Arc of a Diver

The title of the previous post made me think of this Steve Winwood song from 1980. According to Wikipedia, Winwood played all the instruments on this song (and the rest of the eponymous album). Winwood was on tour recently with Eric Clapton (John Mauldin even took a break from sending out bearish market commentaries to see them in Texas), but I don't know if they played any solo Winwood classics like this one (at least they didn't on the concert PBS broadcast).

The Arc of a Typical Blog

From a post by John Scalzi last month (Hat Tip: commenter "Nate" on Megan McCardle's Atlantic blog):

The vast majority of blogs, in fact, have nothing but the following three posts:

Post One: “Here’s my blog! This is where I’m going to share all my thoughts about life, the universe and everything! It’s going to be great and I can’t wait to tell you all what I’m thinking about everything!”

Post Two: “Hey, sorry I haven’t updated in a while — life’s been crazy. But I’ll be back soon.”

Post Three: “Here’s a picture of my cat.”

And then it’s done.

Nothing wrong with this — writing on a regular basis is work, even when you’re ostensibly doing it for fun, and it shouldn’t be a surprise not a lot of people really want to work that hard. Also and perhaps more to the point, I suspect many people who start blogging realize fairly quickly that they either don’t like sharing all their thoughts to the world, or that their thoughts, while interesting to them, appear fairly banal once they’re typed out, and it’s better just not to post them for the sake of posting them. And there’s nothing wrong with this either, and indeed the blogger is to be congratulated of the bit of personal insight. Most blogs are abandoned because they should be.

Answers from Joel Greenblatt

In a previous post ("My Questions for Joel Greenblatt"), I wrote,

GuruFocus announced it will be hosting a question and answer session with Joel Greenblatt and solicited questions from readers. Below are the questions I submitted for Greenblatt. For others' questions, click the link above.

Why did you set the minimum market cap to $50 million on your new Magic Formula screener, when users used to be able to enter a market cap as low as $1 million on your original screener? Did you find that the Magic Formula does not work as well for stocks with market caps below $50 million? If so, would you mind reimbursing me for the money I've lost buying Magic Formula stocks with market caps below $50 million¹?

In your book The Little Book that Beats the Market, you alluded to the dramatic under-performance of a certain investor's² strategies in the few years after he published a book on those strategies. Do you think it's a coincidence that the few years following the publishing of your book have been difficult times for adherents of the Magic Formula as well? Is it possible that, by the time someone decides to write a book on an investment strategy, that strategy is typically due for a period of under-performance?

¹A joke, Prof. Greenblatt. I find that having a sense of humor helps in handling market losses.

²You didn't mention this investor by name, but I believe you were alluding to James O'Shaughnessy.

Yesterday, GuruFocus posted the answers to the questions to which Greenblatt deigned to respond. Greenblatt ignored my first question above, about why he added a minimum market cap to his Magic Formula screener, and offered this semi-answer to my second question,

A new updated study [of the Magic Formula's recent returns] should be published at FormulaInvesting.com soon.

Another GuruFocus poster asked an interesting question, about the merits of using a long-only equity strategy such as the Magic Formula if we are in a secular bear market. Here was Greenblatt's response:

A new updated study should be posted on FormulaInvesting.com in the near future and the results appear to be quite good relative to a flattish market over the last 10 years or so. Also, since the market has not performed well over the last decade or so, that may turn out to be a good time to invest, not a bad time.

It's worth remembering, when reading that answer, that Greenblatt started working on Wall Street "at the end of 1981" (as he noted in response to another question. So he became a professional investor right before the beginning of an unprecedented 18-year secular bull market. It's not surprising, given that experience, that Greenblatt would recommend a long-only equity strategy to the masses, but I wonder whether that makes sense at this point, since, as Vitaliy Katsenelson has pointed out, secular bear markets (or range-bound markets, as he calls them) tend to last about as long as the secular bull markets that preceded them. That means we could be in for another decade or so of more of the same. Perhaps a more opportunistic approach would be better.

Reworking a Classic

Cheryl picked this up from Barnes & Noble today:



Clever idea by this Grahame-Smith fellow. I bet it's much easier to add zombies and ninjas to a classic novel no longer protected by copyright than it is to write a book from scratch. Why work harder than you have to? From the back of the book:

Complete with romance, heartbreak, swordfights, cannibalism, and thousands of rotting corpses, Pride and Prejudice and Zombies transforms a masterpiece of world literature into something you'd actually want to read.

JANE AUSTEN is the author of Sense and Sensibility, Persuasion, Mansfield Park, and other masterpieces of English literature. SETH GRAHAME-SMITH once took a class in English literature. He lives in Los Angeles

The book includes a "Reader's Discussion Guide" for book clubs, which includes the following question:

6. Some critics have suggested that the zombies represent the authors' views toward marriage -- an endless curse that sucks the life out of you and just won't die. Do you agree, or do you have another opinion about the symbolism of the unmentionables?

Seven NYC Valedictorians

The Metro section of Sunday's New York Times featured brief profiles and a group interview with the seven NYC valedictorians pictured above ("In Uncertain Times, Valedictorians Look Ahead"). The print edition of the paper had the above photo on the front page of the section, and another group photo on p.6, where the article continued. The second group photo listed SAT scores and other info for each of the valedictorians. I showed Cheryl the first photo and asked her to guess which kids had the highest and lowest SAT scores, respectively. She guessed them both, based on the names and photos.

From the article,

These seven valedictorians — the five from public schools ranked highest in their class; Mr. Monsalve and Adrienne Edwards of the elite Spence School were selected to give the valedictory — are a tableau of American ideals¹. Four are from immigrant families — Uzbekistan by way of Armenia, Colombia, the Dominican Republican and Lebanon. Their parents include an elevator mechanic, two hotel banquet servers and a limousine driver, along with the chairman of the neurology department at Mount Sinai Medical Center. They speak Spanish, French, Russian, Arabic, a little Hebrew.

Like all good New Yorkers, they bemoan the subway system, the hordes and the city’s willful indifference to personal boundaries.

Although these young men and women all bemoan the subway system, none of them plans to do anything about it when they grow up: none plans to be a civil engineer, urban planner, politician, or work in another field where one might try to improve it. I find it interesting, too, that the writer notes the valedictorians all bemoan "the hordes and the city's willful indifference to personal boundaries". Something tells me that if a non-New Yorker expressed similar sentiments, a New York Times reporter would take offense.

Look at the profile of the young woman second from right:

ADRIENNE EDWARDS

LIVES IN St. Albans, Queens

COMING FROM Spence School, 49 seniors

GOING TO University of Pennsylvania

HOPES TO be a litigator

SAT SCORE 2160²

Outspoken and assertive, Adrienne commuted 90 minutes by bus and train to Spence, where she enrolled in 7th grade and was head of the hip-hop dance group and the multicultural awareness club. “I don’t think I’ll be able to function at my highest anywhere else but New York because I’ve met all my challenges and had all of my progressions here.”

Might Ms. Edwards be a nominee for the Supreme Court in 2040?

The photo above, of, from left, Jenae Williams, Jordano Sanchez, Adam Sealfon, Kristina Arakelyan, Christian Monsalve, Adrienne Edwards and Muhammad Safa, accompanies the article and is credited to Béatrice de Géa.

¹At the risk of seeming picayune, am I the only one who finds this sentence poorly written? I think what the writer is trying to say is that two of the seven valedictorians (Monsalve and Edwards) tied for that top honor at the same school. She could have explained that clearly and simply in a brief parenthetical comment.

²These scores include the new SAT essay section. Unlike the SAT, the GMAT, which also has an essay section, lists the essay score separately: test-takers can earn a maximum score of 800 points on the objective, standardized test portion of the GMAT (the part schools care the most about) and on the essay section, get a separate score of 0-to-6, which is the average of the subjective assessment of two readers. The GMAT's approach makes more sense, in my opinion. Adding the score of a subjectively-graded section to the scores of two objectively-graded sections, as the SAT now does, seems to muddy the waters a bit.

"Yes we Khan"

The other day, when the local Barnes & Noble was sold out of Rolling Stone, it happened to have Monocle as its new, featured title. I'd been curious to see an issue of Monocle since reading its editor Tyler Brûlé's semi-ridiculous Saturday columns in the Financial Times, which generally focus more on the minutia of his globetrotting than on why he's traveling in the first place.

For example, one column described his early-morning routine at a Hyatt in Seoul: ordering a Mandarin orange juice and a cappuccino from room service, before running for an hour on a treadmill, then scrubbing himself with a brush while sitting on a chair in the hotel's fancy shower/sauna, etc. Another column detailed how he ordered a lackey to fly from London to some town in Switzerland to pick up the wallet Brûlé left there, and hop on a train to Paris to get Brûlé his wallet before his scheduled flight to Tokyo.

In any case, Monocle, as it turns out, is chock full of content (an inch thick) and an interesting read. In one feature, an analyst from Jane's Defense Weekly was asked what aircraft he'd buy if he had $15 billion and were tasked with building an air force from scratch for a mid-sized G-20 country. Another article reported on the nascent commodity- and energy-driven boom in Mongolia, "Yes we Khan". The online version of the article is restricted to subscribers, unfortunately, but it offered some color on the situation in Mongolia. There seem to be a lot of opportunities for natural resources companies there, given the amount of resources in Mongolia and its proximity to China, but how much of that money will filter down to ordinary Mongolians is a question the article raises.

The article also reminded me of the joint venture Alloy Steel International (OTC BB: AYSI.OB) was negotiating with Mongolian conglomerate Geomandel last year. Last I heard about this from Alloy Steel's CEO (this was last October, well before he took the "Run Silent, Run Deep" tack toward shareholder communications), he said,

We have shelved Mongolia for at least 6 Months till this madness subsides.

Maybe when the company releases its next quarterly filing in August it will provide an update on this.

The photo above, of the outskirts of Ulan Bator, accompanied the Monocle article and was credited to Andrew Rowat.

Matt Taibbi versus Goldman Sachs

Here's Matt Taibbi's Rolling Stone feature article on Goldman Sachs, via Zero Hedge, "The Great American Bubble Machine: From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again". And here is Goldman Sachs's response, via Felix Salmon: "Goldman Sachs responds to Taibbi".

Incidentally, when I tried reading Matt Taibbi's article at Zero Hedge yesterday, the Scribd application wouldn't load, perhaps because it was overwhelmed with hits. So I headed to the Hackensack Barnes & Noble. I couldn't find Rolling Stone on the magazine rack, so I asked one of the Barnes & Noble clerks where it was. "Sold out," he said, "There was something important in it, I don't know what". I just started reading the article, so I don't have more to say about it, but you've got links to both sides of the story above. Feel free to add your thoughts in the comment thread.

Update:

A few thoughts, now that I've read Taibbi's article and Salmon's post on Goldman's response:

- There's some truth in Taibbi's article, but it's padded with a good measure of exaggeration. Goldman certainly participated in all the bubbles Taibbi mentions, and profited from them, but the dot-com bubble, the housing bubble, etc., would have happened without Goldman Sachs.

- Taibbi takes the hedge fund manager Masters at his word re: the commodities spike last year. Goldman is an enormous player in commodities, but one problem with blaming the commodity spike on paper speculation, or on firms such as Goldman getting pension funds to pour money into commodity index funds, is that the prices of commodities that aren't traded on futures markets or included in commodity indexes (for example, certain metals) spiked as well.

- Where the actions of Goldman employees and alumni deserve the most scrutiny is in relation to the bailouts of last year (and also the non-bailout of Lehman Brothers).

- Regarding this bit from Felix Salmon,

[Goldman Sachs public relations officer Lucas] Van Praag told me that in the wake of the events of the past year or two, Goldman’s partners have pretty much lost their appetite for going into public service. Maybe that’s for the best. They are generally smart and talented and knowledgeable people, and I daresay that many of them have done a lot of good after leaving the firm and joining government. At the same time, however, we’re supposed to have a government of the people, not a government of multimillionaire Goldman Sachs technocrats.

Two points: 1) I'd hate to think that any Goldman partners have soured on public service, but if they feel the need to do something altruistic, I'm sure no one will object if they decide to teach a high school math class or something after they retire with their managing director money. 2) Contra Salmon, I see no problem with multimillionaire technocrats in key positions in the Treasury department -- most knowledgeable finance types will have accumulated some wealth along the way, (even via side projects and consulting if they are academics). The problem is when so many of these multimillionaire technocrats come from the same firm. This is one case where there would be some inherent value in a little diversity.