In any case, the main reason I joined was to track others. I notice that more and more content, whether from individuals, bloggers, or online magazines are "announced" on Twitter. It is much easier to follow things on Twitter than it is to visit each website, or use an RSS reader or something. I'm new to smartphones but a service like Twitter is also more efficient and q

Many of you probably already saw Jim Chanos' presentation from Value Investing Congress in October but I just got around to checking it out. Contrarians should definitely check out the presentation embedded below (Thanks to Jacob Wolinsky for bringing this to my attention .) James Chanos Presentation I thought I would pick off some key concepts put forth by Jim Chanos. The presentation isn't long but it contains some nuggets so read on if you are interested in my thoughts.

Interest Expense and Bond Recoveries for Distressed Countries (source: " A ‘haircut’ on Greek bonds? A buzz cut would look smarter ," The Globe and Mail. November 11, 2011.)

Netflix (NFLX) has been in the news lately, and given its steep fall in its stock price, I thought I would take a look at it. This is an early look, focused on its business model. For those not familiar, Netflix is a US-based distributor of television and film content. It became the dominant DVD-by-mail rental service in the US, and has been transitioning into the online streaming business. Netflix used to be a "growth story" over the last few years, and favoured by growth and momentum investors. It rose more than 900% within just the last 3 years but has had a spectacular fall this year: As a contrarian, I became interested given its steep fall. The stock is off given poor results and some strategic mistakes by management.

Greek Tragedy*? Or is it Comedy? (source: Kal's Cartoon , The Economist. Nov 5, 2011.) *GREEK TRAGEDY : Like tragedies in general, a Greek tragedy is a serious play where there are a series of misfortunes. Greek tragedy in particular features masked actors, one storyline set in one location and often many main characters will die at the end of the play... (source: (partial quote) English Literature Dictionary . ITS Tutorial School.)

Here are some articles I read in the last few months that you may find interesting... (Recommended) " The second economy " (McKinsey Quarterly; free reg required): An insightful article on, what the author calls, the second economy. This is the largely invisible, rapidly expanding, economy that underlies the physical economy. Information technology, particularly digitization and automation, drives this second economy and the author suggests it may be as large as the physical economy in 20 or 30 years. The emergence of this second economy can potentially increase wealth on par with what the Industrial Revolution did, while also causing large unemployment due to its nature (i.e. automation of jobs). The author almost suggests that the biggest problem in the near future will not be creating wealth but distributing it. Very Peter-Drucker-like article that is worth reading. If you are interested in economic changes to societies, it's worth checking out. The Technology Batt

Potential Precursor to What May Happen in Europe... MF Global Stock Collapses MF Global is a mid-sized brokerage firm—at the end of 2010, its market cap was around $1 billion, book value hovered around $1.5 billion, and had assets totalling roughly $40 billion—that is being sold off by the market. Investors are clearly heading for the exits and, as many market followers would know by now, loss of confidence in a financial firm often results in its end. I don't know much about the company but it appears to be mostly focused on commodity brokerage operations. There was a commodities broker, Refco, that failed during the financial crisis era a few years ago but the problems faced by MF Global are different and may signal what may unfold in Europe. MF Global is collapsing, not because of its commodities derivatives business, but because it appears to have made outsized bets on European sovereign debt of some questionable countries. The firm is run by a former CEO of Goldman Sa

source: Quarterly Review and Outlook, Third Quarter 2011 . Hoisington Investment Management.

Long-term Industrial Commodity Price Index (real) From The Economist , For 150 years, commodity prices have trended ever downward. As Mr Pielke notes, a spike in prices in the 1970s prompted the famous Ehrlich-Simon bet, between an ecologist and an economist, over whether resource prices would rise or fall between 1980 and 1990. The economist, Julian Simon, argued that they would fall, as rising prices in the short-term would prompt markets to find new supplies and efficiencies that placed downward pressue on prices over the longer-term. As it turned out, he won the bet. Had it been a 30-year bet, however, he would have lost. Mr Pielke then asks the inevitable question: are the commodity price increases of the past decade likely to trigger a similar market response, such that a decade from now we're once again enjoying a time of plenty? Or is dramatic emerging-market growth combining with dwindling supplies of critical resources to push the world against fundamental limi

This must be one of the quickest CEO firings... can't believe it lasted less than two weeks : Olympus Corp. shares fell 13.5% in Japan on Friday morning after the Japanese camera maker dismissed chief executive officer Michael Woodford just weeks after appointing him to the role. Olympus named Woodford, who was also the firm's president and chief operating officer, as its new chief executive on Oct. 1. In a statement, the firm said: "Woodford has largely diverted from the rest of the management team in regard to the management direction and method, and it is now causing problems for decision making by the management team."

The Obama administration has been looking into waiving the rapatriation tax on foreign income. The thinking is that this would lead to investment within the country and lead to job creation. For those not familiar, many US corporations are sitting on huge cash balances but a lot of that money is overseas (earned from their foreign operations). If they bring that back into the country, they would pay a repatriation tax. Many executives of multinational firms have been pushing the US government to waive the taxes. Most readers, that own shares in these firms, would benefit from such a tax holiday. I am not American so take it for what it's worth but I believe the US government shouldn't waive the tax.

Steve Jobs was born in 1955, into an era of rotary phones and room-size computers. He died on Oct. 5, 2011, having put a computer inside a phone and that phone into 120 million pockets. — Bloomberg Businessweek Unlike many others out there, I am not a huge fan of Steve Jobs. His demanding personality doesn't sit well with me and if I was working for him, I may not survive for long. I was sort of a "geeky" guy who grew up with computers in the 90's but I was a PC user and hence not too familiar with Apple products. Having said all that, I do respect Steve Jobs as one of the most influential people of all time. He was an entrepreneur and a designer and a salesperson and a leader and an executive. He is, without a doubt, one of the top executives in American history. His resurrection of Apple may be one of the biggest business turn-arounds in modern history. One of the most remarkable lessons about the life of Steve Jobs is how he battled failures and