The Stingy News Weekly (11/20/2017)
New from StingyInvestor
Thinking outside the box
"Charlie Munger, Warren Buffett's long-time partner and pundit at Berkshire Hathaway posed a tricky question. He asked for instances when the reverse was true. That is, when does raising prices lead to increased sales volumes?"
Two heads might be worse than one
"Money manager Lou Simpson recently talked about the negative correlation between the number of people making an investment decision and the results. He noted that if a lot of people are involved, the tendency is for the least competent person to effectively make the decision when a consensus is required." [$]
We're all innocently out of touch
"An American born in 1970 saw stocks rise more than eightfold in their teens and 20s. An American born in 1950 saw stocks go nowhere in their teens and 20s. In Japan, the difference between back-to-back generations was losing 100% of your money vs. making 11.5x on your money." [Behaviour]
Mind the gap
"On a walking tour of town officials and development consultants pointed to empty buildings and described all the things that could be done to bring them back to productive activity: open up the blank walls and re-install windows, incubate all kinds of new businesses, paint, outdoor seating. I rolled my eyes. None of those things make any economic sense given the regulatory hurdles involved and the likely negative return on the up front investment. I've seen this scenario play out many times before." [Government]
Right math, wrong conclusion
"The answer is to confront the truth that the public plans are too generous and need rethinking. But wait, can't you hear the public-sector workers saying that it's unfair to reduce their DB promise because they have paid for it? Well they haven't. Government workers and their employers are still funding their pensions assuming the same 1990s returns that built the Factor of 9 (or maybe a factor of 12). They are ignoring the true cost of the pensions being earned and they hope that future investment gains will forever hide the fact that the guaranteed benefit they are receiving is being funded by risky investments that may or may not pay off. Government workers are paying about 12% of pay for a benefit that is worth about three times the amount even though the government is telling taxpayers its only worth twice as much." [Government]
Fairfax vs. Berkshire Hathaway
"We find that while value beats growth (that is, the value premium is confirmed) in the total sample (on average, by 430 basis points annually - a basis point is 1/100th of a percentage point), the value premium is actually driven by the firms with the poorest earnings quality. The average value premium for the best earnings quality firms (the top quartile) is 60 basis points, whereas the corresponding value premium for the poorest earnings quality firms (the bottom quartile) is 960 basis points. That is, an investment strategy that emphasizes lower-quality value stocks will improve the long-term performance of a value portfolio." [Value Investing]
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