Monthly Archives: August 2010

My Watch List – August 31, 2010 (Value Line Issue 1)

I have completed my review of Issue 1 of Value Line and have added a number of stocks to my watch list. I will begin to selectively add valuations as time permits. I will generally focus on those companies that are either near new lows or that have a high earnings yield.

You will see that my valuations take the form of the total return (capital gains plus dividends) that is discounted in the current stock price based on today’s closing price. Please note that these are simplistic valuations based on the extrapolation into the future of the companies’ past performance, including net profit, return on equity, rate of reinvestment, share repurchases and average dividend yield, which may not be indicative of future performance. You should always do your own research.

You will notice that the majority of the stocks on the watch list are categorized as a “Good Business”. That is intentional as the fourth tenet of my investing blueprint is Buy Good Businesses. I want to have an active dashboard where I can easily track all these good businesses and zero in on the ones that Mr. Market is making available at a cheap price. The basic screen for Good Businesses was inspired by Buffett in his 1987 letter to shareholders.

Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.  That is no argument for managerial complacency. Businesses always have opportunities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be seized.  But a business that constantly encounters major change also encounters many chances for major error.  Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise.  Such a franchise is usually the key to sustained high returns.

The Fortune study I mentioned earlier supports our view.  Only 25 of the 1,000 companies met two tests of economic excellence – an average return on equity of over 20% in the ten years, 1977 through 1986, and no year worse than 15% [emphasis added]. These business superstars were also stock market superstars: During the decade, 24 of the 25 outperformed the S&P 500.

To be categorized as a “Good Business”, I am looking for businesses that pass these Fortune tests. Given the severity of the recession, I might include a company that is close but not quite there. As you can see from the study, not many companies pass these stringent tests. If you are fishing in this pond, at least from a quantitative standpoint, you have eliminated many sub-par companies. Note that 24 out of 25 of the stocks that passed the Fortune screen outperformed the S&P over the decade preceding the study.

This approach for the watch list was also inspired by Mason Hawkins who said at a 2005 lecture at the Ben Graham Centre for Value Investing at the University of Western Ontario that he and his team revalue the top 200 businesses in the world every week to see if they are available for less than 60% of value.

By way of review, the other categories are as follows. The categories may be added to or evolve over time.

  1. Special Situation – restructuring, spin-off, bankruptcy, divestitures, etc.
  2. Book Value Aristocrat – exceptional book value growth over the past decade
  3. Strong Moat – evident durable competitive advantage
  4. Guru Purchase – recent purchase by a notable investor

Here is My Watch List for August 30, 2010

The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.

The Ability to Reinvest Capital: The Mark of Investments that Generate Wealth

Markel Corporation, which has a long-term record of compounding capital at a high rate of return under the investment leadership of Tom Gayner and Steve Markel, has a four part equity investment philosophy. They seek, “To invest: 1) in common equity of profitable businesses with good returns on capital, 2) with honest and talented management teams, 3) with reinvestment opportunities and capital discipline, 4) at fair prices.”

I want to focus today on part 3 of Markel’s philosophy. Businesses that can reinvest their capital at high rates of return can generate tremendous wealth over time. They’re the mathematical equivalent of finding a savings account that pays 15-20% interest where you can reinvest your earnings at that same high rate of return for the next ten to twenty years.

Many otherwise very good businesses that throw off a lot of cash – See’s Candies, Google, Microsoft, etc. – reach a point where they are not able to find places to allocate their capital at a high rate of return. For See’s, it was the inability to expand the concept much beyond its core base in California, where it enjoys unusually strong share of mind built up over decades of superior execution. For businesses like Google and Microsoft, their core businesses throw off far more cash than is needed in those business units, and their managements have yet to find an answer for their growing cash balances.

This is less of a problem if you control the business, because you can take the excess cash and intelligently redeploy it. This is precisely what Buffett did with the excess earnings of See’s. With partial ownership of public companies, you are at the mercy of management’s capital allocation decisions. This is another reason to carefully evaluate the management team of a potential investment.

One of the best examples of a business with reinvestment opportunities I’ve come across is Buffett’s example of Thompson Newspapers from a speech Buffett gave at the University of Notre Dame in 1991.

Thomson Newspapers, which most of you have probably never heard of, actually owns about 5% of the newspapers in the United States. But they’re all small ones. And, as I said, it has no MBAs, no stock options – still doesn’t – and it made its owner, Lord Thompson. He wasn’t Lord Thompson when he started – he started with 1,500 bucks in North Bay, Ontario buying a little radio station but, when he got to be one of the five richest men, he became Lord Thompson. I met him one time in England as a matter of fact, in 1972, and went up to see him. He’d never heard of me, but he was a very important guy. (I’d heard of him!)

I said, “Lord Thompson, you own the newspaper in Council Bluffs, Iowa. Council Bluffs is right across the river from Omaha, where I live, four or five miles from my house. I said, “Lord Thompson, You own the Council Bluffs [Daily Nonpareil?]. I don’t suppose you’d ever think of selling it?” He said “I wouldn’t think of it.”

Lord Thompson, once he bought the paper in Council Bluffs, never put another dime in. They just mailed money every year. And as they got more money, he bought more newspapers. And, in fact, he said it was going to say on his tombstone that he bought newspapers in order to make more money in order to buy more newspapers [and so on].

So, where do you find businesses like that? The answer lies in 1) knowing what you’re looking for, 2) having a great search strategy, and 3) working that strategy hard on a consistent basis.

One type of business that has ample reinvestment options at high rates of return is an insurance company run by a great capital allocator, such as Berkshire Hathaway (Warren Buffett), Fairfax Financial (Prem Watsa), Markel (Tom Gayner), or Greenlight Capital Re (David Einhorn). These businesses have both a go-anywhere investment philosophy coupled with a disciplined investment process.

Very few businesses can continue to allocate capital the way these companies can. Moreover, because many CEO’s lack the skill to allocate capital outside their core business, moving beyond their circle of competency may actually destroy value.

The takeaway is to learn to identify these types of businesses and to consciously look for them as you execute your search strategy. You don’t need many of these to get rich.

A Way to Get Your Edge Back and Raise Your Game

I am a firm believer that being in great shape helps raise your performance in all areas of your life, including investing which is a demanding competitive “sport” in its own right. Just as there are many paths to financial success, there are many ways to get in top shape. When I found myself losing my edge physically, I did a program called P90X, which you have probably seen on TV. It’s a demanding 90-day boot camp and it is for real. It will push you both mentally and physically. If you’re looking for something to jump start your fitness program and get your edge back, I recommend you look at P90X.

Links of Interest – August 27, 2010

Firm Makes Bold Bet on Falling Prices – WSJ.com – Fairfax Financial’s bet on deflation

Overestimating the Safety of Bonds – Bucks Blog – NYTimes.com – Be cautious about investing while looking in the rear view mirror.

Must Read Mutual Fund Letters

On August 25, 2010, I posted an article entitled 13 Ideas to Improve your Search Strategy. In it, I recommended following the mutual fund letters of great investors as they are a rich source of investing ideas and wisdom. Today, I am posting letters from three of the best: Francis Chou of the Chou Funds, Steven Romick of the FPA Crescent Fund, and Marty Whitman of Third Avenue Value. Although Marty Whitman is generally well known among investors, Chou and Romick are two formidable investors who are not widely known or appreciated. Both have great long-term track records built on a process of disciplined value investing.

Chou has been part of Prem Watsa’s investment team at Fairfax Financial for over twenty-five years. He also runs the Chou Funds where in 2005 he was named the Canadian fund manager of the decade. Perhaps Romick is not well known because he has been overshadowed by Robert Rodriguez who is at the same firm, FPA Capital. Romick is a smart, disciplined investor with a formidable record who is worth following closely.

Another reason to follow these firms and their funds is that they also invest in bonds, including distressed debt. These disclosures are particularly useful because hedge funds do not typically disclose their positions in debt securities.

FPA Crescent Fund Letter to Shareholders – 2nd Quarter 2010

Chou Funds – Semi Annual Report 2010

Third Avenue funds – Third Quarter Report and Portfolio Management Commentary – July 31, 2010

My Watch List – August 26, 2010

Today, I am inaugurating a new feature on the blog that I hope you will find useful. Each week, I plan to go through the most recent issue of Value Line and update the watch list. The list is not limited to cheap stocks, but will track a large number of stocks of high-quality businesses and special situations in hopes that, at some point, Mr. Market will make them available at mouth watering prices.

Generally stocks will fall into one of the following categories. The categories may be added to or evolve over time.

  1. Good Business – a track record of high return on equity – generally > 18-20% – over the past decade
  2. Special Situation – restructuring, spin-off, bankruptcy, divestitures, etc.
  3. Book Value Aristocrat – exceptional book value growth over the past decade
  4. Strong Moat – evident durable competitive advantage
  5. Guru Purchase – recent purchase by a notable investor

Here is My Watch List for August 26, 2010

Please note that if the idea type for a given investment does not include a given category, for example “Strong Moat”, it does not mean that, in my judgment, the business does not possess that attribute, but rather that it was simply categorized under a different category, for example “Good Business”.

If a stock is included in The Value Line Investment I have included the issue of Value Line where you find it so you can research the stock. Many prominent investors such as Buffett, Munger and Li Lu recommend using Value Line. I use it on a weekly, if not daily, basis.

Also, where available, I have included a link to each stock’s ownership as listed on gurufocus.com, which tracks the publicly disclosed investments of numerous prominent investors.

Finally, you will see a column entitled “Other”. If I come across an interesting link for a given stock, I will try to post it there.

Please tell me what you think about this tool. I also welcome your suggestions on how to make it more useful.

13 Ideas to Improve Your Search Strategy

“I’ve had smarter people around me all my life, but I haven’t run into one yet that can outwork me. And if they can’t outwork you, then smarts aren’t going to do them much good. That’s just way it is.” – Woody Hayes

In order to be a successful investor, you need an effective search strategy. Having a good search strategy presupposes that you have an investing process and philosophy in place. If you don’t know where you’re going, any road will take you there. Also, being consistent is important. It would be better, in my judgment, to have a simple and broad strategy and use it consistently than to have an elaborate strategy that you fail to follow. As, Buffett has pointed out, compelling values are like fast moving elephants. The opportunity cost of being asleep at the switch can be high.

With that, here are some ideas of where to look:

  1. New Lows – Look at the new low list every day.
  2. Value Line – Scan each issue of Value Line on a regular basis. If you are not in the habit of doing this, you can catch up by going through each back issue and flagging all the good businesses that are within your circle of competence.
  3. 13F’s – Follow the disclosures of great investors. A few sites such as gurufocus.com, marketfolly.com and dataroma.com aggregate this information making it easier to follow. Pay attention to the investment process of the investors you choose to follow and whether they run a focused portfolio, in which case their purchases are more meaningful. Also, pay attention to how recent a given purchase is. In addition, be aware that a small position may still have significance if it comprises a large stake in the investee company.
  4. Mutual Fund Letters – Similar to 13F’s with the added benefit that the investors often lay out their case for making a given investment. Hand pick the best: Yacktman, Fairholme, Longleaf, First Pacific Advisors, Akre Capital Management, Third Avenue Value, etc.
  5. Hedge Fund Letters – Pick investors whose process you understand and that fits with what you’re trying to accomplish. Similar to mutual fund letters, the hedge fund managing partner often details his investment theses for various investments.
  6. Business Press – Read the The Wall Street Journal, The New York Times and the The Financial Times on a daily basis. Following Michael Price’s advice, read with purpose, looking for changes that could drive an investment opportunity: new management, restructuring, restatements, acquisitions, busted deals, lawsuits, etc. Also read Barron’s, Forbes, Fortune, BusinessWeek, and The Economist.
  7. Blogs – There are a growing number of high quality blogs with research that equals or, at times, surpasses that available from Wall Street. Seek them out and pay attention. See my “Useful Sites” sidebar as I will be adding to my list of these blogs/sites from time to time.
  8. Screens – Run select screens on a regular basis. Here is a list of screens that Mason Hawkins would run when he started in the investment business: 1) ROC > 12% and less than 8x earnings, 2) < 10x free cash flow, 3) below net asset value, 4) below net asset value plus 20% of PP&E, 5) below book value after taking out intangibles. Follow stocks that meet Joel Greenblatt’s magic formula criteria at magicformulainvesting.com. Also, Value Line publishes several screens of possible cheap stocks  – low P/E’s, low P/B’s, high dividend yield, etc. – in each issue.
  9. Top Businesses – Make a list of the top 100 or 200 business in the world and revalue them on a regular basis.
  10. Trade Magazines/Sites – Seek out and follow trade publications in every industry you understand.
  11. Social Investing SitesValue Investors’ Club (information delayed 90 days for non-members), Seeking Alpha, BloggingStocks, Motley Fool, etc. The Corner of Berkshire & Fairfax Message Board has well-informed posters and high quality discussions.
  12. Subscription Services: Outstanding Investor Digest, Value Investor Insight, The Manual of Ideas are a few examples.
  13. Early Buffett – Following Buffett’s example from when he started his partnership, find a comprehensive database and go through all the listings from A to Z looking for undervalued gems with no analyst coverage.

Here’s hoping that between all of the above you can find a handful of ideas each year that will allow you to reach your investment goals.

Glenn Greenberg at Columbia: How a Great Investor Thinks

The following notes are from a lecture given by investor Glenn Greenberg in the spring of 2010 at the Columbia Business School.

Bruce Greenwald introduces Greenberg by saying that, up until the crisis in 2008, Greenberg had achieved a record that was as good, or better, than that of Warren Buffett.

Greenberg was an English major in college and never contemplated going into investing. He ended up going to Columbia business school with no real career objective. He went to work for J.P. Morgan after b-school. A light bulb went off for Greenberg when he was asked to analyze a company that owned land with redwoods growing on it. He made some enquiries and discovered that the land was worth three times the price at which the company was trading. That shaped his thinking because he learned that there are situations out there where you don’t need to be a genius to figure them out.

He does feel that there are fewer such opportunities today because schools are turning out large numbers of value investors who are competing against each other.

Greenberg worked for five years at J.P. Morgan but was dissatisfied because he did not think he was being trained to be a good money manager. He left and went to work for a small money management firm where he spent five years doing research. He then started his own firm, ten years after leaving school. He believes he profited from the ten years of experience and cautioned audience members about starting their own firm without adequate preparation.

At the small firm where he worked, he was trained to internalize the numbers of a potential investment so he could really think about the business. His boss, who was the only one who could buy and sell stocks, would bring Greenberg into his office and grill him about a potential investment. Greenberg was expected to know the business and its numbers inside out. He does not believe in using pre-made spreadsheets. The investor has to become intimate with the financials.

He started Chieftain in 1984 with $40 million, which was primarily family money. From the start, he chose to spend as little time on marketing as possible so he could focus on research. He also spent little time talking to clients which he views as non-productive. Those who need of a lot of hand holding are not a good fit for his firm. Since inception, he said he has beaten the market by an average of 8% annually.

He recently started a new firm called Brave Warrior Capital. He said he re-focused on reading the source material himself rather than relying on prepared data. He said that you should not use numbers prepared by others, but rather generate them yourself. This will also teach you what numbers you need to focus on. You need to boil it down to a small set of key drivers, because the performance of each business is typically driven by a set of key variables.

He first wants to know if a prospective investment is a good business, i.e. could it survive a severe downturn. He then looks to see if it is cheap enough. He again stressed how it is critically important to read the 10-K’s. He was using Capital IQ but decided to drop it because he found too many errors. But more importantly by using it, he and his analysts were not becoming personally immersed in the numbers.

He recently invested in Google.

Greenberg admits that there is a lot that he does not know about Google. But he does know that people now spend 30% of their time online and that 10% of advertising is done online. He is willing to bet that over the next five to ten years the percentage of advertising done online will catch up with the percentage of people’s time spent online. He does not know exactly how it will play out, but he does believe that Google, with a 50% market share in online advertising, will get its fair share. He also likes the optionality value of all its other businesses where they have invested a lot of money.

You could build various models for Google, but in the end it’s a bet that Internet advertising will grow and that Google will get its share. He believes making an investment is making a bet. (Note: I am reminded here of Buffett who said, “I would rather be approximately right than precisely wrong.”)

He cited a scene from the movie A Beautiful Mind to explain how he views investing and analyzing data. In a scene, John Nash is looking at formulae in his mind; he is able to pick out the key numbers which, in his mind, he sees as highlighted. Analogously, a good investor must be able look at all the data surrounding a company and determine the numbers that really matter. (Note: Buffett talks about the same idea, i.e. that each business has a handful of important drivers. For example, for banks it’s return on assets. For Coke, it’s cases sold and the number of shares outstanding. For insurance companies, it’s the cost of float and how fast it’s growing.)

You need to indentify and think about the key variables that drive an investment. He tells young analysts that they should imagine, when preparing for an interview with a CEO, that they could administer truth serum and be assured of truthful answers. The catch is that they could only ask three questions. These are the questions you need to identify and try to answer. These should be strategic questions, not what the company’s EPS will be next year. Go after the questions that would allow you to make up your mind about an investment.

Bruce Greenwald asks Greenberg if he could give some examples of this in practice. Greenberg says he is very interested in Abbot. At $52 a share it’s trading at about 10x cash flow. It has a great track record. It has one drug, Humira, that accounts for about 45% of earnings and the percentage is growing. Greenberg says that because Humira is a large molecule drug it will be harder for generics to copy. This may prevent sales from “falling off a cliff”, but eventually the Humira franchise will come to end.

If he was going to meet with the CEO, Greenberg would ask him how he thinks about the challenge the company faces when this drug comes off patent. He would press hard on this point because this is the major investment issue – this is the central question in deciding whether to invest.

Another example is Ryanair where Greenberg has a large position.

It was started 20 years ago and was designed to be a low-cost provider. If you looked at its financials, you would not know that it is an airline because the results are so good. They grew quickly and were able to purchase airplanes inexpensively. This supply of cheap planes has dried up, and they have few or no new airplanes in the pipeline to continue growing the business.

The key investment question is where do they want to go from here, i.e. do they want to be a growth company, what if they never bought another plane or never added another route? Greenberg analyzed what the company would look like if they never bought another plane and just cherry-picked good routes and paid out the cash. They concluded that the only thing that would really change is that the company would need to increase CapEx to maintain its fleet. Using very reasonable assumptions, Greenberg calculated that, under this scenario, they could still generate a 13.5% return for investors. If you have done this analysis, it sets a high hurdle rate for investment in new planes. This is an example of how he thinks about and analyzes an investment.

This concludes my notes on the first part of the lecture. I plan to post my notes on part 2 within the next few days. I welcome your comments.

Niall Ferguson: Where He Recommends Investing Given a Possible U.S. Debt Crisis

On Friday, August 20, 2010, I posted a link to a lecture given by Niall Ferguson, a Harvard historian who also teaches at the Harvard Business School, entitled “Fiscal Crises and Imperial Collapses: Historical Perspectives on Current Predicaments”. I chose to write about the lecture because during the Q&A, a questioner asked Ferguson what, “History tells us about how one invests their money in this kind of situation?” Before I get to Ferguson’s answer, I want to offer some brief perspective.

Those who follow value investing know that value investors are famous for not spending a lot of time on macroeconomics. The general view among value investors – at least going into the current crisis – is that the performance of the economy cannot be predicted with a useful level of certainty. Ample evidence exists to bolster this claim.

Investing is, after all, about predicting what will happen in the future. It makes sense to limit oneself to those few areas where it can actually be done.

One such area, which is generally focused on by Buffett in the Berkshire era, is to only invest in companies with clear durable competitive advantages, which lend themselves to long-range forecasting. The most obvious example of this approach is Buffett’s investment in Coke.

Another strategy is to invest in situations where predicting the future is unnecessary because the assets in which you invest are so compellingly valued that you are (nearly) assured of making money regardless of what happens in the future.

What is striking about Ferguson’s analysis about the current macroeconomic predicament is his conclusion about the seeming inevitability of the outcome. Picking up the argument, based on historical precedence, Ferguson argues that there are six ways out of the debt crisis facing the United States.

  1. Grow your way out.
  2. Lower interest rates on your borrowing.
  3. Get bailed out.
  4. Fiscal pain: Increase taxes and cut spending
  5. Print money (inflate your way out)
  6. Default

Ferguson quickly rules out the first three options. He is skeptical the U.S. can grow fast enough given its current burdens. Rates are already low and borrowing costs could spike if the market begins to focus on the growing risks of U.S. debt. No one is in a position to bail out the U.S.

Then, based on the lessons of history, he concludes that option 4 is highly unlikely (he could find only one example where it was successfully done) which leaves printing money and default. I recommend reading the lecture in its entirety to better follow Ferguson’s argument.

Now back to the investing question. As I previously indicated, Ferguson was asked how he would invest given his assessment.

He likes countries that are fiscally sound as evidenced by moderate debt-to-GDP ratios. He cited Canada and Norway as specific examples of countries where he would be long.

He is bullish on the future growth of both China and India, but he favors India given its rule of law, representative government and free speech. He is concerned about the sustainability of innovation and entrepreneurship in a controlled economy.

He is also concerned about the rising risks of holding paper currencies and said he should perhaps be valuing his portfolio in terms of barrels of oil or ounces of gold. He did not offer any specific recommendations for going long oil or gold.

Many hedge funds have been taking material positions in gold over the past year. See the blog marketfolly.com for excellent coverage of these investments. Interestingly, the FPA Capital Fund, whose investment officer Bob Rodriguez is a highly regarded value investor with one of the best records over the past decade, has over a third of its capital in oil-related investments as of June 30, 2010 (24.38% Oil Field Services and 11.7% Oil & Gas Exploration).

Value investor Chuck Akre, whose 2nd Quarter 2010 letter I also posted on Friday and whose take on Ferguson’s analysis is worth reading, recommends investing in businesses with superior economics in light of possible U.S. debt crisis.

We do positively conclude therefore that the “best” safe place for the preservation and future enhancement of our accumulated capital is in operating businesses which have ‘pricing power.’ So we continue down that very path which we have been on for several decades, searching for the outstanding businesses that demonstrate high returns on capital, managed by folks with equal parts of skill and integrity, where the ‘reinvestment’ thinking and execution are way above average. It turns out that in 1975, and again in 2009, that those businesses which have these attributes continued to build real economic value throughout the market collapse, and recovered much of their “lost” value in a reasonable time frame. We continue to purchase such businesses while being disciplined about price. We’re also mindful that in the midst of a massive debt crisis, having some cash on hand for a rainy day really isn’t awful. If we’ve explained it properly, our hope is that this defensive approach will appeal to you, although it most certainly will cause our results to vary from the indices.

Leading with Patience – The Will to Wait

The following is an article by Doug Moran of If You Will Lead, LLC

Patience is a virtue.  This pearl of wisdom has been a bone in the throat of even the most patient leader.  Patience is an easy thing to talk about, but it is extremely difficult to practice.  Webster’s defines patience as, “the quality of being capable of bearing affliction calmly.”  Patience is the third attribute Rudyard Kipling described in the poem ‘If-:’

If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,

Most of us think of patience as a construct of time, but Kipling was addressing the broader definition – enduring difficulty and hardship while awaiting the appropriate opportunity to act.  He is also referring to the patience required to bear the nagging and sniping that often accompanies a decision to wait.

Patience is a quality often lacking among today’s leaders.  Society expects those in charge to take action quickly and decisively.  True leaders recognize that patience enables them to take stock of the situation, to understand what is required, and wait while they build the capacity to take appropriate and effective action.  Patience requires composure and character (as discussed in earlier blogs).  Societal pressures for action may cause others to criticize and condemn a leader’s perceived inaction or lack of speed.  People will first demand action.  Then they will demand results.  The greater the crisis, the greater the impatience.

By demonstrating patience, leaders reinforce the importance of focusing on the long-term outcomes.  Patience doesn’t mean ignoring the interim milestones or short-term deliverable.  It does mean keeping them in context.

(continue reading)

Leading with Patience – The Will to Wait, February 2, 2010, ifyouwilllead.com

Links of Interest, August 20, 2010

Invest alongside professionals – DATAROMA – Value investing – portfolio updates on some great investors

Lesson on 13F’s From Whitney Tilson & an Update on Their InterOil Short Position ~ market folly – good advice from Whitney Tilson if you use 13F’s to generate ideas: read them carefully!

Jeremy Siegel and Jeremy Schwartz: The Great American Bond Bubble – WSJ.com

Akre Capital Management, LLC’s Second Quarter 2010 Letter – Sobering assessment of investors’ options given the specter of a U.S. debt crisis

Fiscal Crises and Imperial Collapses: Historical Perspective on Current Predicaments – Harvard’s Niall Ferguson on the fiscal challenges and choices facing the U.S.

Fairholme Funds Semi-Annual Report for the 6 Months Ended May 31, 2010 – Past Ten Years: Fairholme up $226.10% vs. the S&P 500 down 14.79% – They’re doing something right.

Li Lu’s 2010 lecture at Columbia

Whitney Tilson and Glenn Tongue’s take on the market plus their long case for Anheuser-Busch InBev, Microsoft, and BP courtesy of marketfolly.com

Buffett on Durable Competitive Advantages