Barron’s 2018 Roundtable – Part 1 and 2

Here’s the full stack from the Barron’s Round Table. It’s a great read to start the year. The first part focus on the economy and the second part are the picks. This is a long read, so have a good weekend. Enjoy!

Picks:

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Crazy Bitcoin Stories

*None of what you are about to read is investment advice of any kind. You shouldn’t buy any cryptocurrency without deep personal research and consideration. Again, this is not investment recommendations.

Euphoria: is an affective state in which a person experiences pleasure or excitement and intense feelings of well-being and happiness.

Economic Bubble: When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely (at which point the bubble “bursts”).

My last Bitcoin/blockchain post (Bitcoin Mania) has received a lot of attention. I talked about the forces that are fueling Bitcoins to record level. For many Bitcoin seems the easy path to riches. This is a pure sign of a bubble. However a bubble doesn’t pop just because you spotted one. You need a catalyst that will trigger the crash. Before we get to that I want to mention a few examples of pure irrational behavior related to Bitcoins, just to get a sense of how absurd the market can be. You can replace the word Bitcoin with dotcom bubble, 2007 real estate bubble, or the 1634 Tulip bubble if you are old enough. The overvalued asset might be different but the composition of the bubble is the same.

At the moment, there’s only one way you can make money with Bitcoins; you need somebody to buy it at a higher price than you (Greater Fool Theory). I buy an overvalued asset with the anticipation of selling it to other speculators (the greater fools) at a much higher price. Basically you need somebody more stupid than you.

Here are a few examples of extravagance:

Australian SBS News: Risky business?: How a pole dancing instructor found success with Bitcoin

Pole dancing instructor Dee Heath is riding the surge with her fitness business in western Sydney. She has spent $5,800 on Bitcoin since July and has more than tripled her investment.

“Look, I love pole dancing but lately my passion has definitely been Bitcoin,” she told SBS News.

She is now dedicating her time informing would-be Bitcoin investors about navigating the world of cryptocurrencies […]

“The good thing is when it goes down, you can buy some more, and you know it’s going to go up at some point.”

The message is Bitcoins = Path to Riches. If an Australian pole dancer is making it rain, you can too! Nobody wants to be the poor pole dancer. Expect more pole dancers to get to fuel this bubble before less. In behavior finance this phenomenon is called herding. We mimic the behavior of our surrounding to feel better and to fit in. It makes us feel more secure because everybody else is doing it. In the movie The Big Short, Steve Carrels figures out there’s a bubble in the housing market after interviewing a stripper in Florida. It turns out all her strippers friends are on it too (Youtube NSFW):

In finance portfolio managers have very similar investments because they are compensated on their performance relative to peers. You don’t want to explain to your investors every three months why hot trendy stock ABC is not in your portfolio like everybody else.

While I’m on the topic of strippers, there’s now the world’s first Bitcoin strip club, The Legends Room in Las Vegas. According to the website The Legends Room is a world class Las Vegas gentlemen’s cabaret re-imagined using blockchain technology. The “club” has its own virtual currency and feature Bitcoin ATMs within the club. Instead of pulling out cash, you’re literally buying digital coins. You put money into the “ATM,” hold up your phone, and the machine sends bitcoins directly to your mobile device. Now there’s an army of adult entertainers getting a degree in cryptocurrency.

_40P7020.dng
The Legend Club Bitcoin ATM

Here’s another example that brings back memories of the dotcom bubble when any old company could slap .com on the end of their name and see their stock levitate.

Failed biotech Bioptix Inc recently changed its name to Riot Blockchain Inc. (RIOT). Below is the stock chart since the change:

Rioit

RIOT is not alone. Other companies have shown that a foray into the cryptocurrency space is often rewarded by investors, at least initially, as the astronomical increase in the value of virtual coins has lured everyone from big banks to startups. This trend will also get worse before it gets better.

There are strange stories too such as this one: Rare Pepe Blockchain Cards Have Produced More Value Than Most ICOs. I’m still trying to wrap by head around this. Rare Pepe is based on an internet meme called Pepe The Frog that has been around since 2005 and became popular during the 2016 election. Over the course of 2017, there have been a lot of blockchain projects, and the Initial Coin Offering (ICO) craze has been off the charts. Most ICOs are pump and dump scheme, but this Rare Pepe one is successful for now. Rarepepes are digital trading cards.

RarePepe-Cards
Rare cards are going for a few thousands of dollars. One has been listed for $22k.

These are some of the few examples I came across since researching the crypto space.

Like I previously explained, my guess is that Bitcoins is most likely to go up before it pops. There will be more people like the Australian pole dancer getting involve before they are less. Easy money is addictive and contagious. This will get bigger before it gets smaller. Everybody is talking about Bitcoins but only a minority has managed to dip their toe in the action. It will eventually get main stream. The fear of missing out will drive people to get involved. Eventually the government will have to step in and that’s when the party is over. It will be particularly damaging when it burst because there were no assets underpinning its price.

Bitcoin Mania

Bitcoins
These pictures of Bitcoins are misleading. There are no such thing as physical Bitcoin coins.

*None of what you are about to read is investment advice of any kind. You shouldn’t buy any cryptocurrency without deep personal research and consideration. Again, this is not investment recommendations.

This is my second post on Bitcoin and cryptocurrencies. I wrote this one, Good Blockchain Primer, back in July.

For someone who has lived through the dotcom bubble the madness currently unfolding in the crypto space is just plain breathtaking. It is quite awe inspiring to see people make the exact same mistakes they made 17 years ago. Of course, today’s investors are likely different people who, for the most part, have not lived through the dotcom bubble. A lot of people who never bought own an investment are fueling this. They also have no experience whatsoever with losing money in investments. And we know that people are risk averse. That means people are more sensitive to losing money than they are to gains.

Back in 1999 and 2000 the stock market went crazy about anything related to the internet. Everyone was taking part — institutions, high net worth investors and your local retail guy who worked at Walmart or drove a cab. As a matter of fact cab drivers handed out tips of the next hot IPO to their riders. Most IPOs only needed a business idea that was vaguely related to the internet to achieve success.

Bitcoin is really about freedom. Bitcoin is the battle of ideas. It forces the issue of whether people should be as free in their handling of money as they are in their handling of speech or religion. I’ve been following the Bitcoin story from a distance for a couple years. My attitude on Bitcoin has shifted over time. At first I dismissed it. I didn’t see the value in it. Like so many other people, I laughed at it. I ignored it. I never thought it had a chance. But it survived. It thrived. It exploded. Many people like to ignore the irrefutable fact that Bitcoin is still here. The more I read on the subject of Bitcoin and the blockchain the more I realize how it’s a beautiful idea. But it still doesn’t change the fact that you can lose money if you buy cryptocurrencies or Initial Coin Offerings (ICOs).

At this stage Bitcoin’s nature is still very speculative. What’s very interesting is the technology behind the bitcoin, the blockchain. The blockchain technology is more than an evolution. It’s a way of permanently recording and sharing data and transactions without any central authority. The blockchain is a massive open decentralized digital ledger. It is more reliable and secure than a regular centralized ledger.  It cuts the middleman out (brokers, bankers, exchanges etc…). Blockchains can be used to verify records, prove rights, store identities, and digitally certify almost anything including physical and non-physical assets. And again, you don’t need banks, governments, policy makers, or companies in the middle. I don’t know what is going to happen to Bitcoin but the blockchain is here to stay. It’s already being tested in different industries like finance. Major U.S. banks  like JPMorgan Chase and Goldman Sachs just completed a test managed by blockchain startup Axoni to kept track of the swaps contracts after they were executed, recording things like amendments or termination of the deals, stock splits and dividends, and achieved a “100 percent success rate,” Axoni said in a statement.

Even though my opinion on Bitcoin has shifted (progress?) over time, I still don’t think it’s the Holy Grail. I don’t know what is going to happen to Bitcoin but all the innovation and growth that it spurs is here to stay. Bitcoin is the tip of the ice berg. The blockchain is everything under it. Bitcoin also reminds me of Netscape. Of course the Netscape story didn’t end well but what is undeniable is what Netscape did for the progress of the Internet. Or think what Napster did for music. Naspter is not around anymore but its contribution to the way we listen today is undeniable.

Buying Bitcoins as an Investment Trade?

Buying Bitcoins is not an investment. It’s a gamble. To me it’s like going to the casino and betting on red, except I don’t like going to the casino. Can’t remember last time I did. I find it very stupid and I guess this is not very different. Except buying bitcoins is more fun than betting on red at the casino. If you are going to get involved in this, use your play money (money you can lose, don’t bet the farm).

A lot of respected people and people that I follow have strong opinions on the topic. Some see the genius in Bitcoins and blockchains and other think its absolute farce and that one day a lot of people will get hurt once the bubble pops. There are elements of truth on both sides; Bitcoins intellectually makes sense but speculating on price can fire-back on you big time.

Jamie Dimon from JPMorgan famously thrashed Bitcoins. Here’s a few things he said:

Jamie Dimon
Bloomberg

At the same time, Mr. Dimon is betting big on the technology behind ‘fraud’ bitcoin by launching a blockchain-based system with two other banks to reduce global payment transaction speeds “from weeks to hours.”  He’s also quoted saying:

“The blockchain is a technology which is a good technology. We actually use it. It will be useful in a lot of different things,” he said. “God bless the blockchain.”

Today, despite his views, it was reported that JPMorgan reportedly getting into bitcoin futures trading.

Goldman Sachs CEO Lloyd Blankfein is more neutral on Bitcoin:

The oracle of Omaha, Warren Buffett, said in 2014:

“Stay away from it. It’s a mirage basically. It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?” I hope bitcoin becomes a better way to do it. But you can replicate it a bunch of different ways. The idea that it [bitcoin] has some huge intrinsic value is just a joke in my view.”

Bitcoin Mania

What is fueling this bitcoin mania? Right now there are two major forces: Driven by greed and fear. These driving forces that are not going away anytime soon:

  • Greed is here to stay. Sometimes the cause for higher prices is higher prices.
  • Speculation is not going away. The idea of earning easy money really quickly is contagious. It can also mess with your mind. A parent recently told me that his teenage kid made $800 “investing” in a week betting on cryptocurrencies. Making easy money doing nothing can really screw up a person, especially at this early stage. Now how do you get the  kid to get a minimum wage summer job?
  • The fear of missing out on future gains is a real pressure.
  • Low interest rates. Do I need to point out how much money you are getting at the bank or on your bonds?
  • Hardcore believers in the Bitcoin currency are not going away. This is is very faith based investment (like goldbug investors). A lot of people don’t believe in government issued currency. There is also a deep mistrust of the banking system. The scars of the Financial Crisis are still fresh.
  • Remittance payments are not going away. Bitcoin is about creating a world where transactions can move globally for free. It’s about freedom.
  • For money laundering, bitcoin is a gem.
  • Bitcoin as a mean to store value. Or a hedge against the non-utility and failure of currencies. Look at Venezuela or Zimbabwe’s currency. Or India when the government woke up one morning and said your money is gone with demonetization.
  • Oppressing regimes, capital control, government confiscating money is still a thing. Bitcoins if properly can’t be confiscated and that has tremendous value for a lot of people around the world. If you are running away from an oppressive regime, Bitcoin is also easier to transfer across borders than gold or suitcases full of cash.
  • The adoption of Bitcoins as an asset class over time will growth as more people learn about it (going mainstream).
  • The big money is only starting to pay attention.

Because Bitcoin is still new, it’s in a state of flux everywhere. One force that could squash bitcoin is the government. The government is the big cloud over this. Government could wake up and squash this, like China did with ICOs. Or it could put conditions in place for its adoption and growth, like Japan. But world governments are playing catch up here. They are still trying to figure out what it is still all about. We all are in a sense. How do you regulate cryptocurrencies without stifling its innovation and growth? The one thing governments are really after is money laundering which contributes to the facilitation of all kind of horrific crime like drug trafficking and terrorism. The government is caught between allowing money laundering one hand and permitting innovation in the other. My opinion is that something as powerful as Bitcoin to escape regulations entirely is naïve. I can’t imagine Bitcoin going mainstream without some kind of regulator weighting on it. The likeliest scenario is that the two elephants in the room (US, EU) issue some sort of regulatory framework for ICOs and cryptoassets in general. Don’t you go to prison if you trade securities that are not properly following regulation? The crypto place is filled with some undesirable characters. There are a lot of poseurs and scammers too. There are a lot of conflicts of interest, self-serving hype, and obfuscation. Because it’s the wild wild west, are regulations going to bring a bigger sense of confidence to Bitcoins?

Conclusion

It’s really easy to dismiss Bitcoin as a fad, or Ponzi scheme. It’s not backed by gold. You don’t have equity or any ownership rights like a stock. It’s not supported by the full faith of the government. You cannot put your hands on it. It’s just 0s and 1s to the naked eye. It’s complicated. It was something born out of geeks, computer scientists, and gamer. There is no cash flow. No dividends. No annual report or earning calls. It’s not even useful as jewelry like gold. How can you take this idea seriously? Etc…On the other hand, you have a world with Wall-Street, governments like Washington and North Korea, central banks…so who do you trust?

Where is this Bitcoin story going? I have no clue. It’s like trying to predict where the Internet would be like back in 1994. My suggestion is go ahead and learn about it. Buy a little bit with play money, not the farm. Why? Because it’s fun.  By having skin in the game you will learn a lot more. You don’t have to buy a whole bitcoin. You can be part of this very interesting story. Maybe you will make a little bit of money but be aware that you might lose it. Again this is not an investment advice. You can buy fractions of bitcoins. You can buy $10 worth of bitcoins. Also be aware that you won’t get rich with it. The fortunes have already been made with the early adopters. The only way to make money with Bitcoin is to have somebody else buy it at a more expensive price than you bought it at.

Again let me repeat: None of what you are about to read is investment advice of any kind. You shouldn’t buy any cryptocurrency without deep personal research and consideration. Again, this is not investment recommendations.

If you want to learn more here are some interesting links:

 

Interview: Investing With A Margin Of Safety

I was honored when the Editors of Seeking Alpha asked me if I would like to be interviewed for their PRO Weekly Digest. PRO is Seeking Alpha’s research platform for serious investors looking to get better ideas. The interview was far ranging and discussed such topics as: business valuation and the CBV, my investment approach, past mistakes, and a review of old and new stock ideas.

To read the interview at its original source, please click here.

It’s also up on the blog, here.

Below is a copy of the interview:

PRO Weekly Digest: Investing With A Margin Of Safety With Brian Langis

Summary

  • Being a Chartered Business Valuator, why having a high IQ is not enough and how to find underfollowed foreign companies are topics discussed, and he makes the bullish case for ECN Capital.

Welcome to the latest issue of the PRO Weekly Digest. Every Saturday for Seeking Alpha PRO subscribers and Sunday for all other Seeking Alpha users, we publish highlights from our PRO coverage as well as feature interviews and other notable goings-on with SA PRO. Comment below or email us at pro-editors@seekingalpha.com to let us know what you think. Find past editions here.

Feature interview

Brian Langis, a long-time Seeking Alpha contributor, manages a private investment company and is a Chartered Business Valuator (CBV). He employs a contrarian/value strategy with notable calls including Moleskine, NTELOS (NASDAQ:NTLS) and Dollarama (OTC:DLMAF). We emailed with Brian about the extra work (and reward) of international investing, the first place he looks when researching a company and how losing money can be the best education.

Seeking Alpha: Can you discuss your work as a Chartered Business Valuator (CBV), the designation itself and how this expertise applies to your personal investing?

Brian Langis: I was always interested in business and how the world functions. I like history, psychology, economics, science and so on. These interests led me to investing. And in investing, it’s all about figuring out the intrinsic value of an asset and its relation to price. So I had to learn how to value different businesses and assets. I like Warren Buffett’s style of valuation. That’s played into the idea of completing the CBV.

As you mentioned I’m a CBV and a lot of readers are probably unfamiliar with this three letter designation. The CBV designation is the premier credential for professional business valuators in Canada. There’s a national body (the CICBV), a code of ethics and professional standards to follow. It’s been around since the 1970s, when the capital gain tax was introduced in Canada. As a CBV, I have the knowledge to quantify the value of a business or assets. I’m trained to put a value not only on business tangibles, but also the intangibles such as intellectual property and key patents, which is taking more and more space on the balance sheet. With publicly traded equities, it’s much easier to determine the value of a company, but in the private-equity sector it’s more complicated. I worked in the investment business, but most CBVs find themselves working in corporate finance, taxation, valuation for financial reporting, or litigation. Also a CBV is very practical if you are involved in M&A.

Everybody can learn business valuation, but for me having credibility is important. It can take 3-4 years of studying on top of a four-year degree to get it done. The CBV is very specialized and very useful. The CBV is more about learning valuation procedures than finance theory. If you want to get very deep into equity valuation, the CBV is a good designation. If people are interested in completing the CBV, having some background in accounting would definitely make life easier. Some work experience would also help.

In Canada the CBV is well respected. However the CBV lacks recognition outside of Canada. Unlike the CFA, the CBV is not well known outside of Canada. The business valuation practice is fragmented by countries. The U.S., U.K., and Australia each have their own designation, governing body and practice standards vary widely. But there’s currently a process to harmonize and to implement universally accepted standards for the valuation of assets across the world.

SA: To follow up, which valuation methodologies do you find most/least useful or is the usefulness determined by the type of asset you are valuing?

BL: Unfortunately, there’s no “best” method of valuing a business. There’s no secret formula. There’s no one-size-fits-all investment strategy that I can give you. Trying to come up with a satisfactory formula that would identify undervalued shares in the stock market with a reasonable degree of safety and consistency will lead you down a series of blind alleys. Knowing what an asset is worth and what determines that value is more an art than science. It’s not supposed to be easy. If it was easy everybody would be rich doing it, right? I made and lost money buying companies trading at 6x P/E and 25x P/E. It turns out that stocks trading at 6x P/E can go down to 4x P/E. Continue reading “Interview: Investing With A Margin Of Safety”

Are Financial Advisors Professionals or Salesman?

Are financial advisors professionals like lawyers and doctors? Or is it a mere salesmanship gig like a used car dealer or insurance salesman? As a former investment advisor I do have some input.

The industry struggle with that question because it operates in an obvious conflict of interest. Advisors have a fiduciary duty to put their client first and to look after their best interest. This comes in conflict with how the advisor is getting paid and his duty to the firm/bank.  Remember that financial advisor doesn’t get paid for giving advices. Advices and retirement plan are free.  A financial advisor gets compensated by selling products that has fees. When markets are down, it is not a win for the client because they lose money.  When markets are down and the clients are losing money, the financial advisor and the financial institution still get paid.  Maybe they get paid less but they still get paid.

Financial advisors see themselves as professionals but have an image problem. It doesn’t help that the industry aggressively lobbied for the lower “suitability” standard, with less transparency and, of course, higher — often much higher — fees. It also doesn’t help that the bar to entry is very low. The exam is way too easy and banks are pushing anybody to take it so they can have more people on staff selling their products.  When I broke into the business they required everybody in the office (future financial advisors and support staff) to pass the exam because they didn’t want problem with regulators. Well I can’t remember anybody not passing. As a result the firm had a whole floor of people ready to sell mutual funds. The problem for the client is that it’s too hard to distinguish between a real professional financial advisor versus the guy that decided to pass the exam because he heard the money is good.  For example, in hockey you have the major, senior and amateur league. Your talent decides what league you are in. In the investment business everybody is in the same league, good and bad, wearing the same suit and credentials. My suggestion is that if the industry wants to be taken more seriously and respected they should have higher standards. I’m sure professional financial advisors would welcome that.

Should advisers do what a client wants, even when the adviser knows it is not in the client’s best interests? If you don’t, he might take his business elsewhere. After all you are paid by the client and he won’t hesitate remembering you that it’s his money. You have to say “no” to your client when he insists on a service that you know defies common sense and works against his or her long-term interest. If this means that you will lose an account, so be it. It’s better to lose some short-term business than having to face career ending problems later on. And that “later” might come pretty fast once Mr. Client sees his net worth meltdown because you didn’t protect him. You failed at being a professional. You failed at looking after your client’s best long-term interest. That money that was supposed to be there for retirement, a vacation, the children’s education or project xyz is now gone. You were supposed to protect him and you didn’t. A financial professional should not be an order-taker or clerk; they should be trained professionals working on behalf of a client’s best interest. Even if that means saying no to clients.

To prevent that from happening I used to tell my client to take 10% of this money and open self-brokerage account. I never had a problem with that suggestion. Everybody has a little bit of a gambling side inside them and that way the need for action is being feed. Go enjoy an expensive gamble but leave your retirement out of it. So take 10%, have fun and good luck. After a while, if there’s any money left, it comes back.

There seem to be a false perception that advisors will push their client into taking on more risk than is prudent, buying the hot new thing, using excess leverage, catching the latest IPOs, or following the advice of pundits or talking heads. This perception is false. There might have been a time when business was conducted that way but it’s hasn’t been the case for a very long time. I used to be an advisor and portfolios were very plain vanilla boring. A mix of equity and bond funds, that’s it. The reality was that it was the client that kept pursuing the latest investment flavor of the month. It was my job to say no to my client because pursuing the latest media fixation was not in his best interest. My job was to protect the client from himself. That’s the main role of the financial advisor.

Not every client is the right fit.  Usually if you have problems later on it’s because something didn’t click at the beginning of the relationship. Either you didn’t adequately explain your philosophy and approach or you signed the client just to get business.  Usually it will cost you more money and headaches in the long run and nobody will be happy out of it.

For Mr. Client reading this, no financial advisor, or anybody in the world, has any idea what world market is going to do best next. Nobody! If Mr. Advisor stars yapping away about where interest rates are going and market timing, it’s better that you take your money elsewhere. The reason why I managed other people’s money it’s because I didn’t know what is going to happen next.

The answer to the question, are financial advisor professionals or salesman, is really comes down to how the advisor sees himself.  This article may appear to be tough on financial advisors. There are some good financial advisors out there but unfortunately the bad ones really spoil the industry.

Seth Klarman 1991 Barron’s Interview

Below is a rare 1991 Barron’s interview (pdf) with Seth Klarman from the Baupost Group. He’s also the author of the out of print Margin of Safety, which a copy sells for over $1,000.

Credits to “The Odd Lot” from oddlotinvest.wordpress.com/. For some reason the website is no longer available.

Barron’s 1991 interview with Seth Klarman

A Better Cup Of Coffee Right Now

Smiley Coffee

Yesterday I wrote a post about quitting coffee. Today I’m sharing with you advice on how to have a better cup of coffee. You don’t have to have a sophisticated palate or a barista to notice the difference. You can tell because of the magnitude.

We love our coffee. Coffee is a huge part of our daily life ritual and culture (think about how much prime real estate is taken over by Starbucks and Tim Hortons). At the same time, you would think that the average coffee drinker would be a connoisseur about something that they put in their body so much but the reality is that we know so little about our coffee.

Coffee, on its surface, is an incredibly simple beverage: just add hot water to ground up roasted beans. Why complicate it? To have an excellent cup of coffee. You can immediately have a better cup of coffee with these few simple easy tips. First a few comments on coffee machines. A good machine definitely helps. A good machine doesn’t mean it has to be expensive. You can have one of the best cup of coffee in the world with the AreoPress (US$38 on Amazon). Also, very importantly, a good machine won’t turn crappy coffee into a great cup. Garbage in, garbage out. There’s nothing you can do to make it taste good. Now with that out of the way, here’s how you can improve your coffee regardless of the machine.

1- Buy organic whole beans. You might have to fork over a couple extra dollar more but the taste is significantly better. It’s not just a “health” thing or a socially conscious decision. Organic coffee beans taste much better. If you want to take it a notch higher, go with Arabica coffee, its the better coffee plant. The coffee you drink everyday is most likely coming from Robusta coffee plants. If you want to take it another notch higher, aim for beans that within a month of roast date. By the way coffee beans do go bad.

2- Grind your own beans before making each cup. It requires a little extra work but again it’s all about enhancing your coffee. This ensures that the oils and flavors end up in your drink and not in the air. Don’t buy the cheapest grinder

3- Use fresh cold water. Coffee is mostly water but we seem to neglect it. The better the water, the better the cup. The ideal water for coffee is soft water which contains less minerals, rather than mineral rich hard water. This last sentence is now being debated. Generally speaking, soft water is better for coffee. However, if you want to go crazy, some hard water has been known to produce a better cup of coffee. It comes down to knowing which minerals makes it hard. Magnesium helps make the coffee taste better. Bicarbonates does not. It comes down to knowing your water.

4- The ratio of coffee to water. The key is to start with the golden ratio of 17.42 units of water to 1 unit of coffee. It’s a starting point then adjust to taste. A unit could be grams, ounces, whatever you want. Basically 15 grams of coffee requires 261 gram of water. You can be more precise by using weight—instead of volume—to measure your coffee and water. Most of the time people don’t put enough coffee.

Enjoy your next cup of coffee!

Coffee Divorce

*Updated Friday January 29, 2015 with more info.

That’s it. It’s over between me and coffee. Me and coffee have officially been broken up for almost a full month. I’ve been faithful by not messing around with any other source of caffeine (and no decaf, it’s weird and still considered cheating in my book). I have been juggling with the idea of quitting coffee for a couple months and that now my baby is finally doing her nights, it definitely help make the hard decision. So I was “using” coffee to get through.

Why do such a cruel thing to myself? I did it for me. I wanted more energy. I also don’t like the idea of being “addicted” to anything. The motivation also came from a friend of mine, a more intense coffee drinker than me I just should note, who has quit coffee and as a result claims he has way more energy than when he was on coffee. I heard that from other folks as well. I had to test it myself.

I should give you a little background on my coffee habit. I’ve been a daily drinker for 9 years (same amount of time that I’ve been with my spouse). I average two cups a day, occasionally three. One or two in the morning and one after lunch. I’m also not one of these grumpy people in the morning because they didn’t have their cup of coffee.  I love my coffee. I like waking up the morning and making it. It’s almost like a little ritual and there’s pleasure in doing it. Those who visit my blog probably read a couple posts on coffee. They have been among my most popular posts. I think people visit the blog more for the coffee posts and than the investment stuff. I’m one of those coffee “amateur”. I have a few coffee/espresso machines, grind my own beans, shop for organic beans etc… I’m that coffee guy. As many coffee lovers know, the idea of quitting coffee can be torturing.

The verdict: It has been 28 days and I feel awesome. The first benefit I noticed is the quality of my sleep. Now I have these very long colorful dreams. it feels like the dream never stops.  It’s definitely sign that I’m sleeping more deeply. The first week is the roughest but it gradually gets better. The first three days I didn’t notice anything different. Then I think on the fourth day that’s when my  body realized that the good stuff wasn’t coming in anymore. I got hit by random fatigue attack. My thinking was at times blurry and I suffered from the lack of concentration. So my start to 2016 wasn’t the most productive. If you Google a list of symptoms, I had about half of them. And fortunately I didn’t get any headaches, and that’s a big one and a deal breaker for a lot people. Four weeks in I can testify that I have more energy than before and it’s going to get marginally better. We know that non-coffee drinker don’t need coffee to have energy. We drink coffee to get that “natural” energy level, whatever that might be, and not to be above.

After a couple weeks the benefits outweigh the cost. Quitting coffee is an experiment that’s working well  The break up was fine for the most part. There were a few instances where I really wanted a cup, like the time I had breakfast at a restaurant. It feels really weird not have a coffee when reading your newspaper. I could have ordered decaf so I could have the complete experience but I didn’t. Coffee and a newspaper. They go together so well. I’m not a smoker but when a smoker says they need a cigarette with their drink, I can sort of relate to that now. They call themselves social smokers. I haven’t banned coffee from my life. I plan on drinking the occasional cup sometime the future but I don’t plan on reintroducing coffee in my daily diet. I will treat coffee like alcohol, I will have it occasionally for pleasure purposes. Maybe on weekends or when I read the newspaper. I guess you can call me a “social” coffee drinker.

 

2015 – The Year Nothing Worked, Especially Hedge Funds

2015 was the year where nothing really worked. Stocks, bonds, commodities, foreign investments are all down. Cash went no where. There wasn’t any place to hide. The only way you could have made money is by holding U.S. dollars and shorting the market. If you held the “FANGs” (Facebook, Apple, Netflix, Google) you made some money. However it’s not exactly what I call a sound investment strategy. With two trading days in 2016 in the books, the FANGS are slumping with everything else. Yet, don’t divest your portfolio to buy these four stocks. They are not the holy grail.

Do you remember your favorite financial advisor mentioning you need a diversified portfolio? Something about asset allocation? When one market is slumping it’s alliright because you have another asset class that’s thriving to balance things out.  Well that didn’t work out too well in 2015.

Below is a table of the performance of some of the main indexes. The crazy thing is that the market was hitting new highs just in May 2015.

2015 asset returns
Source: Barron’s, Bloomberg

Right now hedge fund performance are retaining my attention. Hedge funds used to be the sexy thing. Hedge funds was the go to place for new graduates. After many disappointing years and the financial sector getting clobbered in the media, working at a hedge fund has loss its cachet. Now it’s fashionable to work at tech companies and start-ups. Several well-known funds closed their doors in 2015 as big bets on oil went bust and returns sank. Three Tiger cubs seed funds, JAT Capital Management, and the macro fund of Fortress Investment Group  were among some of the funds that closed shop.

Remember that hedge funds were promoted as investment vehicles that suppose to make money in any markets, bear or bull. Hedge funds also aim to make money even in volatile conditions. Because of that they were able to justify  their high fees. They have historically charged 2% of assets under management and 20% of any profits. Of course their are cheaper and more expensive funds.

The most well-known names in the hedge fund business, considered investment geniuses, such as Bill Ackman of Pershing Square Capital Management and David Einhorn of Greenlight Capital have been crushed, both down around 20%. The depth of their losses is stunning. Bill Last year Bill Ackman was prompted as the next Warren Buffett and now he has a lot of explaining to do to his shareholders. While on the subject of Buffett, his Berkshire Hathaway (BRK) investment machine also did worst than the market.

If the crème de la crème can’t beat the market, who can? Below is a table the hedge fund performance since the financial crisis. To their credits, they performed much better than the market in the 2008 crisis but hasn’t been able to repeat that performance.

Hedge funds performance

To defend themselves, some managers claim that hedge funds never had the objective of beating stock or bond indices. Rather, the role of hedge funds is to provide diversification (uncorrelated returns) when added to portfolios of stocks and bonds and other assets. Also it’s unfair to compare their performance to the equity market because some hedge funds invest in other assets.

In 2016, hedge funds will have a lot of work to do to gain back investor confidence.

Interesting Reads

-1x-1Here are a couple links of material I’ve been reading lately.

Lessons from attending a Berkshire Hathaway shareholder meeting by Mark Bidwell

Jim Murray, author of the annual Whisky Bible, nominated the Crown Royal Northern Harvest Rye 2016 whisky of the year!

NFL Owner Stan Kroenke Wants to Take Over L.A.

Most of What You Learned in Econ 101 Is Wrong

Letter to My Younger Self by Bryan Trottier

Dark Matter and the Dinosaurs by Lisa Randall