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Archive for December 20th, 2012

Blog Notes

Thursday, December 20th, 2012

Once again, I have an article the Baltimore Business Review.  You can download it here.  My article is on page 40 of the PDF.

The Baltimore Business Review is unique, a collaboration between Towson University, and the Baltimore CFA Society.  The CFA Institute highlighted it in the past year, though I can’t find the link.

My article deals with what drives residential housing prices, and sadly, it comes to rather ordinary conclusions.  I hate it when I get a normal  conclusion.

Have a read, and tell me what you think.


Second note: I will be the conference blogger for the NYSSA International Financial Reporting Conference taking place on January 10th.  There is a discount code for Aleph Blog readers: Aleph10, where you save 10%.  Note to CFAs: there is another code where you can save 20%, but I don’t remember what it is.

Accounting is important, and if you are a fundamental investor, it pays to understand it well.  I write this as one who had to learn a lot after becoming an actuary.  I might not know the nuances of all accounting, but I had to learn a lot as I did life insurance accounting, which is more complex than the accounting of most industries.

This is a conference worth attending, though many will ignorantly sneer at accounting conferences.



Book Review: The Snowball, Part Two

Thursday, December 20th, 2012

According to the book, his wife Susie approached Astrid Menks to care for Warren with food, and other aspects of personal care.  But for a man to have his wife abandon him, with no prospect of return, a pretty 30-year old woman with few requirements would test most men in terms of their fidelity.  According to the book, Susie was surprised that Astrid moved in with Warren.  I think that was naive on her part.  If you want to be a wife, be a wife.  Make up your own mind on what you want, and fault yourself for bad decisions.  Adultery is a bad thing, but Susie is the most to blame by leaving Warren.

Warren is/was a simple guy.  If Susie never left, he would have been happy.  Indeed, he was depressed when she left.  But she got tired of the neglect, and abandoned her marriage vows to him.  She should have borne the neglect, and stayed with him — marriage vows are permanent.  Marry in haste, repent at leisure.  We have no idea of how much Susie may have pleaded with Warren to be connected to her and the family, but the eventual result was a virtual divorce from Susie, which led to another relationship, even though the legal fiction was maintained.

Buffett also had many friends and mentors in the value investing community, most of whom learned from Ben Graham.  In the early years, there was a “Graham Group” that would get together to discuss the principles of Ben Graham.  Bit-by-bit, the group slowly became the “Buffett Group,” because Warren was Graham’s most apt disciple.

But there was one peer who got him thinking more broadly, Charlie Munger.  There were a number of people who thought they would benefit from knowing each other.  They were right; at the very first meeting they hit it off, and found it hard to end the conversation.

Warren received a lot of respect from men in his early years.  They looked at the returns and said, “Wow.”  But his abilities suffered a bit in the late sixties, as “cigar butt” investments disappeared, there was some uncertainty, as to whether Warren would continue to invest.  Fortunately for him, Charlie Munger had given him a new paradigm, which I call “growth at a reasonable price.”

Buffett became very good at estimating opportunities, particularly opportunities that will last.  It is only under such conditions that growth investments will work.

But there are two more entities that shaped him — The Sun Valley Conferences and Bill Gates.  Gates is the more important influence, because his knowledge of the tech sector helped to refine Buffett’s view of moats, because an attractive technology that gets a large market share is its own moat.

The Sun Valley conferences had two aspects.  Buffett presented at a number of them, and during the tech bubble, he drew quiet derision from attendees.  That said, he was a sponge for information, and he understood tech.  What he did not understand was how you could get reliable free cash flow from tech businesses, where obsolescence was such a threat.

Part 3 will come tomorrow.  Stay tuned.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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