Avoiding Stupidity is more important than Seeking Brilliance

http://www.farnamstreetblog.com/2014/06/avoiding-stupidity/

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Meet David Abrams, the bashful billionaire you’ve never heard of

http://www.theaustralian.com.au/business/wall-street-journal/meet-david-abrams-the-bashful-billionaire-youve-never-heard-of/story-fnay3ubk-1226941996631#

IN the Back Bay neighbourhood of Boston, one man is building a money-making machine that ­rivals some of the hedge fund industry’s biggest names.

Calls to his office go unreturned even from those eager to hand over eight-figure sums, potential investors say. One industry veteran referred to him as “a unicorn”, as few people have ever seen him.

The hedge fund manager, David Abrams, has personally become a billionaire, and earned billions more for his wealthy investors, over the past five years running what is effectively a one-man shop, according to company and investor documents viewed by The Wall Street Journal and people who have worked with him. His firm, Abrams Capital Management, manages nearly $US8 billion ($8.6bn) across three funds and is discussing raising money for a fourth fund that could help push its assets past $US10bn.

In an era of star investors who appear regularly on television and talk up their ideas at hyped confabs, Mr Abrams, 53, has never spoken at an event open to the public.

“He probably would have preferred you not find him,” said Roger Brown, president of Berklee College of Music, where Mr Abrams is a trustee.

Abrams Capital’s main funds have posted an average annualised return of about 15 per cent since its founding in 1999, nearly double the average for hedge funds tracked by HFR and triple the S&P 500 index, including dividends.

The firm invests in a relatively small number of beaten-down companies at any one time, mostly through stocks at present, though it has also dipped into some fixed-income deals in recent years, including the unwinding of bankrupt Enron. Among its recent stockholdings have been bookseller Barnes & Noble, retailer J.C. Penney and money-transfer firm Western Union.

Mr Abrams also is among the small group of investors that has taken a big bet on government-controlled mortgage companies Fannie Mae and Freddie Mac, ­wagering that the Obama administration’s plan to wind down and replace the entities will fail, according to investor documents.

The firm employs three analysts and a small back-office staff, but Mr Abrams approves all trades personally, according to people who have worked with him. Other firms of comparable assets can have hundreds of employees.

He also built his fortune with the equivalent of one hand tied behind his back: his firm uses no leverage, or borrowed money, and often sits on billions in cash. It currently holds about 40 per cent of its $US8bn under management in cash, investor updates show.

Mr Abrams got his start in 1988 at Baupost Group, also based in Boston. Run by Seth Klarman, Baupost is one of the world’s largest hedge fund firms, with $US27bn under management.

The two remain friends, and Mr Klarman’s personal foundation has put money into Abrams Capital’s funds. Mr Klarman described his protege as “smart as a whip”.

“He loves a good puzzle and a good treasure hunt,” Mr Klarman said.

People who have worked with him said the University of Pennsylvania graduate who majored in history is introverted and cerebral. The son of a stockbroker and psychotherapist and a father of two, he is an avid follower of jazz music and fan of the band Earth, Wind and Fire.

Like Mr Klarman, Mr Abrams is known to be patient to the extreme. He will sit on a static portfolio for months without making a move.

Investors in the firm, including institutions like Brandeis University, with an endowment of about $US700 million, sometimes get scant information. Mr Abrams’ most recent quarterly letter consists of just six paragraphs, one of which is a single sentence.

“He’s not going to waste a nano­second to impress you, or convince you, or argue with you,” said Mr Brown of Berklee. “He knows what he thinks and if you ask him, he’ll tell you. If you don’t, he might just sit there in silence.”

Mr Abrams probably collected more than $US400m last year on the back of a 23 per cent return for one of his main funds, according to Journal calculations based on his fees, performance and his personal investment in the firm. He doesn’t appear on lists of top-paid hedge fund managers because his performance figures are so closely guarded, but his estimated compensation last year would have put him ahead of David Einhorn, Daniel Och and even Mr Klarman, according to industry publication Institutional Investor’s Alpha.

A portion of his earnings came from a private equity-style vehicle, which doesn’t pay out gains until it is unwound, and a handful of firm executives may have shared a small slice of his payday. The hedge funds were up an additional 2 per cent in the first quarter, investor documents show.

As a side gig, in 2007 Mr Abrams was part of a group that bought a 20 per cent stake in the National Football League’s Oakland Raiders. Forbes estimates the team’s worth at $US825m, the NFL’s least valuable team. Before the purchase, he wasn’t a big football fan but views the team as a distressed investment, a source said.

Some good jokes

http://www.businessinsider.com/profound-jokes-2014-6

1. A young boy enters a barber shop and the barber whispers to his customer, "This is the dumbest kid in the world. Watch while I prove it to you."

The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks, "Which do you want, son?" The boy takes the quarters and leaves.

"What did I tell you?" said the barber. "That kid never learns!"

Later, when the customer leaves, he sees the same young boy coming out of the ice cream parlor.

"Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?"

The boy licked his cone and replied: 

"Because the day I take the dollar the game is over!" —Vinaya Patil

2. A boy and a man sit on a couch together. The boy says to the man, "Yeah, well, I didn’t believe in reincarnation when I was your age either." —Akshat Anand

3. A man is flying in a hot-air balloon and realizes he is lost. He reduces height and spots a man below. He lowers the balloon farther and shouts, "Excuse me! Can you tell me where I am?"

The man below says: "Yes, you're in a hot-air balloon, hovering 30 feet above this field."

"You must be an engineer," says the balloonist. 

"I am," replies the man. "How did you know?"

"Well," says the balloonist, "everything you have told me is technically correct, but it's no use to anyone."

The man below says, "You must be in management."

"I am," replies the balloonist, "but how did you know?"

"Well," says the man, "you don't know where you are or where you're going, but  you expect me to be able to help. You're in the same position you were before we met, but now it's my fault." —Amori Adesque

4. A climber fell off a cliff, and, as he tumbled down, he caught hold of a small branch.

"Help! Is there anybody up there?" he shouted.

A majestic voice boomed through the gorge:

"I will help you, my son, but first you must have faith in me."

"Yes, yes, I trust you!" cried the man.

"Let go of the branch," boomed the voice.

There was a long pause, and the man shouted up again, "Is there anybody else up there?" —Ahmet Kasan

5. An MIT linguistics professor was lecturing his class the other day. "In English," he said, "a double negative forms a positive. However, in some languages, such as Russian, a double negative remains a negative. But there isn't a single language, not one, in which a double positive can express a negative."

A voice from the back of the room said, "Yeah, right." —Sai Kishore K

6. An American businessman was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the fisherman on the quality of his fish and asked how long it took to catch them. The fisherman replied that it only took a little while. The American then asked why didn't he stay out longer and catch more fish. The fisherman said he had enough to support his family's immediate needs.

The American then asked, "But what do you do with the rest of your time?"

The fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos. I have a full and busy life, señor."

The American scoffed. "I am a Wharton MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat you could buy several boats. Eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then L.A., and eventually New York City, where you will run your expanding enterprise."

The fisherman asked, "But how long will this all take?"

To which the American replied, "Fifteen or 20 years."

"But what then?"

The American laughed and said, "That's the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You would make millions."

"Millions? Then what?"

The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your friends." —Andrew Udell

7. A masochist asks a sadist, "Please hurt me."

"No," replies the sadist. —Arnon Mishkin 

8. "Make me one with everything," says the Buddhist to the tofu hot dog vendor.

Then, after getting his tofu hot dog, the Buddhist hands the vendor a $20 bill.

The vendor takes the money and begins helping the next customer.

The Buddhist looks puzzled and asks the vendor, "Where is my change?"

The vendor replies, "Change comes from within." —Liam Gorman 

9. I'll stop at nothing to avoid using negative numbers. —Ren Walker

10. An engineer dies and reports to the pearly gates. St. Peter checks his dossier and says, "Ah, you're an engineer — you're assigned to hell."

So the engineer reports to the gates of hell and is let in. Pretty soon, the engineer gets dissatisfied with the level of accommodations and starts designing and building improvements.

After a while, they’ve got air-conditioning and flush toilets, escalators, elevators and so on ... and the engineer is a pretty popular guy.

One day, God calls Satan on the telephone.

"So, how's it going down there in hell?" God says.

"Hey, things are going great. We've got air-conditioning and flush toilets and escalators. There's no telling what our engineer is going to come up with next!" Satan says.

"What? You've got an engineer? That's a mistake — he should have never gotten down there. Send him back immediately!" God says.

"No way! I like having an engineer on the staff — I'm keeping him!" Satan says.

"Send him back up here or I'll sue!" God says.

Satan laughs uproariously and answers:

"Yeah, right. And just where are you going to get a lawyer?" —Sagar Shukla

11. A crow was sitting on a tree, doing nothing all day. A rabbit asked him, "Can I also sit like you and do nothing all day long?" The crow answered, "Sure, why not." So the rabbit sat on the ground below the crow and rested.

A fox jumped on the rabbit and ate it.

Moral of the story: To be sitting and doing nothing, you must be sitting very high up. —Saurav Maheshwary

12. A taxi passenger tapped the driver on the shoulder to ask him a question. 

The driver screamed, lost control of the car, nearly hit a bus, went up on the footpath, and stopped inches from a shop window. 

For a second, everything was quiet in the cab. Then the driver said, "Look, mate, don't ever do that again. You scared the living daylights out of me!"

The passenger apologized and said, "I didn't realize that a little tap would scare you so much." 

The driver replied, "Sorry, it's not really your fault. Today is my first day as a cab driver — I've been driving a funeral van for the last 25 years." —Salil Gupta

13. A guy said to God, "God, is it true that to you a billion years is like a second?"

God said yes.

The guy said, "God, is it true that to you a billion dollars is like a penny?"

God said yes.

The guy said, "God, can I have a penny?"

God said, "Sure, just a second." —Mark DeBolt

14. Two young salmon are swimming along one day. As they do, they are passed by a wiser, older fish coming the other way.

The wiser fish greets the two as he passes, saying, "Morning, boys! How's the water?"

The other two continue to swim in silence for a little while, until the first one turns to the other and asks, "What the hell is water?" —Craig Weiland

15. Pessimist: Oh, this can't get any worse! 

Optimist: Yes, it can! —Bharat Jakati

16. How many Freudian analysts does it take to change a light bulb? 

Two. One to change it, and the other to hold the penis.

LADDER. I MEANT LADDER. —Jade Roche 

Read more: http://www.businessinsider.com/profound-jokes-2014-6#ixzz33yui97ZB

What would you do if you were 23 years old again, Mr. Buffett?

Go into the Investment business!

"This year, a young shareholder from New Jersey asked for advice on entrepreneurship. Below are my notes on the shareholder's question, along with responses from Buffett and Munger.

Shareholder: Being a young person without an ability to code or build robots, I don't know technology. If you were 23 years old, what non-tech industry would you start a business in?

Buffett: I'd probably do just what I did at 23. I would go into the investment business and I would look at lots of companies, talk to lots of people, and learn what I could about different industries. One thing I did when I was 23: If I got interested in a coal business, I'd go and see the bosses of eight or 10 coal companies. I'd ask a lot of questions.

One question I would always ask: If they had to put all their money in a company in the industry and go away for 10 years, which would it be? And if they had to sell short under the same conditions, which company would it be, and why? And if I talked to everyone in the industry like that, I would know more about the industry than anybody.

There's lots of ways to learn about the economic characteristics of companies, such as reading, personal contact, etc. ... But you need a real curiosity about it. It really has to turn you on. And what could turn you on more than asking questions about, for instance, coal companies? [Laughs] And in my case, the insurance industry was particularly interesting, and perhaps you could become well equipped to run such a business some day. If you just keep learning things, something will come along that will be very useful. But you have to be open to it.

Munger: Try the trick that Larry Bird used when he wanted a new contract. He asked all agents what agent he should hire if he didn't hire that agent, and when they all came up with the same second choice, he went with that second choice.

Buffett: We did the same thing for Salomon. I called in eight or 10 of the managers. We had to open for business, and I had to have someone to run the place. I said, "Who besides you would be ideal, and why?" And one guy told me no one could compare to him. He was gone within a few months [laughs], but it's not a bad system to use. You could really learn a lot just by asking. Sounds like a Yogi Berra quote, but it's true. People like to talk. You just have to be open to it, and you will find your spot. You may not find it the first day of the week, but you'll find what fascinates you. I found it when I was 7 or 8. Sometimes it'll take a while, but you'll find it.

Munger: It's a very competitive business. When I was at Cal Tech and studied thermodynamics, there was a guy who was tremendously talented at thermodynamics. I realized that I'd never be as smart as him in that field. I tried other industries with the same results, so I just kept doing that until I ended up here.

Buffett: I had a similar experience with athletics."

Read more: http://www.fool.com/investing/general/2014/05/25/what-would-warren-buffett-do-if-he-was-23-years-ol.aspx#ixzz32rVwz2Px

Value Makeover

http://blogs.wsj.com/moneybeat/2014/05/23/giving-yourself-an-investing-makeover/

This is a wonderful piece. Most of the value lessons are free, but the hard part to walk the walk.

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If you set out deliberately and systematically to remake yourself into a great investor, how would you go about it?

That is what the money manager Guy Spier has spent much of the past 17 years trying to figure out. He believes that most investors pay attention to the wrong things and allow their minds to get hijacked by bad ideas.

So Mr. Spier has set about purifying the environment in which he makes investing decisions — changing his work space, altering the information he uses and, above all, continually trying to counteract his own irrationality. What he calls his “journey” is a transformation any individual investor should be able to emulate — perhaps even better, he says.

That journey accelerated in 2008, after Mr. Spier and his friend, fund manager Mohnish Pabrai, donated $650,100 to a charity and won a private lunch with Warren Buffett. After listening to Mr. Buffett, Mr. Spier says, he realized “I’ve got to hit the reset button and make drastic changes.”

Mr. Spier, 48 years old, is worth listening to. A graduate of Oxford University and Harvard Business School, he runs the Aquamarine Fund, a $180 million partnership specializing in cheap “value” stocks. Since its launch in September 1997, the fund has beaten the S&P 500 by an average of 4.9 percentage points annually, net of fees.

In a book to be published in September by Palgrave Macmillan, “The Education of a Value Investor,” Mr. Spier describes his struggle to improve his decision-making hygiene. (A disclosure: A friend and former editor of mine, William Green, collaborated on the book.)

Seldom has a successful money manager so painfully flagellated himself in public. In the book, Mr. Spier calls himself “blind,” “dumb,” “spectacularly foolish,” “misguided,” “stumbling,” “wrong,” “vulnerable” and, over and over again, “irrational.”

“I’m not living a real life if I’m not naming this stuff,” Mr. Spier told me this past week. “I hope that will help make me a better person, but I’m certain it makes me a better investor.” (He has beaten the S&P 500 by 5.5 points annually since 2008, although there is no way to know how much his reinvention has affected his returns.)

“We think we control our environment, but in fact it’s our environment that controls us,” Mr. Spier told me. “We can’t change the world. The only thing we can change is ourselves, by trying to get a better understanding of our own messed-up wiring.”

For 18 months, Mr. Spier listened to nothing in his car but a lecture on human misjudgment by Charles Munger, Mr. Buffett’s vice chairman at Berkshire Hathaway. Of the two dozen mental mistakes cited by Mr. Munger, “I realized I was guilty of all of them,” Mr. Spier says.

No wonder he has sought, as he says in his book, “to banish the false assumption that I am truly capable of rational thought.” Once he accepted “just how flawed my brain really is,” he writes, “I could design an array of practical work-arounds based on my awareness of the minefield within my mind.”

To escape what he calls “the New York vortex” of bad influences such as envy, greed and hyperactive trading, Mr. Spier moved his fund to Zurich in 2008.

Worried that knowing the prices of his holdings would make him want to trade them, he checks their market values once a week at most and leaves his firm’s only data terminal switched off for weeks at a time. Mr. Spier avoids speaking to brokers; he puts in his trading orders by email, after market hours, so no broker can try swaying his judgment.

Nor does Mr. Spier publicly discuss the holdings in his portfolio—even in his letters to his own investors, where he writes instead about the lessons he has learned from the positions he has sold. He is afraid that talking about a stock will make it harder for him to be objective about it.

Mr. Spier has divided his office into two spaces—a “busy room,” with his phone and computer, and the “library,” a quiet area down the hall where no one, including Mr. Spier, enters with an electronic device. He likes to spend much of the day there, reading and thinking.

When researching a company, Mr. Spier has a strict routine. First he reads its official financial filings—annual and quarterly reports, proxy statements and so on. Next he reads news releases and conference-call transcripts. Only then will he allow himself a peek at online commentary, news coverage or Wall Street research. That way, his first impressions come from primary sources.

Individual investors are constantly being exhorted to try beating Wall Street at its own game of trading like crazy to chase whatever is hot. But why should you bother trying to play a game that even most professional players can’t win?

Instead, take a page from Mr. Spier’s book and play by your own rules. The faster Wall Street runs, the more you should slow down and step back from that madness. Buy and hold an index fund forever, or study a few stocks with all the peace of mind you can muster.

That way, you exploit the true advantages of individual investors that most professionals would kill to have: patience, independence and the ability to ignore the braying of the crowd.

Patience

Ben Graham observed and Warren Buffett repeated, "The stock market has a very efficient way of transferring wealth from the impatient to the patient." 

Patience is the virtue an investor needs.

here is another article elaborate on the same theme:

http://www.fool.com/investing/general/2014/05/06/where-outperformance-comes-from.aspx

"There's a saying that there's always someone on the other side of your trade, and that someone may know more than you. I thought of this last week while reading the biography of Joseph Kennedy.

Kennedy's wealth came from a mix of genius and a sheer lack of morals. Take this story: The repeal of prohibition in 1933 was bound to benefit companies that made supplies needed to make alcohol. One was a bottling company called Owens-Illinois. Rather than investing in directly in Owens-Illinois, Kennedy purchased shares of a company called Libbey-Owens-Ford. "Libbey-Owens-Ford was an entirely separate company, which manufactured plate glass for automobiles, not bottles, but its name was close enough to the bottle glass company to fool unwary investors," writes biographer David Nasaw. On news of the repeal, Kennedy and his partners traded shares back and forth between each other, pumping up trading volume to draw attention. That caused other investors to buy shares "on the mistaken belief that they were buying shares of Owens-Illinois, the bottle manufacturer." After a surge, Kennedy dumped Libbey-Owens-Ford with a $1 million inflation-adjusted profit and invested the proceeds in his original target, Owens-Illinois.

Almost half of Gen Yers -- those between age 20 and 32 -- say they "will never feel comfortable investing in the stock market," according to a 2012 study by MFS Investment management. They use words like "casino," "crapshoot," and "rigged" to describe the market. They know someone is on the other side of each trade, and that someone -- like Kennedy -- may know more than them.

But there's something every mom-and-pop investor can do to gain an edge on the person on the other side of the trade: be willing to wait longer.

That's it. There are few things more powerful in investing than the realization that the biggest gains tend to accrue to the person who waits the longest. If you bought an index fund 20 years ago and checked your account statement for the first time this morning, you could legitimately call yourself one of the top investors of modern history, having outperformed three-quarters of professional fund managers. You can say this only because you were willing to wait longer than everyone else who trades, fidgets, rotates, sells in May and goes away, and make (small-f) fools of themselves while you let compound interest work.

Most outperformance in the stock market doesn't come from Kennedy-like mischief, but instead from something simple called time arbitrage. It's exploiting the gap between your time horizon and mine. If you're worried about the next six months, but I can be patient for the next six years, I have an edge over you. You may sell shares today because you don't want to have another down month, and I'll be happy to buy them from you to focus on my up decade. That's all time arbitrage is. With a diversified portfolio, anyone can do it, because patience doesn't require inside information, fancy math models, or high-frequency trading algorithms. All you have to do is wait. It works best with an indifference to short-term volatility that borders on obliviousness.

Companies didn't report much information in the 1930s, but archive documents show Libbey-Owens-Ford earned somewhere around $1.1 million in profit in 1933. By 1985, profits were more than $70 million. Getting tricked by Kennedy didn't matter much if you were willing to wait."

The most important trend

Demographics drives everything.   The most important trend for the next few decades is the aging of the society:  there will be much more old people and their behaviors drive economic and political trends.

here is an article from the blog Fivethirtyeight:

http://fivethirtyeight.com/features/what-baby-boomers-retirement-means-for-the-u-s-economy/

US:

World: