The Stingy News Weekly (12/09/2012)
A compilation of Buffett articles
"If you have an hour or so and are interested in reading some of Mr. Buffett's works check out the following articles available online. And prepare to be amazed by a guy who has made some astonishingly prescient market calls despite claiming to have no idea where the markets are headed short-term."
Private REITs require careful due diligence
"In the early days of income trusts - the late 1990s - portfolio manager Rick Howson used to talk about whether a trust's 'brains' were inside or outside of the 'body'. (He managed Saxon High Income, now known as Saxon Dividend Income, one of Canada's first income trust mutual funds.) Howson preferred trusts where the management 'brains' resided inside of the trust 'body' - in large part for governance reasons. It's no wonder he preferred this structure. A group of companies provide services to the REIT that I reviewed ranging from property due diligence to day-to-day property management and sales (i.e. attracting investors into the fund). There are two problems with this structure. First, each of the companies are completely outside of the REIT structure. Second, each is owned by the REIT's co-founding general partners. While I didn't not delve into this issue further, this structure has potential conflicts all over it. I could not find a single word even mentioning that a conflict exists, let alone how the REIT deals with this conflict."
Why college may be free
"...there will always be students able and willing to pay for a traditional college experience and for them it will be a worthwhile investment. But for the vast majority, from a financial standpoint that kind of education makes no sense and is fast becoming unnecessary. He believes the higher education revolution is coming soon and will happen fast - perhaps fast enough to keep the next generation from finishing school with debts they may never be able to pay."
Acquisitions: Winners and Losers
"The winner in public company acquisitions is easy to spot and it is the target company stockholders, who gain about 18% over the 41 days. On average, bidding company stockholders have little to show in terms of price gains - the stock price for acquiring firms drops about 2% during the announcement period and about 55% of all acquiring firms see their stock prices go down. Note that while the percentage price drop is small (relative to the price increase for the target firm), acquiring firms are typically much larger than target firms and the absolute value that is lost by acquiring firm stockholders from acquisitions can be staggering. A study of 12,023 acquisitions by large market cap firms from 1980 to 2001 estimated that their stockholders lost $218 billion in market value because of these acquisitions. While this number was inflated by some especially bad deals done between 1998 and 2000, they illustrate the potential for massive value losses from acquisitions and the reality that one big, bad deal can undo decades of careful value creation in a company."
The bad luck of winning
"From one point of view - the point of view of lottery officials - you couldn't ask for more ideal winners than the Hills. Mark works for a meatpacking plant. Cindy is a clerical worker who was laid off in June 2010. When they were introduced to the news media on Friday, their adopted daughter in tow, they talked about how the money might allow them to adopt another child. They said they were going to help various relatives pay for college. They insisted that the money wouldn't change them. The only extravagance they mentioned was a red Camaro that Mark wanted. They made winning the lottery seem downright heartwarming. But it's not. On the contrary, lotteries may well be the single most insidious way that state governments raise money."
Deck the halls with macro follies
"Each year, our attention turns to the holidays... and to holiday consumer spending! We're told repeatedly that, because consumer spending is 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth. This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago."
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