Investment style
Ultra long-term buy-and-hold investor in technology growth stocks.
10 January 2010
T Rowe Price
Until his retirement in the late Sixties, Price was the head of the investment firm he founded, T Rowe Price Associates. The firm still exists today and operates out of Baltimore, Maryland, USA.
Investment style
Cyclical investor in long-term growth companies, buying at the bottom of the business cycle and selling at the top. In later life, Price switched to a more value-driven style, investing in steady-growth, oil and gold stocks.
Investment style
Cyclical investor in long-term growth companies, buying at the bottom of the business cycle and selling at the top. In later life, Price switched to a more value-driven style, investing in steady-growth, oil and gold stocks.
Warren Buffett
Chief executive officer, Berkshire Hathaway Holdings, an investment firm headquartered in Omaha, Nebraska, USA.
Investment style
Originally a value investor interested chiefly in assets, Buffett has since become a long-term growth investor.
Investment style
Originally a value investor interested chiefly in assets, Buffett has since become a long-term growth investor.
Sector Rotation
Different sectors are stronger at different points in the economic cycle. The graph above shows these relationships and the order in which the various sectors should get a boost from the economy. The Market Cycle preceeds the Economic Cycle because investors try to anticipate economic effects. (Sam Stovall)
Sector rotation is an investment strategy involving the movement of money from one industry sector to another in an attempt to beat the market. It sprouted as a theory from NBER (National Bureau of Economic Research) data on economic cycles, dating back to 1854. It’s thanks to this cadre of government and academic economists that we know the start, end and duration of each business cycle.
Sector rotation is an investment strategy involving the movement of money from one industry sector to another in an attempt to beat the market. It sprouted as a theory from NBER (National Bureau of Economic Research) data on economic cycles, dating back to 1854. It’s thanks to this cadre of government and academic economists that we know the start, end and duration of each business cycle.9 January 2010
Adam Smith: The Theory of Moral Sentiments
The Theory of Moral Sentiments was written by Adam Smith in 1759. It provided the ethical, philosophical, psychological and methodological underpinnings to Smith's later works, including The Wealth of Nations (1776), A Treatise on Public Opulence (1764) (first published in 1937), Essays on Philosophical Subjects (1795), and Lectures on Justice, Police, Revenue, and Arms (1763) (first published in 1896).
Broadly speaking, Smith followed the views of his mentor, Francis Hutcheson of the University of Glasgow, who divided moral philosophy into four parts: Ethics and Virtue; Private rights and Natural liberty; Familial rights (called Economics); and State and Individual rights (called Politics).
Broadly speaking, Smith followed the views of his mentor, Francis Hutcheson of the University of Glasgow, who divided moral philosophy into four parts: Ethics and Virtue; Private rights and Natural liberty; Familial rights (called Economics); and State and Individual rights (called Politics).
Wealth
Wealth, etymology:
mid-13c., "happiness," also "prosperity in abundance of possessions or riches," from M.E. wele "well-being" (see weal (1)) on analogy of health. Wealthy as a synonym for "rich" is recorded from early 15c.
weal (1)
"well-being," O.E. wela "wealth," in late O.E. also "welfare, well-being," from W.Gmc. *welon, from PIE base *wel- "to wish, will" (see will (v.)). Related to well (adv.).
will (v.)
O.E. *willan, wyllan "to wish, desire, want" (past tense wolde), from P.Gmc. *welljan (cf. O.S. willian, O.N. vilja, O.Fris. willa, Du. willen, O.H.G. wellan, Ger. wollen, Goth. wiljan "to will, wish, desire," Goth. waljan "to choose"), from PIE *wel-/*wol- "be pleasing" (cf. Skt. vrnoti "chooses, prefers," varyah "to be chosen, eligible, excellent," varanam "choosing;" Avestan verenav- "to wish, will, choose;" Gk. elpis "hope;" L. volo, velle "to wish, will, desire;" O.C.S. voljo, voliti "to will," veljo, veleti "to command;" Lith. velyti "to wish, favor," pa-vel-mi "I will," viliuos "I hope;" Welsh gwell "better"). Cf. also O.E. wel "well," lit. "according to one's wish;" wela "well-being, riches." The use as a future auxiliary was already developing in O.E. The implication of intention or volition distinguishes it from shall, which expresses or implies obligation or necessity. Contracted forms, especially after pronouns, began to appear 16c., as in sheele for "she will." The form with an apostrophe is from 17c.
Economic connotations:
Adam Smith:
Adam Smith, in his seminal work The Wealth of Nations, described wealth as "the annual produce of the land and labour of the society". This "produce" is, at its simplest, that which satisfies human needs and wants of utility. In popular usage, wealth can be described as an abundance of items of economic value, or the state of controlling or possessing such items, usually in the form of money, real estate and personal property. An individual who is considered wealthy, affluent, or rich is someone who has accumulated substantial wealth relative to others in their society or reference group.
Wealth can be categorized into three principal categories: personal property, including homes or automobiles; monetary savings, such as the accumulation of past income; and the capital wealth of income producing assets, including real estate, stocks, and bonds.[citation needed] All these delineations make wealth an especially important part of social stratification. Wealth provides a type of safety net of protection against an unforeseen decline in one’s living standard in the event of job loss or other emergency and can be transformed into home ownership, business ownership, or even a college education.
Max Weber:
Weber argues that Puritan ethics and ideas influenced the development of capitalism. Religious devotion, however, usually accompanied a rejection of worldly affairs, including the pursuit of wealth and possessions. Why was that not the case with Protestantism? Weber addresses this apparent paradox in the books.
To illustrate and provide an example, Weber quotes the ethical writings of Benjamin Franklin:
"Remember, that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle, one half of that day, though he spends but sixpence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides. ... Remember, that money is the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is six, turned again is seven and threepence, and so on, till it becomes a hundred pounds. The more there is of it, the more it produces every turning, so that the profits rise quicker and quicker. He that kills a breeding sow, destroys all her offspring to the thousandth generation. He that murders a crown, destroys all that it might have produced, even scores of pounds.(Italics in the original)"
Weber notes that this is not a philosophy of mere greed, but a statement laden with moral language. Indeed, Franklin claims that God revealed to him the usefulness of virtue.[1]
mid-13c., "happiness," also "prosperity in abundance of possessions or riches," from M.E. wele "well-being" (see weal (1)) on analogy of health. Wealthy as a synonym for "rich" is recorded from early 15c.
weal (1)
"well-being," O.E. wela "wealth," in late O.E. also "welfare, well-being," from W.Gmc. *welon, from PIE base *wel- "to wish, will" (see will (v.)). Related to well (adv.).
will (v.)
O.E. *willan, wyllan "to wish, desire, want" (past tense wolde), from P.Gmc. *welljan (cf. O.S. willian, O.N. vilja, O.Fris. willa, Du. willen, O.H.G. wellan, Ger. wollen, Goth. wiljan "to will, wish, desire," Goth. waljan "to choose"), from PIE *wel-/*wol- "be pleasing" (cf. Skt. vrnoti "chooses, prefers," varyah "to be chosen, eligible, excellent," varanam "choosing;" Avestan verenav- "to wish, will, choose;" Gk. elpis "hope;" L. volo, velle "to wish, will, desire;" O.C.S. voljo, voliti "to will," veljo, veleti "to command;" Lith. velyti "to wish, favor," pa-vel-mi "I will," viliuos "I hope;" Welsh gwell "better"). Cf. also O.E. wel "well," lit. "according to one's wish;" wela "well-being, riches." The use as a future auxiliary was already developing in O.E. The implication of intention or volition distinguishes it from shall, which expresses or implies obligation or necessity. Contracted forms, especially after pronouns, began to appear 16c., as in sheele for "she will." The form with an apostrophe is from 17c.
Economic connotations:
Adam Smith:
Adam Smith, in his seminal work The Wealth of Nations, described wealth as "the annual produce of the land and labour of the society". This "produce" is, at its simplest, that which satisfies human needs and wants of utility. In popular usage, wealth can be described as an abundance of items of economic value, or the state of controlling or possessing such items, usually in the form of money, real estate and personal property. An individual who is considered wealthy, affluent, or rich is someone who has accumulated substantial wealth relative to others in their society or reference group.
Wealth can be categorized into three principal categories: personal property, including homes or automobiles; monetary savings, such as the accumulation of past income; and the capital wealth of income producing assets, including real estate, stocks, and bonds.[citation needed] All these delineations make wealth an especially important part of social stratification. Wealth provides a type of safety net of protection against an unforeseen decline in one’s living standard in the event of job loss or other emergency and can be transformed into home ownership, business ownership, or even a college education.
Max Weber:
Weber argues that Puritan ethics and ideas influenced the development of capitalism. Religious devotion, however, usually accompanied a rejection of worldly affairs, including the pursuit of wealth and possessions. Why was that not the case with Protestantism? Weber addresses this apparent paradox in the books.
To illustrate and provide an example, Weber quotes the ethical writings of Benjamin Franklin:
"Remember, that time is money. He that can earn ten shillings a day by his labor, and goes abroad, or sits idle, one half of that day, though he spends but sixpence during his diversion or idleness, ought not to reckon that the only expense; he has really spent, or rather thrown away, five shillings besides. ... Remember, that money is the prolific, generating nature. Money can beget money, and its offspring can beget more, and so on. Five shillings turned is six, turned again is seven and threepence, and so on, till it becomes a hundred pounds. The more there is of it, the more it produces every turning, so that the profits rise quicker and quicker. He that kills a breeding sow, destroys all her offspring to the thousandth generation. He that murders a crown, destroys all that it might have produced, even scores of pounds.(Italics in the original)"
Weber notes that this is not a philosophy of mere greed, but a statement laden with moral language. Indeed, Franklin claims that God revealed to him the usefulness of virtue.[1]
Gates and Buffet on "The Next Big Thing".
Friday, November 13, 2009
Bill Gates, Buffett On What Industry(s) Will Produce The Next Bill Gates (CNBC, Keeping America Great Transcript)
http://www.distressedvolatility.com/2009/11/bill-gates-buffett-on-what-industrys.html
These are quotes from the CNBC Town Hall event, Warren Buffett and Bill Gates: Keeping America Great, taped Thursday, November 12, 2009 at Columbia University in New York City. The full transcript is here. I found this question interesting:
Selected quotes from CNBC.com
"QUESTION: Hi. My name is Katrina Gankena, and I was born in Russia. And I'm a second-year student at Columbia Business School. My question is for Mr. Gates. What industry do you think is going to produce the next Bill Gates? Because that's the industry I want to get a job in. [LAUGHTER] [APPLAUSE]
GATES: Industries do have different paces of innovation. So the IT industry, driven by the magic of software, the magic of the optic fiber, magic of the chip which doubles in power every couple of years, it's been the industry that has not only been the most exciting, it's also changed the rules for many other industries. The idea of information being available, what the online world is like, that's incredible. I'll tell you, there are a few other industries that will compete for being exciting in the decades ahead. The energy business, some approach will provide cheaper energy that's environmentally friendly. And there's a lot of science, a lot of business. That's a global thing. There will be some great careers there. Medicine, you know. We haven't solved Parkinson's or Alzheimer's or about 20 diseases of these poor countries, and yet we can be sure that we're on track to do that. And so those three industries I think you would do great in. There's many others, but those are the ones that have the strongest appeal to me.
BUFFETT: Find what turns you on. Find what you have a passion for. If somebody said to me when I was getting out of Columbia, you know, that Bill's business was going to be the one that would be exciting, you know, I don't think I'd have done so well. [LAUGHTER] But I knew what turned me on. I had a professor, Ben Graham, I offered to go to work for him for nothing. He said, "You're overpriced." Nonetheless, I went into the business. [APPLAUSE] I will guarantee, you will do well at whatever turns you on. There's no question about that. Don't let anybody else tell you what to do. You figure out what you are doing. [APPLAUSE]"
Bill Gates, Buffett On What Industry(s) Will Produce The Next Bill Gates (CNBC, Keeping America Great Transcript)
http://www.distressedvolatility.com/2009/11/bill-gates-buffett-on-what-industrys.html
These are quotes from the CNBC Town Hall event, Warren Buffett and Bill Gates: Keeping America Great, taped Thursday, November 12, 2009 at Columbia University in New York City. The full transcript is here. I found this question interesting:
Selected quotes from CNBC.com
"QUESTION: Hi. My name is Katrina Gankena, and I was born in Russia. And I'm a second-year student at Columbia Business School. My question is for Mr. Gates. What industry do you think is going to produce the next Bill Gates? Because that's the industry I want to get a job in. [LAUGHTER] [APPLAUSE]
GATES: Industries do have different paces of innovation. So the IT industry, driven by the magic of software, the magic of the optic fiber, magic of the chip which doubles in power every couple of years, it's been the industry that has not only been the most exciting, it's also changed the rules for many other industries. The idea of information being available, what the online world is like, that's incredible. I'll tell you, there are a few other industries that will compete for being exciting in the decades ahead. The energy business, some approach will provide cheaper energy that's environmentally friendly. And there's a lot of science, a lot of business. That's a global thing. There will be some great careers there. Medicine, you know. We haven't solved Parkinson's or Alzheimer's or about 20 diseases of these poor countries, and yet we can be sure that we're on track to do that. And so those three industries I think you would do great in. There's many others, but those are the ones that have the strongest appeal to me.
BUFFETT: Find what turns you on. Find what you have a passion for. If somebody said to me when I was getting out of Columbia, you know, that Bill's business was going to be the one that would be exciting, you know, I don't think I'd have done so well. [LAUGHTER] But I knew what turned me on. I had a professor, Ben Graham, I offered to go to work for him for nothing. He said, "You're overpriced." Nonetheless, I went into the business. [APPLAUSE] I will guarantee, you will do well at whatever turns you on. There's no question about that. Don't let anybody else tell you what to do. You figure out what you are doing. [APPLAUSE]"
Businesses that did well in the Great Depression
Businesses that did well in the Great Depression
http://wiki.answers.com/Q/What_businesses_thrived_during_the_Great_Depression
At the very height of the Great Depression (1930-33) hardly any businesses did really well, and success was relative.
As usual in such circumstances it was the 'new' industries that tended to do best, in particular:
•Movies. Almost every town of any size saw the opening of new and bigger cinemas. 'Talkies' added to the popularity of the cinema.
•Radio. In the 1930s radio became widely available to better paid workers.
•Mass produced automobiles. (Not really a new industry, but a 'young' industry).
•Electrical industries. During the 1930s most houses that weren't yet on mains electricity were connected. A huge range of companies did well as a result - ranging from the manufacturers of cables and light switches to those producing electric carpet sweepers and so on.
•At the luxury end of the market, air travel did well - but it was still generally expensive and only for the few.
•The very low interest rates encouraged house building, especially when it was clear that prices had stopped falling.
•In Europe, Germany and then Britain spent huge sum on rearmament from about 1934 onwards.
http://wiki.answers.com/Q/What_businesses_thrived_during_the_Great_Depression
At the very height of the Great Depression (1930-33) hardly any businesses did really well, and success was relative.
As usual in such circumstances it was the 'new' industries that tended to do best, in particular:
•Movies. Almost every town of any size saw the opening of new and bigger cinemas. 'Talkies' added to the popularity of the cinema.
•Radio. In the 1930s radio became widely available to better paid workers.
•Mass produced automobiles. (Not really a new industry, but a 'young' industry).
•Electrical industries. During the 1930s most houses that weren't yet on mains electricity were connected. A huge range of companies did well as a result - ranging from the manufacturers of cables and light switches to those producing electric carpet sweepers and so on.
•At the luxury end of the market, air travel did well - but it was still generally expensive and only for the few.
•The very low interest rates encouraged house building, especially when it was clear that prices had stopped falling.
•In Europe, Germany and then Britain spent huge sum on rearmament from about 1934 onwards.
8 January 2010
Why Great Companies Get Started in the Downturns
Why Great Companies Get Started in the Downturns
http://www.vcconfidential.com/2009/02/why-great-companies-get-started-in-the-downturns.html
I have always been amazed by how many of our success tech stories, as well as Fortune 500 companies, started during drastic down turns. Innovation does not take a holiday, and in fact, thrives during difficult times when pain & need are greatest. While the current downturn is historic, it pails in comparison to the 22 year depression the US experienced from 1873 to 1895, triggered by the Vienna stock market crash. During this extended drought, a large number of Fortune 500's & major corporations started including Eli Lilly, IBM, Merck, Hershey's, Gillette, Alcoa, J&J, Chevron, GE, AT&T, Abbott, Lilly, Coors, Johnson Controls, Bristol-Myers and PPG to name a few.
During the great depression (1929-1939), Texas Instruments, HP, 20th Century Fox and United Technologies all launched. Since much of the Valley's legacy came out of HP, the seeds for the current Silicon Valley were planted while the stock market was crashing nearly 90% and unemployment approached 30%.
Other periods: during the Oil shock & market crash (1973-1976) Microsoft, Genentech & Apple started. The biotech and PC revolutions emerged when the market was down nearly 50% and inflation was racing into double digits. In the crisis of the early 80's (1980-1982) with mortgage rates peaking at nearly 21%, Amgen, Sun, E*Trade, Autodesk, Adobe, BMC, EA and Symantec were created. The question is why does this happen?
Dogs Will Try New Dog Food
When everything is going well, few people or companies want to change behavior, process or vendors. They have little incentive to do so and risk upsetting the apple cart. However, when their hair is on fire, customers & business partners are willing to try new or different approaches to address the pain. So, while some would say that sales cycles stretch out significantly during downturns, I would argue that for new technologies that solve real problems, they compress considerably.
Take Care of Darwin
Leading entrepreneurs have a maniacal focus on efficient use of capital and on fulfilling customer needs (versus nice to have's). During troubled times, these entrepreneurs are even more focused on these. Cash is spent only when absolutely necessary and no to few features are built that aren't demanded by the customer. Those less disciplined will find themselves victim to Darwinian realities. Companies "forged in hell" have a much more durable and advantaged DNA coming out.
Power of an Equity Culture
In these times, firms either bootstrap or fund themselves from modest equity rounds. Credit, other than credit cards and such, is not readily available. Furthermore, the start-up world is an equity culture versus the credit/debt culture of buyouts. So, they are able to survive when banks won't lend and credit lines are non-existent. Equity can be a beautiful thing.
Weak Gazelles are pruned
During boom times, sectors get overfunded and weaker competitors destroy the economics for everyone involved. They create significant noise in the market place, create skeptical customers by overpromising and underdelivering and have undisciplined pricing policies. In hard times, there are many fewer competitors which allow companies to scale quietly during the trough and take significant market share when conditions improve. Furthermore, these firms enjoy rational pricing, higher profitability/margins and lower cost structures given their DNA.
So, yes it is ugly out there and about to get even harder but start-ups are used to hard times and are well suited, if managed properly, to thrive in the downturn and accelerate during the recovery. The trick is to stay alive one day longer than your competitors...
http://www.vcconfidential.com/2009/02/why-great-companies-get-started-in-the-downturns.html
I have always been amazed by how many of our success tech stories, as well as Fortune 500 companies, started during drastic down turns. Innovation does not take a holiday, and in fact, thrives during difficult times when pain & need are greatest. While the current downturn is historic, it pails in comparison to the 22 year depression the US experienced from 1873 to 1895, triggered by the Vienna stock market crash. During this extended drought, a large number of Fortune 500's & major corporations started including Eli Lilly, IBM, Merck, Hershey's, Gillette, Alcoa, J&J, Chevron, GE, AT&T, Abbott, Lilly, Coors, Johnson Controls, Bristol-Myers and PPG to name a few.
During the great depression (1929-1939), Texas Instruments, HP, 20th Century Fox and United Technologies all launched. Since much of the Valley's legacy came out of HP, the seeds for the current Silicon Valley were planted while the stock market was crashing nearly 90% and unemployment approached 30%.
Other periods: during the Oil shock & market crash (1973-1976) Microsoft, Genentech & Apple started. The biotech and PC revolutions emerged when the market was down nearly 50% and inflation was racing into double digits. In the crisis of the early 80's (1980-1982) with mortgage rates peaking at nearly 21%, Amgen, Sun, E*Trade, Autodesk, Adobe, BMC, EA and Symantec were created. The question is why does this happen?
Dogs Will Try New Dog Food
When everything is going well, few people or companies want to change behavior, process or vendors. They have little incentive to do so and risk upsetting the apple cart. However, when their hair is on fire, customers & business partners are willing to try new or different approaches to address the pain. So, while some would say that sales cycles stretch out significantly during downturns, I would argue that for new technologies that solve real problems, they compress considerably.
Take Care of Darwin
Leading entrepreneurs have a maniacal focus on efficient use of capital and on fulfilling customer needs (versus nice to have's). During troubled times, these entrepreneurs are even more focused on these. Cash is spent only when absolutely necessary and no to few features are built that aren't demanded by the customer. Those less disciplined will find themselves victim to Darwinian realities. Companies "forged in hell" have a much more durable and advantaged DNA coming out.
Power of an Equity Culture
In these times, firms either bootstrap or fund themselves from modest equity rounds. Credit, other than credit cards and such, is not readily available. Furthermore, the start-up world is an equity culture versus the credit/debt culture of buyouts. So, they are able to survive when banks won't lend and credit lines are non-existent. Equity can be a beautiful thing.
Weak Gazelles are pruned
During boom times, sectors get overfunded and weaker competitors destroy the economics for everyone involved. They create significant noise in the market place, create skeptical customers by overpromising and underdelivering and have undisciplined pricing policies. In hard times, there are many fewer competitors which allow companies to scale quietly during the trough and take significant market share when conditions improve. Furthermore, these firms enjoy rational pricing, higher profitability/margins and lower cost structures given their DNA.
So, yes it is ugly out there and about to get even harder but start-ups are used to hard times and are well suited, if managed properly, to thrive in the downturn and accelerate during the recovery. The trick is to stay alive one day longer than your competitors...
6 January 2010
The Role of Gold in Times of Monetary Distress: Beyond Gold Fever.
The role of Gold in times of monetary distress is to close the balance of the central bank.
We may quite safely assume that the current trend, where gold gains in price world wide in order to close the balance, primarily of the FED but also of the other central banks will continue for the foreseeable future.
Blogs discussing the economics of monetization and price inflation however, can be found sprouting all over the internet. The current paradigm that includes rising gold prices is slowly becoming mainstream.
We need to start contemplating the future beyond rising gold prices. What will trigger the end of "gold fever", which are the criteria that need to be in place to move beyond creative destruction and towards constructive economics?
We may quite safely assume that the current trend, where gold gains in price world wide in order to close the balance, primarily of the FED but also of the other central banks will continue for the foreseeable future.
Blogs discussing the economics of monetization and price inflation however, can be found sprouting all over the internet. The current paradigm that includes rising gold prices is slowly becoming mainstream.
We need to start contemplating the future beyond rising gold prices. What will trigger the end of "gold fever", which are the criteria that need to be in place to move beyond creative destruction and towards constructive economics?
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