"Get mad, you sons of bitches!"

The last post (on Joshua Persky) reminded me of another unusual job searching tack that generated national publicity, Robin Stearns's website Hire My Husband. That's Robin, pictured above in front of the Golden Gate bridge. From her site:

This site was born out of frustration with the job market. My husband graduated in 2008 with an MBA from Georgetown. After Mike finished his MBA, we moved back to California to be closer to family. We both had high expectations for his career and our life after business school.

That was their first mistake, unfortunately. Georgetown apparently has a good business school -- a cursory glance at U.S. News & World Report's list of top programs has it ranked #20 (the FT ranks it 40^th globally) -- but MBA degrees from all but the most prestigious schools have never been a guarantee of financial success, even in better times than these, and Georgetown's business school isn't one of the most prestigious schools. Back to Robin, from her site:

However, those expectations quickly changed as we were faced with this horrible economy. After almost ten months of watching my wonderful husband work tirelessly to find a job, I decided to take matters into my own hands and help him stand out in a sea of unemployed.

Take a look around my site and get to know Mike. Learn more about him on the About Mike and Meet Mike pages. If you have any questions or would like the opportunity to meet my husband, you can email me on the Contact Mike page. Please pass this website along to friends, family, colleagues, and those who are hiring. I know each visitor to this site will think my husband is as great as I do.

That's sweet, Robin, but not realistic. You love your husband. The men you hope will hire him don't. Our opinions about those we love are rarely objective. That's completely natural, but it's naive to expect others to share our opinions about our loved ones. Here's a short video clip of Robin's husband Mike, from Robin's website:



I wish Robin and Mike the best of luck, but here are a few observations:

- What was the point of Mike's video, exactly? Put yourself in the shoes of a business owner. What about that nine second video clip would make you want to hire Mike Stearns? Nothing I can think of. Here's your shot Mike: a business owner clicks on that video. Does he see a confident elevator speech from an aggressive job seeker? Not at all. There's something missing here, Mike. On his blog The Nearby Pen, former commenter Daniel Wahl offers "art antidotes" -- an Edward Guest poem, or a short clip from the film "Amelie" to stir readers to action. Here's my "art antidote" for you, Mike Stearns -- Alec Baldwin's showstopper in "Glengary Glenn Ross":



If you watched the clip, now you know from whence the title of this post came. More observations:

- Is the novelty and publicity factor of your wife creating this sort of site for you outweighed by the negative implications of your wife's advocacy? Again, put yourself in the shoes of a business owner -- what would you think? You might not have heard about Mike Stearns otherwise, but now that you've heard of him, thanks to his wife's unorthodox efforts, you might wonder whether his wife isn't the one with more creativity and initiative.

- National publicity seems to be of limited utility in getting an unemployed person hired. Persky may have gotten a job through his efforts, but it was short-lived.

- National publicity might be of more use in other ways. Persky seems to have made more of an effort to explore this, having written a couple of quickie e-books which he sells on his site, and using his site to generate leads for speaking and other engagements. The Stearnses haven't done this; they have nothing to sell on their site. They should remedy that. Even if they don't have a product or service of their own to offer, the web is full of people who do, many of whom, I'm sure, would be willing to partner with the Stearnses in exchange for the added traffic.

The Economics of Blogging

A Wall Street Journal column last week by the Democratic Political consultant Mark Penn, "America's Newest Profession: Bloggers for Hire", alleged that 452,000 Americans made their living by blogging. One professional blogger, Megan McCardle, explained on her Atlantic blog why this estimate was "addled" ("Blogging for Big Bucks"):

The estimates of professional bloggers seem wildly inflated--if you help update the company blog once a week as part of your marketing internship, you are not a paid professional blogger. And the numbers they themselves link to tell a much different tale from the article: most blogs bring in pitiful amounts of money for their owners.

This seems to follow the model of Mark Penn's book: find some bizarre number and mindlessly extrapolate it to an absurd conclusion. Yet I still don't understand why common sense did not keep him from publishing this article. Anecdotal evidence would suggest that almost all of us know many more computer programmers than professional bloggers--this is true of me even though I am a professional blogger, as are half my friends. Or he might have called some professional bloggers, who would have (sorrowfully) told him that no one is making $75K a year off of 100,000 pageviews a month, that being about how much traffic I pulled when I was starting up in 2002. Or, hell, he might have noticed that in the very BLS survey so nicely transformed into a table for his article, there is not entry for "blogger"--but that if you add up every writer, reporter, editor, PR person, technical writer, or "media and communications worker, other", there are only 499,890. Since Penn says that there are 452,000 paid bloggers, this implies that 9 out of every 10 communications workers are professional bloggers.

There may be one guy with some incredible niche--or moronic employer--making a ton of money with a modestely well-trafficked blog. But the plural of "anecdote" is not data.

Believe me, I'd love to think that blogging is a surefire path to riches and job security--but I'm afraid all most people get out of their blogs is the satisfaction of a job well done.

Coincidentally, a few days after reading Megan's post, I discovered the newest blog by Daniel Wahl, The Nearby Pen ("helps you live a happier and more productive life by sharing good art, reviewing good books, and explaining good thoughts") which included a post ("AdSense Pennies Make Dollars") that unintentionally supported Megan's point about the paucity of bloggers who make significant money from their blogs. In his post, Daniel mentioned the revenues he had generated from his three blogs over the last few months:

Not only will I not be making loads of money with Adsense, but at this stage of the game I should not expect to.

So why use Adsense? Quite simply, because--as the title suggests--pennies make dollars. Or to put it differently, a little bit of money adds up, even if little by little. And who knows, perhaps those pennies will grow faster with traffic at each site. In my view, it pays (at least a little) to learn more about how advertising on one's blog works while the blog is growing. I also think it is interesting. Here's the data for my first three months:

January...........4,291 page impressions...........$1.97 earned
February..........4,242 page impressions..........$3.62 earned
March.............4,411 page impressions..........$11.15 earned

This is no knock on Daniel -- I'm sure if I were using Google AdSense my ad revenues would be as low or lower (which is one reason why I never signed up for them) -- but it underlines Megan's point about why Mark Penn's estimates seem dubious. As for Daniel's point that pennies make dollars: sure, but time equals money, and, for most of us, there are much more remunerative uses of our time than blogging. So why do it? I mentioned one reason in my first post: to attract a few commenters I could get feedback from and bounce ideas off of. Another reason is the same reason most callers call talk radio stations, or letter writers write letters to the editor of newspapers: to express opinions. I have gotten a couple of ideas from writing this blog (or, more accurately, from observing the responses to a handful of posts), and one or two of those ideas could lead to a business opportunity down the road, so, in that sense, this blogging might end up being profitable as a form of brainstorming, but that remains to be seen.

Marty Whitman Wishes He Had More Liquidity

Investopedia notes (Hat Tip: The Guru Five):

Value investor Marty Whitman, head of mutual fund firm Third Avenue Management, recently had this to say (along with Senior Research Analyst Ian Lapey) about the markets, "Third Avenue wishes it had more liquidity, because then management would have been heavy buyers of high-quality equity securities, which are now as cheap as either of us ever remember them being."

I'm sure Whitman's investors in his Third Avenue funds wish they had more liquidity too. Perhaps they would, if Whitman & Co. hadn't lost so much of their money last year. This raises a question about the role of risk management and hedging in open end mutual funds. Long-time value investors such as Marty Whitman may have the iron stomachs to handle what many value investors term "quotational losses" (or, as most other investors call them, "losses"). But one of the challenges of running an open end mutual fund is that investors with lower risk tolerances will invariably redeem their money while many of the fund's investments are down, forcing the fund manager to sell positions at a loss to meet those redemptions. Wouldn't it make sense to plan for this contingency by hedging, increasing cash levels in up years, or by some other means?

The photo above, of Whitman, comes frm this Fortune article: Five Funds for 2009.

Atlas Shrugging

Ayn Rand's novel Atlas Shrugged has come up a lot recently in commentary about Obama administration initiatives (e.g., this column by Robert Tracinsky last week, "The Ayn Rand Factor In the Santelli Revolt"). Since one of Daniel Wahl's favorite posts (#5) on his old blog expressed Randian sentiments, I mentioned the Tracinsky column to him and suggested he might want to consider writing a post on the subject at his new blog, Systemically Important. Daniel hasn't written a post there on Atlas Shrugged yet (Today's Systemically Important post is "Mottos: Business Peopleguys"), but several other bloggers have, including Will Wilkinson (Hat Tip: Ross Douthat). For those who haven't read Atlas Shrugged and plan to, be warned that Wilkinson's post ("On Going Galt"), and the parts of it I'm about to excerpt below, include some spoilers.

Wilkinson:

I can’t help but feel that threatening to withdraw from economic production, ala Atlas Shrugged’s John Galt, is a certain kind of libertarian-conservative’s version of progressives threatening to move to Canada.

[...]

But insofar as this is all about taxes on the wealthy (as the link to Malkin suggests) it’s a bit hard to see tax rates somewhat exceeding the Clinton era’s as a move over some inflection point from the tolerable to the completely outrageous. And of course none of these folks designed an engine that would have created basically free energy (and made global warming a non-issue). In the individual case, “going Galt” smacks of a kind self-aggrandizement in the same way that climate smuggery does. Because, really, your marginal contribution doesn’t matter that much.

By the way, Atlas buffs, the point of Atlas Shrugged is not that you are John Galt. The point is that you are not John Galt. The point is that you are, at your best, Eddie Willers. You’re smart, hardworking, productive, and true. But you’re no creative genius and you take innovation — John Galt — for granted. You don’t even know who he is! And this eventually leaves you weeping on abandoned train tracks. 

Wilkinson makes a good point in that last paragraph, one I thought was plain when I read the book years ago, but this misunderstanding seems to be shared by some Atlas Shrugged detractors as well as buffs. Back to Wilkinson:

I think Obama’s policies will be bad for innovation, but not because higher marginal tax rates will lead our best and brightest to retire from the field of endeavor. I’m rather more worried that our best and brightest will follow the incentives and go Robert Stadler. I’m worried that our money, which might otherwise have gone to capitalize real innovation, will be confiscated in order to finance government directed “investment” instead. Our economy can readily absorb a passel of drop-out Willerses (though Eddie never quits!). It’s the misdirected capital embodied by the Stadlers and their Project Xes that really hurts.

Wilkinson is less convincing there. All things equal, additional government spending on scientific research (e.g., National Institutes of Health research grants) would probably increase innovation. The bigger potential threat to innovation isn't increased government spending per se¹, but the prospect of price controls (de facto or de jure) or rationing that might be part of a universal national health insurance program.

¹Increased government spending on transfer payments could indirectly stifle innovation if it increased pressure for price controls or reduced reimbursements in a universal government health insurance program.

I borrowed the image above, of the cover of a paperback edition of Atlas Shrugged, from this blog, which I'm sure borrowed it from Amazon.com or somewhere else.

Update: Daniel Wahl joins the discussion with his latest post: "Going Going Galt".

Dramatis Personae

For those confused by the sniping in some recent comment threads, this post may offer a partial explanation.

Dramatis Personae

- Dr. Paul Price aka Stockdoxc99: A retired dentist and stockbroker and prolific poster at GuruFocus and Seeking Alpha. Paul tends to invest in a broad portfolio of stocks he determines to be values based largely on historic earnings data and forward estimates from Value Line and other sources. He also constructs options strategies around various positions.

- William Spetrino, Jr., aka Billytickets: Former prolific poster on GuruFocus, blogger, and author of the book "Consume, Consume, Consume Some More: Spend More, Work Less". He tends to invest in a concentrated portfolio of large cap, blue chip consumer names (e.g., MO, KFT) and Berkshire Hathaway.

- Daniel Wahl aka DanielW: American ex-pat living in Vietnam, blogger and investor. Tends to invest in a fairly concentrated portfolio selected after in-depth fundamental research, and is willing to invest in companies before they are profitable based on an analysis of their assets and profit potential. A former poster on GuruFocus and Seeking Alpha.

Sources of Animosity

Between Daniel Wahl and Paul/Stockdoxc: Daniel Wahl once criticized Paul's understanding of risk, by pointing out that a stock's current price in relation to its previous highs and lows indicates nothing about the stock's prospects going forward. Paul then countered with criticisms of Daniel's understanding of risk. At the time, the investments Daniel had mentioned on GuruFocus, e.g., LEAPs on Potash Corp. of Saskatchewan, were on a tear. Last year, when some of those investments began to decline (e.g., the zinc miner Strategic Resources) Paul became more zealous in his criticisms. Their dispute then got personal.

Between BillyTickets and Paul/Stockdoxc: I don't remember the origins of this one. Maybe one of the principals can explain.

Between Daniel Wahl and BillyTickets: There is no animosity that I am aware of between these two.

Daniel Wahl's New Investing Blog

Hat tip to reader J.K. for directing my attention to Daniel Wahl's new investing blog, Systemically Important. Don't expect a discussion of specific stocks there though. As Daniel mentioned to me in a comment on his other blog,

If I start blogging again on stocks I own, I'll probably not mention names--focusing only on method alone. It's not something that's done by 5000 other bloggers or even 1 and it actually zeroes in on the thing that matters most long-term.

Instead, expect witty commentary on financial news of the day, as well as a guide to some of Daniel's favorite business blogs. Here's a taste, an excerpt from a recent post, "Mated: Financial Blogs":

What would happen if the Hubble Telescope, noted for its ability to see far beyond what any normal person can, mated with the lyrical talent of Bob Dylan? A blog written by Macro Man of course.

If sliced bread, the daily item so important even Jesus begged his Father for it, mated with the greatest economic and business thinkers of our day, what would be the result? Abnormal Returns.

What would happen if Mae West, a pop icon of old famous for her wit, mated with Bruce Lee, the bad-ass martial arts master famous for his awesomeness? Too easy, I know. A site called Dealbreaker.

Daniel Wahl Breaks Radio Silence

Former commenter Daniel Wahl, after going dark for a few months, published a post on his eponymous blog last weekend, prompted by a Lucy Kellaway column in the Financial Times: "Bad Thinking".

Will the Credit Crisis lead to a Food Crisis?

In a recent post ("Jim Rogers on CNBC Europe Early This Morning") we mentioned that Rogers continues to be bullish on agricultural commodities. Another investor who remains bullish on agriculture is Aaron Edelheit. Today on his blog, Aaron Edelheit writes that low global inventories, continuing demand growth from China, and the credit crisis together are setting the table for food shortages next year ("Looming Food Catastrophe in 2009"). Regarding Chinese demand, Edelheit quotes an article by Jim Lane, editor of Biofuels Digest¹ ("It's not food, it's not fuel, it's China: Expanded study of impact of China on global corn market") that argues that demand for corn has been driven primarily by the growing consumption of meat in China (since corn is used to feed livestock):

“Even with all the growth, Chinese meat consumption is still 45 percent less than the average consumption in the US,” Lane warned. “An additional 277 million tonnes of grain would be needed to support China at parity with the US. That would take 68 million acres to grow. There isn’t that kind of arable land available anywhere is the world, whether we grow grains for renewable energy or not.”

Regarding the impact of the credit crisis, Edelheit writes,

The credit crisis is hammering South American farmers, to the extent that they cannot get fertilizer². No fertilizer, no planting of crops.

Further, suppliers are asking farmers in the U.S. for more upfront money to make sure they aren’t holding delinquent debts, causing farming to be a bit more uncertain this year.

Edelheit bases this on an article by Carlos Caminada, Shruti Singh and Jeff Wilson on Bloomberg yesterday ("Farm-Credit Squeeze May Cut Crops, Spur Food Crisis").³ This raises two questions related to one of Edelheit's holdings, Hemisphere GPS (TSX: HEM.TO): if farmers can't get credit to buy fertilizer, can they get credit to buy Hemisphere's precision agriculture equipment? Do they need credit to buy Hemisphere's equipment? Edelheit doesn't say, as he doesn't discuss his stock positions on his blog.


¹I find this sort of primary research -- the kind often done by industry-specific analysts, but occasionally done by money managers such as Edelheit -- impressive. Partly as a result of doing this sort of research, occasional commenter Daniel Wahl (his blog) invested early in some winners in the agricultural space, as I noted in a post last June ("Stress Fractures in Titanium"). Daniel has taken his blog in something of a new direction recently, as he prepares to launch a new blog, and he no longer writes about his trades, but he did note in a recent comment thread on his blog that he is still holds Hemisphere GPS, and calls on the fertilizer company Potash Corp. of Saskatchewan (NYSE: POT).

²This may have been a factor in the recent correction in the prices of fertilizer company stocks.

³Jim Rogers similarly linked the credit crisis and commodities in his CNBC Europe interview last week, noting the difficulty anyone would have in borrowing money to dig a mine today.

M&Ms for Investing

Morbidity and Mortality conferences ("M&Ms") are regular meetings where hospital physicians discuss, without fear of punishment, their cases that had bad outcomes. The point of the exercise is to catch and correct errors and improve the way physicians diagnose and treat their patients. What prompted me to think of this was a recent discussion on the GuruFocus website, particularly this comment by prolific poster, former dentist, and stockbroker Dr. Paul Price (aka "Stockdoxc99") to Daniel Wahl,

Defending your methods regarding your highly touted pick of SRA Corp. after its 96% drop is akin to saying...

"The patient died... but the operation was a success".

Daniel Wahl had already reexamined his investment process on the zinc miner SRA Corp (TSX: SRZ.TO) on a post on his blog, and after noting that in the comment thread and making the M&M analogy, I wrote,

As in investing, there is the process and there is the outcome; sometimes a poor outcome is due to a poor process, in which case the process can and should be improved, and sometimes regardless of the process the outcome would still have been poor.

I went on to suggest that it might be useful for GuruFocus to create its own version of an M&M forum for bad investment outcomes. There's no shortage of commenters eager to point out others' losses, but usually this is done in a spirit of schadenfreude, and not in an attempt to learn from any mistakes that might have been made. I thought an M&M approach might make more sense, where investors could discuss what went wrong without insult.

A quick Google search of M&Ms brought me to an essay by Vincent A. Gaudiani, MD on the Cardiothoracic Surgery Network (CTSNet) that suggests that physicians' M&Ms have their own issues. Dr. Gaudiani writes of the M&Ms he participated in during his residency,

The huge disparity in experience level and the residency hierarchy often led to one-upmanship and a focus on affixing blame for failure as if adverse outcomes implied inadequate performance or lax intent. In other words, it was misused to create winners and losers. As we will see in a moment this is an entirely foolish and juvenile misuse of M&M.

Dr. Gaudiani also notes that problems with M&Ms continue post-residency,

Second and equally foolish is the deafening silence and acceptance of adverse outcomes that often accompanies M&M in the private setting. Experienced practitioners know that they too will have adverse outcomes and therefore choose to judge not.

[...]

To the extent that these misapplications of M&M conference prevail, they subvert the value of meeting in the first place.

It's a little disheartening, though not entirely surprising, to see the same sort of bad faith at work among physicians that you find among commenters on investing websites. Dr. Gaudiani offers some ideas to improve M&Ms. Some of this could apply to investing M&Ms as well:

For its part the community must value learning and desire to improve above all else and abandon invidious judgment. Practitioners must have the honesty and humility to recognize their contribution to an adverse outcome [...]. A few ideas may facilitate this process:

- Ask at which point critical decisions were taken that increased the likelihood of the adverse outcome.
- Ask what information or analyses might have led to a better outcome.
- Avoid defending or attacking a bad outcome. Neither helps.

Food for thought. Worth reading the rest of Dr. Gaudini's short essay.

Precision Ag Update

Hat tip to Daniel Wahl ("Quick Notes") for noting Trimble Navigation's (Nasdaq: TRMB) earnings release last week. Trimble has a division that competes with Hemisphere GPS (HEM.TO) in the precision ag space. Daniel quoted this excerpt from Trimble's conference call:

"Second quarter 2008 Field Solutions revenue was $90.1 million, up approximately 63 percent compared to revenue of $55.3 million in the second quarter of 2007. Revenue growth was driven primarily by strong demand for agricultural products."

Daniel sees this as bullish for Hemisphere, and I agree. This space seems big enough for more than one firm to do well.

Hemisphere's 2Q conference call is scheduled for Tuesday morning.

From Joel Greenblatt to Jim Rogers, Part II: The Downside of Excessive Diversification

The intent of this series of posts is to put my later posts about specific investment ideas in context, by describing the evolution of my thinking on investing over the last year and a half, as I've made mistakes and tried to learn from them. I'm going to break this up into a few posts, just to keep each post from being too long. This is Part II.

The Downside of Excessive Diversification

An observation I've made over the last year is that during a period when most stocks and most sectors are performing poorly, excessive diversification can be a liability. With his own money, Joel Greenblatt is a concentrated value investor: he has written that he feels comfortable keeping 80% of his assets in 5-8 well-researched, high-quality companies. For his Magic Formula methodology though, he recommended that non-expert investors diversify more broadly, buying a total of 20-30 stocks over a period of several months. A problem with this, from my experience, has been that there haven't always been 20-30 stocks worth buying on the Magic Formula list. Many of the "good" (high ROIC) stocks recently haven't been "cheap" (high earnings yield), as investors have flocked to the relative handful of winners, and many of the "cheap" (high earnings yield) have been cheap for a reason: in some cases they had no consistent earnings but ended up on the list because one windfall quarter (e.g., from a legal settlement) distorted their trailing twelve month EBIT numbers; in other cases companies were facing negative macro trends that would be reflected in their earnings over the coming year or more, etc.).

An example here is the retail sector. Last year around this time, a number of retailers appeared on the Magic Formula list. If you bought a large basket of them, you would have probably had poor performance since then. But if you had bought Wal-Mart (as Greenblatt himself did), you would have had a 20%+ return on it. I didn't think of this at the time last year, but in hindsight, Wal-Mart was well-positioned to benefit from the weakness of the American consumer over the next year. With economic headwinds* affecting consumers (I consider the resulting weakness of the U.S. consumer a macro trend), it makes sense that many of them would spend less, while spending a higher percentage of their budgets at a lowest-cost retailer such as Wal-Mart.

A few data points I've seen that support the advantage of running a more concentrated portfolio in this sort of market:

• One of the professional investors who bucked the trend and posted solid results last year was Bruce Berkowitz, who manages a concentrated portfolio in his Fairholme Fund. About 50% of the fund's assets were in cash and its two largest positions.
• Another professional investor, Ken Heebner, who manages the CGM Focus Fund, had spectacular returns last year running a relatively concentrated portfolio (although, in Heebner's case, his out-performance was due more to his astute attention to the relevant macro trends).
  
• One of the only individual investors on the Yahoo! Finance Message Board who claims to have had 70% cumulative returns over the last year. The difference in his application of the strategy? He confined his portfolio to 10 holdings that he chose from the Magic Formula list after doing his own homework.
  
• Two of the individual investors I have corresponded with on investing websites (one of whom I've mentioned previously here, Daniel Wahl) had good-to-excellent performance over the last year with portfolios of fewer than 10 stocks each.
  

As important as it is to avoid excessive diversification for diversification's sake, the example of Ken Heebner shows the greater importance of paying attention to the relevant macro trends. More on macro trends in the next post.

*These four economic headwinds, specifically: the negative wealth effects due to the real estate bust, high debt levels, lower access to credit, and rising energy prices.