#WeeklyInvestorReader | wk. 20

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

Bruce Greenwald: Channeling Graham and Dodd: Everyone thinks the market is expensive – Barrons, May 13, 2017 Everyone thinks the market is expensive. It isn’t, says Greenwald.

Why Amazon is Eating the World – Tech Crunch, May 14, 2017 | Amazon’s lead will only grow over the coming decade, and I don’t think there is much that any other retailer can do to stop it. The reason isn’t the bullet-point moats that are talked about in headlines, and it isn’t the culture of innovation or Bezos’s vision as CEO (though I do think Amazon’s culture is incredible and Bezos is the most impressive CEO out there). It’s the fact that each piece of Amazon is being built with a service-oriented architecture, and Amazon is using that architecture to successively turn every single piece of the company into a separate platform — and thus opening each piece to outside competition.

The Mac is Turning Into Apple’s Achilles Heel – Above Avalon, April 12, 2017 | Apple’s decision to change course and develop a new Mac Pro has received near-universal praise from the company’s pro community. While developing a new Mac Pro is the right decision for Apple to make given the current situation, it has become clear that the Mac is a major vulnerability in Apple’s broader product strategy. The product that helped save Apple from bankruptcy 20 years ago is now turning into a barrier that is preventing Apple from focusing on what comes next.

Full Transcript: Billionaire Investor Warren Buffett Speaks with CNBC’s Becky Quick on “Squawk Box” – CNBC, May 9, 2017 Following is the full unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman & CEO Warren Buffett on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Monday, May 8th. Video from the interview is available on CNBC.com.

Sorry, we’re closed: The decline of established American retailing threatens jobs – The Economist, May 13, 2017 | A love affair with shopping has gone online

Retail Ripe For And Resistant To Disruption – Greenwood Investors, May 14, 2017 | A favorite cocktail party question we had a few years ago was, “which business do you think will get amazoned next?” At the time it seemed slightly novel. Now, it seems like the norm. In fact, your GreenWood Researchers recently overheard two grandmothers from Long Island saying there was no need to be entrepreneurial anymore, “because Amazon is just going to destroy your business.” In some respects, this is equivalent to the taxi driver investing in tech stocks in the late 1990s, but in other respects, it’s a sign that retail disruption has gained critical mass.

EBITDA and Gross Profits: Learn to Move Up the Income Statement – Focused Compounding, May 10, 2017 I think both EBITDA and EPS are “bullshit earnings” when they are the only numbers reported to shareholders. Of course, EPS and EBITDA are literally never the only numbers reported to shareholders. There is an entire income statement full of figures shown to investors each year. Profit figures further down the income statement are always more complete – and therefore less “bullshit” – than profit figures further up the income statement.

Is EBITDA as Bad as Buffett Says? – Morningstar, May 18, 2017 | In Berkshire Hathaway’s annual report to shareholders, Warren Buffett expressed disdain for financial reporting practices that deliberately inflate earnings figures in an attempt to “make the numbers.”

Berkshire Hathaway: A Safe, High-Quality, Growing Company With 30% Upside Over the Next Year – Kase Capital, May 4, 2017 | Berkshire Has Everything I Look for in a Stock: It’s Safe, Cheap and Growing at a Healthy Rate

A Few Notes About the Spotify Stock Market Listing – Felix Salmon, May 14, 2017 Everybody’s writing about this idea that Spotify might go public not through a traditional IPO, but rather through a direct listing. Direct listings are rare beasts, and so in order to understand them, reporters phone up bankers who work in equity capital markets. But the problem is that bankers who work in equity capital markets hate direct listings, because they mean they get much lower fees. And so they start spreading misinformation. So let’s go through some of the assertions.

Amazon’s epic 20-year run as a public company, explained in five charts – Recode, May 15, 2017 Soaring revenue and cash flow, plus intentionally tiny profits

5 Media Stocks Worth Tuning In For – Morningstar, May 16, 2017 |What’s ailing these companies? Though many issues are company-specific, there are also general concerns contributing to media stocks’ malaise. Subscription revenue is one. In addition, advertising revenue continues to be an issue among many media players.

How the iPhone triumphed in business – Financial Times, May 17, 2017 Apple’s ubiquitous smartphone outdid rivals but can it hold out for another decade?

An ‘asset class du jour’ is emerging out of the retail apocalypse – Business Insider, May 17, 2017 | Industrial real estate is emerging as a winner out of the crisis in brick-and-mortar retail

Spotify revenues rise but losses widen – BBC, May 24, 2017 | Spotify saw revenues reach €1.95bn ($2.2bn; £1.5bn) over the past year, but the Swedish music streaming platform has still not made a profit.

Stock Buybacks: What corporations are not telling you Arne Alsin, Founder, Worm Capital – Worm Capital, May 8, 2017 Trillions of dollars of shareholder wealth have been spent on nonproductive buybacks since rules were liberalized in 1982—and much of it has bHen wasted. Just since 2010, over $3 trillion of shareholder cash has been withdrawn from corporate accounts and sent to the stock market for buybacks, generating zero tangible benefit for shareholders. We will establish in this report that stock buybacks are wildly excessive, and that investors are being harmed. Among those harmed include index fund investors, pensions, retirees, and unsophisticated investors. Among those that benefit from buybacks include corporate insiders—primarily executives and boards of directors.

An Industry in Disruption, AUTOS. Notes from a Capital Junkie. Tit-for-Tat Analysis – CSInvesting, May 19, 2017 An electric vehicle has drastically fewer moving parts than an internal combustion vehicle and is, by design, far more modular, meaning that barriers to new entrants are significantly lower.

Cognitive Bias Survival Guide Manage the Mind to Make Better Decisions – GeekWrapped, 2017 | You know the feeling: Every day you get flooded with new ideas and information. You barely have enough time to process it all. Sure, you’re a smart and rational person that puts a lot of thought into the decisions you make. But the brain still takes decision-making shortcuts all the time. It especially happens when you need to act quickly, there is too much information, or limited memory. Here’s the deal: Research suggests that there are a number of intellectual stumbling blocks which can get you entangled in wrong judgment without you even noticing. They are called Cognitive Biases. The result is errors and irrational decisions that can hold you back. To help all of us escape this mental quicksand we’ve put together this real-world Cognitive Bias Survival Guide. It’s designed to reduce wrong conclusions and bad choices, plus protect you from charlatans trying to exploit ignorance. Think of it as anti-virus software for the brain!

In Swedish

Magnus Dagel: Tre aktier som sticker ut på börsen – Di, 17 maj 2017 | Från börsens alla balansräkningar har vi plockat ut tre som är intressanta på olika sätt. En vars nettokassa gradvis har sjunkit, en som har stärkt balansräkningen rejält det senaste året och en där kapitalet går runt i ett kretslopp.

Magnus Dagel: Allt ljus på balansräkningen – Di, 16 maj 2017 | Har du undrat över vilka bolag som har börsens starkaste balansräkningar, vilka som är högst skuldsatta och vilka som har mest goodwill? Di har lämnat vinsterna ett tag och i stället gått igenom börsbolagens balansräkningar på längden och tvären.

“Därför tvingas Izettle samarbeta med Swish” – Di, 18 maj 2017 | Izettle var länge förknippat med sin lilla dosa för kortbetalningar. Avtalet med Swish visar att man klippt navelsträngen – och byter kortavgifter mot ambitionen att växa som ett bolag för digitala kassaregister, skriver Di Digitals Jonas Leijonhufvud.

#WeeklyInvestorReader | wk. 19

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

Omnicom Group Inc. (NYSE:OMC) $OMC – Singular Diligence, 2016 | Omnicom Group Inc. (NYSE:OMC) is one of the world’s largest “marketing services” companies. It is a publicly traded holding company that owns many different agencies. Omnicom breaks its revenue down into four categories: advertising (50% of revenue), customer relationship management (34%), public relations (9%), and specialty communications (7%).

The Local News Business Model – Stratechery, May 9, 2017 | It’s hardly controversial to note that the traditional business model for most publishers, particularly newspapers, is obsolete. Absent the geographic monopolies formerly imposed by owning distribution, newspapers have nothing to offer advertisers: the sort of advertising that was formerly done in newspapers, both classified and display, is better done online. And, contra this rather fanciful suggestion by New York Times media columnist Jim Rutenberg that advertisers prop up newspapers for the good of democracy, nothing is going to change that.

Investment Insights from Jim Chanos of Kynikos Associates – C4K Investor Series, March 1, 2017 | We had the rare opportunity to sit down with the world-renowned, President and Founder of Kynikos Associates, Jim Chanos. Read our full interview with him in the latest edition of the Capitalize for Kids Investor Series.

The Michael Milken Project – Institutional Investor, May 1, 2017 | How did a 70-year-old ex-con barred for life from Wall Street become one of its most respected men?

How Pixar’s Billions Mock Fear of IP, Theft, Robots, and Recessions – Real Clear Markets, May 11, 2017 | Many readers are familiar with Pixar Animation’s endless streak of #1, globally popular computer-animated films.  They include Toy Story, Toy Story 2, Monster’s Inc., The Incredibles, Inside Out, and many, many more.

How to Judge a Business’s Durability – Geoff Gannon, June 13, 2015 | Of course, for millions of years, people couldn’t look it up. They couldn’t read and they hadn’t invented writing yet, so there was nothing to look up.

The Big Difference Between “Moat” and “Durability” – Geoff Gannon, March 2, 2017 | Durability is about the product and the product economics of the industry. Moat is the ability of the specific company to sell more of the product and have better product economics than competitors.

Why Facebook Keeps Beating Every Rival: It’s the Network, of Course – The New York Times, April 19, 2017 | The tech world just witnessed a robbery. The heist was so brazen you kind of had to admire it, even if it was pulled off with all the grace of a gas station stickup.

What in the World Is Causing the Retail Meltdown of 2017? – The Atlantic, April 10, 2017 | The number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, according to Cowen and Company’s research analysts. By one measure of consumerist plentitude—shopping center “gross leasable area”—the U.S. has 40 percent more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany. So it’s no surprise that the Great Recession provided such a devastating blow: Mall visits declined 50 percent between 2010 and 2013, according to the real-estate research firm Cushman and Wakefield, and they’ve kept falling every year since.

In Swedish

H&M måste möta marknadens krav – Di, 9 maj 2017 | Det faktum att H&M:s aktie har tappat 40 procent av sitt värde de senaste två åren är ett ofantligt misstroendevotum från investerarna. Samtidigt köper storägaren Stefan Persson aktier. Det innebär rimligtvis att det finns ett informationsglapp mellan storägaren och resten av marknaden, som inte förstår hur värderingen ska kunna försvaras.

H&M:s tystnad upprör ägarna – Di, 9 maj 2017 | Klädjätten H&M är sämst bland börsens storbolag på investerarrelationer, tycker många stora fonder och institutioner. ”Vi tror att en ökad informationsgivning gagnar både bolaget och dess aktieägare”, säger Ramsay Brufer, ägaransvarig på Alecta.

#WeeklyInvestorReader | wk. 4

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

You can look it up – Seth Godin, January 21, 2017 | Of course, for millions of years, people couldn’t look it up. They couldn’t read and they hadn’t invented writing yet, so there was nothing to look up.

The end of active investing? – Financial Times, January 20, 2017 | Technology and low returns have delivered a killer blow to a once-dominant industry.

Buy. Squeeze. Repeat. – Fortune, January , 2017 | The Brazilian investors who control Kraft Heinz are applying their proven formula to construct a new global food colossus. What will they buy next?

Valuation and investment analysis – Bronte Capital, January 3, 2017 | I just had a chat with someone who wondered why I did not have a valuation for everything in my portfolio – a buy and a sell price. My reaction: such (false) precision was silly and ultimately counter-productive.

When do you average down? – Bronte Capital, January 4, 2017 | A decent stock note is 15 pages on the business, one page on the management, one paragraph or even one sentence on valuation. Valuation might normally be a set of questions along the lines of “what do I need to believe” to get/not get my money back. But I would prefer a simple modification to this process. This is a modification we have not done well at Bronte (at least formally) and we should do better. And that is the question of averaging down.

My Interview with Edward Thorp, from Tim Melvin – Daily Speculations, January 19, 2017 | Edward Thorp is one of the most well known figures on Wall Street. Throughout his venerable career he’s spent time as a mathematics professor, hedge fund manager, blackjack player, and author. “The father of the wearable computer,” recently released his sixth book, “A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.” Marketfy’s Tim Melvin recently caught up with the Wall Street legend to discuss his career and outlook on investing. Below is their conversation, slightly edited for length and clarity.

Big-Bank Executives Have Sold $100 Million in Shares Since Election – Wall Street Journal, January 24, 2017 | The sales, coming as financial stocks soared, are more than in that same period in any year over the past decade.

Tax Reform Top of Mind for Wide-Moat U.S. Industrial Firms – Morningstar, January 23, 2017 | While management teams enthusiastically highlighted corporate tax reform, capital mobility, and infrastructure spending as potential near-term earnings tailwinds, all stopped short of explicitly incorporating these favorable outcomes into 2017 expectations. We agree that it’s too early to include Trump’s America in the base-case assumptions that fuel our discounted cash flow analyses. However, if President Donald Trump’s target corporate tax rates and modest top-line growth materialize, our bull-case scenarios look realistic.

Does Dow 20,000 Mean Stocks Are Overvalued? – Morningstar, January 25, 2017 | With the Dow crossing the hurdle of 20,000 this morning, many investors are wondering if this is a sign that the bull market is nearing its end or if stocks have become significantly overvalued. In short, Morningstar’s stock analysts see stocks, as a whole, trading at only slightly above their fair value estimate and that there are some values out there, even among Dow components. However, this is not to say that a correction or even a bear market is not in the cards. Current market valuations don’t tell us very much about where stocks are going in the near term; the market can stay overvalued for a long time, could become deeply undervalued or could bounce along at current levels. This unpredictability is one the reasons that trying to time the market around major news events, index milestones. and broad valuations is exceedingly difficult.

Renowned value investor Francis Chou is willing to wait on a bargain – Canadian Business, January 26, 2017 | He’s regarded as one of the savviest value investors in the world. The market is overpriced right now, he says, but it will come down—it always does.

Inside Pandora’s Quest to Take on Spotify, Apple Music & Amazon – Billboard, January 19, 2017 | As the lights of the strip ­glimmer below, Pandora co-founder/CEO Tim Westergren stands before two dozen advertising executives in a 61st floor suite in the Cosmopolitan of Las Vegas. It’s the first day of 2017’s Consumer Electronics Show (CES), and he’s pitching Pandora’s new direction. “In my opinion, the other music subscription products out there are unsatisfying,” he says, referring to the on-demand streaming services the new Pandora Premium will begin competing with later in 2017. “They give you millions of songs, a search box and ‘good f—ing luck.'”

Cash Cows Of The Dow – Meb Faber, January 14, 2017 | Long time readers know that I have been a shareholder yield advocate on the blog for almost a decade.  (We used to call it net payout yield back then, and we define it as the combination of dividends and net buyacks.) People are slow to change of course, but my hopes are that eventually you all come around to a little common sense.  Sometimes books and white papers are too much, and all that is needed is a simple chart or table that will change people’s minds. Remember the old Dogs of the Dow strategy where you just invest in the 10 highest yielding Dow stocks each year?  This strategy was popularized by O’Higgins, and historically beat the market.  But as you all know, a shareholder yield approach does even better historically.

How Well Does Running Vanguard Pay? – Bloomberg Businessweek, January 19, 2017 | The index fund pioneer is an important shareholder voice on executive pay, but its own compensation practices are kept private.

In German

Mit diesen Problemen kämpft H&M – Stern, December 13, 2016 | H&M hat eine ganze Generation mit günstiger Mode versorgt. Doch das schwedische Modehaus hat Probleme, denn die jungen Kunden kaufen bei der Konkurrenz – oder gleich im Netz. H&M braucht dringend neue Ideen.

H&M fehlt das Konzept für neue Gegner – Wirtschafts Woche, November 16, 2016 | Die Krise bei H&M ist symptomatisch für die Branche: zu viele Filialen, zu wenig Umsatz, kein Konzept gegen neue Angreifer. Eine Änderung der Strategie der einstigen Vorzeigekette ist nicht in Sicht.

In Swedish

“För oss har pengarna inte varit problemet” – Di,24 januari 2017 | Den som investerade 10.000 kronor i investmentbolaget Latour vid starten 1985 har sett kapitalet växa till 8 miljoner kronor. Di har besökt vd Jan Svensson och familjen Douglas börsnoterade överavkastningsfabrik i ett industriområde i södra Göteborg.

Historien om en bank som nästan gick omkull – Aktiefokus, 26 januari 2017 | Denna historia börjar 2002 med en bank. Det skulle egentligen kunna vara vilken bank som helst men det är en verklig nordisk bank som jag har valt för att illustrera några poänger för hur grov lönsamhet snabbt kan vända till att banken behöver räddas genom tillförsel av nytt eget kapital.

H&M- Sveriges största value trap? – Fundamentalanalysbloggen, 25 januari 2017 | Den som köpte H&M på toppen för två år sedan har idag bara 65 % kvar av sina pengar. Detta beror inte på något missförstånd på marknaden pga negativa skriverier, utan på verkligheten. En verklighet som borde ha sänkt aktien än mer vore det inte för att marknaden, inte minst när det gäller en gammal nationalklenod, är sen att agera när det börjar gå dåligt. Det känns också som om ingen riktigt vill skriva ner H&M i Sverige. Man får inte låta sig luras att tro att en fallande aktiekurs tyder på “rea på aktien”. Det beror oftast på att företaget har problem och i H&M:s fall väljer man istället för att lösa problemen att måla över rötan med expansion. Med andra ord mer av det gamla, det jättelika butiksnätet, som idag är ett problem. Lite som att kurera bakfylla med Bloody Mary.

H&M i marknaden – Lundaluppen, 22 januari 2017 | Sedan H&M släppte sina försäljningssiffror för december har dödsrunorna duggat tätt och att H&M är en besvikelse på aktiemarknaden de senaste åren är ett faktum. Jag tänkte titta lite mer på bolagets strategi, dess position i branschen och på klädmarknaden som helhet. Det är en marknad i förändring där den stora förflyttningen just nu går från fysisk butik till onlineförsäljning. Utöver denna mångåriga trend finns den vanliga utmaningen i modebranschen med skiftande moden och ständiga heta nykomlingar. I vissa fall förstärker dessa trender också varandra, men mer om det senare. I detta inlägg vill jag titta på bolaget H&M, inte så mycket på aktien H&M.

#WeeklyInvestorReader | wk. 2-3

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

To survive in an increasingly unpredictable world, we need to train our brains to embrace uncertainty – Quartz, January 9, 2017 | We don’t like experts to express uncertainty. Imagine a politician running for president who promises “I’ll try to make good decisions most of the time. Our policies will probably improve the economy.” Would you vote for them? Probably not. We also want doctors devoid of any doubt over treatments and scientists with perfect foresight about climate change variables. That’s because we believe that leaders and authorities are supposed to know and tell us exactly what’s going to happen, thereby absorbing our uncertainty. But life is rife with risks. Misperceiving and underestimating these risks can lead to vital mistakes. Therefore, to make well-informed decisions, we need to become comfortable with uncertainty.

Inside Sears’ death spiral: How a billionaire who was ‘the next Warren Buffet’ drove an iconic American brand to the brink of bankruptcy – Business Insider, January 8, 2017 | Lampert, a former Wall Street prodigy, took control of Sears more than a decade ago and became its CEO in 2013. But he’s rarely seen in the office, typically visiting about once a year for the shareholder meeting and projecting into videoconference rooms at Sears’ Hoffman Estates, Illinois headquarters the rest of the time, according to interviews with employees. He prefers to stay on Indian Creek Island off the coast of Miami, behind a desk dressed up with the Sears logo. The island has been dubbed the “billionaire bunker,” partly because of a private police force that protects the island’s 86 residents.

Lessons from the Strategy Crisis at Netflix – strategy+business, September 6, 2016 | Netflix would seem to be on a roll. The world’s largest online entertainment distribution business has seen its streaming revenues grow from US$1.2 billion in 2007 to $6.8 billion today.

How to Analyze a Company – Science of Hitting, January 10, 2017 | A fellow GuruFocus reader recently sent me an email with the following question: “Which books would you recommend if I want to start investing in individual companies?”

Poker Is the Latest Game to Fold Against Artificial Intelligence – Technology Review, January 11, 2017 | Two research groups have developed poker-playing AI programs that show how computers can out-hustle the best humans.

SoundCloud Vows Growth In 2017, But Time Is Running Out – Fast Company, January 6, 2017 | At a crossroads, the company is desperate to turn its massive music platform into a real business.

Why I don’t use watch lists – Oddball Stocks, January, 2017 | I remember as a kid sitting in a chair near our kitchen with my grandfather two chairs away.  I was leafing through a toy catalog.  The catalog’s pages were worn and I knew the items and their prices by heart.  Suddenly my grandfather looked at me and said “What are you doing?  Looking at all the things you can’t buy but wish you could?”  I was stung by the criticism, but he was right.  I had almost no ability to purchase any of the items.  I was just envying items I couldn’t have.  As I reflected on this story recently it reminded me of why I don’t keep a stock watch list or research stocks that I wish I can buy someday.

No More Moats in Self-Storage Stocks – Morningstar, January 13, 2017 | After taking a deeper dive into the self-storage industry, focusing on how the efficient scale moat source applies to competitive dynamics, we have downgraded  Public Storage’s (PSA) economic moat rating to none from narrow. Peer  Extra Space Storage (EXR) already has a no-moat rating. The main reasons for Public Storage’s rating change were (1) moaty qualities related to intangible assets were identified in only 25% of the portfolio, while switching costs were determined to be too small to retain tenants; (2) new supply can easily challenge the company’s presence in less densely populated areas; and (3) occupancy is decreasing as competition pressures market share. Our fair value estimates stand at $229 per share for Public Storage and $85 per share for Extra Space.

Three ‘Uninvestable’ Industries for 2017 – Scott Fearon, January 13, 2017 | Today, three industries (and others I have yet to identify) are facing severe disruptions.

How to Read a 10-K Annual Report Efficiently – Rational Walk, January 8, 2017 | Effective techniques for reading books have been well documented for years but the same isn’t really true for S.E.C. filings.  S.E.C. filings are legal documents that a company is required to file on a periodic basis and the consequences for making mistakes can be significant.  Depending on the nature of the company, risks and disclaimers of a legal nature can vary in length.  Nearly all companies include information that is, in some regards, repetitive or unenlightening due to the need for legal cover.  While all information in a filing should be read prior to making an actual investment decision, trying to read filings sequentially on a page-by-page basis when just getting to know a company is not the best approach.

Importance of Knowing Your Investment Boundaries (Sears Mini-Case Study) – Base Hit Investing, January 12, 2017 | A week ago I read an article in Business Insider that referenced a Q&A from 2005 where Buffett was talking to a group of students from the University of Kansas and he was asked about the chances of success of the Sears/Kmart merger (which had just recently occurred at that time).

Lifelong learning is becoming an economic imperative – The Economist, January 14, 2017 | Technological change demands stronger and more continuous connections between education and employment, says Andrew Palmer. The faint outlines of such a system are now emerging.

Amazon is Eating the Retail World – Ben Carlson, January 18, 2017 | Amazon is the first place I look to price check just about anything I buy these days.

Amazon Stock’s Exceptional Price History Meets Value Investing – The Conservative Income Investor, January 14, 2017 | Revenues have grown from $10 billion to $134 billion in the past twelve years. The market cap has increased from $10 billion to something approaching $400 billion. And yet, Amazon’s profits are below $3 billion. That is 133x earnings for one of the ten largest corporations in the United States. History shows you tend to get into trouble when you pay much more than 25x earnings for even an excellent, fast-growing company.

How streaming saved the music industry – Financial Times, January 16, 2017 | Spotify and Apple are making money for the big labels but technology is likely to change the equation again.

Economics is messy – Seth Godin, January 17, 2017 | We still teach a lot of myths in the intro to economics course, myths that spill over to conventional wisdom.

The 10 Cheapest Stocks in the Wide Moat Focus Index – Morningstar, January 19, 2017 | In December, the Morningstar Wide Moat Focus Index swapped out 11 stock positions.

Netflix Stock Still Has A Profit Problem – The Conservative Income Investor, January 19, 2017 | When you see the price of Netflix stock climb to $143 per share in after-hours trading, the $60 billion valuation for the streaming giant at first sounds reasonable. But the reality is more complicated than that. Netflix is distinguishable from firms like Pepsi, Colgate, or Johnson & Johnson because its fixed costs are enormous. It has to pay obscene-sounding licensing fees to have access to the content it streams to its consumers. And, the more appealing the content, the higher the fees.

Netflix Ends 2016 on High Note; Margin Improvement Expected to Be Steady, Not a Hockey Stick – Morningstar, January 19, 2017 | Netflix ended 2016 on a high note with stronger international subscriber growth (5.12 million net adds, versus guidance of 3.75 million) and U.S. growth (1.93 million net adds, versus guidance of 1.45 million). Despite the impressive fourth quarter and better-than-expected guidance for next quarter, the most important information from the conference call may have been management’s admission that the operating margin will improve modestly on a yearly basis, as opposed to a “hockey stick manner.” Our long-term model for the company still projects that the operating margin for the international segment will improve slowly but will remain well below that of the U.S. segment over the next five years. We retain our narrow moat rating and are modestly increasing our fair value estimate to $73 from $69 to account for the time value of money from rolling our model forward and an additional year of margin expansion for the international segment. With shares trading well above our new fair value estimate, we advise investors to steer clear of this very high uncertainty company.

“Leaked Documents From Startup Maple Show the Brutal Economics of Food Delivery” – Climateer Invest, January 8, 2017 | On average, the restaurant-in-an-app lost money on each meal in 2015.

A Century of Opinions: Companies with auditor tenure over 100 years – XXX, January 20, 2017 | There are 13 companies that have engaged the same auditor for at least a century. The Big Four auditors account for all of these engagements.

BOOK REVIEW: “THE ART OF THE DEAL” – DONALD J. TRUMP (WITH TONY SCHWARTZ) – Value and Opportunity, January 20, 2017 | As with stock analysis, I am a big fan of “Primary resources” and so I decided that I should at least read one book co-authored by “his Trumpness” himself. There are many Donald Trump books out there but the first one from 1987 is “the Art of the deal”. I thought that maybe the first one is also the most authentic one.

It’s Time to Shake Up the Legal Industry – Craig Shapiro, January 6, 2017 | Close your eyes and picture the dream industry waiting to be disrupted. What’s it look like? Probably: It’s massively important to the functioning of society but doesn’t work for most people. It’s dominated by old incumbents that enjoy huge profit margins. Those incumbents don’t have much, if any, consumer brand recognition. But this isn’t a dream. This is the law industry, and it desperately needs to be shaken up.

Retailing In America: Brick & Torture – Danielle DiMartino, January 18, 2017 | Outright bankruptcies, nonetheless, are not where the pain is most acute. That preserve is on reserve for a different kind of demise, an appreciably slower descent into irrelevance. At first, the disruptive power of E-Commerce appeared to apply only to things that could be read or viewed on a screen. More recently, though, any product that’s quantifiable at any level is fair game whether it be Jimmy Choo’s, a trip to Katmandu or Vintage Scooby Doo. Hence the frantic game of catch-up so many retailers are playing to raise their online visibility. The problem is catch-up can be costly. Just ask any retailer closing stores, one not-quite-lethal cut at a time, and they’ll set you straight.

Mohnish Pabrai’s Approach To Beating The Market – Forbes, January 16, 2017 | Since inception, Mohnish Pabrai has beat the stock market by triple digit returns. What was the key to his success?

Are H&M store sales cannibalising online growth? – Just-Style, May 16, 2016 | Swedish retailer Hennes & Mauritz (H&M) risks cannibalising store sales through the growth of its e-commerce business, analysts believe, adding that this could be detrimental to margins.

Cassandra’s Song – John P. Hussman, January 16, 2017 | While valuations are extremely informative about full-cycle returns and potential risks, returns over shorter segments of the market cycle are primarily driven by the inclination of investors toward risk-seeking or risk-aversion, which is best inferred from market action. The challenge in the recent half-cycle had to do with Fed-induced yield-seeking, which disrupted the historical tendency for deteriorating internals to accompany or quickly follow extreme “overvalued, overbought, overbullish” syndromes as they had in other cycles across history. In the face of zero interest rates, one had to wait for market internals to deteriorate explicitly before taking a hard-negative outlook.

Harnessing automation for a future that works – McKinsey Global Institute, January 17, 2017 | Automation is happening, and it will bring substantial benefits to businesses and economies worldwide, but it won’t arrive overnight. A new McKinsey Global Institute report finds realizing automation’s full potential requires people and technology to work hand in hand.

BlackRock Continues to Impress – Morningstar, January 20, 2017 | We continue to be impressed by  BlackRock’s (BLK) ability to generate solid organic growth, especially considering the size of its operations. With $5.148 trillion in total assets under management at the end of 2016, BlackRock is the largest asset manager in the world. Unlike many of its peers, BlackRock is generating organic growth in its operations with its iShares platform, which is the leading domestic and global provider of exchange-traded funds, riding a secular trend toward passively managed products that began more than two decades ago. We recently increased our fair value estimate to $410 per share from $385 to reflect changes in our assumptions about AUM, revenue, and profitability since our last update.

Think savvy business owners make savvy public investors? Not necessarily – The Globe & Mail, January 19, 2017 | Having talked to dozens of successful private business owners in this country over the years, I have found they generally display a few consistent cognitive characteristics when talking about the operation of their business. Yet, when they invest in the stock market, it is almost as if they have completely lost their senses. As owners they are rational, logical and business-like; as investors they are ruled by emotion and irrationality. So while they have succeeded as private owners, many have failed as public investors. My conclusion after being in the investment business for so long: Public and private owners are not just different; they are opposites. Armed with this foreknowledge, I believe there is opportunity. Let me explain further.

THERE’S A MASSIVE RESTAURANT INDUSTRY BUBBLE, AND IT’S ABOUT TO BURST – Thrillist, December 30, 2016 | Semmelhack is not the only restaurateur looking to duck and cover. The American restaurant business is a bubble, and that bubble is bursting.

Articles in Swedish

Catena Media en tillväxtmaskin – Swedbank, January 17, 2017 | Catena media är ett snabbväxande företag med globala tillväxtambitioner inom en ganska okänd, men betydelsefull nisch av spelsektorn. Swedbank anser att vinsten per aktie kan öka med 150 procent fram till 2019 och tar upp aktien till bevakning med rekommendationen Starkt Köp.

Larmet: Tiotusentals jobb på väg bort – Dagens Industri, 20 januari 2017 | Nästan 42.000 svenska butiksjobb riskerar att försvinna inom mindre än tio år. Den dystra profetian kommer från Svensk Handel, som också varnar för lägre lönsamhet och färre aktörer. ”Tre handelsföretag om dagen går i konkurs”, säger vd:n Karin Johansson.

Uppgifter: Analytiker tvingas ge positiva omdömen – Dagens Industri, 20 januari 2017 | En ny intressekonflikt inom finansbranschen har kommit i fokus i spåren av de krympande courtageintäkterna: att analytiker känner sig tvingade att ge positiva aktierekommendationer för få tillgång till bolagens högsta beslutsfattare, för egen eller för sina kunders del.

Axelssons i konkurs – Dagens Industri, 16 januari 2017 |Modevaruhuset Axelssons har gått i konkurs, rapporterar Katrineholms-Kuriren.

Arctic Securities sänker Fingerprint – Affärsvärlden, 10 januari 2017 | Fingerprint Cards besked till marknaden om sänkt intäktsprognos 2016 vid kapitalmarknadsdagen var nedslående, men risk föreligger för att även prognosen för 2017 kan behöva sänkas.

#WeeklyInvestorReader | wk. 1

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

The 5 Operating Principles Behind Berkshire Hathaway’s Uniquely Profitable Reinsurance Business – The Motley Fool, January 8, 2017 | In his 2015 letter, Warren Buffett warned Berkshire Hathaway shareholders that prospects for the reinsurance industry had dimmed. However, as this week’s $1.5 billion deal with The Hartford illustrates, five operating principles will enable Berkshire’s reinsurance activity to beat competitors and remain comfortably profitable.

Amazon 2004 Shareholder Letter – Jim Bezos, April 2005 | Jeff Bezos discusses the concept of free cash flow.

Sweden’s new business king takes the long-term view – Financial Times, January 5, 2017 | Fredrik Lundberg is seeking to move Industrivarden on from a business jet scandal.

Week in Review – Financial Times, January 6, 2017 | Christmas blues for retailers, Apple’s App boost, Airbnb, Alibaba and Moutai.

How Amazon innovates in ways that Google and Apple can’t – Vox, December 28, 2016 | In short, Amazon has shown a remarkable ability to succeed in a wide variety of different product categories. That’s a contrast to most other high-profile tech companies that are really good in one area — Google’s dominant online services or Apple’s extraordinarily profitable hardware — but struggle when the quest for growth pushes them outside their zone of core competency.

Hennes & Mauritz: Where Did My Operating Margin Go? – Larsson Group, September 16, 2016 | An investment analysis of H&M.

The TSC Streetside Chat: Robert Wilson – The Street, April 16, 2000 | Despite being wrong about the popularity of gambling in Atlantic City, Wilson made a mint. Today, he tells us how.

Alexa: Amazon’s Operating System – Stratechery, January 4, 2017 | The concept of an operating system is pretty straightforward: it is a piece of software that manages a computer, making said computer’s hardware resources accessible to software through a consistent set of interfaces.

Alphabet, Citigroup, and Other Secret Value Stocks – Barron’s, January 3, 2017 | The Oakmark fund’s Bill Nygren, who beat the market handily in 2016, shares some of his favorite picks.

Disney’s Not Just a Mickey Mouse Investment – Morningstar, January 4, 2017 | Disney’s economic moat is wide. Its media networks segment and collection of Disney-branded businesses have demonstrated strong pricing power in the past few years.

#WeeklyInvestorReader | wk. 52

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

How Can I Hurt You? – MicroCapClub, December 27, 2016 | If a competitor had unlimited resources, how quickly could they duplicate the company’s competitive advantage? This is a simple question that I ask myself and management when I try to measure the moat of a microcap company. Microcap companies are small companies and often times vulnerable to larger competitors with more resources. Paraphrased, even further, How Can I Hurt You?, is very powerful.

The Competitive Advantage of Disney – The Conservative Income Investor, December 27, 2016 | In 2012, Disney made an acquisition of LucasFilms for “only” $4 billion. Because the Star Wars franchise has now generated $2 billion in profit in the four years since making the acquisition, many casual commenters are observing that Disney got a steal of a deal.

Alexa, What Should Investors Know About Amazon? – Morningstar, December 28, 2016 | On Dec. 27, Amazon noted that sales of its Alexa-enabled Echo devices increased more than 9 times over last year’s holiday sales, which could imply 4 million-5 million Alexa units sold to date, based on third-party estimates.

The Conjunction Fallacy Explains Why People Believe Fake News – Slate, December 19, 2016 | This fallacy warns that stories with more facts sound more believable, even though they’re actually less probable.

A Half-Dozen Ways to Look at the Unit Economics of a Business – Tren Griffin, December 31, 2016 | Amazon and Netflix are examples of the same value creation phenomenon as are many businesses that John Malone has created over the years. This post will try to help people understand why this is true.

Donald Trump’s market-moving tweets are a huge scandal waiting to happen – Los Angeles Times, December 23, 2016 | An undercurrent of amusement has been detectable in some of the news coverage of Donald Trump’s recent market-moving tweets, as though it serves big companies right to have a few billions stripped off their market values because the president-elect is holding them to account.

The Chevy Bolt Is the Ugly Car of the (Very Near) Future – Bloomberg, December 19, 2016 | With brilliant financial engineering, GM beats Tesla to the punch.

Surging Buybacks Say Stock Boom Isn’t Over – Wall Street Journal, December 26, 2016 | Stock repurchases have spiked in December on expectations of tax cuts, which could put more money in corporate coffers

Glenn Greenberg: the world’s greatest investors – MoneyWeek, December 23, 2016 | Glenn Greenberg was born in New York in 1947, the son of baseball player Hank Greenberg. After studying English at Yale and New York University, he set up Chieftain Capital Management with John Shapiro in 1984. In 2009 they split and he founded Brave Warrior Advisors, which manages nearly $3bn worth of assets.

HOW PHIL KNIGHT BUILT NIKE INTO A $100 BILLION GLOBAL EMPIRE – Maxim, September 29, 2016 | Find out Nike’s high-flying founder became the Sultan of Swoosh.

Are You Solving the Right Problems? – Harvard Business Review, September 29, 2016 | How good is your company at problem solving? Probably quite good, if your managers are like those at the companies I’ve studied. What they struggle with, it turns out, is not solving problems but figuring out what the problems are.

Biggest Billionaire Gainer Of 2016: Warren Buffett’s Fortune Surges More Than Anyone Else In America – Forbes, December 27, 2016 | Shares of Warren Buffett’s firm Berkshire Hathaway soared 20% in 2016, helping to boost Buffett’s personal fortune by $12.3 billion – more than any other billionaire in the United States. The Oracle of Omaha is now worth $74.2 billion, enough to make him the 2nd-richest person in the world (behind only Bill Gates, who is worth $84 billion), according to FORBES’ calculations.

Not Everyone Wants to Shop on Amazon – Wall Street Journal, December 29, 2016 | Roughly 22 million U.S. households didn’t use the retailer this year.

Make the Risk Premium Small Again – Antonio Fatas on the Global Economy, December 29, 2016 | In one my previous posts I looked at the stock market valuations in the US to conclude that they were in line with recent historical data. In fact the stock market looked cheap relative to most years since the mid 1980s. But that was before the US election! Since the election the stock market has gone up and interest rates have gone up as well. How do stock market valuations look like today?

Are mergers good or bad for the economy? – CBS Money Watch, December 29, 2016 | This year sure was a busy one for mergers and acquisitions. In October alone, nearly $490 billion of deals were announced, including AT&T’s (T) purchase of Time Warner (TWX) for $85.4 billion. While that massive telecom-media combination got plenty of headlines, most people pay little attention to mergers between firms, or the acquisition of one firm by another.

The key takeaway from Bill Gates and Warren Buffett’s all-time favorite book – CNBC, December 24, 2016 | “There’s an essential human factor in every business endeavor. It doesn’t matter if you have a perfect product, production plan and marketing pitch; you’ll still need the right people to lead and implement those plans.”

Five industries under threat from technology – Financial Times, December 26, 2016 | Travel agents, manufacturers, insurers, advisers and car repair garages face strain.

Don’t Get Trumped in 2017 – Pragmatic Capitalism, December 26, 2016 | Anyhow, the big trend this year was clear – 2017 will be all about Trump. And as we’ve seen in the media in recent weeks, Trump is perceived as very bullish for the stock market. In fact, a few people even admitted that they’d sold all their bonds and loaded the boat with stocks following the election.

Article in Swedish

Jan Jörnmark: Subventioner orsaken till dysfunktionell bomarknad – Dagens Industri, December 26, 2016 | DEBATT DEL ETT. Under mellandagarna kommer Jan Jörnmark att skriva om bostadspolitiken och dess problem. Ursprunget till dagens situation finns i hyresregleringen från 1942, som också innefattade en kontroll av priserna på bostadsrätter och statligt belånade villor, skriver han i den första delen.

Jan Jörnmark: Sverige har ingen bostadsbubbla – Dagens Industri, December 27, 2016 | DEBATT DEL TVÅ. I del två i serien om den svenska bostadsmarknaden behandlas utvecklingen i storstäderna. Allvarligast är att det som egentligen är en massiv förändring av relativa priser på olika bostäder har kommit att tolkas som en bubbla, skriver Jan Jörnmark.

Jan Jörnmark: Bygglagen uppmuntrar inte bostadsproduktion – Dagens Industri, December 28, 2016 | DEBATT DEL TRE. I den tredje delen i serien om bostadsmarknaden har turen kommit till lagarna som reglerar bostadsproduktion. Följden av dem blir en fortsatt stadsutspridning, med de negativa miljömässiga och mänskliga konsekvenser som det har, skriver Jan Jörnmark.

Jan Jörnmark: Nya lagar vägen framåt för bostadsmarknaden – Dagens Industri, December 29, 2016 | DEBATT DEL FYRA. Den avslutande delen i artikelserien om den svenska bostadsmarknaden handlar om framtiden. Först måste vi erkänna att ”bostadsbristen” är ett efterfrågeöverskott på en viss typ av mycket lågt prissatta centrala lägenheter, skriver Jan Jörnmark.

 

#WeeklyInvestorReader | wk. 51

Note to readers: #WeeklyInvestorReader contains a few of the articles I read during the week. Visit my Twitter @HurriCap for any other articles that may not have been included. 

Move Over Small Dogs Of The Dow, Here Come The Uber Cannibals – Forbes, December 22, 2016 | About cash-rich, undervalued businesses that are consistently buying back shares, thereby generating tremendous value for shareholders.

What’s So Significant About Significance? – Farnam Street, August 11, 2016 | The phrase “statistically significant” is one of the more unfortunately misleading ones of our time. The word significant in the statistical sense — meaning distinguishable from random chance — does not carry the same meaning in common parlance, in which we mean distinguishable from something that does not matterWe’ll get to what that means.

Sweden Heads The Best Countries For Business For 2017 – Fortune, December 21, 2016 | One country headed in the opposite direction is Sweden, which moves up four spots to the top of the charts for the first time (Sweden ranked No. 17 in 2006). Over the past two decades the country has undergone a transformation built on deregulation and budget self-restraint with cuts to Sweden’s welfare state.

Your social media addiction is giving you depression – New York Post, December 22, 2016 | The study found that people who use anywhere from seven to 10 social-media platforms are three times more likely to be depressed or anxious, compared to those using no more than two. Those who reported such symptoms were overwhelmed by the multitasking needed to manage their profiles — and the more profiles they had, the more the pressure added up. Though it’s on the high end, maintaining seven social-media profiles is possible with the bevy of options available to users today.

What I learned about Exxon CEO Rex Tillerson after spending a week on jury duty with him – Dallas News, December 23, 2016 | One of our first tasks was to choose our jury foreman. Perhaps it was his business suit, his impressive stature, or his charisma, but almost everyone in that jury room suggested that this middle-aged man with graying hair was likely the most fit for the task. Thanks, but I decline. I’m not interested in the spotlight, he told us. I didn’t think anything of it.

Nike Stock Increasingly Becomes A Long-Term Buy – The Conservative Income Investor, December 19, 2016 | Rather than fixate on price, I recommend that investors actually look at what the business itself is doing. In the case of Nike, it is doing what it nearly always does. And that is, deliver double-digit annual per share earnings growth to shareholders. It made $1.85 per share in profits last year. It is going to make around $2.15 per share in profits this year. That is annual earnings per share growth of 16%.

A new industry has sprung up selling “indoor-location” services to retailers – The Economist, December 24, 2016 | There is money to be made in tracking shoppers’ paths inside stores.

The Pot-Belly of Ignorance – Farnam Street, October 4, 2016 | What you eat makes a huge difference in how optimally your body operates. And what you spend time reading and learning equally affects how effectively your mind operates. Increasingly, we’re filling our heads with soundbites, the mental equivalent of junk. Over a day or even a week, the changes, like those to our belly, are barely noticeable. However, if we extend the timeline to months and years, we face a worrying reality and may find ourselves looking down at the pot-belly of ignorance.

JACK BOGLE: ‘Main Street hasn’t been taking its fair share’ – Business Insider, December 21, 2016 | “Main Street hasn’t been taking its fair share.” That’s according to Jack Bogle, the founder of the $3.5 trillion fund behemoth Vanguard.

The World’s Largest Hedge Fund Is Building an Algorithmic Model From its Employees’ Brains – Wall Street Journal, December 22, 2016 | Bridgewater wants day-to-day management—hiring, firing, decision-making—to be guided by software that doles out instructions.

Jamie Dimon on Trump, Taxes, and a U.S. Renaissance – Bloomberg, December 14, 2016 | The CEO of JPMorgan Chase talks about Detroit’s revival and his views on the incoming administration.

Inside Amazon’s clickworker platform: How half a million people are being paid pennies to train AI – TechRepublic, December 14, 2016 | Internet platforms like Amazon Mechanical Turk let companies break jobs into smaller tasks and offer them to people across the globe. But, do they democratize work or exploit the disempowered?

The Most Informative Posts on Important Financial Topics – Fortune Financial, December 10, 2016 | The financial blogosphere has become a tremendous resource for anyone who has an interest in investing.  The information available is close to infinite, and much of it is free.  Being a beneficiary of this resource, I have long felt that the major improvement to be made would be an index of sorts, in which the best posts were categorized by topic.  Unfortunately, that is a herculean task, so I am going to attempt what i consider to be the next best thing:  a decent-sized selection of the posts from 2016 that I have found to be the most useful in both my practice as a financial advisor, and in my avocation as an investor.

Nate Silver Interviews Michael Lewis About His New Book, ‘The Undoing Project’ – Atlas Obscura, December 14, 2016 | This week on Sparks, FiveThirtyEight’s monthly science podcast that runs in the What’s The Point feed, our science roundtable discussed Michael Lewis’s new book “The Undoing Project,” about two Israeli psychologists who created the field of behavioral economics. After that discussion, FiveThirtyEight editor-in-chief Nate Silver spoke with Lewis about the book, what it has to say about the 2016 U.S. election and Lewis’s writing process. You can listen to that interview above, watch a segment of the interview below, or read an abridged, lightly edited transcript below the video.

Article in Swedish

Portföljarkeologi – Lundaluppen, 25 December, 2016 | Om man liksom jag tycker att Twitter är ett trevligt tidsfördriv så får man vara beredd på att skåda en flod av portföljrapporter med årlig avkastning på 50 % eller mer (långt mer) så här års. Individer med lägre avkastning än så skriver hellre blogginlägg så de kan komma med lite mer utförliga ursäkter… Om du, liksom jag, fått väsentligt lägre avkastning än dessa stjärnor och dessutom äger ett visst mått av självkritik så inställer sig förmodligen följande frågor: (1) vad håller jag på med? och (2) vad vet dessa människor som inte jag vet?