I was going to talk about what do when the market crashes, but since the market is up today I will hold off on it. My friend writes this occasional email on his thoughts about the economy, great links etc. I just take note with his views on S&P500 book value, see here if you are interested-http://www.gurufocus.com/news/140340/stock-market-valuation-august-1-2011

Facts and Figures

  1. The first half of 2011 (ended June 30) was an eventful, costly and tragic one for those affected by natural disasters. Due largely to the Japanese earthquake and tsunami in March, the ~$265b in economic losses is already well ahead of the previous worst-ever year of 2005 (which totaled $220b for the entire year, largely due to Katrina)…and historically, 2nd half losses greatly exceed those of the 1st half.
    • the preliminary total for economic damage from the Japanese earthquake and tsunami ($210b) makes it the costliest disaster on record (Katrina was only $120b)
    • Insured losses ytd 2011 are running ~$60b, five times greater than the average year since 2001.
    • But while severity is up, the total number of insured events (355) is actually somewhat below the trailing 10 year average (390). (Source: Munich Re)
  2. The S&P 500, on a unit value basis, is estimated (by S&P itself) to earn $96 this year. At 1200 (and falling?), that’s 12.5x — sounds awfully reasonable, right? But on the same unit value basis, the book value of the S&P 500 is $360 — that’s a multiple of 3.33x and an ROE of more than 26%…and those numbers are not so reasonable. (Berkshire has earned 20% over the long haul; other examples with a 2 as the first digit are scarce, to say the least. Berkshire also currently trades at <1.2x, which implies a pretty bleak earnings future for the company, despite its track record and despite its ownership of a multitude of great businesses that could be considered bellwethers for the broader economy.) The S&P 500 did post an ROE of 21% in 2010, but the obvious implication here is not a positive one for both future returns on equity and the (eventually) corresponding market level. (h/t Horizon Asset Management)


  1. In a follow up to last month’s link to an article by Joel Greenblatt, I’d like to draw your attention to a profile of Greenblatt and his new fund inSantangel’s Review. The website and newsletter are devoted to finding “undiscovered investors,” with a strong value-investing bent. It’s truly an excellent publication, and the March profile of Greenblatt and Gotham Asset Management is one of the best investor profiles I’ve ever read. Greenblatt doesn’t get the feature-length articles or biographies so common to Buffett and others, but he should. I can’t recommend this profile enough, and Steve Friedman, the main man behind Santangel’s Review, is offering an excerpted version for Accredited Investors — email him at[email protected].
  2. A Conversation with Gary Klein” — an applied psychologist, Klein has a lot of good insights. Endorsed by none other than Daniel Kahneman.
  3. Corporate America Will Miss Munger-as-Mencken” — a farewell/paean to Charlie Munger by Buffett biographer Alice Schroeder. Even better,here are some excellent notes from Charlie Munger’s last annual meeting, courtesy of Ben Claremon’s excellent blog.
  4. Inside RIM: An Exclusive Look at the Rise and Fall of the Company that Made Smartphones Smart” — interesting comments from insiders, highlighting just a fast a dominant company like this can fall.
  5. Honest Tea Declares Chicago Most Honest City, New York Least Honest” — there were only 5,000 samples in this “study, but I’m still shocked that the numbers were so high across the board. Maybe we’re not doomed after all…but then again, if Chicago’s so honest, where do all those crooked Chicago politicians get it from?
  6. Byliner Spotlight: The Pulitzer Winners — a collection of Pulitzer-winning articles from 1994 onward.
  7. Inside Pfizer’s Palace Coup” — very interesting look at Pfizer’s leadership and culture over the past decade. Highly recommended.
  8. Government Housing Policy: The Sine Qua Non of the Financial Crisis” — the latest good stuff on the housing market from Ed Pinto.


  1. Dan Ariely on Behavioural Economics — courtesy of The Browser. I highly recommend this article and the books referenced in it. 
  2. What Does Bill Gates Read for Fun?” — these great recommendations are apparently from the man himself. Categories include education, energy, development, health, and economics, among others. 


  1. Jim Grant: “I think I have proven — not once, but over the course of years — that I have no idea when bond yields are going to be going higher. My only observation is that they yielding scarcely more in most cases, and in many cases less, than the existing rate of inflation. And Benjamin Graham told us all that we ought to insist on a margin of safety in our investments.” (Source: Bloomberg)
  2. More Grant: “Kids today talk about beer goggles — an especially sympathetic state of perception with regard to a member of the opposite sex. We collectively wear interest-rate goggles because we see market values through the prism of zero-percent funding costs. Everything is distorted.”
  3. Everything you need to know about sell-side analysts captured in two sentences: “[Berkshire Hathaway] equity is the cheapest I’ve seen it in a long, lone while. It’s hard for me to get really positive on that.” — Tom Lewandowski, analyst with Edward Jones, who rates Berkshire a “hold.” No analysts, as surveyed by Bloomberg, rate it a “buy.”
  4. Stanley Black & Decker (SWK), in its most recent proxy, made the bold and admirable declaration that it “does not believe it is necessary for the attraction or retention of executive talent to provide our executives with a substantial amount of compensation in the form of perquisites. The Company does, however, provide its executive officers with some perquisites, including financial planning services, life and long-term disability insurance, car allowance, home security system services, executive medical exams, and up to $5,000 of company products…” So how does SWK define “substantial” and “some”? Here’s a list of benefits for Executive Chairman Nolan D. Archibald:
  • $526,391 of personal plane travel
  • $39,671 in reimbursed financial-planning costs
  • $9,522 for personal use of a company car
  • $16,200 as a car allowance
  • $4,528 in “personal use of tickets to athletic and other entertainment events”
  • $1,820 in club dues
  • $2,635 in free tools or other company merchandise
And none of that includes a $1.2 million base salary (in cash) or a huge helping of options, which takes his total compensation to $28.2 million. But he still needs $2,635 worth of tape measures and screwdrivers? I’m shocked that only 54 percent of shareholders voted against the executive compensation packages and that 35 percent gave them a thumbs up. (Source: Footnoted.com and company filings)


  1. “SEC works to get rid of the ‘lease to nowhere'” — this is a special brand of incompetence even by SEC standards. (Source: footnoted)- SEC works to get rid of “The Lease to Nowhere”…
  2. “Short-termism and the risk of another financial crisis” — this is a good editorial by Sheila Bair, the recently departed chair of the FDIC. She had the (mis)fortune of serving in that role for five years beginning in 2011. Overall, she did a pretty good job. Joe Nocera recently published this profile, which captures most of her thinking.
    1, 2  - View Full Page