Stability only comes to markets in a self-reinforcing mode, from buy and hold (and sell and sit on cash) investors who act at the turning points.

Beyond the vicissitudes of the markets, there are businessmen.  They have a sense of what their capital costs.  They reason regarding acquisitions and selling off their own holdings/subsidiaries.  They ask themselves how permanent current financing conditions are likely to be.

They don’t play momentum; they just look for when buying or selling businesses makes sense.  The market, on the other hand, has many that only want to buy what is rising, and sell what is falling, to a first approximation.

The market is about business, not stock trading.  Businesses are primal, trading markets are secondary. When businessmen find a publicly-traded business trading at an attractive value, they buy it, particularly if there are synergies between the businesses.  Thus during the bust phase of equity and credit markets, M&A often consists of cash-rich firms buying out firms that are in distress.

The same is true in boom times.  Companies sell themselves, or subsidiaries to leveraged players who think the game will go on much longer than reality will bear.  The sellers sit on the cash; the buyers enjoy the losses when the bust comes.

Volatile markets favor those with strong balance sheets — those that can wait for a better day, or, those that can wait for better opportunities. In either case, they can wait; they do not have to buy or sell now.  They are experiencing no cash flows forcing them to action.

Those with strong balance sheets focus on return on book capital, and avoid leverage.  They look to grow the book value (“net worth”) of their company, and ignore secondary goals.  They are shareholder-oriented.  They take advantage of both sides of the boom-bust cycle — selling near peaks when return on capital is lousy, and buying near troughs when return on unlevered capital is fat.

This is simple stuff, but hard to execute, because the fear/greed cycle interferes with rational calculation.  Regardless, absolute valuation investors put in the tops and bottoms of markets by their selling and buying.  To the degree that technical analysis works, it is because they trace the bread crumbs of large valuation oriented investors.

That’s all for now.  Thoughts?  Give it to me in the comments.





  • California Democrats seize super majorities in both houses of Legislature CA businesses plan exit strategies $$ Nov 08, 2012
  • Harsher energy regulations coming in Obama’s second term Fracking, chemical emissions, & more $$ -losing green energy Nov 08, 2012
  • US crop insurance a post-election target, farm bill elusive W/Ag doing so well over last 5 yrs, this should b ez, not Nov 08, 2012
  • Ethanol Going Ugly Turns Bush Plan Into Obama Test Should b a no-brainer, but Congress ag state politics r ugly $$ Nov 08, 2012
  • Could This Be End of Evil Filibuster? Limit filibusters to actual votes & require physical presence on the floor $$ Nov 08, 2012
  • Obama Win Means Health Overhaul to Move Ahead in States Destroy health care 2 replace it w/single-payer system $$ Nov 08, 2012
  • Yep, There Have Been Problems With Email Voting in New Jersey In general, probability of fraud in voting is rising $$ Nov 07, 2012
  • Defense Fund Rockets to Four-Year High: Romney Rally? Discounting Obama’s change of heart after election $$ 😉 Nov 06, 2012
  • Romney Threatens Pimco’s Gross With Bernanke-Dumping Plan 2 many links in the chain of reasoning; low prob correct $$ Nov 06, 2012
  • Southfield Twp. voter appears to die, then asks ‘Did I vote?’ I found his words to his wife 2b touching in many ways $$ Nov 06, 2012
  • Tuesday Is Election Night, Be Careful What You Tweet Measure twice, cut once, tweeps. & bring a dose of skepticism $$ Nov 05, 2012
  • Three Men Make a Tiger John Mauldin predicts Romney as victor; piece is mostly about eliminating confirmation bias $$ Nov 05, 2012




  • China: Worse Than You Ever Imagined 40MM+ people were killed during the “Great Leap Forward.” Mao deserves derision $$ Nov 08, 2012
  • China’s leadership challenge in new era: douse “inequality volcano” Widespread poverty in China scares Communist Party Nov 08, 2012
  • A Cheerleader for Mao’s Cultural Revolution Lied about Cultural Revolution & The Great Leap Forward. Millions died. Nov 08, 2012
  • The Chinese Credit Bubble – Full Frontal As I have argued for some time, total debt in China is quite high $$ #danger Nov 07, 2012




  • Peltz Takes Stake in Danone Danone $DANOY is a French firm, will be difficult to encourage change $$ Nov 08, 2012
  • Prudential Records $618 Million Loss on Derivatives I worry about life industry; the acctg 4 secondary gtees: yuck $$ Nov 08, 2012
  • Nucor Galvanizes Gas Hopes $NUE provides capital 4 development of gas resources of $ECA -Gets 50% stake in wells $$ Nov 08, 2012
  • Office Depot-OfficeMax Deal Seen Rescuing Value The failure of office retailers as the non-profit $AMZN undercuts $$ Nov 07, 2012
  • SapuraKencana Agrees 2 Buy Seadrill Tender Rigs Interesting deal, clever investor; expands Malaysia exposure $SDRL $$ Nov 05, 2012
  • Sharp blunted, and it’s not alone Argues that Japanese electronics mfg & exports r getting killed by strong yen $$ Nov 04, 2012


Federal Reserve


  • Inflation, QE and forcing the banks to lend I’ve subscribed 2 The Economist for 25 years; they r getting dumber $$ Nov 04, 2012
  • Casting Dual Roles, at Treasury & the Fed Bernanke’s Last Supper & The Return Of Larry Summers $$ Nov 04, 2012
  • Off of the last tweet, it would be nice 2c Bernanke retire; he really may b tired of the abuse. His prob was he thought he knew what 2 do $$ Nov 04, 2012
  • & as a result, could not c that Neoclassical macro does not work with an overindebted economy. We need fewer economists at the Fed & Tsy $$ Nov 04, 2012
  • Wrong: Seth Klarman Goes Nuts On The Fed In His Latest Investor Letter Y I think value investors should run the Fed $$ Nov 04, 2012
  • Seth Klarman, like most value investors, is farsighted & not just thinking about how to goose GDP for the next year. Klarman 4 Fed chair $$ Nov 04, 2012




  • Convergence between the core and the periphery economies in the Eurozone Drowning PIIGS pull Germany & France under $$ Nov 08, 2012
  • ECB & Fed: Worlds Apart Axel Merk praises the ECB & disses the Fed. Argues that ECB has not gone fiscal as the Fed has Nov 08, 2012
  • Unsteady Greek Coalition Faces More Strikes Suspect they make it through; Greeks don’t want 2 leave Eurozone yet $$ Nov 05, 2012
  • The peripheral threat to France Many of the PIIGS r getting more competitive relative 2 France. No E-zone w/o France Nov 04, 2012


Rest of the World


  • Old People Versus Babies, In One Graph Global demographic crisis in one very easy to manipulate graphic $$ Nov 08, 2012
  • Iceland Sees Mortgage Bubble Threat From Foreign Cash The problems of capital controls start to bite $$ #nofreelunch Nov 06, 2012
  • Turning Trash Into Tidy Profit Optimistic story on turning trash into durable building materials in Senegal $$ Nov 05, 2012


Sandy and Disaster


  • Frederick County teen wins regional science competition The software can read a picture & tell where it is. $$ Nov 08, 2012
  • Sandy’s Aftermath: Samuel Pritt Develops Geolocation Software Young friend won Siemens US Science Competition $$ Nov 08, 2012
  • Insurance divides haves from have-nots after Sandy Insurance is for catastrophes; scrimp on frequency, not severity $$ Nov 04, 2012
  • Reserved Buoyancy, Down-Flooding, and Living Off the Grid The value of slack in physical systems, especially boats $$ Nov 03, 2012


Market Dynamics


  • FIRE IN THE DISCO! @reformedbroker warns us that a recession is coming, & talks about a decline in corporate profits $$ Nov 08, 2012
  • Even 6.75% is too high. Looking at the Q-ratio, CAPE10, & long high quality bond yields would make 4% more realistic $$ Nov 06, 2012
  • Lightening the Pension Load Never thought I’d c terminal funding return; can b bad 4 annuitants if insurer fails $$ Nov 06, 2012
  • Fitting Factors Into the Formula Bob Arnott& Cliff Asness discuss quantitative investing; long article worth reading $$ Nov 06, 2012
  • TAGP expiration will put downward pressure on short-term yields Once guarantee goes, much S-T $$ will look 4a home $$ Nov 06, 2012
  • Cash as Trash, Cash as King, and Cash as a Weapon In different environments & hands, cash has different properties $$ Nov 06, 2012
  • Wrong: Is Your Manager Skillful…or Just Lucky? Bill Miller neglected “margin of safety” & reaped bad results $$ Nov 05, 2012
  • They didn’t read paper closely. Performance of anomalies diminished, not destroyed, by publishing academic research $$ Nov 05, 2012
  • For John Maynard Keynes, Economic Theory Was a Sideline He was a better investor than he was an economist $$ Nov 05, 2012
  • It’s the Earnings, Stupid: “Atrocious” Q3 Turns Josh Brown Cautious Time 2b cautious says @reformedbroker. Calendar? Nov 05, 2012
  • “All I know: The next bankruptcy cycle, whether in 2 or 3 or 4 years, is going to be one for the ages. Count on it.” $$ Nov 03, 2012




  • A New Idea of How to Fix the Ratings Agencies by @carney | My response: $$ Nov 06, 2012
  • Investors won’t read the fine print Even many institutional investors become overworked, lazy, etc. & don’t read $$ Nov 06, 2012
  • Hero of the day, CPDO edition I remember 2006 when @alea_ @interfluidity & I (@ Realmoney) were criticizing CPDOs $$ Nov 05, 2012
  • Health-Care Law Spurs Shift to Part-Time Workers Law of unintended consequences: How 29-hr workweek got created $$ Nov 05, 2012
  • 10 things walk-in clinics won’t tell you Major factor is the loss of continuity u have w/doctor who knows u $$ Nov 05, 2012
  • After Bailout, Giants Allowed to Dominate the Mortgage Business “Is this what we saved [the financial system] for?” $$ Nov 04, 2012



  • Can say that again RT @bespokeinvest: Wow, big selloff in the last couple minutes of trading. Dow down 430 points since Tuesday’s close. $$ Nov 08, 2012
  • Some gift RT @pdacosta: Gift that keeps on taking: France, Belgium agree to pump 5.5B euros into bailed-out Dexia Nov 08, 2012
  • RT @ReformedBroker: This Greek austerity bill is the equivalent of slapping a Kick Me sign on the Troika’s back. Gives us one day’s peac … Nov 07, 2012
  • Rupert goes back to sleep $$ RT @felixsalmon: RT @dansabbagh: Pearson says FT is not for sale. “This particular Bloomberg story is wrong. ” Nov 06, 2012
  • RT @SimoneFoxman: you’ve got to be kidding me. — Southfield Twp. voter appears to die, then asks ‘Did I vote?’ Nov 06, 2012
  • First of many 2 come RT @FrancesDenmark: Indiana is the first state to drop its pension return expectations below 7.0% Nov 06, 2012
  • Murdoch would b interested $$ RT @ReformedBroker: The Financial Slides RT @TheStalwart: Who will buy the FT? Maybe BI in a reverse merger? Nov 06, 2012
  • Bite your tongue 🙂 Janet Yellen has exceeded the Peter Principle $$ RT @fundmyfund: precious metals say = janet yellen here we come Nov 06, 2012
  • Easy 2 talk tough, hard 2 not repay $$ RT @munilass: So much for cities standing up to Calpers Nov 06, 2012
  • marriage changes u $$ RT @moorehn Surprising: single & married women are further apart politically than men & women r Nov 06, 2012
  • Probably priced in $$ RT @kyles09: isn’t the exp of TAG a negative for the big bank stocks or do you think it is already priced in? Nov 06, 2012
  • I was just looking forward to the end of the political season, sigh RT @jfahmy: Hillary Clinton listed as current 2016 favorite (6:1 odds). Nov 05, 2012
  • Dog bites man RT @TheStalwart: National Review endorses Mitt Romney Nov 05, 2012
  • Wow $$ RT @businessinsider: New York Magazine’s Breathtaking Cover Shows Manhattan From Up In The Sky by @KimBhasin Nov 03, 2012



  • @valuewalk Thanks. $DANOY might do what they can to improve margins, but might play badly in France. Has mgmt been s/h-friendly in past? $$ Nov 08, 2012
  • @Frank_McG Very cool. We homeschool — only 4 left, 1 senior, 2 freshmen & a 5th grader. My wife is having a blast. $$ Nov 08, 2012
  • @TheOneDave You’re welcome — you do some great stuff Nov 07, 2012
  • @TheOneDave Hey, Dave, don’t see where we can get the Chart… Nov 07, 2012
  • @amacker Floating NAV, hehe Nov 07, 2012
  • @TheStalwart My friend and former boss Eric Hovde would have beaten Baldwin, and handily… Nov 07, 2012
  • @kyles09 My actuarial conservatism, and knowing that God can do whatever he wants with me Nov 07, 2012
  • @carney I hear you: I’m going to write a piece where I take my “eliminate the rating agencies model” and clarify it $$ Nov 06, 2012
  • @PragCapitalist Thanks, Cullen. I applied that idea to corporate board elections when writing 4 Realmoney, Shame it didn’t get traction $$ Nov 06, 2012
  • @michaelroston Yes, but there is a lot of $$ on both sides, and the phones ring. WV & PA gambling firms & Christians vs MD gambling firms Nov 06, 2012
  • @michaelroston However, if you live in MD all u hear about is 7, the ballot measure expanding gambling. Other measures: <crickets> $$ Nov 06, 2012
  • @BradErvin1 That’s what I am saying — they r taking consensus risks $$ Nov 05, 2012
  • @BradErvin1 But my point about the balanced funds is this: in the selection he could invest in, they r all taking the same broad risks Nov 05, 2012
  • @BradErvin1 57, Married, one kid at home, significant assets good job, wife w/good health, 52, he not so healthy, has saved aggressively Nov 05, 2012
  • @FriedrichHayek I knew that Keynes got bailed out once (or was it twice?), but he learned from his losses, & was far better at the end $$ Nov 05, 2012
  • @MarketIntegrity @CFAInstitute @CFAcareers @CFAevents You might want to get different logos; it makes you look like u r RT-ing yourself $$ Nov 05, 2012
  • @japhychron Bingo. You got it. Nov 04, 2012
  • @TeamHeadwaters Forgot about that.. those are some of the best limestone deposits in the world, in an area ideal 4 potato farming, right? Nov 04, 2012
  • @nelson3748 That seems correct, but doesn’t S. Korea have the same issues w/the Chaebol, & they r functioning ok, seemingly… Nov 04, 2012
  • @munilass Thanks. I put it on my wish list. We discussed mishedging in the finance markets, Soros, &c. Nice of him 2 spend time w/little me. Nov 03, 2012
  • @munilass What’s the title of the book? I spent about ten minutes talking with him in early 2000 at a Complexity Theory conf @ Columbia U Nov 03, 2012



  • I suspect that Obama ends up winning the popular vote as well, and maybe surpasses 50%, fwiw, which isn’t much… $$ Nov 07, 2012
  • Best thing about elections: they’re over. Second best: gridlock continues. Worst: Four more years of Bush-clone Obama. $$ Nov 07, 2012
  • “Stocks aren’t GDP futures, so its not a lock that they immediately fall during the recession…” — David_Merkel Nov 08, 2012
  • Last pres election, took oldest child 2 vote. This time, took child #5 2 vote. If I live, next time will be kids 6 & 7. Time after, kid 8 $$ Nov 06, 2012
  • “Josh, the article is worth a read, but the Chronicle of Higher Education misreported on it. The…” — David_Merkel $$ Nov 06, 2012
  • “People easily forget that the stocks of commodity producers are very different than buying the…” — David_Merkel $$ Nov 05, 2012
  • Helping a client w/his 401(k). Common balanced fund risk factors chosen: Low Duration, Medium credit quality, Large Cap Blend Equities $$ Nov 05, 2012
  • The benchmark changes added jobs that were created at an unknown earlier point in time. If they were… Nov 03, 2012