Hottest links for Monday 2nd December, the late edition (see weekend’s edition of hottest links). Get our free daily newsletter (which HAS BEEN RECENTLY UPDATED) and never miss a single linkfest. Also, now if you sign up you will get our new e-book on value investing.
Top stories for today are included below. This afternoon, we’ve got some great links, including a classic look at Buffett’s ‘Circle of Competence,’ Bill Bernstein on when to trim risk when things are going well, and a few whispers that now, with the seemingly unstoppable surge of investors going long on US equities, it might just be time for contrarians to make a stand.
Hottest Links: Stories
Mental Model: Circle of Competence
The concept of the “Circle of Competence” has been used over the years by Warren Buffett as a way to focus investors on only operating in areas they knew best. The bones of the concept appear in his 1996 Shareholder Letter. [Shane Parrish, Farnam Street]
How To Value Invest Excerpt Part 3
How To Value Invest, the first thing I recommend after reading this book is to find a company you find interesting for some reason, read its annual, quarterly, and proxy reports, and value and evaluate the company. [Jason Rivera, Value Investing Journey]
Thomas Cook Valuation: Case Study
Thomas Cook India Ltd (BOM:500413) (NSE:THOMASCOOK) is India’s largest, fully integrated and highly profitable Foreign Exchange and Travel Operator having a current market cap of ~INR 14 billion and FY12 revenue of ~ INR 4.3 billion. [ValueWalk]
The case for small cap European stocks
Fosback nevertheless favors the microcap category for the seasonal portfolio he recommends to clients, though not by buying and selling individual stocks. Instead, he prefers the iShares Russell Microcap Index (ETF) (NYSEARCA:IWC), with an expense ratio of 0.72%. The fund replicates the performance of the smallest 1,000 stocks in the Russell 2000 (INDEXRUSSELL:RUT); the average market cap of the stocks it owns is $420 million. [Humble Student]
Has the Contrarian Investors’ Day Come?
The latest high profile bear to capitulate is Hugh Hendry, at the hedge fund Eclectica Asset Management. Although relatively small–Eclectica had $1.3 billion under management at the start of the year–Mr. Hendry has had a high profile for much of the past decade, having been a prominent bear in the run up to the 2007 crash. [Alen Mattich, MoneyBeat]
Gold-Miner ETF Sinks to Fresh 5-Year Low
Market Vectors Gold Miners ETF (NYSEARCA:GDX) dug itself a fresh five-year low Monday. The ETF is down 4.7% to $21.24 this afternoon. Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), representing small, more speculative companies, is down by 5.6%. [Brendan Conway, Focus On Funds]
Ready to Be Rich
David Tepper—whose hedge fund made a killing during the crash by betting the government wouldn’t let the big banks fail—is coming out of the billionaire closet. [Jessica Pressler, NYMag]
Apple Inc. (AAPL), MU, MRVL Rally In November As Einhorn Returns 5%
As of 30-November-2013, the largest disclosed long positions in our investment portfolio are Apple Inc. (NASDAQ:AAPL), General Motors Company (NYSE:GM), Marvell Technology Group Ltd. (NASDAQ:MRVL), Micron Technology, Inc. (NASDAQ:MU) and Vodafone Group Plc (NASDAQ:VOD) (LON:VOD). [Jacob Wolinsky, ValueWalk]
Terms of Art: Two Words of Advice
Joshua M. Brown, CEO of Ritholtz Wealth Management, has a good ear for the words of Wall Street. He assembled the following two-word investment outlooks for his blog, The Reformed Broker… [Robin Goldwyn Blumenthal, Barron’s]
Bill Bernstein: Take Risk Off The Table
It takes guts to trim equity exposure when the going is so good, but that’s exactly what investors should be doing now, Bill Bernstein says. [Olly Ludwig, IndexUniverse]
The US is the Most Expensive Stock Market in the World
Out of 44 developed and emerging markets in the world, the US stock market is the most expensive on a 10 Year PE ratio basis with a value of 25 (CAPE). If you include frontier markets, the US is the most expensive out of 55 markets with the one exception of Sri Lanka. [Mebane Faber]
Private equity has a whistleblower problem
For decades, private equity funds have collected “transaction fees” from their portfolio companies, often related to mergers or initial public offerings. Sometimes they share with their investors, sometimes they don’t. [Dan Primack, Term Sheet]
High Frequency Trading is great for society!
I consider high frequency trading to be natural, and definitely socially useful. What’s happened is that as the markets have become electronic, and computers have been applied to generating prices and accepting trades, and all the rest, is that the markets have grown tremendously more liquid. [David Foulke, Turnkey Analyst]
The Observer’s Annual “Roll Call of the Wretched”
Since managers love to brag about the consistency of their performance, here are the most consistently awful funds that have over a billion in assets. Funds repeating from last year are flagged in red. [David, Mutual Fund Observer]
The Value of Net Operating Losses
Suppose your company is a no growth company with a pre-tax return on equity of 10% that pays all their earnings to shareholders in the form of dividends. After paying 30% corporate income tax the company earns 7% on their equity and pays all the earnings to shareholders. [Mark Vonderwell, MicroCapClub]
The New Visual Data Discovery Solution
The company I’m writing about is Datawatch Corporation (NASDAQ:DWCH). It’s new because of the combination of Datawatch with Panopticon. Now it has a new software solution called Datawatch Desktop. [ShadowStocks]
Should Amazon buy Domino’s Pizza?
Domino’s would cost $4 billion to buy. In Amazon dollars that is a few loose bitcoins. Either way, as an investor, the next time you are considering Amazon.com, Inc. (NASDAQ:AMZN), you might just want to add a profitable proxy for them in the form of a Domino’s. You would have done better since the bottom in 2008… [Howard Lindzon]
Bloomberg Beats Reuters, FactSet: William Blair Survey
William Blair and Options Group jointly conducted a survey of end-users of financial information systems, focused primarily on compensation trends in the financial services industry. However, Blair included questions in the survey addressing employment issues as well as regarding financial information systems providers. [Saul Griffith, ValueWalk]
Fast and Furious and…Wealth Management?
Over the weekend tragedy struck as movie star Paul Walker (of ‘The Fast and the Furious’ franchise) was killed in a car crash after which the vehicle was engulfed in flames. Both the driver and Walker, who was the passenger, are dead. [Joshua M Brown, The Reformed Borker]
Top Reddit Posts
Click for interactive graphic. [Berry Ritholtz, The Big Picture]