I have readers all over the world.  Here is an example:

Hi Dave

I am a 25 year old from Pretoria, South Africa. I have been reading your blog for around 2 years and I thoroughly enjoy it (especially the book reviews). I might not agree with a few things you say, but it is rare that I don’t learn something while reading your work. I love how your personality shines through in your writing…a personality based on God.

I have had this fascination with finance and investing since I ran into a popular finance magazine here in South Africa around 2008 while stile in university. Since then I have been reading everything I could on business, investing and finance. I am also about to start training with a large wealth management firm in south africa to be 1 of their financial advisors. Training I am wholeheartedly looking forward to.

In all my reading, there is something I still struggle to wrap my head around, and that’s how to value Financial companies. You are undoubtedly the most informed person on financial company investing nd financials that I read. Hence my email: I was wondering if you could suggest a few readings for me to tuck into (preferably books) as I have found most of the things I have read only scratch the surface. Reading with maths that is not too elaborate.

I hope I am not asking too much.  Thank you in advance for any suggestions you might have, and I hope you keep up the good work on your blog.

Financial companies are difficult for several reasons:

1) The cash flow statement has almost no meaning.

2) It is very hard to know how much capital is needed to keep things going.  That data gets disclosed to the regulators, and not directly to stockholders.

3) It is difficult to know the riskiness of the assets that a financial company holds.

4) With complex financials, it is difficult to tell what the “run on the bank” risk is.

I will be reviewing a book on banks this month, but I have run into few books in my life analyzing financials.  It is a real hole in the investment literature.

Financial companies are valued off of their net worth, and their expected path of earnings.  Earnings retained, rather than paid out in dividends, or used to buy back stock, adds to net worth, and is new capital that can be used for growth.

The capital of financial companies can be divided in two: that which is required by the regulators for solvency purposes, and that which is free for deployment into new business.  With banks, look at the call reports to analyze the capital needs of subsidiaries.  With insurers, get the statutory reports.

To the extent you can, analyze the quality of assets owned.  Also analyze when liabilities may require cash, particularly if assets are financed by repurchase agreements.

Now over the last seven years, I have written a lot on financials, particularly insurers.  Here are the articles at my blog that would deserve attention:

A Summary of my Writings on Analyzing Insurance Stocks

A compendium of the best articles written prior to mid-2010.

Then there was the Flavors of Insurance Series.  In 12 parts, it went through the entire insurance space, explaining what make each area different.

Thinking about the Insurance Industry

Describes the changes that have happened since the financial crisis.  Bad financial models have been destroyed.

On Life Insurance and Life Reinsurance

Explains how life insurance is saturated but reinsurance is not.

On Complexity in Financials, and Insurers Specifically

Explains why complex financials are usually a bad investment.

Investing In P&C Insurers

Once you understand the model, many are simple companies, and easy to invest in.

Evaluating Regulated Financials

An attempt to explain to college students why financials are different from other companies.

On Insurance Investing

This seven-part series explained a wide number of factors in analyzing insurance stock investing.

Penny Wise, Pound Foolish

On some of the pathologies inside badly-run insurance firms.

Two Insurance Questions

On reserving and valuation questions.

On the Designation of Systemically Important Financial Institutions

Why Insurers, no matter how large, should not be considered a threat to systemic risk.  (Please ignore AIG — no other insurer was a major party in derivatives.)  Also see: On Risk-Based Liquidity, and Financial Regulation

On Captive Insurers

Explains some of the nuances of statutory reserving/capital, and why some insurers want to fuddle it.

Classic: Financials are Different

A piece from 2006 at RealMoney, describing how financials are different from industrial stocks.

That should give you a start.  There aren’t many books dealing with the intricacies of financial companies, and of what few there are they are written by the big four auditors, or the rating agencies, for their own purposes.  I don’t own any of them.

But what I have written, from that you can benefit.

Thanks to all of my readers, whether you read me via RSS, e-mail, twitter, or natively at the website.  But I have a favor to ask… if you read me elsewhere, drop by the site every now and then, because not all of my commentary gets republished by those that reprint my work.  Also, not that we get a ton of comments at Aleph Blog, but I appreciate the quality of almost all of the comments we get here, even if I may disagree with some of them.  If you read me elsewhere and want to comment, come to Aleph Blog and do so, or, just e-mail me.

Now for a few housekeeping items.  1) People sometimes ask me for books to help explain insurance stocks, and in the past I have pointed to my own writings, especially this one.  My flavors of insurance series helps also.  I’ve also pointed to works from the Society of Actuaries, Casualty Actuarial Society, LOMA, CPCU, and others.  But now, I think this piece could be useful to some readers.  It’s relatively comprehensive, and not that long.  It’s not the way I do it, but it is well thought out.  It suffers from the same problem as one using the models of Aswath Damodaran; it’s too detailed.  I can’t think of anyone that uses such a model — it is overkill.  But maybe readers could what I would do with such a model: boil it down into something simpler.

That is what I am trying to do with my current series on analyzing insurance stocks.  There are three or so more parts left to write, and I should get them out in coming months.

2) Some people ask me how they can read the articles in my Major Article List, and I wish I could read them too.  Trouble is, TheStreet.com has lost them.  They are there, maybe, somewhere in their computer systems, but since they changed the way that they named files, the links to most pre-2008 posts has been lost.

Now, if any of you think you have a way to find those posts, let me know.  There are pieces on that list that are gold, silver, and bronze.  I would at least like to get the gold ones back.

3) Sometime soon, I will create a small website for my business.  It will explain what I do for a living for those that might want me to manage money for them.  I will not link to it here; I try to keep a separation between the blog and my business.

4) I write about a lot of topics, and I tend to go in streaks on given topics.  It’s not what I intended when I started this, but I can understand why I have readers follow me and leave me.  My blog is consistent over a long period, but over intermediate periods it concentrates on one area, then another.

5) I’m not out of things to write about.  Here’s what I am planning for the future:

  • Completion of my work on a new asset pricing model
  • Completion of my “On Insurance Investing” series
  • More posts on the idiocy of US & Global macroeconomic policy
  • Buffett’s Shareholder Letter and Annual Report.  (Note: the letter gets more press, but the Annual Report has more substance.)
  • Commentary on new ideas from the CFA Institute… some good, some bad…
  • More commentary on investments that rip people off.
  • And more, I have a long list of ideas to write about, and many book reviews to publish

6) I would have never expected  it, but February 2013 was my highest readership level at the blog directly, despite the short month.  Thanks to all who read what I wrote.  I try to write good stuff; I do not aim to be controversial, though I know that some of my views are controversial.

7) When I started this six years ago, I would have never dreamed how much I would end up writing.  I thought I wrote a lot for RealMoney.  If anything, I have written four times as much per unit time, which means that as prolific as I was at RealMoney, I have written 4-10x as much here.  And it all started with an extended conversation with readers on Jim Cramer’s “blog,” which led me to do what I had resisted for two years — start my own blog.

As I have developed this blog, I now earn more than I did writing for RealMoney.  That’s not much, but every little bit helps.

8 ) You can’t believe how many people write me asking to do a guest post at my blog.  It happens about 15 times per month.  Then there are the scummy advertisers, who don’t want their advertisements to be labeled as such.  I have a strict policy that all advertising should be identified as such.  Why?  Because I never want to scam my readers.  When you come here, I want you to be comfortable that I am saying what I say for reasons of truth, not profit.  Profit is incidental here.  Truth is paramount.  I know how I could make this place more profitable, and I reject it because I would compromise my message.

9) I began with thanks to readers; I end there as well.  Truth, I treasure all of the emails giving me praise, but my internal response is “Wow, you’ve all been so great to me over the years.  It really gets to me, you know.  I hope I always make you proud.  That’s all.”  (What the Flash said to the citizens of Center City… yeah I know, a little dumb, but you had to see it.  Start it at 8 minutes.)

My main focus is on ethics in investing, and secondarily explaining how things work.  I hate seeing people ripped off by investment firms, or their dishonest governments.

I have no idea how long I will continue this blog, but I would love to do it as long as I live.

Sincerely your friend,


When Jim Cramer asked me to write for RealMoney, it was a dream come true, and I didn’t ask for it.  After year of writing him on bond issues, he told me I wrote better than most he knew.  Trouble was, in 2003, I had a new job at a hedge fund, and was doing well at it.  It took some doing, but eventually my boss (a good guy, generally) agreed that I could do it, and my public writing on investing began.

Writing for RealMoney, I always felt a little odd.  As I do at Aleph Blog, it is my goal to help you think better, not shovel “buy this now” ideas at you.  I wrote more comments relative to articles than any other writer; I was told that I was RealMoney’s most profitable writer, because people re-read my articles & comments.  Oddly, I had less feedback from Cramer than when I was an e-mailer.  That said, if I ever e-mailed him, which I did rarely 1-2 times/year, he would always give me a short gracious response.  Long before I actually did so, he encouraged me to start my own asset management shop, when I asked his advice in the matter.

Roughly one year before I left RealMoney (which I did unceremoniously, never said goodbye), I started Aleph Blog.  I did it for greater freedom of expression.  I also never read RealMoney anymore, and as such, did not feel the compulsion to contribute to a publication that I had loved.

I wanted to write more article-length pieces about issues that were deeper to investing, and not simple buy/sell this asset pieces.  So, beginning with the Shanghai Market crisis in February 2007, we were off and running.  Most of my initial pieces were shorter; I would write two per evening, six days a week.  That morphed into one longer piece once an evening.

It was my goal to try to take my generalist experiences and turn them into something valuable for the general public.  I did not want to be an “all crisis, all the time” blog.  When the crisis was hot, or promising to be so, I would write.  And though I have distinct views on how economic policy should be done, that is not what defines me.  We have to act and live in the face of suboptimal policies.

There are many pieces and series that I could never have done at RealMoney that I have done at Aleph Blog.  As a sampler:

  • Education of a Corporate Bond Manager (12 parts)
  • Flavors of Insurance (12 parts)
  • The Rules (30 parts so far, and may go to 60 if I do them all)
  • A Day in the Life of John Davidson (my one attempt at fiction, 8 parts)
  • Most of my articles dealing with flaws in institutional investment strategies, accounting rules, etc.
  • My occasional rants on how I thank neoclassical economics is wrong, and sometimes, very wrong.
  • Articles on accounting rules and the effect on investing.  In some circles, this is (wide eyes here) an accounting blog. (I’ve never taken an accounting course in my life.  I’ve had to create accounting statements for 12-18 years of my life corporately.  I have read through accounting standards, and theories on accounting polices repeatedly.)
  • Many of my quantitative posts they would have blinked at, and said, “Uh, who will benefit from that?”  My view is, you may not get any initial benefit from such a piece, but if you get some idea into how the markets interact, you may be better prepared when things get weird.
  • All of the book reviews. That was not an early goal of the blog, but has become 10% of what I do.
  • The interactions I have had with agencies of the US Government.
  • The (7 part) first blogger summit at the US Treasury.  It was a pleasure to meet Steven Randy Waldman, Yves Smith, Kid Dynamite, Accrued Interest, John Jansen, Michael Panzner, and Tyler Cowen.

That said, RealMoney gave me more room to run than most columnists.  They rarely turned down my ideas, but they did want me to become more “practical,” and crank out more investment ideas.  The hard thing for me was/is, I have no lack of investment ideas/opinions, but the response I get to giving them is far less civil than sharing ideas on how to think about investing.  To that end, I appreciate Tom Brakke, who does that in a very structured way.  We had tea together last June or so, and I started to write about it but could never get it out.

In late summer of last year, Josh Brown came through the area, and we had lunch together.  Great guy; a ton of fun and ideas.  A man like him in some ways is my pal Cody Willard, who is a fountain of ideas and connections.  Add in James Altucher, who is prolific, and has been willing to give me time on two occasions.

Last fall I had a late dinner with Miguel Barbosa of Simoleon Sense.  Very bright guy; great conversation.  During the same trip to Chicago, got to talk with Eric Falkenstein for a few hours.  Wish I could have met up with Tadas Viskanta then; maybe another time.

Yet that reminds me of those I interact with.  Though I have never physically met them, I appreciate Barry Ritholtz, Jeff Miller, Felix Salmon, Bruce Krasting, Howard Simons, Roger Nusbaum, Gonzalo Lira, Michael Pettis, Victor Shih, Carl Walter, jck at Alea, the crew at FT Alphaville, and more.

There was the Aleph Blog lunch in late 2010, and the relationships that engendered.  I am very grateful for all of the relationships that blogging has created for me, whether close or distant.

And, with all of the virtuality of blogging, the relationships are what make it for me.  I am happy to write bits on the sites of others, and give them content.  I appreciate those that I read and comment on.

And to the many who have written me, though I may have never responded, thanks for writing me.  I get fifty+ messages per day and can’t keep up.  So, thanks to all have interacted with me, that’s what has made it valuable to me.

PS — If I forgot you, my apologies, I have so many interactions that it is difficult to keep track of them all.