Wednesday, August 19, 2009

Warren Buffett: The Greenback Effect

IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Full Article

Wednesday, August 12, 2009

Friday, August 07, 2009

Fairholme’s Maxims: A primer to value investing.

1) A to Z (research all aspects of a company)
2) Back to front (dig into the minutiae)
3) Cash counts (it’s the only thing you can spend)
4) Don’t guess (know!)
5) Expanding universe (extend our competence)
6) Focus sharpens returns (only own your best ideas)
7) Get more than you give (our objective)
8) Happy is sad (you make your money in difficult times)
9) Ignore the crowd (don’t be a lemming)
10) Jam tomorrow today (the magic of compounding)
11) Keep it simple (focus on what’s important)
12) Lumpy over smooth (a lumpy 15% return beats a smooth 10)
13) Management (can’t do a good deal with a bad guy)
14) New new things (ideas taken to extremes cause pain)
15) Owners know best (“skin in the game”)
16) Price matters (buy with a margin of safety)
17) Quirky can work (consider the unusual)
18) Rip it up (try to kill ideas)
19) Surfing waves (get in front of the trends)
20) Talking and walking (we really do eat our own cooking)
21) Under our hat (it’s not in your interest for us to tell all)
22) Value is all that (…matters)
23) What they want? (understand who wants what)
24) X-ing the lines (research across disciplines)
25) You’re the one (we do what’s right for you)
26) Zero can’t grow (Don’t lose)

Jeff Bezos: What I Know

Hummingbird Funds: Paul Sonkin's Interview with Forbes